The Biggest Risk to the Economy in 2012, and What’s the Economy for Anyway?

Treasury Secretary Tim Geithner, speaking at the World Economic Forum in Davos a few days ago, said the “critical risks” facing the American economy this year were a worsening of Europe’s chronic sovereign debt crisis and a rise in tensions with Iran that could stoke global oil prices.

What about jobs and wages here at home?

As the Commerce Department reported Friday, the U.S. economy grew 2.8 percent between October and December – the fastest pace in 18 months and the first time growth exceeded 2 percent all year. Many bigger American companies have been reporting strong profits in recent months. GE and Lockheed Martin closed the year with record order backlogs.

Yet the percent of working-age Americans in jobs isn’t much different than what it was three years ago. Yes, America now produces more than it did when the recession began. But it does so with 6 million fewer workers.

Average after-tax incomes adjusted for inflation are moving up a bit. (They increased at an annual rate of .8 percent in the last three months of 2011 after falling 1.9 percent in prior three-month period. For all of 2011, incomes fell .1 percent.)

But beware averages. Shaquille O’Neal and I have an average height of six feet. Exclude Mitt Romney’s $20 million last year — along with everyone else securely in the top 1 percent — and the incomes of most Americans are continuing to slip.

Consumer spending picked up slightly in the fourth quarter mainly because consumers drew down their savings. Obviously, this can’t last.

Meanwhile, government is spending less on schools, roads, bridges, parks, defense, and social services. Government spending at all levels dropped at an annual rate of 4.6 percent in the last quarter – and that’s likely to continue.

Some economists worry this drop is a drag on the economy. But it also means fewer public goods available to all Americans regardless of income.

Congress still hasn’t decided whether to renew the temporary payroll tax cut and extend unemployment benefits past February. If it doesn’t, expect another 1 percent slice off GDP growth this year.

Tim Geithner is surely correct that the European debt crisis and Iran pose risks to the American economy in 2012. But they aren’t the biggest risk. The biggest risk is right here at home – that most Americans will continue to languish.

All of which raises a basic question: Who or what is the economy for? Surely not just for a few at the top, and not just big corporations and their CEOs. Nor can the success of the economy be measured by how fast the GDP is growing, or how high the Dow Jones Industrial Average is rising, or whether average incomes are turning upward.

The crisis of American capitalism marks the triumph of consumers and investors over workers and citizens. And since most of us occupy all four roles – even though the lion’s share of consuming and investing is done by the wealthy – the real crisis centers on the increasing efficiency by which all of us as consumers and investors can get great deals, and our declining capacity to be heard as workers and citizens.

Modern technologies allow us to shop in real time, often worldwide, for the lowest prices, highest quality, and best returns. Through the Internet and advanced software we can now get relevant information instantaneously, compare deals, and move our money at the speed of electronic impulses. We can buy goods over the Internet that are delivered right to our homes. Never before in history have consumers and investors been so empowered.

Yet these great deals increasingly come at the expense of our own and our compatriots’ jobs and wages, and widening inequality. The goods we want or the returns we seek can often be produced more efficiently elsewhere around the world by companies offering lower pay, fewer benefits, and inferior working conditions.

They also come at the expense of our Main Streets – the hubs of our communities – when we get the great deals through the Internet or at big-box retailers that scan the world for great deals on our behalf.

Some great deals have devastating environmental consequences. Technology allows us to efficiently buy low-priced items from poor nations with scant environmental standards, sometimes made in factories that spill toxic chemicals into water supplies or pollutants into the air. We shop for great deals in cars that spew carbon into the air and for airline tickets in jet planes that do even worse.

Other great deals offend common decency. We may get a great price or high return because a producer has cut costs by hiring children in South Asia or Africa who work twelve hours a day, seven days a week. Or by subjecting people to death-defying working conditions.

As workers or as citizens most of us would not intentionally choose these outcomes but as seekers after great deals we are indirectly responsible for them. Companies know that if they fail to offer us the best deals we will take our money elsewhere – which we can do with ever-greater speed and efficiency.

The best means of balancing the demands of consumers and investors against those of workers and citizens has been through democratic institutions that shape and constrain markets.

Laws and rules offer some protection for jobs and wages, communities, and the environment. Although such rules are likely to be costly to us as consumers and investors because they stand in the way of the very best deals, they are intended to approximate what we as members of a society are willing to sacrifice for these other values.

But technologies for getting great deals are outpacing the capacities of democratic institutions to counterbalance them. For one thing, national rules intended to protect workers, communities, and the environment typically extend only to a nation’s borders. Yet technologies for getting great deals enable buyers and investors to transcend borders with increasing ease, at the same time making it harder for nations to monitor or regulate such transactions.

For another, goals other than the best deals are less easily achieved within the confines of a single nation. The most obvious example is the environment, whose fragility is worldwide. In addition, corporations now routinely threaten to move jobs and businesses away from places that impose higher costs on them – and therefore, indirectly, on their consumers and investors – to more “business friendly” jurisdictions. The Internet and software have made companies sufficiently nimble to render such threats credible.

But the biggest problem is that corporate money is undermining democratic institutions in the name of better deals for consumers and investors. Campaign contributions, fleets of well-paid corporate lobbyists, and corporate-financed PR campaigns about public issues are overwhelming the capacities of Congress, state legislatures, regulatory agencies, and the courts to reflect the values of workers and citizens.

As a result, consumers and investors are doing increasingly well but job insecurity is on the rise, inequality is widening, communities are becoming less stable, and climate change is worsening. None of this is sustainable over the long term.

Blame global finance and worldwide corporations all you want. But save some blame for the insatiable consumers and investors inhabiting almost every one of us, who are entirely complicit. And blame our inability as workers and citizens to reclaim our democracy.

This post originally appeared at Robert Reich’s Blog and is posted with permission.


5 Responses to "The Biggest Risk to the Economy in 2012, and What’s the Economy for Anyway?"

  1. Mark Nease   January 31, 2012 at 7:58 am

    Ralph Nader spoke on BookTV on C-Span (at Busboys and Poets in DC) over the weekend promoting his new book on overcoming "corporatism". During the Q&A period, a young attendee raised the issue of the consumer's complicity in the dysfunction of the economy. He referred to the way consumption is done in this country as an "addiction". I would endorse this view and extend it to say that the average American suffers from a chronic deficiency in brain reward circuitry in which he attempt to replace the hormonal inability to feel pleasure with behaviors that temporarily relieve his suffering. I believe this is partly genetic (nature) and partly cultural (nurture) and has a very important dietary component. I think Mr. Reich, and the commentator, are justified in "pointing the finger" at the consumer, but considering the relentless pressure appled by corporate advertising and the lousy diet they sell, the resposibility comes back to them. The solution? Book length, but in a word, stop patronizing them and eat a better diet.

  2. overpopover   January 31, 2012 at 12:38 pm

    "As workers or as citizens most of us would not intentionally choose these outcomes but as seekers after great deals we are indirectly responsible for them"

    This is total bullshit. But facing that reality is impossible for the Left.

  3. Robert Patrick Coutinho   February 1, 2012 at 12:32 am

    It may be impossible for the Left, but it is not even considered a problem from the point of view of the Republican Party. They oppose ANYTHING that would restrict what they call 'free trade'. Correction, they would oppose anything except immigration. Yes, immigration would be a realistic part of free trade. I have to see doctors; I buy products that have U. S. corporate officers; any lawyer I hire will be a resident of the country. These are (often) high-paying jobs that most foreigners are NOT allowed to compete in.

    An argument (anecdotal) against such a claim goes as follows, "But how can you say that foreigners are not allowed to compete? Professor such and such, or Doctor such and such is from a foreign country and she is the best one on the staff!"

    Exactly. The best can often get through the regulatory hurdles to immigrate to this country. It is not the 'best one on the staff' who should provide one with a counter argument. Where are all the mediocre ones? Why don't we have far more doctors from Mexico and Europe? They certainly get paid more in the U. S., so it is very unlikely that no one wants to come here to practice medicine. In addition, there are nurses, pharmacists, laboratory techs, etc. who also would come here–lowering the wages and, consequently, the prices of those services as well.

    The point is that such people are excluded from the 'free trade' agreements. Goods can come in–not people. That is not free enterprise; that is high restriction on one type of good/service while allowing the other type (cars, consumer items, toys, et. al.) to come in cheaply.

    If immigrants were freely allowed to come to this country and force lower wages on highly paid professionals, free trade agreements would not be looked upon (by most Americans) as such a good thing.

  4. Nick   February 2, 2012 at 9:36 am

    There is a very simple answer to this issue. Impose tarriffs on imports from countries that do not have our environmental or labor laws and progressively reduce them for countries that harmonize their laws with ours. In other words eliminate the motivation for employers to relocate to arbitrage differences in these laws. After all, the air and water carrying pollutants know no boundaries – so why should our laws?