The Economy and Its Limits



John Stuart Mill once argued that “the laws and conditions of the Production of wealth partake of the character of physical truths,” while on the other hand “the distribution of wealth…depends on the laws and customs of society.” To which Karl Marx indirectly replied “distribution, however, is a feature of the mode of production.” One of Marx’s points was to argue against the tendency to accept certain limits as natural when they were, in fact, the product of decisions about how to organize productive life. If we too quickly accept these limits, then even struggles over the distribution of wealth will be tilted and constrained. Now it might seem odd, after a crisis brought on by a lot of excess borrowing, and unfunded consumption, to argue against limits. Nevertheless, our current debt-discussions could do with some attention to Marx’s insight.

After all, in the post-Budgetary Control Act of 2011 debate there is a continued argument over the limits that contemporary economies face, and to which they are forced to respond. Consider, for instance, this op-ed by the Alan Simpson and Erskine Bowles, deficit hawk ‘expert’ leaders of the detestable (and somewhat irrelevant) 2010 Fiscal Commission, which was supposed to draw up plans to solve our budgetary woes. Their astonishing response is to see the debt-ceiling bill as a “first step toward fiscal sanity” but, more importantly, “it’s just a step forward; it isn’t a solution.” If you think they are just talking about the new commission, think again. Even if the commission finds another $1.2 trillion in savings, Simpson and Bowles think we still “must address the unsustainable growth of our entitlement programs and reform the tax code to make it more competitive and more efficient.” The drumbeats of austerity continue to beat, and not just from the looney bin. For the White House this was “a win for the economy and for budget discipline,” as if the latter were an end in itself. Meanwhile, Obama has so boxed himself in that he has next to nothing to offer regarding a real stimulus or job creation.

One response to the whole debt deal has been to say that there’s more than one way to skin a cat. We could withdraw from Afghanistan and Iraq, let the Bush tax cuts expire, maybe even add a financial transactions tax, and we would find huge savings – nearly all of what the BCA is looking for, in fact. This would be a much more equitable way to balance the budget than cutting services on such “notorious high livers as the poor, the chronically ill, and graduate students.”  Consider this from a very good article by Dan Froomkin: “‘The rich have drawn a political box around what can be done here,’ said Damon Silvers, policy director for the big umbrella union AFL-CIO. ‘They are gutting the modern state in order to avoid a real conversation about taxes.’” In other words, the debate over the budget is a debate over distribution. Who should feel the pain of a necessary belt tightening? (On this blog, we ourselves have supported arguments for jobs programs for, among other things, their distributional effects.)

But to argue just over distribution is to accept an unnatural limit to ‘production.’ It assumes, first, that there is a fiscal emergency when there isn’t. As Doug Henwood expertly showed a few months ago, the spike in the deficit is a product of the recession, not the recession a product of the deficit. Second, much of the current debate assumes we can’t produce our way out of debt. As Froomkin points out, “There is, of course, another way to reduce the deficit: Stimulate economic growth and grow out of it.” The ‘of course’ there is the nub. Few think that such a solution is so obvious. Or, put another way, the ethos of limits has become so hegemonic that few can imagine the possibility of growth without significant cuts to social services (‘entitlement reform’), or without a debt crisis.

One of the central problems, then, is the acceptance of limits as to what is economically possible. We touched on this on Tuesday, but it’s worth emphasizing. The main lesson that seems to have been taken from the recent crisis is that everyone was living beyond their means. Households borrowed too much, banks loaned too much, financiers speculated too much, and governments spent too much. This ‘lesson’ is the one to be resisted.  It’s true that there were systemic risks, that regulation was poor, and that real wages were so low that the only way for most to maintain living standards was to borrow. But the lesson is not therefore, or not straightforwardly, retrenchement and ‘fiscal sanity’ as Bowles and Simpson innapropriately put it (austerity on the brink of a double-dip? now that is insane.) Rather, a different lesson might be that the economic model of the last thirty forty years is not worth supporting. Not only did it provide little in the way of decent jobs for most people, it produced rather anemic growth, with the last decade producing the lowest GDP per capita since the 1940s (from LBO 130, Nov 24, 2010). Nearly all of that growth went to the top 20% as it was. And as we noted before, the distributional consequences of this economic system were closely related to its finance-centered organization. Distribution and production were intertwined. For such a lop-sided, and ultimately anemic, economic system, it is dispiriting that it still receives so much support, and that the majority are instructed to find new limits within it.

Of course, overcoming this ethos of limits is not easy – though a serious defense of a jobs program, not just in the name of greater equity, but also on the grounds that it is a better stimulus proposal, would be a good start (and only a start it would be). But even that seems dead in the water – those who still believe in the ability to collectively intervene in and improve our economic condition rarely getting a hearing. For the time being, it is worth arguing with all possible force that we should be rejecting the ethos of limits – which is really an ethos of limits for the majority, while certain private individuals are increasingly unlimited. The fiscally sane position is not demand less, but produce more.

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