Malign Confusion about Growth, Economic Growth or “Degrowth”: Which Way Forward? – Pt 1

By Michael Hoexter

[Part I] [ Part II] [Part III]

Speaking on December 4th, President Obama, tacked once again, at least in his rhetoric, this time towards claiming that he is targeting a pro-economic growth, anti-economic inequality policy in his remaining time in office.  Skepticism is warranted for a number of reasons including:  Mr. Obama, along with Congressional Republicans and Democrats, had helped strap the US economy and government to a contractionary fiscal policy and therefore to anti-growth government spending policy for the period 2010-present.  The cleverest piece of the rhetoric in the speech:  “A relentlessly growing deficit of opportunity is a bigger threat to our future than our rapidly shrinking deficit” artfully distracts listeners from Obama’s own role in spurring on deficit hysteria in much of his time in office.  The deficit hysteria he helped foment in turn has endangered exactly the economic opportunities that Mr. Obama now claims to want to encourage.  Mr. Obama is one of the chief engineers of the current framework of acceptable discourse in Washington where almost all political actors and media figures measure the government’s success or failure by how much the deficit has been cut, a metric that in 99 out of 100 economic scenarios will lead to slowing economic growth or economic contraction.

Obama’s speech correctly named some of the socioeconomic problems of America since the neoliberal turn in the late 1970’s and 1980’s if we leave out of consideration an understanding of fiscal (government spending and taxing) policy.  And Obama and/or his advisors are politically astute in that they have noticed that talk of growth has not been center stage in his nor in his opponents’ political rhetoric and policy initiatives.  Washington and economists like Larry Summers have seemed to be “giving up on” growth, so there is a breach in discourse into which Obama stepped.

The speech was centered around, what is now becoming something of a consensus in economic policy circles, that economic inequality is a major drag on the prospects for growth of the American as well as other economies.  Obama pointed out what has become common knowledge in the left-leaning policy community, that the US has fallen behind other nations in terms of social mobility, that the US is no longer the land of opportunity that it once was.  Obama seems to want market-focused policies, like a higher minimum wage law and increased exports, to represent and “drive” his announced commitment to greater economic equality as well as a continued mention if not emphasis upon government supported research and innovation.   While Obama’s telling of the inequality and decreasing social mobility narratives was new for him, the policy suggestions were largely ideas that Obama had trotted out before.

The disconnect between Obama’s diagnosis of America’s ills and his policy orientation is not surprising or accidental: Mr. Obama has operated almost exclusively within the neoliberal political-economic framework which mistakenly and/or with deceitful misdirection sees government action as largely disconnected from what neoliberals cite to be the primary engine of economic activity: private lending, private investment and corporate/market trends and activity, spurred by policies that mistakenly assume that wealth and economic activity “trickles down” from increasing stores of wealth at the top.  Within this erroneous framework, the government only should or can affect the market by adjusting the price of credit via raising or lowering the interest rate for risk-free investment, what is called “monetary policy”.  Monetary policy in the US has now been stuck close to the zero lower bound (an interest rate of near zero) for a number of years.

Viewed through the ideological veil of neoliberalism, though not the actual practices of neoliberal-led governments, the government has then indirect but little direct influence on the economy.  The disjuncture between market and government means that fiscal policy, spending and taxing, is thought to merely respond to but not structure the “engine” of the economy, the private sector and market.  Or alternatively, if the government is reported to have slipped into the role of structuring the economy, this is decried as inefficient and/or dictatorial.  While Obama is stereotyped by some as coming from the supposed “Left” of the mostly right-wing neoliberal spectrum, and therefore acknowledges on occasion that government might have a positive role to play, Obama sees government as at most a facilitator of market trends and tendencies.  In practice, as the label “market” is often a stand-in for the domination of large corporate entities in an oligopolistic fashion, Obama seems to have a strong preference for proposing and implementing policies that install corporate oligopolies as quasi-governmental entities, for instance in his healthcare law or now in the Transpacific Partnership.

There is in Obama’s pairing of an acknowledgement of socioeconomic realities with inadequate solutions not just the danger of the perpetuation of a politician’s or professional economist’s misunderstanding of economics but the perhaps conscious or calculated weaving of a web of deceit.  The pairing of real, grave social problems with weak or neoliberal solutions from the playbook, facilitated by Obama’s sympathetic and sometimes charismatic personality, means for parts of the Democratic base an exclusion from acceptable discourse of really-effective solutions.  Obama thus links the discourse of concern about economic inequality, lacking social mobility, and anemic economic growth to the pitifully inadequate neoliberal ideology, where government leaders cannot legitimately propose and enact effective solutions.  Always dropping tantalizing suggestions that he might know better, Obama does not join the fight for the American people but acquiesces to the elite- and donor-class-friendly framework he shares with his supposed adversaries on the Republican side of the aisle.

The Deficit Hysteria Campaign Preys on Confusion about Growth and Consumption

Obama’s renewed focus on growth at least in rhetoric is a temporary departure from the ignorance or fatalism about targeting growth that had been promoted by Obama and is still promoted by the instigators and promulgators of the deficit hysteria campaign, including organizations like “Fix the Debt”, Third Way, and “The Can Kicks Back”.  The chief organizers of the austerity campaign, Wall Street and the political rentier class which it tends to represent, have spoken and acted as if they are relatively indifferent to economic growth of the real economy in the short-term, preferring instead deflationary policy that protects the assets of creditors and their incomes from existing debts, which itself slows new economic growth.  Some of this is a function of their or their patrons’ relative insulation from trends in the real economy because of three factors:

1)    their patrons possess a greater wealth cushion to, on an individual and corporate basis, absorb economic shocks, thereby gaining relative economic power advantage over those without that cushion

2)    the financial sector has insulated itself from trends in the real economy via Ponzi trading schemes built on asset bubbles.

3)    As mentioned already, a deflationary policy orientation magnifies the relative value of financial holdings of creditors

Correspondingly, those with higher incomes and existing wealth have experienced a boom in income in the aftermath of the Global Financial Crisis, with the top 1% garnering 95% of the income gains in the last three years.

Still, pro- or anti-austerity, almost everybody in the economic and political mainstream would, if asked, claim to be “for” and/or to have the plan to spur greater economic growth over the short and longer term.  To claim to support capitalism, one must be prepared to sing the praises of economic growth.  Without growth, the increases in monetary savings/profits that are essential to capitalism disappear on a society-wide basis.  Growth in capitalism requires increases overall in consumption, measured in monetary amounts, by a combination of the private sector and governments.  Capitalism without growth in the real economy can transform into a neofeudal or another still more regressive political-economic system, if the imbalances in political power typical of capitalism continue or grow more exaggerated.

The deficit hysteria campaign which underlies the current trend of government spending cutbacks has mobilized shame and ambivalence about debt-fueled consumption by rich and poor of the decade of the 00’s.  The deficit hysteria/austerity campaign has then scapegoated government spending and middle- and lower-income consumers for the real and imagined “sins” of the past decade’s boom.  The austerity campaign has assumed or holds up as ideal a virtuous class of “savers” who rein in their consumption and are therefore not “suckers” or otherwise prey to their need to consume and/or incur private debts.  The campaign conveniently makes the already-wealthy, the supposedly virtuous savers, then appear to be ipso facto virtuous because they, due to their wealth, are not so reliant on government programs or private credit to finance basic consumption or to hold on to core assets like their primary residences.

No doubt there are regrets for many in purchasing larger homes and some luxury items via too-easy credit and many may blame themselves alone for their financial predicaments.  An exclusive focus on an individual self-blame, however, overlooks the incredibly permissive atmosphere towards private debt accumulation of the mid 2000’s in which it was thought to be “stupid” not to use one’s home as an ATM or otherwise take advantage of offers of credit.  However the ideological game of invidious comparison between the ideal of a financial self-sufficient person and one dependent on credit or on government support overlooks the economic reality of the capitalist economy’s compulsion to grow either by private credit or by government sponsorship.  The ideal of individual or corporate financial autonomy, supposedly represented by the wealthy or the successful corporation, is often an optical illusion, which edits out the multiple supports for private wealth accumulation that come both from government and from spendthrifts who by “over-consuming” help others, including bankers and lenders, achieve higher incomes and save more, thereby growing more wealthy as individuals, supposedly the goal of capitalism.  Keynes’s revival of the ancient concept of the “Paradox of Thrift” undermines the notion of wealth as an entirely self-authored virtue, and continues to be denied by propagandists associated with the deficit hysteria campaign.

In a neat and dastardly ideological trick, the deficit hysteria/austerity campaign attempts to blame economic and social ills on the very sources of the income and wealth that make the supposedly virtuous savers it is holding up as paragons, “virtuous” in the first place, meaning wealthy.  This malign confusion about consumption and the engines of economic growth, government deficit spending and private credit expansion, is created by an ideologically motivated mix-and-match of economic “still frames” of the economic “movie” of the entire business cycle.  The resulting spliced-together patchwork suits the purposes of glorifying the fortunate and clever by making them appear entirely responsible for their fortune and blaming all ills on or making disappear the ultimate historical sources of their fortunes, consumer spending, consumer and other private debt, and government deficit spending.

Sincere Ambivalence about Growth and Consumption Lames Resistance to Fiscal Austerity

While the chief promoters of fiscal austerity and deficit hysteria are not at all motivated by concerns about the real sustainability of developed and developing nations, a portion of their would-be adversaries are anywhere from somewhat conscious to acutely aware that we are approaching or already in the midst of a civilizational crisis with regard to sustainability and climate stability.  The focus of the former group on a view of society’s financial resources as a finite pool of money is often paired with a disregard for the destruction our economic and financial machinery is wreaking upon the real, finite resources of the natural world, though there are some that claim that concern for one is the same as concern for the other.  Certainly, deficit hysterics hope that the pose of prudence in one area translates to a general aura of virtue which can be construed as is flattering to them within a given social circumstance.

The would-be opponents of austerity, the organized “Left” in the developed world, have diverse origins, including partially in an ecological critique of consumer society and of the wastage of the natural environment, though this was at times shared with parts of the Right.  While the Right’s occasional environmental concerns have veered into sentimentality, racism, and irrationalism, the Left has had a greater affinity with philosophical rationalism and the ethical-cultural basis of scientific inquiry, which includes observation of changes in the natural world.  The neoliberalized supposed “Left” parties of the developed world have over the past 20 years endorsed the formation of an (inadequate and therefore dangerous) cap-and-trade system in the form of the Kyoto Protocol, which is supposed to, though will not be powerful enough to, cut carbon emissions by 80% over a period of four decades.  Additionally, a typical “liberal” or a moderate socialist in the last several decades is increasingly impressed with the news that our climate is changing and that economic growth and increases in consumption seem to have something to do with these frightening changes.  Some who identify with the Left or political Center have tried to lead greener lifestyles or engage in greener consumption even if there has as of yet been organized no global policy alternative to the Kyoto process, which many have accepted simply and tragically as the only policy program for those concerned about the climate.

Against austerity’s confused anti-growth agenda that holds to a false theory of growth, a full-throated endorsement then of economic growth, necessarily spurred by growth in private credit and/or ultimately by government deficit spending, and the concomitant increase in consumption, fossil fuel use, and greenhouse gas emissions, is then harder and harder for those in the developed world who take seriously the scientific reality that the earth has limits, some of which that are fast approaching.  Some economic commentators with ecological concerns, like Jeffrey Sachs, have found themselves supporting austerity and feel as though the national government’s financial “living within one’s means” (accepting the deficit hysterics’ nation = individual/family/corporation analogy) is preferable to a demand for economic growth (which requires, especially after a financial and private debt crisis, government spending above taxes collected). Only in the developing world, where obvious want and poverty are the norm and economic justice a demand with strong support within the international community, is a push for economic growth then viewed largely without ambivalence by either international observers or the domestic population.

However, even in the developing world, the trade-off between growth and environmental integrity is being felt.  In China, the visible toll on the environment of economic growth has become the preoccupation of many and the principle sponsor of growth, as always the national government, has had to introduce regulations within its growth agenda to attempt to reduce the most noxious forms of pollution.  In China, not a cultural heir to the Western Romantic tradition, we are now seeing “Romantic” or maybe more properly Taoist attitudes towards undisturbed nature emerging as it is being decimated by industrial development and the more Confucian (subjugation of nature for human ends) attitudes of China’s ruling culture towards nature.

The advocates of austerity in the Anglo-American world, some of whom endorse or advocate for intensified exploitation of fossil resources, have no scruples in taking political advantage of sincere ambivalence among those that would be their political opponents.  Also the fundamental misunderstanding on both sides of the political-economic spectrum of the distinction between financial and real resources, encouraged by neoclassical economics’ confusion about money itself, makes the analogy of conserving financial resources seem to be an attractive stand-in for or entrée to the conservation of real natural resources.  In contemporary Germany, for instance, it is safe to say that there is a co-existence if not a pervasive social-psychological interaction between pro-austerity fiscal views and the relatively strenuous efforts of Germans from across the political spectrum to conserve energy and the environment.  In attempting to make a fundamental break with a fossil fuel-dependent infrastructure and maintaining a decent standard of living for ordinary Germans, especially within the context of the Euro, the German dependence upon “hard-money” views will be sorely tested by the reality of the economics of monetary economies.

By directly attacking the freedom of government leaders to make budgeting decisions based on emerging social and environmental needs, the deficit hysteria campaign forecloses meaningful action on fossil fuel dependence and climate change.  The ideological fantasy that one must conserve the government’s virtual financial resources rather than focus on the real effects of government fiscal policy leads to limitation of the overall society’s investment horizon to that of market participants with perspectives that extend at most a few years, if not the next quarter.  This is a terrifying prospect.


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