Economic Ideology

Today, Economics is an important ingredient in our ideology, and changing fashions in economic ideology have had an important effect on what is considered politically possible.

From the collapse of the Depression was borne the ascendancy of the economic ideology of Keynesianism; it created the raison-d'etre for New Deal policies, and the justification for stimulation of the economy through government programs and deficit spending.

Stagflation in the 1970's created the opening for the dominance of a new (or remodeled) economic ideology: supply-side economics and monetarism.

Why are fashions in economic ideology important?

Economics is not neutral, and if policy makers subscribe to a particular economic ideology, it has profound social and political effects.

If an economy needs a boost, a Keynesian, on the basis of his economic ideology, recommends public works programs or tax cuts for the poor and middle class, putting extra money into their pockets. On the other hand, a supply-sider, working from the premises of a very different economic ideology, will propose tax cuts to capital gains, and the economic ideology of a monetarist will cause him to advocate cutting interest rates through the Federal Reserve. Those capital gains tax cuts give big bucks to the wealthy; low interest rates will make investments less costly, but will only be pursued if there is no "wage pressure," meaning it won't happen if there is a danger that workers might get raises.

All three stimulus policies might add temporary demand to the economy, because they all add money to it, but monetary and supply-side policy will increase the wealth of the already wealthy (and all boats have not risen with the rising tide in the 90's and 00's), whereas Keynesian policy will put more money directly into the hands of those who have least. All you have to do to confirm this is to look at the rising rates of income equality from the 1930's to the 1960's and the rising rate of inequality that we've experienced ever since. The point is: economic ideology has a major impact on the shape of a society.

One of the basic problems with the current economic ideology, and the policies that derive from it, is that people with a lot of money don't spend it all (whereas the poor do, almost by definition). Further, a lot of "investment" is not really investment in economic terms, but simply speculative, or hoarding, like the Roman Senators hoarding gold Much real investment isn't in the American economy; it's invested abroad in new manufacturing, for example.

This brings us to the tortured realm of international economics. No economist is against some form of international trade, and no one now favors the view of international economics prevalent in Rome and in the 18th century, when states were enjoined to store up "specie," (gold or its equivalent) and to beggar their neighbor in order to do so. Now, all recognize that international trade can be a tool to enrich everyone, and that more trade will probably enrich more people. How economists propose trade should be promoted, however, is another bone of contention.

"Free Trade" is a doctrine that arose with the British Empire; it posits that all barriers to trade should be eliminated, and because of "comparative advantage" prices for all goods and services will fall and everyone will be enriched. The theory favored Britain when it was posited, because British manufactures were far and away the most efficient producers of manufactured goods; when British goods were allowed free entry into the US, they drove out the higher priced and lower quality American goods, which is why American business favored high tariffs. American policymakers continued to favor high tariffs even after production and quality advantages (comparative advantage in manufacturing) had passed to them in the 1920's. The high Smoot-Hawley tariffs were one of the major contributors to the US's Great Depression, because they cut off trade with Europe.

But the problem with "free trade," as currently constituted, is that it protects neither workers, nor the environment. We do not have high tariffs now. There are "non-tariff" barriers to trade, like subsidies to agriculture, which make American corn cheaper for Mexicans than their own, for example. Those subsidies are one of the reasons why the World Trade Organization's latest round on trade stimulus recently collapsed; neither the US, nor the Europeans could agree to eliminate subsidies.

But international trade as currently promoted by most American economists is highly favorable to American interests and unfavorable to Mexican interests, for example. It is also favorable to large American, or global corporations, but not to American workers or to smaller, nationally-centered businesses. It is the "Washington Consensus," which facilitates investment by global (still predominantly US) firms over smaller, more local corporations, and it puts workers all over the world at a distinct disadvantage, for a very simple reason: capital can race around the world with the click of a mouse, but labor can't move very easily even into the next country. So corporations have become global, meaning that they can search out the lowest cost labor and resources anywhere in the world. American workers, in effect, are competing against not only Mexican workers, but Chinese and Indian workers (and Malaysian and South African workers) as well.

International trade rules have not only put American workers out of work, have not only sent jobs to other nations, they have kept American wages much lower than they should be, because if workers ask for raises their bosses can threaten to pick up and leave for lower-wage countries. American wages should be higher because productivity per worker has soared, while wages have remained stagnant. Wages held back enable corporate owners to walk away with the extra wealth the workers have produced.

How this fits into selfish class dominance you can read here. International trade rules and deregulation of regulated industries like airlines have conspired to weaken labor unions, which are not able to organize workers across national boundaries.

So, economics plays an important role in the current class war.

Yes, I said class war. Supply-side and monetarist economics, as well as "free trade" international economics are each an economic ideology that legitimize CEO's getting huge raises while workers are told they will have to make sacrifices, i.e. wage "givebacks." both economic ideologies legitimize the rapid increase in wealth of the top 0.1%, while even the merely wealthy fall behind, both legitimize the Fed policy of controlling for inflation and ignoring its legal mandate to maximize employment and both economic ideologies legitimize the WTO and World Bank's lack of concern for worker rights.