Why Is There an Economy?

At the Washington Post, Eva Rodriguez shrieks that Barack Obama is taking over the auto industry.

Yes, she begins by acknowledging that he said he doesn’t want to run auto companies. This suggests, Rodriguez says, that the President understands “business professionals are better equipped than government bureaucrats to decide what cars to make, what prices to set and how many people to employ.” However,

Seconds after that promising, if relatively vague opening, though, Obama took much of it back. He couldn’t help himself. “But I know that, if the Japanese can design an affordable, well-designed hybrid, then, doggone it, the American people should be able to do the same,” he said. “So my job is to ask the auto industry: Why is it you guys can’t do this?”

So much for hands-off.

Let’s stop right there. We see the dichotomy Rodriguez sets up — “government bureaucrats” versus “business professionals.” Government bad, private industry good. And then we see that the President’s challenge to the auto industry to catch up to the times is conflated with micromanaging.

In other words, we’re supposed to give absolute trust to the “business professionals” who failed miserably at running their companies, because they are, you know, “business professionals” and President Obama is just a “bureaucrat.” No other explanation is required.

Rodriguez wants the President to give Detroit “incentives” rather than challenges to update its product line. What if more fuel-efficient cars don’t sell, she asks. Like the gas-guzzlers have been flying off the lots lately. But fuel efficiency is not just a nice idea; it’s an imperative. We as a nation, as a species, simply cannot continue to burn fossil fuels at the rate we are burning them. The dinosaurs running the auto industry refuse to look any further ahead than the next quarterly report, and that’s one of the reasons they’re in trouble.

And a few minutes of googling revealed that sales of hybrids are an accelerating share of auto sales.

But then we get to what’s really eating at Rodriguez:

Which brings us to another disturbing aspect of the government’s dealings: its unabashed and unwise attempts to tilt the scales in the unions’ favor. The government proposed giving the United Auto Workers’ retiree health fund a 55 percent equity stake in Chrysler — more than the combined stakes of Chrysler’s merger partner, Fiat, or the other creditors that are owed roughly $7 billion. At GM, the plan is for the union to take a 39 percent slice — a rich reward for years of work rules, health care and pension deals that contributed mightily to the company’s financial woes.

I challenge Rodriguez to write an essay on the subject of “Why Is There an Economy?” Not “What Is an Economy?” or “My Ideal Economy,” but to get down to the most basic question of all, which is to examine the place of economies in human civilization. And for that matter, why is there civilization?

Ultimately the purpose of civilization is to support the lives of humans, so that we aren’t living in caves by ourselves, living on what food we can hunt and gather ourselves and guarding our stuff from other humans.

Civilization is good for us. Unless one is extremely isolated, an enterprise as simple as growing a vegetable garden requires some cooperation from other humans, if only that they agree not to pick and eat your tomatoes without paying you something for them.

There are two pillars of civilization, which are governments and economies. (There may be other pillars, but right now I’m just dealing with these two.) Governments are the administrative function of civilization, and although nothing lasts forever, governments that do a good job at managing civilization in a way that is generally beneficial to most people tend to be more stable and successful than those that don’t.

Economies are the means by which goods and services are created and distributed in a civilization. If most people in a civilization can count on getting enough food, clothing and shelter to be reasonably comfortable, the civilization will be more stable and successful than one in which people aren’t sure where their next meal is coming from.

As civilizations became more and more complex they developed in ways that betrayed their original purpose. So, there have been civilizations — most of ’em, actually — that allow a powerful few to keep the many in poverty and bondage. Such civilizations tend to be unstable and eventually are busted up, from within or without. The whole point of democracy is to empower the many to prevent exploitation by the few, but it’s clear we’re still working on that.

The bottom line is that civilizations, and their governments and economies, exist to support the lives of humans, and civilizations forget that at their own peril.

The thing that bugs me most about “free market” conservatives is that they assume people exist to serve the economy, not the other way around. Yes, profits are necessary to an economy, but profits alone aren’t the only thing that’s necessary. If an economy is not holding up its part of civilization by supporting the lives of people, it is not a healthy economy.

“My goal as a taxpayer is to see that these companies earn enough so that they return my tax dollars as soon as possible,” Rodriguez writes. And we all want that. But the larger goal is to manage an economy that supports the lives of citizens. Cutting people off from pensions and health care in order to maximize profits may be good, in the short term, for the auto industry. But it’s a losing strategy for a civilization.

Now, we all understand that requiring auto makers to provide health benefits and pensions, not to mention a living wage, to its workers makes it harder for Detroit to compete in the global marketplace. As I see it, there are two basic solutions to this problem. One solution is to do what the other first-world industrialized democracies are doing and give government a much larger role in paying for health care and retirement, relieving the corporations of this burden. This is the “progressive” solution.

The other solution is to demand Americans sacrifice the standard of living and economic stability they used to take for granted. This is the “free market” solution.

Human civilization is struggling to accommodate rapidly changing conditions brought about by a global marketplace and workforce. We’re all on a learning curve here. Business models and strategies that worked just fine in the past are no longer tenable. What is tenable? I don’t think any one school of economic theory has all the answers. We need a broad spectrum of ideas on the table right now.

Going forward, there are two principles to keep in mind. And the first principle is that an economy exists to support the lives of people, not the other way around. A healthy economy is one that enables people to exchange goods and services in a stable and consistent manner. It allows us to work for and provide for ourselves and each other.

Creating wealth is good, but an economy that exists to create wealth merely for the sake of creating wealth, without regard for who benefits from the wealth, is not filling the most essential role of an economy as a function of human civilization.

The other principle is that an economy needs to be flexible in order to respond to changing conditions. Flexibility requires that we don’t cling to narrow, rigid economic ideologies, but are able to keep our minds open to new ways of thinking. It also requires not allowing any one sector to profit at the expense of other sectors, or allowing any one industry to become “too big to fail.”

Put another way, as we talk about what’s good for the economy, we need to remember what an economy is good for. If we forget, our solutions will be no good.

19 thoughts on “Why Is There an Economy?

  1. I heard this recently and it surprised me: At no time in human history has the economic gap between rich and poor been as great as it is today. Many economists agree that the gap is directly related to the world-wide spread of capitalism.

    I repeat what Henry Ford said when his fellow industrialists challenged the wisdom of paying his employees $5/day. Ford, hardly a bleeding heart liberal, said quite simply because he wanted his employees to be able to buy his cars.

    Which is exactly what Rodriguez etal don’t get, and you do, maha, that “we need to remember what an economy is good for.”

  2. Henry Ford had it exactly right. Our economy survives on companies making stuff that people buy. This necessitates people having sufficient available money to buy that stuff. If they don’t, then the stuff doesn’t get sold and the companies fail and take the economy with them. This is Really Basic Stuff and I’m astonished that the righties don’t understand this.

  3. Why are there public corporations, incidentally? Do they not exist to serve the public interest? Why else are they chartered by the state, and given privileges?

  4. I challenge Rodriguez to write an essay on the subject of “Why Is There an Economy?” [emphasis added]

    But Maha, as you yourself said just a few lines before that:

    Rodriguez wants the President to give Detroit “incentives” rather than challenges to update its product line. [emphasis added]

    Challenges are bad. Incentives are good. You need to find a way to offer Rodriquez a tax incentive to answer your question. Otherwise, you know, more effort leads to higher taxes, and no one will work if their extra effort is taxed at a higher rate than their existing effort. Which is why no one earns more than $10,000 a year (or whatever the cap is on the EITC).

    Unfettered free market capitalism is a failed ideology, as is “moar tax breaks”. One shouldn’t legitimise denialists by pretending that their positions are reasonable. They really need to be mocked.

  5. I had to check out Eva Rodriguez’s bio (at least, as presented by her current employer, the Post), to convince myself that she isn’t a shill for auto-industry executives. Her resume suggests she isn’t stupid, so she must be part of the dregs-o’-the-GOP. I see no other excuse for her “denial,” as Ian so aptly describes it. She appears to have been born yesterday, with no awareness of the repeated failures of the American auto industry, and its history of pointing fingers everywhere but at its own decision makers. If they don’t want to let cooler heads prevail, if they insist on selling space heaters in Hell, then fine, their industry will fail. But someone should tell Eva that the public isn’t playing their blame game anymore.

  6. It’s past time that the “gummit bad, bizniss good” religion espoused by Rodriguez and her ilk is treated with the scorn and ridicule it so richly deserves.

    Mahakal upstream wrote that corporations are chartered by the state, for the original purpose of supporting the public good. In the olden days, these charters were routinely revoked when the corporation either fulfilled or abandoned this purpose.

    The powers running this country decisively chose to make what Abraham Lincoln called “the money power” supreme in this country, effectively declaring it to be the purpose of American civilization, when it granted corporate personhood in the wake and chaos of the Civil War (a great example of “disaster capitalism” at work). This is well described in Thom Hartmann’s Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights.

    What I’ve observed over and over among conservatives is their blind, sniveling fealty to the almighty dollar. Even that phrase “almighty dollar” and how it’s something everyone in this country has heard of and barely questions, says it all. I’m afraid that all your questioning of “why is there an economy?” will fall on completely deaf ears. These people are too paralyzed by fear to even begin to start asking questions such as these. Anyone who questions this religion is dismissed as silly, as you’ve seen in the next post.

  7. “space heaters in hell”
    I like thet one!
    How about a couple of lava lamps also?

    Moonbat, good point!

  8. Maha has just hit upon the parameters necessary to create a universal economic theory. No other economic construction addresses the ecologic nature of economics although Adam Smith’s “The Wealth of Nations” can, on careful reading, be many times a remove away without loosing sight of either ecologic origins underpinning economic processes or the economic/political superstructures constructed to further economic processes. This is exactly the point missed by the Chicago School of Economic Phrenologists in their attempted economic construction built to support the Darwinistic political fantasies of megalomaniac monopolists.

    A carefully constructed economic theory can describe in economic terms the multitude of methods mankind has developed to provide for its needs, wants, and desires. An added bonus of such a theory is if a supposedly economic scheme cannot be described using commonly understood specific economic terms, then the scheme cannot be economic but rather something else, an early warning of something amiss. There is no way CDO or CDS can be described in basic economic terms without exposing their actual natures and a top-heavy superstructure that risks (has capsized) capsizing the economic process and threatens the economic process with collapse.

    Offering advise is seldom rewarding but reliance upon demagogic understanding is even less so. Economically corporations were developed to facilitate the acquisition of capital while limiting the exposure of the investor to risk beyond the sum of the investment, and to provide longevity of function for indeterminate periods; this being an example of economic superstructure constructed to further economic processes. It has worked well to those purposes but like all tools, it can and has been abused. There is a hue and cry by demagogues concerning “person-hood” of the corporation aimed at the ignorant and clueless. In law, particularly contract law, the law only recognizes persons, to negotiate, create meeting of minds, agree, and to form and enforce contract. The “person-hood” of the corporation recognizes the corporation as a person in those terms, to enter into contract, enforce contract, and fulfill contract and in turn have contracts enforced and fulfilled by the corporation. If the demagogues have their way, one of the most useful economic edifices, developed over centuries, will be destroyed – by wanton ignorance.

    Politically it will be important to reconsider the ownership of economic production that controls major share of an economic market and may require de-coupling the corporate ownership and instituting social ownership of production for social purposes and couple retirement funds or other unconsumed incomes as a funding source for continuing the production.

  9. Eva’s absolutely correct, if you believe the only promise a society should make to itself is free and unfettered capitalism. I almost think this is all a branch of the “poor people are lazy” argument, as if it’s ok if corporations screw their workers, working is more important than living, and only lazy people are poor. Assholes. I never use that word in such settings but the teaparties are starting to look like good ideas when I read shit like this.

  10. And, don’t forget W was our first MBA President. Look how well that went.

    There is little or no evidence in the last ten years that shows the “business professionals” know any thing about running businesses.

  11. Great Post. Sometimes you think pretty good for a girl. (Just kidding!!!!)

    Years ago, I noted that history & civics blurt out ‘democracy, freedom & capitalism’ as if they are inseparable and complimentary. Krugman might find my definition lacking but I define capitalism as:

    the economic system which expects society, & governemnt exist for the benefit of the aristocracy known as ‘capitalists’.

    Fascism is similar to capitalism but capitalists form a partnership with government to exploit the masses.

    Communism is similar to fascism in its devotion to the exploitation of the masses, but the capitalist does not exist at all. (There are SOME advantages to communism over fascism)

    And then you come to Democracy, which I believe is the political system under which capitalism & government exist for the benefit of the masses.

  12. Expat – I find it hard to believe that the “artificial person” idea behind corporations will be destroyed. It is, as you point out, much too useful. In the case of the USA, however, they acquired the same footing as real persons, going well beyond the useful functions you point out. In essence we recreated the feudal system.

  13. Perfect.

    If someone doesn’t occasionally state the obvious…that which we assume as a matter of intrinsic value we get out of practice at explaining ourselves and are flummoxed in the face of right wing talking points. That’s the problem, isn’t it? …that our political exchanges rarely get down to the level of values. We hear that health care just cannot be because it would be unfair to someone…it would be income re-distribution or socialism.

    We are cowed by labels and consequently, in order to be “fair: to a few we somehow go along with the idea that we should be unfair to millions. We bow before these ideas as if we’re unworthy. We fall prey to the meme that those who have little or nothing and are willing to work hard must be undeserving. Thus goes the vicious circular reasoning of conservatives — that the richest have what they have because worked hard and deserve it and therefore deserve a system that favors them…the kind of thinking that might suit them just fine but it not so good for the rest of us who want better access to that which comes easy to the richest, things like higher education that is not prohibitively expensive and healthcare. These are things that our society and economy need because they make us all better and stronger.

    The same sort of transcendence is in effect with all the hubub surrounding the SCOTUS nominee. Questions of ideology, race, gender and sexual preference loom large as if only these qualities and thes alone might erode higher principles of fair and just application of the law. Yet we have stare decisis (concept of legal precedent) vs. the Federalist papers, Heritage Foundation…just an excuse for far-right reactionary old white men to invent their own meaning so long as they claim it would have suited the founding fathers. Hell, slavery was OK with some founding fathers.

    So in todays LA times Obama was quoted as saying he wanted someone with “empathy” for “people’s hopes and struggles.” This is long overdue. It’s high time that our discourse focus on our underlying values and the reasons for policy rather than stultifying talking points that obscure intent and alienate us from our basic human values and ourselves.

  14. Moonbat – What was created was indeed a plutocratic feudal system far surpassing any successful aristocratic example history records. The plutocracy was founded upon the wealth extracted from the establishment of a continental sized country rich in natural resources.

    Aristocracies are established to create a body of political power that protects princes and kings from the ruled population and to extend the rule of those princes and kings over that population. Aristocracies are held in check by political divisions amongst the aristocrats by astute means exercised by princes and kings, allowing just enough privilege the loss of which would motivate fidelity to the prince or king, never would any sizable fraction of the wealth of the kingdom be allowed to any one aristocrat, if so, that prince or king was a goner. (Also note the pathological nature of founding members of aristocracy (military management of armed bodies the most frequent entry to aristocracy), and the attempts made to keep those characteristics breeding true).

    The American aristocracy was based upon the vast wealth extracted from a rich continent, a plutocracy, founded entirely on monopolistic economic power through ownership control of economic production. Instead of a prince or king in place to regulate the development, a constitutional republic was in place and the control of the republic’s power was bought, managed or quietly usurped by the plutocracy to comply with the plutocracy’s agenda of its unhindered growth. Insidiously at first, then quietly the reins of power were handed to unelected management (a superb argument against term limitations, by the way) put in place in both executive and legislative branches of the government. The last forty years have seen the cloak fall revealing the hither-to-fore hidden machinations of the corporate management of government – the recent VP, a true corporate prince. No effective political power was ever exercised by the republic to regulate the economic barons to the republic’s ends. So ends the Republic.

    To conflate corporation with the aforesaid process is to unnecessarily create a deceiving straw-man. It camouflages fact with fiction, a fiction even more egregiously deceiving. This straw-man provides those who would be demagogues with the illusions necessary to gain public approval and grab political power for their own ends and agendas. Believe what you will, this straw-man of yours carries a great danger, deception.

    Both Britain and Ireland retain what is probably the original historical form of corporation in the form of city or county governments (under charter documents from the central authority issuing charters). Business corporations are known differently as limited liability companies (Ltd.). Incidentally, this does nothing to change the business with the corporation as anything less onerous.

  15. Politically it will be important to reconsider the ownership of economic production that controls major share of an economic market and may require de-coupling the corporate ownership and instituting social ownership of production for social purposes and couple retirement funds or other unconsumed incomes as a funding source for continuing the production.


    That sounds like little protection for retirement income. In a utopian vision maybe there would be social ownership worthy of such trust but even within a single corporation the division of labor creates positions, tasks, and organizational functions that are pursued by individuals with single-minded focus and there’s the rub in balancing competing goals, even within an organization as it is within a country.

    Solve that problem, even in theory, and many of society’s ills go away. We have known the enemy and it continues to be us.

    On second thought, maybe the funding source for continued production could be from profit…but that would mean slower growth that reflected the inherent ratea of population growth. Wall Street would not stand for that, would it?

  16. Expat – excellent points, well expressed. The useful concept of the corporation is a facade for the real underlying problem.

  17. Corporations are legal fictions – nothing more than bundles of contractual agreements.

Comments are closed.