Posts Tagged ‘economic’

from the Center for Popular Economics

Whose Recovery?

Posted by  on February 18th, 2014

by Jerry Friedman

Whose Recovery

There is a story that when the late union leader Walter Reuther was given a tour of a GM plant, a manager introduced him to a set of the company’s new robots.  The manager challenged Reuther to say how he would organize the robots into the UAW.  The union leader supposedly responded by asking: how will General Motors sell cars to the robots?  While American unions have failed to organize the workers in the new economy’s factories, its capitalists seem to have figured out a good answer to Reuther’s question.

We shouldn’t be surprised that conservative politicians and orthodox economists are calling for the Federal Reserve to end its program of monetary ease and for the Federal government to end its program of extended unemployment insurance.  Believing in Say’s Law and the virtues of unregulated markets, they have never been comfortable with state action to help the unemployed; instead, they have long argued that the only proper role for government is to protect price stability and the integrity of banking system.

What should surprise us is that so few in the business community are pushing back against these ideologues in support of policies to bolster economic growth and employment.  Robert Reich asks whether capitalists and managers have forgotten the basic Fordist compromise, in which businesses rely on affluent workers to consume their products?[1]  If a rising tide lifts all boats, don’t capitalists benefit when unemployment falls and workers have more to spend?  And shouldn’t they support policies that bring the tide in?

They don’t because American capitalists have learned to profit from recession.  They have so well insulated their economic fortunes from the rest of us, that they no longer depend on rising wages and growing effective demand to maintain profitability.  The “recovery” from the Great Recession of 2008 has been different from past recoveries, because it has been led by profits, which have grown even though economic growth has been relatively slow, and employment and wages have stagnated.  Four years into the “recovery,” the GDP has grown at an anemic 2.4% per annum, the slowest growth rate of any post-war recovery and less than half that of the recovery in the 1960s.  Since the recession bottomed out in 2009, job creation has been only a third the rate of past recoveries.  Compared with past recoveries, this one is short 8 million jobs and the employment ratio, the share of the adult population with jobs, has fallen back to the level of the early 1970s, down 5 percentage points from 2008.

Those who call for the Federal Reserve to reverse course and urge Congress to cut programs to help the jobless cite the declining unemployment rate, which is down a third from its peak in 2009.  While declining unemployment is a good thing, much of the decline in the unemployment rate is because 10 million people have left the labor force.  The number of discouraged workers remains above its late 2009 level, while the number of unemployed workers per job opening has fallen only slightly from its 2009 peak (see Figure 1).  With the weight of unemployed and underemployed workers on the job market, wages have remained stagnant in this recovery despite rising productivity, continuing a decades-long trend.

Despite slow economic growth, little job creation, and stagnant wages, some parts of the economy have boomed: the stock market and corporate profits.  After dramatic drops early in the recession, the Dow Jones Industrial Average has risen to new highs, growing in real terms significantly faster than in past recoveries.  While there may be some speculative element to the run-up in the Dow, it is well-supported by corporate profits, which have recovered fully from a sharp fall when the recession began to renew a 30 year climb (see Figure 2).

At least for now, American capitalists have solved the problem that bedeviled their Fordist forebears.  They have found ways to profit even when their workers cannot buy their stuff.  Since 2009, inflation-adjusted spending by the top 5% has risen 17 percent, compared with an anemic 1 percent among the rest.[2]  While Sears and J.C. Penney drift towards bankruptcy, Nordstrom and other luxury brands flourish.  Rather than depending on sales to working-class and middle-class consumers American corporations are doing very well selling to rich consumers, here and abroad.  Rather than promising workers high wages to ensure productivity, they maintain labor discipline through fear.

It seems that capitalists and managers have found answer to Reuther’s question. Business can’t sell stuff to robots, but they don’t need to sell stuff to workers either.

[1] “Why The Three Biggest Economic Lessons Were Forgotten,” accessed February 13, 2014,

[2] Nelson D. Schwartz, “The Middle Class Is Steadily Eroding. Just Ask the Business World.,” The New York Times, February 2, 2014,; Barry Z. Cynamon and Steven M. Fazzari, Inequality, the Great Recession, and Slow Recovery, SSRN Scholarly Paper (Rochester, NY: Social Science Research Network, January 23, 2014),

It’s amazing just how utterly debunked mainstream economics is. There are lots of us (economists) who are not charlatans, quacks, and clergymen but almost all the respectable mainstream ivy-leaguers are.

I open my principles of economics courses by stating that at least 80% of the familiar standard neo-classical “economics” textbook is BS and that this is not my opinion but a scientific observation.


I wanted to chime in very briefly with a little rant about the lessons learned from the most recent crisis:
(1) A good number of economists from the left and the right DID predict this would happen and have also discussed in details the chronic problems the US economy has developed over the past few decades. This large minority of economists are often referred to as heterodox (as opposed to the orthodox/mainstream) views heard on the media and in traditional textbooks). So the notion that this crisis was a “surprise” or that “nobody could have predicted” it is BS spewed by leading mainstream economists who are defending their intellectually bankrupt views that have brought them their success and fortunes.
(2) Mainstream economics seems to have learned shockingly little from the crisis even though it confirmed many of the theories of the heterodox/radical economists while decisively falsifying most of the mainstream theories. In this sense the economics profession has shown itself to be thoroughly unscientific (from a methodological perspective) and the majority of its celebrated leaders to be little more than idiot-savants justifying the practices of the elites who feed them.
This is truly a low point in the history of economic thought but let’s not forget the minority of economists who are screaming blue murder for decades and have taken very significant hits to their careers by refusing to be seduced by the simplistic views and generous rewards of the mainstream.


An Indian boy defecates in the open in one of New Delhi’s slums. Photograph: AP Photo/Kevin Frayer

Full article: Amartya Sen: India’s dirty fighter | World news | The Guardian.

Amartya Sen: India’s dirty fighter

(The Guardian, Tuesday 16 July 2013)

“Half of all Indians have no toilet. In Delhi when you build a new condominium there are lots of planning requirements but none relating to the servants having toilets. It’s a combination of class, caste and gender discrimination. It’s absolutely shocking. Poor people have to use their ingenuity and for women that can mean only being able to relieve themselves after dark with all the safety issues that entails,” says Sen, adding that Bangladesh is much poorer than India and yet only 8% don’t have access to a toilet. “This is India’s defective development.”

It’s one of many gigantic failures that have prompted Nobel prize-winning academic Amartya Sen to write a devastating critique of India’s economic boom.