Tuesday, October 21, 2008

Recession/Depressions: How the GOP 'Soaks' the Poor and Middle Classes

'Depression' is the word used to describe how the working classes get soaked. Austrian-born economist Joseph Schumpeter as quoted in Robert Heilbronner's "The Worldly Philosophers" regaled his Harvard students in the mid-1930s
Chentleman, you are vorried about the depression. You should not be. For capitalism, a depression is a good cold douche. [By which he meant shower.]
Scrooge put it even more bluntly:
"Are there no workhouses? Are there no prisons...then let them die and decrease the surplus population."

—Scrooge
There have been fears that the US economy was perched to jump off into a 1930s-style depression. Thanks to Schumpeter, many have said that a recession or a depression may not be such a bad thing. That depends, of course, upon whether or not you have enough reserves to ride out a recession. It has been argued that the international 'banking establishment' manufactures recessions/depressions to give investors a chance to pick up bargain stocks or entire businesses. But --is this a good thing as Schumpeter implied?

I hate to say 'I told you so' but I told you so! Here is an excerpt from my previous article.
  1. Recessions, though not caused by declining stock markets, are always accompanied and often predicted by a plunging stock market. Republicans sell out at the peak, taking their profits. Enough selling will trigger the plunge; less knowledgeable investors begin to follow suit from fear but too late. Last man out loses.
  2. Having taken their profits on the upside, a depressed market is but an opportunity for the rich Republican to get back in at lower prices. Guess who sells at the lower price: the poor schmuck who is 180 degrees out of phase and can only dream of being a rich Republican. In reality, those he aspires to join are exploiting him.
  3. Very knowledgeable investors make money "selling short", buying "put options". These investors get peak prices for stocks even as the price declines. Illegal insider information is executed with "calls" and "puts." The perpetrators of 911, for example, made millions, possibly billions, selling short the stocks of UA and AA. I defy anyone to come up with an 'innocent' explanation. The recipients of those profits had guilty foreknowledge of 911. The name 'Buzz' Krongard comes in connection with a known terrorist organization: the CIA.

    Now --a planned financial meltdown might have presented the same opportunities. Historically, 'elites' have always emerged richer, stronger from recessions. On the other side of Ronald Reagan's recession of some two years, the rich had gotten richer while the middle class was all but wiped out. The ill-effects of that recession are still seen in the decline of middle class neighborhoods, the permanent loss of manufacturing base and the jobs it created.The profits and volume were most certainly outside norms, proof that those executing the options had precise foreknowledge of the attacks. Those making those profits had "guilty knowledge" of the attacks; they were at the very heart of a murderous conspiracy.
  4. Unemployment always goes up in a recession. At the end of a longer recession, companies have the luxury of hiring from a larger labor pool at lower wages and/or salaries. Some companies --citing hard times --may reduce benefits, cut vacation or sick time. Big business must hate good times; it is only during times of full employment that workers have any leverage at all. Offhand I can think of only two times in history that have come close: the Clinton years, and, interestingly, Europe after the Black Death. The labor supply had been depleted by plague. Employers were often forced to accede to worker demands for better conditions, money, a place to live! Serfs had been freed and it marked the beginning of the end for Feudalism and set the stage for 'corporate feudalism', an age in which we still labor and suffer.
  5. Admittedly, many businesses go belly-up during recessions. While lip service is given to 'free markets' and Adam Smith's 'invisible hand', die hard robber barons hate the 'free market'. They prefer 'monopoly' when they can create one and 'oligopoly' when they can't. Free competition among many sellers is the last thing they want. Recessions are welcomed. It's the 'cold douche', a ruthless flush, so beloved by Schumpeter and the robber barons of American capitalism.
  6. Don't expect recessions to bring down prices. More often, higher prices are the light that is seen at the end of the long, dark tunnel. In other words, those businesses fortunate enough to survive a 'downturn' are in the enviable position of raising prices on the other side. Higher prices benefit businesses that manage, even with government help, to stay in business during a recession. So much for laissez-faire capitalism. Those fortunate businesses now make more money per unit produced and will do so with fewer employees. The world is not so kind to everyone else, primarily smaller businesses and entrepreneurs, freelancers, and worker bees. Prices, we learned in Economics 101, are determined by supply and demand. If the demand is such that the market is quite willing to pay any price for it (prescription drugs, gasoline, certain rents) then demand is said to be inelastic.
  7. At the expense of over-simplifying, consumer demand is the arbiter of price only in markets characterized by diffuse competition. Recessions militate against a market of this sort, weeding out all but 'privileged' businesses, primarily those with juicy government contracts or GOP cronies in office. Only in the textbook model, is it assumed that the oligopolist's market demand curve becomes less elastic at prices below a certain point. In markets characterized by the continuing decline in the number of 'sellers', it is obvious that there are fewer motivations for oligopolists to reduce prices. In such a market, the oligopolist (an aspiring monopolist) makes more money selling fewer units at higher prices than could be earned selling more units at lower prices. How many people are out of a job makes no difference to the American right wing for whom Scrooge is their abiding inspiration.
The American right wing, consulted by slick Madison avenue whiz kids, will never call the American gulag of FEMA camps by the names 'work houses' or 'prisons'. By any name, they are presumably open and ready for those who fall through the gaping cracks. A perpetually depressed economy is a good source of slave labor. Who benefits? KBR? Halliburton?

Recessions/depressions are paid for with the 'blood, toil, tears and sweat' of the working classes without whom nothing would ever get produced and no profit would be realized. This would be a high price to pay even if the benefits were fairly distributed at the end of what is euphemistically called the 'business cycle'. But they never are. It is always the upper classes, recently, the top one percent of the nation, that benefit. It is the 'lower classes' who pay for the recession by suffering the Four Horsemen of Economic Apocalypse: unemployment, lower wages, higher prices and bankruptcy.

The GOP exploits convenient rationalizations that benefit Bush's 'my base'. Some in the GOP will choose to believe, as did Joseph Schumpeter, that depressions are but 'a process of creative destruction' that weeds out 'inefficiencies' in the economy. Others know that not to be true butrepeat it anyway just as they had espoused 'supply-side' economics during the Reagan years. It is not 'inefficient firms' that are weeded out. It is the competition, it is what is left of the America's working class, it is the millions who will be deprived of education, opportunity, future.
Are there no FEMA camps? Are there no prisons? Then let them die and decrease the surplus population.

—Scrooge (updated)

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