Smothered by a Boom in Banking
“Ideally, finance should propel an economy by helping create jobs and wealth for a broad portion of the population. But clearly, there’s a point when finance sucks too much oxygen out of the room, leaving the rest of us gasping for air.”
Does the growth of finance, or the acceleration of already gargantuan banks becoming even bigger, help the economy, or does it smother, suffocate, and drown it?
This intriguing article from Gretchen Morgensen of the New York Times explains the findings of a recent, compelling paper entitled “Why Does Financial Sector Growth Crowd Out Real Economic Growth?” from Stephen G. Cecchetti of Brandies University and Enisse Kharroubi of the B.I.S.
The gist of the paper is as such: Banks tend to lend the majority of their money to projects that have assets capable of being pledged as collateral, but the industries with such assets tend to be of the lesser-productive sort, leaving many promising research-and-development start-ups deficient in appropriate financial lending. So the likely-unproductive enterprises are afforded the bulk of banking assistance from the financial system while the likely-productive and innovative start-ups are left behind with no helping hand, which creates the capacity of the financial sector to perpetuate the growth of the unproductive while stagnating the productive.
Drooping Green Shoots
A recent project done at The New School for Social Research based on the Congressional Budget Office study of income distribution shows that the rising income and wealth inequality is one the biggest problem in U.S. and will probably be one of the most critical political issues in the near future.
The project results show that the top 1% generate most of the household saving and hold substantial wealth, mostly from interest and dividends along with proprietors’ incomes (i.e. lawyers’ fees and big farmers’ subsidies and sales) and equity. In the last decade, this group earned an average of more than $2 million per year.
The middle class mean income is around $160,000; their main source of income being labor compassion (approximately 70% of their total income). Although these households have positive saving rates, there’s a significant income disparity between this group’s income and that of 1%, the latter being ten-fold higher.
The unfortunate bottom households are highly dependent on labor income with a mean level of income $55,000 per year. Data show that this group’s saving rate is negative and after the recession a two third of their income came from transfers.
An income comparison on these three income groups is shown in Palma ratios, which clearly shows a significant gap in income distribution. Income and wealth inequality pose a serious threat to the economic growth and stability and demand for new thinking and reformation of the U.S. Tax system ensuring that everyone is contributing their fare share.
Cooperative Economics: An Interview with Jaroslav Vanek
In this 1995 interview, Jaroslav Vanek, leading authority on and advocate of labor-managed firms (i.e. worker cooperatives) and economic democracy, explains his influences, the basics of his theory and his outlooks for post-Soviet Russia and the US. For Vanek, worker-run cooperatives suggest a dialectical synthesis between non-private ownership of the means of production and democratic principles.
As Foley notes, the ideological tenets underlying capitalism are based on the notion that the market is a separate sphere detached from social relations. For Richard Wolff, this ends up in a justification of vertical authoritarian hierarchies in the workplace, which force the citizens of a liberal democracy to become mere passive subjects (that is, “free laborers” in the Marxian sense) precisely in the site where they expend the most (labor-)time in their lives.
The surrender of democracy in the workplace to the principle of the pursuit of profit is not only unethical, but also sets the virulent unstabilizing forces in motion that Marx already identified in his much celebrated treatise. Therefore, worker-run cooperatives, profit sharing, or collective decision-making in the workplace constitute alternative socio-economic practices to the core problem of private ownership of the means of production, but still without replacing the authoritarianism of the capitalist firm by a centralized state.