Aside from history one of my strongest interests in life has been the study of economics (including the history of economics, of course, from the French physiocrats to today). I devoured at least twice Adam Smith's Wealth of Nations at around 16. Naturally, I studied modern (neoliberal) Economics in university.

Failure of Free Trade
I think most of us are old enough to recall the neoliberal economic heyday of the 90's, where free-trade would guarantee limitless growth and prosperity, if only Unions wouldn't be so greedy. Of course, as history showed, this was naive if not totally wrong-headed. With the 2008 financial catastrophe, neoliberal economists were seldom seen or heard on the airwaves. Only the most obnoxiously and blindly indoctrinated could muster the shamelessness to continue promoting it, repeating ad nauseam that if only we were fanatically faithful to neoliberal economic principles, then the magic of free markets would drive us into unimaginable prosperity. That we should abolish the minimum wage altogether, privatize our police and fire departments and even our military was effectively what they were arguing.

Apples and Oranges
There are many reasons why free trade and tariff reductions failed to result in wonderful growth, especially in the richer Western countries (and only partly in poorer trade partner nations). One reason was that neoliberal economic theory always assumed a kind of civilization and legal equality between any two potential trade nations. The fact that the USA, Canada and Mexico and Chine are wildly different countries with wildly different labor standards did not get taken into account. It was borderline illegal to compete with those countries on the same level in terms of labor and the only easy route to do so would have been to drop Western labor standards back to the 19th century and effectively destroy the middle class as the predominant demographic for working people in the West. We did get flooded with much cheaper goods; however, the markets for those same goods were simultaneously shrinking owing to layoffs and the jobs that replaced them (to the extent they even were) generated a radically lower income (the so-called "service sector"; otherwise known as McJobs).

Unemployment
That was the first problem. The second problem was unemployment. Neoliberal economics is very good at realizing the interplay between supply and demand. However, it apparently failed to realize the implication of this beyond "widgets" (basically any product or service) and apply it to the job market. Unemployment economically is any situation where workers are seeking wages to provide for themselves and/or their households. This includes people working in part-time jobs or jobs that fail to ultimately provide a wage necessary to sustain themselves, especially just qua worker/laborer. Increased unemployment puts downward pressures on wages and earnings and increases competition among workers. It also increases competition (and decreases wages/salaries) for higher positions or management positions especially if the lower-order positions either fail or only barely allow a worker/employee to provide for their needs. It's not hard to see the effects this will have. It generates a dog-eat-dog mentality in the workplace and destroys solidarity, lending itself to thinking in radical dichotomies. Hence the rise of late in socialistic solutions to our economic problems.

For-Profit Business only Accidentally Generates Employment
We have to bear in mind that the first order of business for any business is profit. The very nature of our economic system places strong pressure especially on non-governmental firms to minimize expenditures (indeed, ideally, have no expenditures or costs ---do not forget that point! selling nothing or something that costs nothing for everything is rewarded by the nature of our system). Wages and salaries are virtually always the greatest expense and cost of any firm. It stands out much more glaringly than material requisition and property procurement and maintenance does. This places strong pressure to avoid hiring except when necessary or to delay doing so for as long as possible. This is true with the sole exception of when hiring results in or is necessary for greater overall profitability. The only time the latter conditions are generally realized is during periods of rapid market increase and expansion (e.g., after WWII). But a stagnant, shrinking or otherwise dieing market does not translate into hiring by firms but rather more aggressive cost decreases to maintain or increase profitability: businesses flourish when markets flourish; businesses stagnate if markets stagnate.

Technical Progress
Firms of course seek to become more efficient and will often employ new techniques, technologies and specialists to reduce overall costs. As a consequence, there are generally layoffs as experience and knowledge is accumulated. This creates tension naturally. Firms are not actually saying that labor is being rendered obsolete (in fact, the value of labor as such normally rises in real terms (though this doesn't necessarily have to translate into increased purchasing power for labor generally). The layoffs, however, result in unemployment. A firm has effectively said this labor is better applied elsewhere; however, our system doesn't have a means of really translating that labor to another application especially in conditions where there already is high unemployment or a stagnate or shrinking market (which just shrank again). This is one reason for supporting unemployment insurance; it at least buys a period for workers/employees to seek another job without the market contracting as much as it otherwise would have.

Business Presumes Markets
In consideration of the above it becomes easier to see why it's not always going to be effective to have a singularly pro-business or pro-firm side economic recovery theory. Government can't forget that civilization, for starters, is not a given; but it is a necessary condition for free markets in any meaningful sense. There must be courts, law and order and contracts must be enforced, for example. Furthermore, profit-making is not in fact synonymous with wealth production (which is more properly economics); I will argue next that the greatest error of all today is, arguably, the equivocation of profit-making with wealth production, which can result in bubbles and actual wealth destruction (i.e., can even be or become radically anti-economical) as happened on an unheard of scale in 2008.

Last edited by Timocrates (3/19/2016 5:43 pm)