John Weeks
[My new book is coming in October, The Economics of the 1%: How mainstream economics serves the rich, obscures reality and distorts policy (Anthem Press)]
Bankers raking it in. From The Financial Times, which not withstanding its name supports banking regulation and is probably the least reactionary newspaper in the UK on economic issues.
On the first of this month I became a grandfather. It is unlikely that the wider public will associate the month of August with this delightful event. Young Lukas entered the world almost exactly on the fifth anniversary of the Great Recession, an unnatural disaster that brought and continues to bring misery to hundreds of millions of people across the globe.
Two years ago I made an estimate of what the Great Recession cost the American 99%, and the fifth anniversary prompts me to update it. I can with confidence repeat my assertion that no hurricane, earthquake or other act of nature has ever or will ever approach the potential of financial markets to generate human disasters. To match the devastation, suffering and dead-weight loss of the Great Depression of the 1930s and the recent Financial Crisis, we move into the league of wars, famines and pogroms.
This is a rare case in which the statistics speak for themselves. From the beginning of 2000 through the middle of 2008, US total output (“gross national product”) grew at an annual rate of 2.3 percent. Three years latter in 2011 total output still remained below the peak of mid-2008. Had the US economy “enjoyed” no growth over those three years, and output held at the level of mid-2008, the cumulative income gain would have been almost $600 billion compared to the finance-driven debacle, or about $2000 for every person in the United States, all 310 million.
Every person losing $2000 to the follies of finance is appalling. It is also a gross underestimate, because during no three year period since the end of World War II did the US economy stagnate at zero growth, even less did it decline. Six hundred billion dollars may far exceed the estimated cost of any earthquake or hurricane in the history of humankind, but finance-out-of-control did much more than this. It stunted income growth for half a decade with further stagnation to come in real time.
To show this growth-destroying effect, I ask the question, what if US output had continued to grow at 2.3 percent, as it did in the 2000s before the catastrophe? Despite all the prattle about a “New Economy”, this rate was not high, well below the average of 1960-1999, which was 3.5 percent. What if through public regulation we had prevented finance from torpedoing the rather modest rate of growth during 2000-08 of 2.3%? I show the answer in the chart. It measures GDP at the price level of 2013, which eliminates increases due to inflation.
Had we acted through our government to prevent the “natural” working of financial markets to reek havoc, and as a consequence the economy continued to grow at 2.3 percent, GDP for 2013 would be almost sixteen trillion dollars, rather than the actual level of 14.9 trillion. The accumulated loss for 2008-2013, dead-weight because it can never be recovered, is $6.5 trillion (over one trillion a year, the striped region in the chart, actual in each year minus output at constant growth). If magically recovered from the ether (or the bankers), at the end of 2013 the dead-weight loss would have provided a bonus of over $20,000 for every man, woman and child in the United States. That is what the bankers owe us. And every year it increases.
Actual US GDP during 2000-2013 and what it would have been
without the financial crisis & the same growth rate as 2000-2007
($ trillions, adjusted to prices of 2013)
Statistics from the Economic Report of the President 2013, GDP for 2013 estimated from the first 6 months.
Lost output means lost employment. During 2009-2011 when the collapse was at its worst, total unemployment averaged fifteen million men and women per year, and the unemployment rate did not fall below nine percent of the labor force. Almost half of this unemployment, an annual average of 6.7 million, was above the trend for unemployment since 2000. This unemployment resulted directly from the financial crisis. Imagine, if possible, a disaster that could so devastate society that it throws almost seven million people out of work for four years, a loss of almost 25 million working years. It would be the Mother of All Hurricanes. Its name is “Market Forces”.
Unemployment is the scandal of capitalist economies, a waste of human skills and vast quantities of goods and services never produced. Idle, rusting factories are an eyesore. Idle people in despair due to a social system’s failure to provide livelihoods qualifies as a crime. The high unemployment in the United States and Europe in the twenty-first century shows a failure of so-called democratic institutions to ensure all people who wish to work can work. In his once-famous Four Freedoms speech to the US Congress in January, 1941, Franklin D. Roosevelt explained this with eloquence,
The basic things expected by our people of their political and economic systems are simple. They are: jobs for those who can work; equality of opportunity for youth and for others; security for those who need it; the ending of special privilege for the few; the preservation of civil liberties for all; the enjoyment of the fruits of scientific progress in a wider and constantly rising standard of living.
Should President Obama be suddenly seized by an uncharacteristic urge to serve Americans of the 99% and lay the ground for a better world for all those children born in August and subsequently, “Jobs for those who can work” would be a minimalist start. Small chance of this happening with financial capital running the show in Washington.
The philosopher George Santayana wrote, “those who cannot remember the past are condemned to repeat it”. For bankers and speculators this should be re-phrased, “those who profit from the past are delighted to repeat it”. In prosperous 2007, profits of all US corporations were less than 13 percent of national income, falling to ten percent in the depth of the recession two years later. By the end of 2012 the corporate barons were doing better than ever, with profits above 14 percent of national income. After coming out of a disastrous collapse and public bailout smelling like a rose, the bankers say, why not try it again if nobody stops us?
Be sure that the bankers are busy planning the next financial crisis, which as before will be a boom to them and disaster for everyone else.
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