I have every reason to believe that most mainstream economists do not have a good explanation of the real economic problems that are facing our country. Now, it might sound like a very radical charge, but I will share my anecdote about an economics professor I had talked to earlier in the day to illustrate my argument. He was invited to a discussion with other undergraduate students, who wanted to casually speak with the professor about the topics the students had in mind. He was very eloquent in sharing his life story about how he got to be an economist, what types of courses he took while in graduate school, and what sorts of models that he was working on (my non-econometric mind unfortunately blends out most of his models- that is the ignorance I will concede on my part).
Then, the discussion turned to more concrete, political-economic matter, a realm where I felt closely at home. But the professor clearly felt uncomfortable about it, because he could not piece together the various phenomena. For example, the professor was noting the asset bubbles (tech, housing, raw material) that kept on reappearing, but had no clue why this was a permanent feature of the contemporary capitalist economy. We then came to the issue of unemployment, where he noted that unemployment is a problem that is heavily dependent on the business cycle. I retorted that despite the movements along the business cycle, every recovery since the early 1990s had a longer and longer period of jobless recoveries. He did not deny that, and was baffled by this fact. He argued that he had no good explanation for this phenomena. Finally, one student brought out the issue of inequality, but because no further definition and conceptualization was provided, the professor immediately seized on this idea, and neutralized it in the abstract, i.e. he argued that inequality was not a problem so long as the poorest member was well off (a little bit of a Rawlsian argument, which I always considered highly romantic, i.e. naive). He provided the example of a society, where most people made $100,000 and one person owned $1 trillion. Beside the inapplicability of the theory to reality, he totally missed the point of linking inequality to the other two phenomena (asset bubbles and jobless recoveries) we had discussed just a few minutes earlier. As I said, he took the abstract idea of inequality, and rather than conceptualizing it for something useful that would account for existing political-economic phenomena, he neutralized it by keeping it highly abstract. After that, the discussion returned to more cozier realms, especially a lot of questions from curious economics students about what courses to take and what to look forward to when applying to a graduate economics program.
Until the end of the discussion, I was pondering on these statements made by the professor, who was very well read, but could not piece those statements together during the discussion. I did not drill further. But here, I will use the opportunity to do so.
Asset bubbles, jobless recoveries and income inequality (or wealth concentration at the top) are all different aspects of the same coin. With globalization, world-financial capital was finally freed from the formerly imposed shackles, seeking for places offering higher returns. (the fall of Communism and the East Block certainly aided that freedom.) That was also necessary, because as Sweezy and Baran had argued in their “Monopoly Capitalism” (1966), the economy had a tendency toward stagnation (another convenient reconceptualization of Marx’ falling rate of profit). The outlets for growth were soon pursued in other countries, which almost exclusively benefited the very rich, and the small segment of the workforce that was essentially needed in what is referred to as the “knowledge” economy (very narrow, professionalized skills). For all the other unskilled and medium-skilled workers in the West it meant a race to the bottom. The fear of an economic collapse due to a potential stagnation in demand induced corporate executives and shareholders to lend out more money to people, whose wages had been stagnating. They should buy houses, and hope to resell them at a higher price (which turned out to be a hoax). In the mean time the profits of the corporations would soar, just as the CEO compensation would. The temporary capital accumulation problem was solved with credit, while the underlying crisis of inequality and crisis of capitalism were made worse, but the consequences were pushed into the future. Credit is the whole hoax of asset bubbles, which are getting more common and even worse. Why? Because the rich people in the world have even more to speculate on than they had before their crisis, thanks to too-big-to-fail. Inequality exacerbates inevitably with credit, because the creditors always enrich themselves on the backs of poor debtors, whose ability to repay shrinks with every re-financing scheme- this is a terrible lesson the Greeks have to learn. What about jobless recoveries? They are part of the underlying transformation of the US economy away from the productive, manufacturing sector (that is more quickly automated than having workers re-hired in equivalent fields with equivalent pay- the service economy with its low productivity growth is too slowly transforming itself into a union stronghold: very few indications of this exists, though). In turn, more resources are diverted into the banking system that lives off the speculative frenzies. Add global labor competition to it, and you have a perfect jobs crisis in the US, which has a further negative feedback loop with inequality and even more asset bubbles.
There you have it: a nice way of taking all the political-economic phenomena, and putting them together in a convincing theory, which links the abstract theory to the concrete reality, and the real phenomena in turn confirming the validity of the theory. A well-studied econometrician could not set up these nice relationships. So are we really talking here about more than the number of angels that dance on the tip of a needle?