GDP and the Usurious Economy
May 4, 2009
John Medaille has a great new post up over at Front Porch Republic about the consequences of indebtedness becoming enshrined in law. In particular, he points to the SCOTUS decision Marquette National Bank v. First of Omaha Service Corp., passed in 1978, that effectively ended usury laws in the U.S., setting the stage for the negative savings rates, the Financial Crisis, and the growth of a business culture built on nothing but loans:
One question, however, is why we were willing to oblige the bankers by displaying such poor moral character. No doubt the convenience of the credit card was a factor, but there is more to it than that. One reason is that we had to. The shift in the economy from manufacturing to finance meant that workers were no longer able to bargain for wages through unions and other means. Since 1972, the median hourly wage has stagnated. We experienced a very odd phenomenon: productivity exploded, but wages remained the same. Obviously, there was not enough purchasing power to clear the markets. Workers responded in two ways. One was to work more hours and put more family members to work, with a devastating effect on family life. The other was to borrow more. Our sense of well-being in the Sixth Circle was largely built on plastic.
Further, the best and brightest of our students no longer went into engineering or manufacturing, but into finance. We started to lose even the knowledge of how to make things. As Thomas Geoghegen points out, not only did financial companies account for 40% of corporate profits in 2003 (up from 18% in 1988), but this may understate the problem. Many “manufacturing” firms, like GM and GE, actually made their profits from their finance divisions. GM became a company that manufactured cars in order to make loans on them.
To my mind, these problems have to be nestled in the deeper question of how we think about economic growth as growth of GDP. The reason that any of these business models wind up looking plausible is precisely because they seem to increase the size of that single number, though anyone looking at the particulars would recognize that there was in fact little more than paper being pushed around. This is an ideology that has had a long history going back to the birth of econometrics, and it has myriad consequences that I want to write about in future posts, but this may be the biggest one: if we make the measure of paper pushing the measure of the economy, then we will get an economy of paper pushers, plain and simple. It may take time, but eventually that number will trump all questions of regulation and prudence.
I recognize this has basically all been said before in many places since the inception of this mode of thinking. Yet its one that has been little heard on the Right, particularly of late. This should be precisely the kind of language that conservatives ought to challenge, the simplistic, the universal, the risky, and ultimately hubristic thinking that throws culture, virtue, place, heritage, and meaning to the wind in pursuit of a set of digits. Is there any better personification of enlightenment excess? Conservatives willingness to defend this language maybe (maybe) made sense when government waste was the central question. Now, I’m frankly puzzled by it. What we have here is a problem in the private sector, and there are many many conservative things that could be said about it, most of all about the language we use to assess it and the values it promotes. Yet this is the last thing the mainstream right wants to think about: their conservatism has become a rote endorsement for corporate power, rather than a force for limits and humility in both private and public sectors.