The is the fourth in a series by students enrolled in my new course, Contemporary Issues in Economic Justice: The Subprime Crisis, at Georgetown University Law Center
Disclaimer
The views expressed here do not represent my views or the view of Georgetown University. The sole responsibility belongs to the author.
Part II
The Exploitation Economy
by William Steinwedel
William Steinwedel is a Second Year student at Georgetown University Law Center
The election of 1980 is one of the most important elections in American history. For the first time since the Great Depression, one of the candidates did not believe in Keynesian economics. Reagan defeated one of the people I admire most, Jimmy Carter, in a landslide.
Reagan, the Bushes and even Bill Clinton then oversaw the growth of the exploitation economy. The idea was that the government was a hindrance to the market, not a help, and it would be better if the government just got out of the way and the free market business people would control the economy, with the Federal Reserve helping to control the interest rates and keep inflation low. This led to what I would now call the US exploitation economy.
I hoped that, if anything, we would learn from the market failures described below, and quickly adjust so it would never happen again. As AIG bonuses show, however, the exploiters still believe that it can continue and think they own the system and can get what they want. And why should they think otherwise, they have been getting what they want for almost 30 years. Only when America shows that there are real consequences and real change, through legal actions, a closing of corporate tax loopholes, a nationalization of most of the large banks and an improved social safety net and other steps, will the exploitation economy truly come to an end.
The Contributing Factors leading to the Exploitation Economy
1.Increased credit- This was a big thing that the bankers wanted, which was to control inflation so they could make more money on loans and credit cards. Well, inflation got under control, and now loans were easier to get than ever and this allowed people to get credit that they never would have been able to get.
2.Increased foreign investment- With fewer trade barriers, the United States now had more foreign investment. The problem this development is that if their ever was a collapse in the United States market, it would affect the global financial system.
3.Increased use of immigrant labor- The exploitation economy did not just exploit people in other countries, but in this country as well. The growth in the use of sometimes illegal immigrant labor also contributed to wage stagnation. This was notable in the construction industry where many people performed construction jobs at low cost, thus allowing housing companies to make enhanced profits. This drew a lot of people to invest and work in the housing industry.
4.Economic law breakers, predators, etc. - Because there was virtually no control on the market, and because there was a sense that control was bad, it allowed predators who wanted to exploit people and make profits thrive in the market. I could try to list all of these people and products (subprime mortgages, high-interest credit cards, ponzi schemes, Enron, and World Com etc.), but I would need another article.
5.The Bi partisan political Benefits of Government Non-Intervention
When the Washington Consensus, built on belief in the policy of minimal government intervention became the prevailing theory, and it initially grew the economy, everyone began to believe that it was a good thing, even Democrats, So, some Democrats (The Clintons, Al Gore in 2000, Joe Lieberman, etc) began to believe that loving the market was the only way to get elected. In addition, corporate profits grew at such an alarming rate and unions and social groups lost their power, so corporations became the only place to get the substantial campaign contributions required to win elections.
6.And the most important cause of the collapse.... The Stock Market and Bubble Economy- From World War II to the 1980s, the Stock Market was a minor player in most people's economic lives. Most people had retirements and pensions through their companies, and most people were not invested individually in the stock market. However, with most companies no longer providing true pension funds, the stock market became the most common tool for retirement.
This meant if there ever was a major stock market crash more people would be affected. In addition, the exploitation economy became the "bubble economy," where certain products would cause mass investment and a bubble, which would then burst and collapse. Two of these bubbles, the internet and oil, did not have a great effect on the general economy because most middle-class people were not tied into these industries. But the third, the housing economy, was so filled with middle-class people taking out too many loans and too many jobs that when it collapsed, it was going to create a Tsunami.
We are all paying the price for permitting the exploitation culture to take root and flourish.
Disclaimer
The views expressed above do not represent my views or the view of Georgetown University. The sole responsibility belongs to the author.