The Collapse of the Exploitation Economy Part I by Bill Steinwedel

Third in Series

This is the third in my guest blogger series for students enrolled in my new Georgetown University Law Center course: Contemporary Issues in Economic Justice: The Subprime Crisis.

The Collapse of the Exploitation Economy By Bill Steinwedel,

Bill Steinwedel is a Second Year Student at Georgetown University Law Center

In one of my favorite movies, The Dark Knight, at the beginning of the film, Alfred, played by Michael Caine, is debating Bruce Wayne/Batman, played by Christian Bale, on the question of whether Batman has any limits and whether eventually there would be a foe that would push Batman past the brink. Bruce Wayne, of course, believes that Batman does not have any limits, but Alfred disagrees. At the end of the argument, Bruce Wayne says, well at least if Alfred is right, he will be there to tell him , "See, I told you so." Alfred says in response, "Sir, on that day, I won't want to."

This is how I feel about the current economic crisis. For years, as an undergraduate student, I told everyone I could that this overheated economy was not sustainable and that there was going to be a crash. Most of my friends were economics majors who told me that I simply did not understand the market, and if I did, I would know that it would never end. They used to tell me, "Giving money to the poor has never worked; only rich people create jobs." My economics professor in college hung a Communist flag above my desk and always referred to me as "we must now get the Socialist opinion." He promised that in ten years he would send me a letter if the economy did collapse (I still have not received that letter).

Of course, I never could have guessed how bad it really was, because my knowledge of Wall Street was so limited. I remember coming home one day in my hometown of Westminster, Maryland and seeing a house for sale for $450,000 in 2004, in a town that is an hour from the closest major city (Baltimore) and nearly two hours from Washington D.C. I remember saying to myself, "Things have completely gotten out of control."

Today, I feel like Alfred, I should say I told you so, but I do not want to. Too many people, especially working class people like my family; although my family has been lucky not to suffer any hardships, so far. So many people are suffering the loss of jobs and the loss of homes. The only good thing is that we now have a government led by the only other politician other than Jimmy Carter and Nelson Mandela that I ever admired, Barack Obama, who I believe truly does care about those people losing jobs and wants to make America a great and prosperous nation again.

I only hope that it is not too late, and that the exploitation economy has not sent America and the world into an irreversible, sustained, long-term decline.. I do not believe that making money, a lot of money, is necessarily bad. It can do a lot of good, as is shown by Bill and Melinda Gates, Bono, and a lot of other people. The problem is when making money and the free markets dominate our economic lives, without the balancing force of government restraint, it can lead to the excesses of the bubble-and-crash cycle.

The Causes of The Creation of The Exploitation Economy

The United States, for about the first 35 years after World War II, had a hybrid socialist/capitalist economy. While there were both Republican and Democratic Presidents during this period, all of them believed in Keynesianism as the driving economic premise. In addition, the stock market stayed relatively stable and the tax rates on the wealthy were very high ( as high as 91%) and the economy, for the most part, grew at a decent rate.

Then, two things happened. First, as wages increased, inflation began to be a major problem in the 1970s. For working people, inflation generally, as long as it does not reach Bolivian or Zimbabwean levels, is not a huge problem, because most companies, especially with the 30% unionization in the 1970s, bargain to tie their wages to adjust to inflation, so the worker really continues to make essentially the same amount of money.

Inflation, however, is a huge problem for bankers, lenders, and those who are in management because they are on fixed salaries and the real value of what they are making from loans is simply not as high as it would be in a low inflationary period. The other major factor was that the rest of the developed world, especially Asia, was beginning to catch the United States in economic growth. While the rest of the world was recovering from the revolutions of the 1940s and 50s and World War II, the United States was alone in being the best capital market.

But now, Asian and European markets were beginning to catch the United States, and they generally paid lower wages and they were generally, at least at the time, somewhat more innovative then the United States. So, companies were beginning to see greater profits for overseas companies than those that in the United States. So, business leaders were beginning to want less unionization and more opportunities to go overseas to be able to match their foreign competitors. Then came the election of 1980.

To be continued, watch for Part II to follow: The American Gilded Age (1981-2008) and the Exploitation Economy

Disclaimer
The views expressed above do not represent my views or the view of Georgetown University. The sole responsibility belongs to the author.