The Multi-Trillion Dollar Question: Whose Consumption Drives the Economy?

Having written several articles and letters debunking the “consumer-driven economy” myth, I recently swore off further attempts. I thought. Whenever another well-intentioned liberal describes our economic problems and solutions in terms “consumer demand,” I am drawn to trying once more to break through the economic brainwashing most of us have been subjected to since children. Recently, I read another example of sound advice based on assumptions of the “consumer-driven economy” fairy tale in a 12/3/08 Boston Globe article by Joseph Cirincione, entitled “Need cash? Cut nuclear weapons budget.” What anti-war, progressive peacenik could disagree with that? Not me! Yes, let’s cut wasteful spending on a growing military budget supporting obsolete programs and stockpiling nuclear weapons that enable us to destroy any nation and the world several times over. But let’s not confuse reduction in destructive spending with freeing up funds to “help jumpstart the economy.” It just don’t work that way. Never has, never will, under our economic system.

Let me take a step back here and highlight that our economy is a Capitalist economy. We need to appreciate, as well as understand, that. Capitalism is based on production for profit. No profit, no production. Government spending on public works programs detracts from capital that could be spent in private profit-making industries. Military production has become big business for many private, for-profit, contractors. The US is the largest producer and distributor of military weapons in the world. Cirincione’s advice, as he notes, is in conflict with Secretary of Defense Robert Gates insistence on expanding nuclear weapons production facilities. But the real problem here is that, under our economic system (Capitalism), public (nonprofit) spending on domestic programs that directly benefit you and me will not jumpstart capitalist (for profit) production. It never has. With all the romantic (and a relatively few actual) recollections of FDR’s limited public works programs, it was WWII that provided Roosevelt with the authority to significantly increase employment; retool, redirect and plan industrial production. The US government has not been able to withdraw entirely from its role of propping up and intervening in the private economy. While postwar Europe created programs providing all citizens with healthcare, education, retirement, lengthy vacation time and other government-guaranteed benefits, the US left provision of the larger part of those services to the private sector. In our current economic recession, there will again be only a minimal amount of spending on domestic programs that benefit the citizens rather than private corporations. And that limited public spending will depend on how much “public unrest” is feared. Most of the government spending on infrastructure will not be to fix the streets of inner city neighborhoods or the roads of small towns and rural area. It will be used to build super commercial highways, transportation facilities and technology useful to private corporations - more government (taxpayer) subsidies to help boost private industrial profitability.

Cirincione quotes Obama’s commitment to “renew our schools and highways…also renew our information superhighway,” and give “every child a chance to get online … because that’s how we’ll strengthen America’s competitiveness in the world.” Those are fine words, and might blind some of the more privileged among us from seeing clearly that the US increases competitiveness in the Capitalist world by lowering real wages, eliminating pensions, cutting employer-provided healthcare, and making higher education so expensive even two-income “upper middleclass” families struggle to pay tuition. With this in-your-face everyday reality, it is difficult to understand how so many continue to believe that ours is a “consumer-driven” economy. Working people’s consumption of everyday necessities is being cut, while billions of taxpayer dollars goes to “bail out” financial institutions who have no incentive to loan those funds to low income people (or to companies) now that most of the fraudulent transactions and speculative securities are supposedly under closer scrutiny. Congress complains that the banks are not loaning the billions given them. Banks complain that there are no profitable investments available now. This week workers took over a factory in Chicago whose owners claim they can’t pay employees money due them, because Bank American refused the company’s loan request.

In order that Congress approves a loan to the auto industry, cost-cutting efficiency measures are being demanded of the Big Three. As we have already seen, the obvious cuts are to come immediately from unionized labor, such as cuts in workers’ benefits, unemployment and retirement funds, and large cuts in wages of new hires (to less than those paid workers by foreign car manufacturers). Efforts to overcome this “recession,” like all preceding ones, will focus on lowering workers’ incomes and consumption (consumer goods), while transferring as much economic wealth, labor time, and resources as possible to corporate expansion and capital accumulation (producer goods). The Great Depression required war-time government intervention to pull off the massive reallocation of value that profitable economic expansion required. Today there are many born-again Keynesians promoting theories of government intervention they believe will “jumpstart” the economy. Just as in the 1930s, it seems few capitalists or politicians today need John Maynard Keynes’ encouragement to use inflation as a tool for lowering workers consumption and increasing profits. (Outright cutting of wages or deflation can be so messy and risky for “heads” of corporations and government.) Whether government intervention this time around will be capable of redistributing labor and resources sufficiently to meet corporate needs for increased profitability and economic expansion remains the multi-trillion dollar question. Yet there are a couple of things we can be sure of: (1) Working people’s real income and consumption will continue to be cut; (2) Military expenses and war will continue to pay a leading role in Capitalist economic recovery attempts, expansion, and accumulation.

Mary Lynn Cramer has dedicated twenty-five years to low paying "applied economics," working as a bilingual social worker with families and children. She has degrees in economic history, economic theory and social work. She can be reached at mllynn2@yahoo.com.