The Fed and its black hole

The black hole? The collapsing bubble economy produced by decades of Reaganomic policy and finance-friendly capitalism. This shift was political in nature, as Michael Hudson suggests:

Governments have replaced industrial growth with purely financial wealth creation in the form of a real estate and stock market bubble. This has turned the economic universe upside-down relative to what the classical writers expected to result from the technological progress unleashed by the Industrial Revolution and its parallel agricultural, commercial and financial revolutions. Property and credit have become costs instead of a benefit, institutional forms of rent- and interest-extracting overhead rather than helpful inputs.

The fix, according to Mike Whitney, to the mess created by this malignant state of affairs requires wage increases for the nation's 'LOFers' or Low Income Families! According to Whitney:

A strong, resilient economy, that can withstand the periodic buffeting of cyclical downturns, must be built on a rock-solid foundation of wages that keep pace with production. If wages stagnate, as they have for the last 30 years, the only way a consumer-driven economy can grow is through the expansion of personal debt, which isn't so hot in the long run [emphasis added].

Productivity gains must result in wage gains for the many, which is to say, these gains will generate effective demand for the goods produced by this increasingly productive economy. Unfortunately:

The Fed and its Wall Street colleagues have reworked the economy in a way that diverts energy from productive activity to myriad credit-enhancing scams that create an inherently unstable financial system. Even now, with manufacturing in tatters, consumer spending at its nadir and factories hemorrhaging jobs at a Depression-era pace; Bernanke is still trying to keep the teetering banking giants propped up and out of Chapter 11. It's a fool's errand. The economy needs to fixed from the bottom-up not the top-down; that's just throwing money down a rathole.

Whitney concludes by advocating the improbable:

If the Fed was serious about fulfilling its mandate, it would be looking for ways to create a living wage for all workers so that opportunity is more than just an empty slogan. Better still, Bernanke should abandon his credit-generating enterprise altogether and support the movement to strengthen unions so that wages can keep pace with production. That's the best bailout plan yet.

No comments: