Trusting Free Markets

 This is a companion piece to the Prescience essay published on 9/4.  Just some thoughts on the nature of markets as they impact the middle class rather than on a larger scale.




The recent revelation that the middle class has lost significant ground since 2007 added to the current economic trough the world finds itself in is demoralizing and reveals a staggering truth. That truth is that the American people have been fed a pablum that enforces the notion that capitalistic markets will always work the best for the most people. No one who wants to hold office dares to take on that fantasy because of the ridicule that would be heaped on that person by the powers who hold the strings.

Right now, as you are reading this, the world is experiencing an economic downturn that is global in its expansiveness. Even China, that state driven engine, is faltering. Germany is growing at about a 2% rate which is impressive in these times. Every one is holding their collective breaths to see what Greece is going to do and if they will remain with the Euro. Greece, for crying out loud!!! The fear is that fear itself will rear its ugly head and scare investors into sitting on their money, as if they haven't been doing that already. The only money moving is money belonging to huge hedge funds that are trying to not lose money on their holdings. Everyone is looking about to try to see where global growth is going to come from. Since we have led the entire world in a chase for ever increasing markets to drive growth the world is now competing with us for markets. What happened?

After WWII the United States was the only nation with a manufacturing base left intact. The Germans had bombed Britain and we had firebombed the industrial centers of Germany into ashes that would require half a century to rise from. We had defeated Germany and Japan by way of being able to manufacture more materiel than they could destroy. Now we turned that industrial base to resupplying the world. That worked without a hitch until the 1980s when the rest of the world began to catch back up. It was also a time when the domestic markets began to become saturated and growth began to slow. What were we to do? Why, our corporations began to go global and their markets were increasingly overseas but now they had to compete with the cheap labor in the foreign markets. How on earth would we ever be able to maintain our corporate profits if we had to pay a living wage with benefits when they did not? Solution? NAFTA.

Don't get me wrong. NAFTA has been great for corporations, not so much for the middle class. The idea was that we needed foreign governments to give us free access to their markets and in return we would give them access to ours. Good deal, right? Well, what this meant was that now we could buy cheap foreign made goods which was all wonderful until the jobs that we used to have making those things left our shores and went elsewhere. Great for corporations, not so much for those losing their jobs.

Still, free enterprise, right? So, now what could we sell the world that they can't make for themselves cheaper? That's where we dropped the ball. Now, free enterprise says that those displaced workers could now follow those jobs and sell their services there. Problem is they were in a foreign country and wages weren't quite as good. Not to mention benefits. Tough luck. Right here is where our government could have stepped in with a plan to retrain our workers for the industries of the future but, wait! We did not have those industries of the future. Still, the middle class was OK as long as it had access to cheap money, increasing equity and could keep on consuming. That way of business was propped up by Wall Street which was making more money than the law allowed, literally, by financing that consumption. But then the music stopped and, like an old record player, it just groans along out of tune.

What about those free markets? Why didn't they protect us since they are always right? Markets are right in a brutal sort of way if left to their own devices. Problem is that when we do that people suffer, lose their jobs, health benefits and finally their equity. The problem with free markets is that they do not work very good when it comes to maintaining a healthy middle class unless there are regulations in place to keep those with the power from taking unfair advantage of those in the middle class and we did not regulate very well at all. As a matter of fact, we regulated very little and now we have what we have. Can we fix it? I really don't know if we have the political will to restore the middle class. We can go back to what we have always done by increasing markets globally and we will continue to get what we have.

I hope this is evident. What we really need to do is regulate markets to keep them from becoming predatory. We need to develop an economic model that does not rely on ever increasing markets and is more sustainable instead. We need to use government to encourage research and development in emerging industries so that we can continue to manufacture and sell something that the rest of the world can't make cheaply. We can use government to encourage the reeducation and retraining of the domestic work force so we can compete in an ever more competitive world.

The bickering over ideology and the partisanship in our government has to stop or we will become irrelevant. What we need to rebuild most of all is our middle class. It should be clear that it is no benefit to have free markets if we have no one to sell to.