Economics students begin to revolt

Economics students of the world have nothing to lose but their ideological chains. A revolt appears to be brewing — an international coalition of economics students has issued a public call for the teaching of a variety of schools of thought so that the field might actually find solutions to the world’s problems.

This is a radical departure. Orthodox economics, dominated thoroughly by Chicago School ideology, exists to justify extreme inequality and class dominance, which is why its adherents, who occupy critical financial posts around the world, continue to implement ruinous policies. At universities, the teaching of economics is similarly dominated by the Chicago School.

University of Chicago

University of Chicago

Not all students are content with this state of affairs. The international coalition International Student Initiative for Pluralism in Economics has issued a manifesto taking direct aim at the extraordinarily narrow curriculum. What makes this especially noteworthy is that this coalition comprises 42 student associations in 19 countries — and has a web site in seven languages. The manifesto says:

“This lack of intellectual diversity does not only restrain education and research. It limits our ability to contend with the multidimensional challenges of the 21st century — from financial stability, to food security and climate change. The real world should be brought back into the classroom, as well as debate and a pluralism of theories and methods. … [P]luralism carries the promise to bring economics back into the service of society.”

The very need to drag economics “into the real world” speaks for itself. The ideological narrowness of the field leaves students unprepared, the manifesto says:

“Where other disciplines embrace diversity and teach competing theories even when they are mutually incompatible, economics is often presented as a unified body of knowledge. … This is unheard of in other fields. … An inclusive and comprehensive economics education should promote balanced exposure to a variety of theoretical perspectives, from the commonly taught neoclassically-based approaches to the largely excluded classical, post-Keynesian, Institutional, ecological, feminist, Marxist and Austrian traditions — among others. Most economics students graduate without ever encountering such diverse perspectives in the classroom.”

Nor should economics wall itself off from other disciplines, as if the economy is independent of the rest of human activity:

“[E]conomics education should include interdisciplinary approaches and allow students to engage with other social sciences and the humanities. Economics is a social science; complex economic phenomena can seldom be understood if presented in a vacuum, removed from their sociological, political, and historical contexts. To properly discuss economic policy, students should understand the broader social impacts and moral implications of economic decisions.”

That such things need to be said, once again, speaks for itself.

How can a science call itself “sacred”?

Orthodox economists — or “neoclassical” as they are called in the field — like to present themselves as hard-headed realists who dispassionately crunch numbers. Yet consider that one of the most important Chicago School economists, Frank Knight, wrote in a leading academic economic journal that professors should “inculcate” in their students that these theories are not debatable hypotheses, but rather are “sacred feature[s] of the system.”

Under this “sacred” system, economic activity is treated as a simple exchange of freely acting, mutually benefiting, equal firms and households in a market that automatically, through an “invisible hand,” self-adjusts and self-regulates to equilibrium. Households and firms are considered only as market agents, never as part of a social system, and because the system is assumed to consistently revert to equilibrium, there is no conflict. Production is alleged to be independent of all social factors, the employees who do the work of production are in their jobs due to personal choice, and wages are based only on individual achievement independent of race, gender and other differences.

Underlying these assumptions is a concept known as “perfect competition,” a model that assumes that all prices automatically calibrate to optimum levels, and that there are so many buyers and sellers that none possesses sufficient power to affect the market. The economist Robert Kuttner, in a 1985 Atlantic Monthly article, summarized the unreality of this concept:

“Perfect competition requires ‘perfect information.’ Consumers must know enough to compare products astutely; workers must be aware of alternative jobs; and capitalists of competing investment opportunities. … Moreover, perfect competition requires ‘perfect mobility of factors.’ Workers must be free to get the highest available wage, and capitalists to shift their capital to get the highest available return; otherwise identical factors of production would command different prices, and the result would be deviation from the model.”

The real world bears no resemblance to that artificial ideological construct. Rather than question their dogma, adherents instead insist government regulations get in the way, sullying what would otherwise be a pristine market. This is where “magic” comes in, as in the “magic of the market” that is routinely invoked. Because orthodox economists often treat Adam Smith’s works as sacred books, it is not inappropriate to note that Smith himself wrote that “Providence” guarantees that everyone, including the poor, has enough to eat:

“When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition.”

A couple of centuries of refutation

Although Smith’s writings tend to be cherry-picked by his epigones — inconveniently, Smith acknowledged that capitalists have advantages over employees and believed that labor should be fairly compensated — he drew conclusions that long ago showed themselves unsustainable. Smith believed that capital accumulation inevitably leads to increases in employment and wages, that commercial exchange leads automatically to moral behavior, and that a free market without restrictions would restrain big merchants and manufacturers while benefiting employees and consumers.

Smith wrote in the 18th century at the dawn of the Industrial Revolution before his ideas could be put to the test; today’s orthodox economists who repeat them in the face of massive evidence to the contrary are motivated by something other than scientific rigor. Keep this mind the next time Karl Marx is dismissed as irrelevant because he wrote in the 19th century. At least Marx based his works on rigorous analysis of the actual workings of capitalism.

One of the “sacred” features of capitalism verboten to question is its alleged high levels of efficiency. Were we to examine this question from, for example, an Institutionalist perspective, we might find that is not so. Institutional economics is a school that believes economic and social behaviors are cultural phenomenon, conditioned by cultural parameters, and incorporates a focus on the deployment and concentration of power, in particular the role of institutions in shaping economic behavior.

This is one of the neglected traditions the International Student Initiative for Pluralism in Economics manifesto said should be added to economics curriculums. A leading Institutionalist economist, Marc Tool, argues that competitive market economies are inefficient because they provide no way for wants and preferences to be appraised, leaving it instead to media advertising to create demand artificially, and that markets fail to address the problems of gross income inequality. As a result, many people have their choices in life constrained

“to the point where intellect, creativity, compassion, and commitment are stunted or destroyed for those denied. We then live in a layered or tiered community suffering from elitism and privation alike. This would appear to be inefficiency of really monumental proportions.”

More idle capacity, more unemployment

Unemployment is high at the same time that plants sit idle. Total U.S. industrial capacity utilization as of January 2014 is only 78 percent, and although that is higher than the figure was in the years following the onset of the global economic downturn, there has been a persistent decline in capacity usage since the 1960s. European industrial capacity is 79 percent. Despite this unused capacity, unemployment remains high in both regions.

Another way of looking at this inefficiency is that shrinking numbers of people, in all parts of the world, who have steady employment that pays a living wage. John Bellamy Foster and Robert W. McChesney in their 2013 book The Endless Crisis calculate that the “global reserve army” — workers who are underemployed, unemployed or “vulnerably employed” (including informal workers) — totals 2.4 billion. In contrast, the world’s wage workers total 1.4 billion.

The mystery surrounding orthodox economists continuing to insist on policies that have brought such ruinous results vanishes when we realize that they are promulgating ideology for the benefit of industrialists and financiers and not science on behalf of humanity. Lately is has become fashionable to advocate for a return to the Keynesian policies of the mid-20th century — even these, safely within capitalist bounds, are marginalized within the economics profession.

Keynesianism is the belief that capitalism is unstable and requires government intervention in the economy when private enterprise is unable or unwilling to spend enough to lift it out of a slump. Alas, we are not living in the mid-20th century. Keynesianism depended on an industrial base and the availability of new markets into which capitalism could expand. A repeat of history isn’t possible because the industrial base of the advanced capitalist countries has been hollowed out, transferred to low-wage developing countries, and there is almost no place remaining to which to expand.

Moreover, capitalists who are saved by Keynesian spending programs amass enough power to later impose their preferred neoliberal policies, as they began to do by the late 1970s. The “Keynesian consensus” was a temporary phenomenon tolerated by capitalists because their profits were rising despite the higher wages they were paying. If the world is undergoing a structural crisis of capitalism, then policies intended to stabilize capitalism can’t provide a long-term solution.

Study of the widest reasonable range of economic ideas is not simply a matter of healthy debate but necessary to finding a path to a better, more humane world.

Bringing alternative economic ideas back into the mainstream, especially those critical of capitalism, is part of a larger social struggle. The one percent’s preferred ideas that dominate did not fall out of the sky. As Karl Marx once wrote: “The ideas of the ruling class are in every epoch the ruling ideas, i.e. the class which is the ruling material force of society, is at the same time its ruling intellectual force.”

“Ruling” ideas create priesthoods, which are best left outside of economics departments and central banks.

The scorecard of NAFTA: Losses for all three countries

The North American Free Trade Agreement has been a lose-lose-lose proposition for working people in Canada, the United States and Mexico.

Let us count the ways: Lost jobs, reduced wages, more unemployment, higher food prices and reversals of environmental laws. NAFTA, a 20-year laboratory for mainstream economics, has been a bonanza for the executives of multi-national corporations, and that is all you need to know why the so-called “free trade” model continues to be promoted despite the immiseration and dislocation it spawns. Agreements like NAFTA, and proposed deals that would go further in handing power to corporate executives and financiers such as the Trans-Pacific Partnership, have little to do with trade and much with ensuring corporate wish lists are brought to life.

Not dissimilar to medieval doctors who insisted that having leeches bleed the patient was the only course of action, neoclassical economists, who dominate the field, won’t budge from their prescriptions of neoliberal austerity. But although the medical field has made enormous strides in recent centuries, there is no such progress among neoclassical economists. That is because said economists — most often under the banner of “Chicago School” but sometimes using other names — promote ideology on behalf of the powerful, not science for all humanity.

"Canada in fog" photo by Kat Spence

“Canada in fog” photo by Kat Spence

Thus the spectacularly wrong predictions made for NAFTA before it was went into force on January 1, 1994, have no effect on their predictions for new deals. To provide one example, in 1993 the Peterson Institute for International Economics predicted 170,000 jobs would be created in the U.S. alone by 1995, that the U.S. would enjoy an expanded trade surplus with Mexico and that the Mexican economy would grow by four to five percent annually under NAFTA.

As we will see presently, none of those rosy predictions came close to becoming reality. (True to neoliberal form, the institute is grandly predicting “gains of $1.9 trillion” for the Trans-Pacific Partnership.) The point here isn’t to pick on one particular institution — in fact, it is quite typical. The models developed to make these predictions and explain economics are mathematical constructs disconnected from the real world.

Sure it works better in a dream world

The Chicago School and other mainstream neoclassical schools of economics rest their models on the concept of “perfect competition,” which assumes that all prices automatically calibrate to optimum levels, and that there are so many buyers and sellers that none possess sufficient power to affect the market. This model assumes that employees are in their jobs due to personal choice, and wages are based only on individual achievement independent of race, gender and other differences. That this bears little resemblance to the real world is not your imagination.

From this, mainstream economists assume all trade will be beneficial because all economic activity quickly adjusts to create a new equilibrium following a disruption. As Martin Hart-Landsberg wrote in his 2013 book Capitalist Globalization: Consequences, Resistance and Alternatives:

“[T]his kind of modeling assumes a world in which liberalization cannot, by assumption, cause or worsen unemployment, capital flight or trade imbalances. Thanks to these assumptions, if a country drops its trade restrictions, market forces will quickly and effortlessly lead capital and labor to shift into new, more productive uses. And since trade always remains in balance, this restructuring will generate a dollar’s worth of new exports for every dollar of new imports. Given these assumptions, it is no wonder that mainstream economic studies always produce results supporting ratification of free trade agreements.” [page 104]

World Bank studies promoting “free trade” agreements, Professor Hart-Landsberg wrote, assumes that tariff reductions will have no effect on government deficits, governments will automatically be able to replace lost tariff revenue with revenue from other sources and that there is full employment. He writes:

“Although working people have been ill served by capitalist globalization, many are reluctant to challenge it because they have been intimidated by the ‘scholarly’ arguments of those who support it. However … these arguments are based on theories and highly artificial simulations that deliberately misrepresent the workings of capitalism. They can and should be challenged and rejected.” [page 80]

Mexican farmers forced off their lands

Mexico had annual per capita gross domestic product growth of 0.9 percent in the first 20 years of NAFTA — one-fifth of the per capita GDP growth of the preceding 20 years. The Center for Economic and Policy Research reports that Mexico’s growth during the past 20 years under NAFTA ranks the country 18th of 20 Latin American countries and is half of the average Latin American growth rate. Among other results, the center reports:

• 4.9 million family farmers have been been displaced — more than half the total number of Mexican farmers in 1991.
• More than 14 million more Mexicans live below the poverty line than in 1994. Just more than half of Mexicans are below the poverty line, nearly identical to the 1994 rate, but the population has increased.
• Inflation-adjusted wages have risen two percent over 18 years and are barely above the 1980 level.

Subsidized corn from the United States flooded Mexico, sold below the costs of small Mexican farmers. Corn imports from the U.S. increased fivefold and pork imports from the U.S. increased by more than 20 times, according to a Truthout report by David Bacon.

As a result, Mexican farmers forced off their land either became seasonal workers on growing agribusiness farms, sought work in the cities or migrated north. Seasonal agricultural workers (those working less than six months per year) grew by almost three million — more than doubling their ranks — during the same period that 4.9 million family farmers were displaced. The number of Mexicans emigrating to the U.S. rose by almost 80 percent from 1994 to 2000, before falling significantly afterword because of the post-9/11 increased border security.

Nor did Mexicans get cheaper food as a result of the flood of U.S. corn. Public Citizen, in its just released report on NAFTA, reports that the deregulated price of tortillas nearly tripled in the first 10 years of the agreement and that a Mexican minimum-wage earner can buy 38 percent less than he or she could when NAFTA went into effect.

The only countervailing effect, the increase in factory jobs as maquiladoras (factories near the U.S. border producing for export) increased for a time, but those low-wage jobs are now dwindling because China’s wages are far cheaper than Mexico’s. The same pitiless market competition that sent jobs south now sends them across the Pacific. China now accounts for 23 percent of U.S. imports as compared to Mexico’s 12 percent, according to International Monetary Fund statistics.

A 2011 paper issued by the Economic Policy Institute summarized the effects of NAFTA on Mexico:

“From the standpoint of the business community, NAFTA’s most important achievement was that it made Mexico a much safer and more attractive location to invest and outsource U.S. manufacturing production. NAFTA’s investment provisions created new and improved safeguards for foreign investors, including new dispute settlement tribunals providing a mechanism for settling disputes with foreign governments outside of the Mexican legal system. By eliminating Mexico’s developmental state and use of local content rules, and other demands and conditions on foreign investors, the trade agreement greatly reduced the cost of doing business in Mexico, and increased the security of those investments.” [page 6]

Mexico’s conversion into an export platform does not mean higher skills for its workforce. The biggest initiative in job creation came during the administration of Vicente Fox, which offered training in low-skill jobs for landscapers, construction workers, factory workers and maids.

Hundreds of thousands of jobs leave the United States

The United States has seen a net displacement of almost 700,000 jobs through 2010 directly attributable to NAFTA, according to Economic Policy Institute calculations. Moreover, the U.S. has had large annual trade deficits with Mexico since NAFTA was implemented; in earlier years, trade was roughly balanced between the two. In addition to the job losses, Public Citizen reports these negative impacts on U.S. workers:

• U.S. food prices have risen 67 percent since NAFTA took effect, despite an increase in food imported from Mexico and Canada.
• Purchasing power for U.S. workers without a college degree, adjusted for inflation and taking into account those consumer goods that have become cheaper, has declined 12 percent under NAFTA.
• Two-thirds of displaced manufacturing workers who were rehired in 2012 experienced a wage cut; the reduction in the majority of cases was at least 20 percent.
• U.S. manufacturing and services exports to Mexico and Canada grew slower after NAFTA took effect than it had been earlier.

By making it easier for capitalists to move production, NAFTA has directly contributed downward pressure on wages. With fewer well-paying manufacturing jobs, pressure on wages not only affects manufacturing but other industries as well as displaced workers seek employment elsewhere.

Capital mobility has been an irresistible hammer for holding down wages and worsening job conditions — a study by Cornell University Professor Kate Bronfenbrenner found that more than 50 percent of employers made threats to shut down and/or move their facilities in response to unionization activity during the three-year period of 1993 to 1995, and that the rate of actual shutdowns tripled from the pre-NAFTA rate. She wrote:

“NAFTA has created a climate that has emboldened employers to more aggressively threaten to close, or actually close their plants to avoid unionization. The only way to create the kind of climate envisioned by the original drafters of the [National Labor Relations Act], where workers can organize free from coercion, threats, and intimidation, would be through a significant expansion of both worker and union rights and employer penalties in the organizing process both through substantive reform to U.S. labor laws and by amendments to the North American Agreement on Labor Cooperation.” [page 3]

That would take massive organizing to achieve. The Obama administration is actively trying to use the rules of NAFTA as a starting point for further weakening of labor, safety, health and environmental laws in the ongoing Trans-Pacific Partnership negotiations, which would tighten corporate control should the ongoing TPP negotiations be successful. The White House undoubtedly has the same goals for the Transatlantic Trade and Investment Partnership talks with the European Union.

Canadian safety net shredded to ‘compete’ in markets

Spending on Canada’s social safety net has decreased while corporate revenue has doubled and manufacturing jobs disappeared. In addition, a Canadian Centre for Policy Alternatives researcher reports, the country’s growing trade surplus with the United States has translated to few jobs. The study found:

• After 12 years of NAFTA, government transfers to individuals have dropped from 11.5% of GDP to 7.8% of the country’s GDP.
• “[M]uch of the growth in gross exports over the last decade reflected the markedly elevated use by Canadian-based companies of imported inputs in their production, significantly overstating the employment impact of the growth of manufactured exports.”
• The length that Canadians could collect unemployment benefits was reduced, the amount of the benefits were cut and the criteria for those eligible were reduced, reducing the proportion of unemployed people who qualified for unemployment insurance to one-third from three-quarters.
• Composite revenues of 40 of Canada’s biggest businesses increased 105 percent from 1988 to 2002, while their workforces shrank by 15 percent.

These developments fueled rising inequality, the centre’s executive director, Bruce Campbell, wrote:

“The most striking feature of this growing inequality has been the massive gains of the richest 1% of income earners at the expense of most of the population. The growth of precarious employment, the undermining of unions as a countervailing power to transnational capital, the erosion of the Canadian social state, and heightened economic dependence on the United States are the hallmarks of the free trade era in Canada.” [page 53]

Pressing its advantage, Canadian big business interests demanded and received tax cuts on the ground that Canada could not be competitive otherwise. Those cuts resulted in loss of C$20 billion in federal revenue for 2005 alone, the study said, on top of provincial revenue losses of $30 billion. The tax cuts were primarily given to high-income individuals and corporations, who argued that these would create “a level field of competition” with the United States but also increase labor market “flexibility” — a code word meaning lower wages and reduced job security, always the goal of capitalists.

It’s always our turn to ‘cut back,’ never the bosses’ turn

The key NAFTA provision is Chapter 11, which codifies the “equal treatment” of business interests in accordance with international law and enables corporations to sue over any regulation or other government act that violates “investor rights,” which means any regulation or law that might prevent the corporation from extracting the maximum possible profit.

Under these provisions, taxation and regulation constitute “indirect expropriation” mandating compensation — a reduction in the value of an asset is sufficient to establish expropriation rather than a physical taking of property as required under U.S. law. Older decisions become precedents for further expansions of investor “rights” and thus constitute the “evolving standard of investor rights” required under “free trade” agreements.

Toothless “side agreements” on labor rights are meaningless window dressing; the arbitration bodies that decide these cases (in secret with no accountability or right of appeal) are governed by the main body of the text, such as Chapter 11. Corporations can sue governments over regulations or laws they don’t like, but working people and governments have no right to sue.

As Mr. Bacon put it in his Truthout report:

“The most any union or group of workers got from filing a case was ‘consultations’ between the governments and public hearings. There is no process in the agreement for penalties for violation of union rights. And although there are minor penalties for violating child labor or occupational health laws, they’ve never been implemented. Not a single contract was signed as a result of the side-agreement process, nor was a single worker rehired. Those unions that have filed cases have generally sought to use the process to gain public exposure of abuses and exert indirect pressure on employers.”

The neoliberalism that began gathering steam with the rise of Margaret Thatcher and Ronald Reagan, and which has intensified since, is not the handiwork of some secretive cabal, nor is it some tragic bad turn from an otherwise “rational” system. It is the natural evolution of modern capitalism and its relentless competition. “Free trade” agreements that have little to do with trade and much to do with imposing corporate wish lists in the service of ever more inequality and power imbalances is an inevitable component.

Implementing a “reform” of agreements designed to maximize corporate profits above all other considerations and shred the remnants of democracy is less than an illusion. Overturning the entire “free trade” apparatus is indispensable to any serious project of building a better world. Trade should conducted for the benefit of all, not only the one percent — unlike the current global system in which human beings are in the service of markets instead of the other way around.

Bush economist defends the 1% so you don’t have to

The mystery of why orthodox economists continue to insist on policies that only aggravate economic crisis ceases to be a mystery once we realize that it is ideology, not science. Orthodox, or “neoclassical,” economics is dominated by Chicago School thinking because its adherents’ motivation is to justify extreme inequality, accounting for the steadfastness of its adherents in the face of massive contrary evidence.

One of the Chicago School’s most significant leaders, Frank Knight, once wrote in an academic economics journal that professors should “inculcate” in their students that these theories are not debatable hypotheses, but rather are “sacred feature[s] of the system.” Yes, we must simply believe. But in case you don’t, mathematical formulae are deployed that purports to describe economic activity — this is a system that stresses individuality but in which human beings are missing. Economic activity is treated as a simple exchange of freely acting, mutually benefiting, equal firms and households in a market that automatically, through an “invisible hand,” self-adjusts and self-regulates to equilibrium.

Global distribution of wealthAmong the most widely read defenders of this system is N. Gregory Mankiw, a former chair of the council of economic advisers under former U.S. President George W. Bush. Professor Mankiw, currently the head of the economics department at Harvard University, recently wrote a paper straightforwardly titled, “Defending the One Percent.” Defending them, and the system that enables those at the top of the pyramid to acquire vast sums of wealth, is the job of economists like Professor Mankiw.

He is, by any reasonable standard, one of the most intellectually able defenders of the status quo; sophisticated enough to have on occasion said nice words about John Maynard Keynes, ordinarily a big no-no among conservative economists. (Professor Keynes was no radical but rather was clear-headed enough to know that capitalism is unstable and in need of government assistance to maintain itself, but so much as implying there could possibly be anything wrong with their magical system and the “invisible hand” that guides it is ordinarily beyond the pale.)

But although it is only fair to acknowledge that Professor Mankiw is more intellectually honest than most of his brethren, when we read his paper all the biases, absurd assumptions and turgid ideology that underlies orthodox economics is in plain sight. “Defending the One Percent” is a work of ideology — he argues that the wealthy are wealthy because they are more valuable than the rest of us.

He read it in a book, so it must be true

Professor Mankiw argues that inequality results from a technological-driven increase in demand for skilled labor that is not matched by a corresponding increase in the education of workers:

“[W]hen the pace of educational advance slows down, as it did in the 1970s, the increasing demand for skilled labor will naturally cause inequality to rise. The story of rising inequality, therefore, is not primarily about politics and rent-seeking but rather about supply and demand.” [page 4]

He offers no proof for this, merely saying that books he likes say it is so, therefore it is so. But research by the the Economic Policy Institute found that the rate of the increase in unemployment since the economic crisis began is higher among those with some college or a college degree than those with high school or less. Moreover, the rate of long-term unemployment has more than doubled during the past six years, a result following from the ratio of unemployed workers to job openings having been 3-to-1 or greater since September 2008.

Professor Mankiw attempts to argue his way around this by writing that astronomically high salaries are granted because the recipients are deserving:

“Those who work in commercial banks, investment banks, hedge funds and other financial firms are in charge of allocating capital and risk, as well as providing liquidity. They decide, in a decentralized and competitive way, which firms and industries need to shrink and which will be encouraged to grow. It makes sense that a nation would allocate many of its most talented and thus highly compensated individuals to this activity.” [page 6]

Huh? Since when are people anointed to work in the financial industry? People self-select themselves to work there because they are extremely greedy and don’t care who or how many people they screw over as they extract wealth from all aspects of human activity. Goldman Sachs Chairman Lloyd Blankfein may believe he is doing “God’s work,” but that doesn’t mean we have to believe the fairy tales of the one percent. That above passage is another reminder that orthodox economics rests on unexamined theoretical musings rather than on real life.

In orthodox theory, the “market,” in the human form of financiers, dispassionately allocates capital to where it is needed, but in reality the overwhelming majority of financial trading — the value of which dwarfs the value of the real economy — is speculation, mostly conducted in milliseconds by computer programs. Yearly profits estimated as high as US$21 billion are grabbed by large financial houses through computerized trading. It takes only 11 business days for financial speculators trade instruments and contracts valued at more than all the products and services produced by the entire world in one year. This is gambling with other people’s money, not dispassionate capital allocation.

Maintaining these fictions require straw men, and Professor Mankiw does not disappoint. (Don’t be put off by the academic jargon in the next quotation — it’s nowhere near as impressive as it might sound.) He claims that any “social planner”

“would require more productive individuals to work more. Thus, in the utilitarian first-best allocation, the more productive members of society would work more and consume the same as everyone else. In other words, in the allocation that maximizes society’s total utility, the less productive individuals would enjoy a higher utility than the more productive.” [page 14]

He is claiming that critics of inequality advocate that “more productive” workers be forced to work more than “less productive” workers. If you have never heard of such a thing, you are not alone. He then follows up with a still more absurd straw man, with this imagined “statement” that is supposed to summarize the thinking of inequality critics:

“ ‘[W]e should take some of their income away and give it to less productive members of society. While this policy would cause the most productive members to work less, shrinking the size of the economic pie, that is a cost we should bear, to some degree, to increase utility for society’s less productive citizens.’ ” [page 15]

Invent what your opponents didn’t say and attack it

Nobody argues that it is unfair that more productive workers earn more than less productive workers. It is just the opposite — inequality resides in the fact that wages and compensation bear little or no relation to productivity. Chief executive officers carry a large weight of responsibility but it is quite impossible that any CEO works 340 times harder than the average employee! It is gross inequality that effectively shrinks the economic pie, because if we don’t have money due to declining wages, we buy less, skipping on luxuries then stinting on necessities.

People at the top of the economic pyramid pour so much money into speculation because there aren’t enough investment opportunities, and because, during bubbles, speculation is more profitable than production. And as unemployment grows under the impact of shrinking demand, more workers begin to lose their skills. Hundreds of millions are out of work around the world at the same time that countless factories and offices sit idle; wages decline as industrialists continually move production to the places with the lowest wages, depressing wages and creating more unemployment. Top executives, and financiers, enjoy astronomical compensation because “markets” reward these behaviors — the “market” is nothing more than the aggregate interests of the largest industrialists and financiers.

They reap gigantic rewards because they extract wealth from everybody else and distribute it among themselves, not because, as Professor Mankiw argues, “the value of a good CEO is extraordinarily high.” [page 18] Profits are directly derived from surplus value — the large difference between what an employee produces and what an employee is paid.

Falling real wages have been quantified in separate articles in the International Productivity Monitor that found that wages have grown at a minuscule percentage of labor productivity in Canada and the United States. Although not as extreme, similar patterns have been found in Britain, France, Germany, Italy and Japan by other researchers.

The Marxist economist Fred Moseley, in a detailed dismantling of Professor Mankiw’s body of work published in Real-World Economics Review, wrote:

“[Mankiw’s] marginal productivity theory is not able to explain why the real wage of production workers has remained stagnant in recent decades, in spite of continuing and significant increases in their productivity. In other words, this theory cannot explain why production workers are no better off today than they were a generation ago.”

It can’t because its ideological function is to obfuscate, not explain. In the real world, the race to the bottom — corporate globalization, multi-national monopolization, the erosion of progressive taxation, rising capital gains from ownership of property and financial instruments, and the weakening of trade unions — has led to rising inequality around the world. We might as well believe we lost our house because the big bad wolf blew it down rather than the bank foreclosing.

Mirror images and ideological straitjackets on the path from Solidarity to sellout

For much of the 20th century, there was a curious mirror effect between orthodox Soviet and Chicago School ideologies — both saw the other as the only other possible economic system. Although both time and the ongoing global crisis of capitalism has begun to chip away at such a ridiculous binary, to a maddening degree this ideological straitjacket continues to assert itself. A straitjacket that does not spontaneously materialize but is crafted for the maintenance of power.

The effects of this mirrored duality are still very much with us, and are a crucial factor in the path the countries of the former Soviet bloc have traveled. The usages of this ideological construct are obvious enough in the capitalist world, distilled into “there is no alternative” by the just departed Margaret Thatcher. Less obvious were the usages further East; perhaps the nearest equivalent of the prime minister’s “TINA” is Leonid Brezhnev’s declaration of the Soviet system as “irreversible.”

When the general secretary’s formulation began unraveling in the late 1980s, what was a Soviet bloc economist to do? For many, the answer was to pick up a copy of a book by Friedrich Hayek or Milton Friedman, and jump through the looking glass. And when their new mirror seductively told them to apply shock treatment to their own countries, they did — the mirror told them there was no alternative.

There is always an alternative, Polish economist Tadeusz Kowalik reminds us in his book From Solidarity to Sellout: The Restoration of Capitalism in Poland.* Professor Kowalik, drawing on his decades of experience as a reform socialist often on the outs with the communist authorities for his willingness to challenge orthodoxy, his work as an adviser with the Solidarity trade union and his personal knowledge of the key players, reminds us that Poland — and, by implication, the Soviet bloc as a whole — had an opportunity to create a different economy, one built on cooperatives and democratic participation in the economy.

Solidarity to Sellout coverSuch an outcome was widely desired by Poles, and the outlines of such a system emerged in the “Round Table” negotiations held between Poland’s communist authorities and representatives of opposition groups, led by Solidarity, from February to April 1989. Economic democracy was already an established concept, embodied in the “Self-Governing Republic” program of Solidarity, adopted at its first national congress in 1981. In it, Solidarity, which consciously identified itself as a labor union and a broad social movement, declared:

“In the organization of the economy, the basic unit will be a collectively managed social enterprise, represented by a workers’ council and led by a director who shall be appointed with the council’s help and subject to recall by the council. The social enterprise shall … [work] in the interests of society and the enterprise itself.  … The reform must socialize planning so that the central plan reflects the aspirations of society and is freely accepted by it. Public debates are therefore indispensable. It should be possible to bring forward plans of every kind, including those drafted by social or civil organizations. Access to comprehensive economic information is therefore absolutely essential.”

Solidarity’s program forgotten, but the looking glass not on agenda

Although Solidarity’s original program was tossed aside, the Round Table negotiators envisioned significant changes without any “leap” into a capitalist market. The two sides did not have serious disagreements, ultimately agreeing in principal, on the political side, on pluralism, freedom of speech and freely elected local governments. On the economic side, there was agreement on facilitating employee ownership, for employee control of state-owned enterprises and a uniform policy toward enterprises, regardless of ownership form. Summarizing the agreement in Solidarity to Sellout, Professor Kowalik wrote:

“Of primary importance here are the provisions concerning protection of labor and employment, written out in ten settled upon and two contentious points. All these detailed settlements distinctly show that the participants of the agreement had no such thought in mind as a ‘leap’ into a market economy.” [page 60]

Yet a particularly harsh brand of capitalism was instituted; “Thatcherism” or “Reaganism” in the parlance of then and “neoliberalism” in today’s vernacular. Professor Kowalik cites several factors leading to the imposition of shock therapy in contradiction to popular opinion, negotiated agreements and pre-existing platforms:

  • The centralization of Solidarity while underground during the period of martial law during the 1980s converted it into a top-down organization with a severe cut in membership and an isolated leadership that drifted to the Right.
  • The grabbing of state property by the nomenklatura (the bureaucracy managing enterprises and overseeing that management from within the government) for themselves.
  • A blurring of Catholicism with socialism, particularly on the part of Tadeusz Mazowiecki, who would become the first non-communist prime minister, but also by other influential people.
  • The adoption of undiluted neoliberal ideology by the Polish economists who would become the architects of economic policy by becoming ministers and government advisers.

One of the agreements arising out of the Round Table was that one-third of the seats to the Polish parliament (the Sejm) would be contested later that year (1989) in June. Solidarity won all but one of the contested seats — so sweeping was the rout that Solidarity became the effective government even though the communists still held a parliamentary majority. Mr. Mazowiecki became prime minister when the next government was formed three months after the election. Solidarity activists dominated the new government, although communists retained some portfolios, including the Interior and Defense ministries.

Critically, however, the new finance minister/deputy prime minister was Leszek Balcerowicz, a proponent of neoliberalism who was distant from Solidarity’s struggles and whose writings were of an abstract nature; “his interests were limited to pure theory,” according to Professor Kowalik. Prime Minister Mazowiecki’s leading economic adviser was Stanisław Gomułka, who converted to neoliberal ideology while at the London School of Economics. And Western advisers beat a path to Warsaw as they did to other Soviet bloc capitals; Jeffrey Sachs, who oversaw shock therapy in multiple countries, perhaps was the most prominent. The International Monetary Fund was also on the scene.

Abstract theorizing instead of examination of concrete reality

Other economists who had imbibed starry-eyed ideas of how market forces would shortly create paradise played roles as well; but the finance minister’s role was so important that Poland’s shock therapy became known as the “Balcerowicz Plan.” Professor Kowalik wrote of his obfuscating tendencies:

“Balcerowicz made great efforts to compromise — like the term ‘social interest’ — the adjective ‘social.’ … Such a standpoint was bound to lead him to extreme individualism, a negation of the role of the state as a general social institution, with only the interest of the authorities being important. Balcerowicz does not write this outright, but his reasoning resembles a lot the well-known view of Margaret Thatcher, that there is no such thing as society (and thus it does not exist). He rejects the very notion of social justice and often simply avoids this subject. … Balcerowicz’s knowledge, of course, remained theoretical, abstract, and distant from real economic policies.” [pages 112-114]

Such an approach and outlook dovetails with orthodox capitalist economics, as distilled through the wellspring of neoliberalism, Chicago School economics: highly abstract, built on mathematics and based on airy concepts such as “perfect competition” rather than on the real world. Firms and individuals are not seen as part of a social structure; factors such as wealth and property are taken as given. Production is alleged to be independent of all social factors, the employees who do the work of production are in their jobs due to personal choice, and wages are based only on individual achievement independent of race, gender and other differences.

Such is the underlying rationale for neoliberalism, which seeks to make “market forces” — the aggregate interests of the wealthiest industrialists and financiers as expressed through the power of the corporations they control — the sole arbiter of outcomes in all social spheres. Neoliberalism, as Henry Giroux recently put it, “construes profit-making as the essence of democracy, consuming as the only operable form of citizenship, and an irrational belief in the market to solve all problems and serve as a model for structuring all social relations.”

New laws accelerate grabbing of state property already in progress

Privatization, however, was already under way by the time the Round Table negotiators hammered out their agreement. A 1987 law enabled the creation of private businesses with the assets of state enterprises and a January 1989 law stipulated outright that state assets could be transferred to private individuals for conducting economic activity. Such transfers were not necessarily done with full value paid, and private firms were given preferential treatment. Professor Kowalik wrote in Solidarity to Sellout:

“[T]he players of the nomenklatura offshoot of privatization consisted of managers of various rank, government and party functionaries associated with them, along with their families. The process, commonly called ‘enfranchisement of the nomenklatura,’ deserves attention because it was then that the phenomenon of corrupt privatization, or arranged clientelistic privatization, developed. …

“The state sector shortly became a cash machine, which was made easier by the authorities through relevant legal regulations. … These laws sanctioned the plunder of the state sector earlier begun by its own managers. The state sector was highly taxed to maintain the entire state infrastructure and doomed to hopeless competition with the nearly tax-free private firms that were also paying infinitesimal customs duties.” [pages 204-205]

The pace was accelerated when the parliament, in late December 1989, hurriedly passed nearly unanimously a series of bills implementing the Balcerowicz Plan, with the plan going into effect on January 1, 1990. Noting the later contrition of the parliament speaker, who said Finance Minister Balcerowicz and Professor Sachs “plainly tricked us,” Professor Kowalik summed up the vote this way:

“Advantage was simply taken of the immense trust that the people had in the first non-communist government. There could be no serious debate, because without a general document presenting a synthesis of the systemic contents of eleven laws and the simultaneously ratified budget, such a discussion was not possible. The parliamentarians acted under the pressure of a race with time, imposed on them by the executive authorities.” [page 133]

One scheme for privatization was the creation of “National Investment Funds” — state companies disposed in this program were to be 15 percent owned by employees, 25 percent by the state treasury and 60 percent by the funds, with the public allowed to buy shares in the funds. Only a minority of privatized enterprises were disposed of this way (more were simply sold to foreign buyers), but the funds were a failure, Solidarity to Sellout reports, because inflation and a declining stock market caused the shares to steadily lose value; moreover, most of the public shares wound up in foreign hands.

What capital remained in Polish hands also became concentrated as, similar to the pattern in Russia, the nomenklatura-turned-privatizers were soon dwarfed by a new class of oligarchs.

Actual cooperatives faced consistent hostility from the government, which saw coops as a temporary “transition” to what it termed “real” privatization. Pre-existing cooperatives were simply  “administratively eliminated,” new coops had barriers placed in front of them and foreign capital, which soon controlled Polish banking, was also hostile. At the same time, state farms were immediately thrown into competition with subsidized Western European agricultural with all domestic subsidies removed at a stroke, devastating Polish farmers. This was in contrast to the buildup of Western European agriculture after World War II, which was nurtured through protective measures.

Results of shock therapy differ widely from promises

The results of the Balcerowicz Plan were devastating, in contrast to promises of a short-lived downturn followed by rapid growth and transition to Poland becoming a “normal” European country, a concept dangled by Western advisers skillfully playing on Polish antipathy toward Russia:

  • A 50 percent drop in real wages and a 30 percent drop in industrial output in the first month of the Balcerowicz Plan.
  • From 1996 to 2005, the percentage of Poles whose income was so low as to be insufficient for biological survival tripled to 12 percent even though the national income rose by one-third.
  • Wage inequality became the highest in the European Union.
  • The number of Poles living below the official poverty level ballooned to 58 percent by 2003; the statistics bureau then stopped publishing this figure.
  • Before entry into the European Union, the average unemployment rate was 16 percent, topping 20 percent during the early 2000s, more than a decade after the imposition of shock therapy; the rate declined after E.U. ascension due to a stream of emigration.

Having told this story in a somewhat idiosyncratic but nonetheless compelling style, Solidarity to Sellout ends, surprisingly, on an unimaginative note by championing the Scandinavian model of capitalism, seeing Sweden as the model for Poland to emulate. In part, the conclusion follows from Professor Kowalik’s acknowledgment that a lack of organized anger and the sellout by trade unions has allowed the Polish Right to flourish, and a tacit understanding that creating a cooperative economy is drastically more difficult in a privatized economy than it would have been when enterprises were in state hands. He writes:

“[I]t was enough for the trade unions to become involved in support of anti-employee systemic changes and the shock operation. That is why rebuilding he strength of the trade unions in Poland is going to be an extremely difficult task.” [page 298]

Professor Kowalik calls the Scandinavian countries “centers of economic excellence,” contrasting them to Poland’s “role of subcontractor.” The former model by any reasonable measure is superior to neoliberalism, but the professor has perhaps not fully considered that Poland, and the rest of the Soviet bloc, were destined by the dynamics of capitalism to become a source of cheap labor, akin to Latin America’s relationship to the United States. Nor are the more powerful capitalist countries likely to acquiesce to a subcontractor becoming a serious competitor.

Having become completely entangled in the global capitalist system, Poland can only transcend to a better system as part of an international bloc; it can’t be an island unto itself. Given the structural crisis of global capitalism, the aim will have to be higher than simply emulating Sweden, where capitalist pressures are not unknown and the European Union methodically imposes downward pressure.

But regardless of one’s opinion of the conclusion, Solidarity to Sellout provides an outstanding analysis of the capitalist restoration of Poland on neoliberal grounds, as could only be written by an economist with an intimate understanding of Poland, economics, the Solidarity movement and the key individuals in the process. Professor Kowalik’s book is well worth pursing by anybody interested in understanding the post-Soviet path of Central Europe, or, more generally, the dynamics of neoliberalism.

* Tadeusz Kowalik, From Solidarity to Sellout: The Restoration of Capitalism in Poland [Monthly Review Press, New York, 2012]

The market is a god that has failed

By Pete Dolack

The market is a god that has failed.

In earlier centuries, societies were centered on monarchs who derived their authority from divine will and today “markets” are treated in the same way — as a “natural order” ordained from above. European medieval peasants were kept in their place by church and lord, cementing the rule and wealth of the privileged. The lords made the laws and controlled the courts, and the churches provided the propaganda and justifications. God willed the arrangement, and who was a peasant to challenge it?

In fact, peasants frequently rebelled against the arrangement. Uprisings, often with explicit demands for equality, repeatedly broke out across Western and Central Europe in the fourteenth through sixteenth centuries, and strong religious movements challenging the feudal order were mercilessly drowned in blood in the early sixteenth century. The medieval era in Europe was not an era of peasants contentedly tending to the fields of their lords, contrary to common perception.

Nonetheless, those jacqueries did not bring down feudalism. They were localized, scattered and focused on immediate outrages. Crucially, there were no alignment of social forces, groups or classes with the ability to mount an effective challenge to the aristocracy that dominated feudal society. Peasants were isolated and illiterate, and artisans in the towns were highly heterogeneous.

Slow evolutionary changes eventually began to tip the balance against feudalism. Lords began pushing their peasants off the land to clear space for sheep grazing because wool had become a valuable commodity, and the capital accumulated from trade by merchants grew large enough to create surpluses capable of being converted into the capital necessary to start production on a scale larger than artisan production.

Forced off the land they had farmed and barred from the “commons” (cleared land on which they grazed cattle and forests in which they foraged), peasants could either become beggars, risking draconian punishments such as disfigurement and execution for doing so, or become laborers in the new factories at pitifully low wages and enduring inhuman conditions and working hours.

The earliest factories didn’t possess any innovative production techniques, but rather nascent capitalists rapidly accumulated capital by imposing long working hours, increasing the pace of work and drawing on more exploitable child and female labor. Although some artisans made the leap to manufacturing (as did some merchants), most artisans were forced to become wage laborers themselves, subsumed into the new system similar to peasants.

New forms of inequality require a new mythology

Further consolidation ultimately led to the rise of robber barons and giant corporations, and an entirely new mythology was created to justify the extremes of wealth. Rather than an aristocracy that inherited wealth and intermarried to maintain ties among its families, a capitalist class emerged, a class supposedly built on the sweat of hard work rather than circumstances of birth, in which individual merit rather than class status would be determinate.

The foundational work of capitalist ideology, Adam Smith’s Wealth of Nations (a book used selectively by its fans), got the ball rolling at the dawn of the Industrial Revolution. Smith disapproved of Britain’s aristocracy and celebrated capitalists, believing aristocrats unproductive and advocating that a progressive ground rent be imposed on them. Smith believed that feudal relations were demeaning to the poor and corrupting to the powerful, and argued that modern commercial activity would promote fair play and honesty.

As capitalism developed, the size of the economic enterprises of capitalists became bigger, partly because demand for manufactured products increased, but also because the pressures of capitalist competition required enterprises to become bigger. Doing so can be done through expanding a market, acquiring market share from competitors or swallowing the competition. A small number of human beings will be overly endowed with the ruthlessness to be the survivors in this dog-eat-dog world — those with a single-minded focus on amassing as much money as possible with little or no regard for all those squashed along the way. In the United States, those few who came to own vast conglomerates and previously unimaginable wealth became known as robber barons, and were so powerful thanks to their control of wealth and resources that they could routinely ask governments to use force to suppress their workers, or hire their own private armies to do so.

Today, we still have such people — in different industries of course as times change — and they are now known as “captains of industry” or “entrepreneurs” as one of the advances capitalism has brought us is the modern public relations industry. Nonetheless, a minuscule number of people own vast wealth and can use that wealth to bend public policy to their preferred outcome; that hasn’t changed. There are those who found an enterprise that generates such wealth, but more often it is inherited: a class system in a new form.

The more wealth is concentrated, the less remains for everybody else. Pay is cut, people are laid off, benefits and retirements reduced — all so that still more flows to the top. Such a state of affairs can’t continue without a powerful ideology that makes this dramatic inequality a “natural order”; that a chief executive officer earning thousands of times more than employees or a Wall Street financier earning millions of dollars by “consolidating” working people out of their jobs is a “justified” result.

The cult of the market

And so we come to the mythology of markets, extolled as the indifferent arbiter of what should be. Extreme cults of individuality form a crucial prop of this mythology; attacks on unions and minimum-wage laws are two manifestations. An early incarnation of this ideology was the “Austrian School,” an economic belief system whose best known proponent was Friedrich Hayek. Remarkably, Hayek went so far as to claim that solidarity, benevolence and a desire to work for the betterment of one’s community are “primitive instincts” and that human civilization consists of a long struggle against those ideals.

Hayek remains highly influential today among conservative economists and those who benefit from neoliberal policies, so it is worthwhile to briefly examine his writings. In the conclusion to Volume 3 of Law, Legislation and Liberty, Hayek wrote: “Man has been civilized very much against his wishes,” emphasizing the words by placing them in italics. What Hayek asserted here is that “the discipline of the market” is the provider of civilization and progress.

That questionable assertion is not necessarily easy to reconcile with what he wrote in his best-known work, The Road to Serfdom, encapsulated in this passage:

“The higher the education and intelligence of individuals become, the more their tastes and views are differentiated. If we wish to find a high degree of uniformity in outlook, we have to descend to the regions of your moral and intellectual standards where the more primitive instincts prevail.”

The “primitive instincts” Hayek referred to here are beliefs in social solidarity or that an economy not based on all-against-all struggle could be constructed.

In summation, Hayek argued that unregulated capitalism is “civilization” and anything else is a product of “primitive” group instincts that have survived from our prehistoric hunter/gatherer ancestors. But if people who gather in groups or parties to promote a more humane world possess little morality and/or low intelligence simply by virtue of banding together in pursuit of a program, how is that such attributes do not apply to the world’s industrialists and financiers? The pervasive neoliberal ideology that floods the world doesn’t just fall from the sky; rather it is the product of group thinking, in this case grouping thinking by a minuscule minority who profit from it and those who serve them intellectually.

So we complete the circle and arrive back at the conclusion that Hayek judged morality, intelligence and civilized behavior strictly on whether or not an individual or group agrees with his viewpoints. Although it is tempting to simply dismiss such reactionary nonsense, we should remember that, to those hungering for ever more harsher neoliberal polices, Hayek’s writings, in particular The Road to Serfdom, are the most important bibles except possibly Ayn Rand’s novels.

One economist on whom Hayek had a strong influence was Milton Friedman, who become the leading figure in the Austrian School’s direct descendent, the “Chicago School” of economics, so named because it is centered on the economics faculty of the University of Chicago. Friedman is known for such delicate work as assisting Chilean dictator Augusto Pinochet, even coining the term “shock therapy” — Friedman repeatedly used the word “shock” in advising Pinochet to apply a maximum of pressure, helpfully reprinting this letter in his book, Two Lucky People: Memoirs.

Individuality without human beings

Chicago School economics — and standard “neoclassical” economics generally — stresses individuality, yet actual human beings seem strangely absent. Chicago economics claims to be scientific, yet one of its most significant leaders, Frank Knight, wrote in an academic economics journal that professors should “inculcate” in their students that these theories are not debatable hypotheses, but rather are “sacred feature[s] of the system.” Sacred? An odd word for a field of study that claims to be scientific, but what is sacred is often in the eye of the beholder.

A belief system that requires austerity, low taxes on the wealthy, and a lack of job security for workforces, and justifies a ceaseless upward flow of wealth, while presenting the package as the natural state of the world, is sacred, depending on if you are among the one percent or the 99 percent. “Neoclassical” economics, and in particular its most vigorous school, Chicago, became the dominant economic theory simply because it provided justification for extreme economic disparities.

Neoclassical economics is an ideologically driven belief system based on mathematical formulae, divorced from the conditions of the actual, physical world, and which seeks to put human beings at the service of markets rather than using markets to provide for human needs. Economic activity is treated as a simple exchange of freely acting, mutually benefitting, equal firms and households in a market that automatically, through an “invisible hand,” self-adjusts and self-regulates to equilibrium.

Households and firms are considered only as market agents, never as part of a social system, and because the system is assumed to consistently revert to equilibrium, there is no conflict. Production is alleged to be independent of all social factors, the employees who do the work of production are in their jobs due to personal choice, and wages are based only on individual achievement independent of race, gender and other differences.

Underlying these assumption is a concept known as “perfect competition,” a model that assumes that all prices automatically calibrate to optimum levels, and that there are so many buyers and sellers that none possesses sufficient power to affect the market. The prominent economist Robert Kuttner, in a 1985 Atlantic Monthly article, summarized the unreality of this concept:

“Perfect competition requires ‘perfect information.’ Consumers must know enough to compare products astutely; workers must be aware of alternative jobs; and capitalists of competing investment opportunities. … Moreover, perfect competition requires ‘perfect mobility of factors.’ Workers must be free to get the highest available wage, and capitalists to shift their capital to get the highest available return; otherwise identical factors of production would command different prices, and the result would be deviation from the model.”

Does anything in the preceding two paragraphs in any way describe the real world to you? But the above summation, along with mystical concepts such as the “magic of the market,” are the intellectual core of the idea that “markets” should decide all social and economic outcomes. It is “markets” “impersonally” imposing “discipline” on working people, on entire countries, and those on whom “discipline” is imposed should shut up and take their medicine. But “market” is simply a nice word to mask the imposition of specific interests. In reality, financiers around the world are immiserating entire countries to guarantee gigantic profits for themselves.

The ‘market’ says it is so, but who is the market?

Far from the often-told morality play of frugal Germans refusing to subsidize freeloading Greeks, the loans the Greek government is receiving, at the cost of ever more painful austerity, is simply to reimburse big banks, primarily German and French banks, so that their questionable loans are paid back, with healthy interest. Moreover, many of those loans were sold by the banks to hedge funds — austerity is also being imposed on millions of people so that the gambling of speculators pays off. (Greek government debt is trading at 40 percent or less of face value, so the much discussed 50 percent “haircut” on debt repayments would actually give the speculating hedge funds a nice profit.)

The Greek government is merely a conduit, through which financiers can continue to collect fat profits. The “market” decided this was the only alternative because the financiers who control the market say it is the only alternative. From financiers’ point of view, that is true, because otherwise they would lose money.

The impersonal market seems to have a habit of favoring the interests of financiers (and industrialists). The “market,” so we are told, induced “technocratic” governments to be formed in Greece and Italy for the good of the two countries. But in fact bond traders and hedge funds applying pressure through the European Central Bank and International Monetary Fund — speculators — essentially hand-selected unelected central bank bureaucrats as those two nations’ prime ministers to ensure those governments would give their interests primacy.

The “market” also desired the massive bailout of the financial industry. In the United States, when the House of Representatives initially voted against the 2008 bailout, financiers quickly made their wrath felt; the benchmark Dow Jones Industrial Average lost 800 points that day, one of the biggest single-day losses ever. Only four days later, in the midst of widespread middle class worry over the falling value of 401(k) retirement funds tied to stock markets, the House bowed to the pressure and gave financiers what they wanted. (A splendid example of the “magic of the market” at work — by eliminating pensions, working people are yoked more firmly to the will of financiers.)

If the “market” keeps deciding more people should be unemployed, more education should be wasted, more people should not have a decent retirement, more public services should be eliminated, more wages cut while prices rise, and more money should be concentrated in fewer hands at the expense of everybody else, then why should the “market” be a holy sacrament that cannot be questioned?

What if we had a system based on human needs rather than the greed of a few? What if we had a system in which useful work is rewarded instead of financial legerdemain? A hopeless utopia? Not at all — if working people decide it will be so. We are the overwhelming majority of modern capitalist societies.

The idea that God chooses one family to provide absolute rulers for generations was overturned by our ancestors, and would be laughable if offered today. The idea that a minuscule minority should accumulate most of the wealth is the natural order of the universe thanks to a mysterious God-given force known as a “market,” is an anachronism as well.