An Analysis of Where We Are

An Analysis of Where We Are

June 26th, 2013
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On the nature of the current American economic crisis

According to basic observations, the American economy is currently– and has been for some time– in a state of absolute crisis. And this despite all the natural resources the U.S. has been burning through, and a constantly growing stock of technologies. Here are a few data points that give a good sense of our current situation:

– 13% of American households have a net worth (assets minus liabilities) below 0.[1]
– Only about 20% of American households live in a home they own.[2]
– well over 20% of American households had incomes below the poverty line in 2010.[3]
– 1% of Americans experience homelessness in a given year.[4]
– 16% of Americans do not have health insurance.[5]
– 47.8 Million Americans (~15%) are enrolled in food stamps.[6] (and there are also many non-governmental food programs)
– Over 2/3 of American college students graduate with student loans, totaling over 1 trillion dollars (greater than total credit card debt, surpassed only by total mortgages).[7][8]
– over 1 million Americans filed bankruptcy in each of the last 5 years.[9]

These data show the utter impoverishment of the people, and their lack of access to the most essential services.
The most popular explanation for the economic problems of the 00’s is that there was a “bubble” (=overvaluation) in the housing market, which then had repercussions in the financial industry (since properties, mortgages, “packaged” mortgages, etc. are traded as financial “instruments,” and then the deals involving them are further insured). Blame is apportioned in varying degrees either to greedy bankers (“a few bad apples”) or to poor people choosing to live beyond their means. The solution then marketed to us is some mix of
– take a few bad people out of the banks;
– restrict a few banking practices;
– create stricter guidelines on who can get a mortgage.

But if you have payed attention so far, you’ve surely noticed that over-easy access to housing is certainly not one of this nation’s greatest problems. In fact, in general, this is a very shallow analysis that leads to no solution at all. We must ask ourselves questions like:
1) Why is housing so prohibitively expensive? (the median sale price in Feb 2013 was 246,800,[10] compared with a median household income of 52,762[11]) Why do prices not fall to an affordable level in the face of abundance (nationwide, 19 out of 130 Million housing units are unoccupied[12]) and decreased purchasing power?
2) Why are we as a society not taking dramatic action to ensure that our housing, food, health, and educational resources reach those in need?
3) Why are highly-educated people, suffering no privations, making so many socially hurtful selfish decisions? Why are these particular people in a position to make such important decisions?

Try to answer all these questions for yourself– I don’t want to overwhelm you, nor to make this essay too long.

Let us return to my general explanation for the crisis:
There has been an “over-accumulation of capital”– meaning rich entities (be they people, corporations, university endowment funds…) have extracted so many assets (money, land, intellectual property, machinery, debts, resources…) and concentrated it in so few hands, that they have nothing to do with it. Not only could they never consume billions of dollars, but they can not find good places to stick that money so that it grows at an acceptable rate for them (investments).

Not only do investments need to make a profit under capitalism, but they need to make an increasing profit year over year. But the number of good investments is more limited even as the concentration of wealth is greater: for less and less people have money to be squeezed out of them– theoretically the only true goal of most American corporations.

Yet this accumulated money must go somewhere, and it insists on finding a profit. Thus one major possibility is to bid up the value on various assets. Since other people also have to invest their money, you may buy a $100,000 house (or piece of jewelery, artwork, etc.) for $600,000, and a month later find someone willing to pay you $700,000 for it. (Incidentally, treating food, fuel, land, shelter, etc. as investments pushes up their price in a way that makes them unattainable for consumers). The value of an investment will appear to increase as long as others continue to buy into it. But throughout this process, no new value is being created. Eventually, more and more investors will begin to doubt in the value of what they are buying. As it becomes all just a game of false values, the opportunity and even necessity for fraud increases, and a series of collapses are inevitable.

These collapses also present the opportunity for one final way to wring some money out of the nearly-dry common woman. With various financial interests collapsing, there is a choice to either admit that the profits have been lost, or to take money from basic social service programs to make good on the money the financiers wanted. In the public discourse, this choice is presented as between “total collapse of the economy” or “austerity.” (Think how different this sounds than a choice between the “elimination of useless economic parasites” or the “looting of the national treasury”). Total collapse sounds like no choice at all– and anyway, the decision-makers have already been payed by the financiers– and so the already-thin public services are cut: insane people are released from unfunded institutions, medical benefits are decreased leaving people to die, schools are closed and teachers fired thus stuffing students into fewer classrooms with fewer teachers, and retirees’ pensions disappear leaving their families to scramble for ways to care for them.

Evidently, there are limits to how far this can be pushed– at some point the people will be too dry to wring any further. Historically, there has only been one example of a similar crisis of capitalism, the Great Depression. And the only way capitalism “got out of it” was via World War 2: destroying things, and then investing (and making money) in rebuilding. Luckily, we can imagine a better and more lasting escape!

If you are left baffled as to who could be making such poor decisions, and how they could have wound up in the position to be making them, please look forward to my forthcoming essay on that topic.

Footnotes

  1. http://www.epi.org/blog/inequality-exhibit-wal-mart-wealth-american/ []
  2. 67% of Americans “own” the house or apartment they live in ( http://www.census.gov/compendia/statab/2012/tables/12s0992.pdf ; http://quickfacts.census.gov/qfd/states/00000.html ); as of 2009, only 32% of those “owning” their homes actually owned them without a mortgage (http://www.census.gov/compendia/statab/2012/tables/12s0998.pdf). .67x .32 = .21. []
  3. http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.pdf, page 8 []
  4. http://www.nationalhomeless.org/factsheets/How_Many.html []
  5. http://www.census.gov/hhes/www/hlthins/data/incpovhlth/2010/highlights.html []
  6. http://www.fns.usda.gov/sites/default/files/datastatistics/Keydata%20December%202012%20%283-8-2013%29_0.pdf []
  7. http://projectonstudentdebt.org/files/pub/classof2008.pdf []
  8. http://www.federalreserve.gov/newsevents/testimony/vermilyea20130625a.htm []
  9. http://www.uscourts.gov/Statistics/BankruptcyStatistics.aspx ; http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=66471 []
  10. http://www.census.gov/construction/nrs/pdf/newressales.pdf []
  11. http://quickfacts.census.gov/qfd/states/00000.html []
  12. http://www.census.gov/compendia/statab/2012/tables/12s0982.pdf []

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