Posted by Pete McBreen 12 Mar 2010 at 18:58
Economics for the rest of us is a very interesting comparison of classical vs neo-classical economics with the central tenet that economics as taught an promoted is
Arguably, the damage from the teaching of economist’s theory of wages is far greater than the damage from the teaching of creationism. Yet the theory of wages is part of economics education in any and all schools, and it continues without any notice or apposition. The reason is, of course, not hard to understand. While everyone is hurt when we teach religion and pretend it’s science, not everyone is hurt when we teach economics. What workers lose, executives and capitalists gain; and it is the latter who study economics, hire economists, and endow schools.
Lots of lessons in the book for the current economic meltdown, not least that the failure of governments to ensure equality and equitable distribution of wealth has and will make society a lot worse off even if the “economy” looks to be healthy.
The most interesting claim is that unemployment results when spending on consumption and investment goods declines. Investment is needed to absorb the surplus that is created, and without this investment in real goods, productivity gains result in lost jobs. In addition, once consumer confidence drops, people stop buying and then the downward spiral starts. But contrary to current popularized ideas, it is not the consumers who can spend our way out of the recession. Consumers are rationally saving money in case things go worse. It is the investors who have to show the confidence by investing in new productive capacity, that will generate the jobs that enable consumers to feel confident again.
The executives and capitalists who have so far managed to retain too large a share of the overall pie are now hoarding cash, not investing in productive capacity and as a result are deepening the depression. After all, is capital not supposed to be the patient partner in the enterprise. Why should anyone expect a family with a large mortgage to spend money when billionaires and large enterprises have cash stored away in banks, looking for lucrative investment opportunities but only bothering to invest when they have a near certainty of return.