“Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks which will have to be nationalized and the State will take the road which will eventually lead to communism.”
Das Kapital — Karl Marx, 1867
March 8, 2009 — My students and I discuss economically relevant news items at the beginning of each of my classes. I challenge them to claim their share of daily-assignment A’s, two for each student per grading period, for staying informed. Lately, however, it seems as though everything in the news is economically relevant — so this isn’t much of a challenge, except for the fact that most come prepared with the same most news-worthy items each day. Whoever gets their hand up first wins.
One story that everyone seemed to miss last week was that Russia’s Ambassador to the United States, Sergey Ivanovich Kislyak, predicted that our economy will fail completely during 2010. I shared this with my students from whom I was pleased to note that none seemed overly concerned about the ambassador’s opinion. After all, Russia, we all know, still isn’t overly fond of us, jealous perhaps – their own recent experiment with capitalism having all but failed following their financial crisis in 1998. Entrepreneurism, political corruption and crime rushed into the economic vacuum left behind by the failure of the Soviet Union’s command economy.
Offering something for discussion not gleaned from the legitimate media, thus avoiding the competiton for her daily assignment A, one of my advanced placement students brought a copy of the following to class, a much circulated email message, subject: “THIS SAYS IT ALL.” I read the message to my class including Karl Marx’s nineteenth century prediction about the future of capitalism, which seems to be hauntingly applicable to our current crisis.
Shortly after class, an economics student approaches his economics professor and says, “I don’t understand this stimulus bill. Can you explain it to me?”
The professor replied, “I don’t have any time to explain it at my office, but if you come over to my house on Saturday and help me with my weekend project, I’ll be glad to explain it to you.” The student agreed.
At the agreed-upon time, the student showed at the professor’s house. The professor stated that the weekend project involved his backyard pool.
They both went out back to the pool, and the professor handed the student a bucket. Demonstrating with his own bucket, the professor said, “First, go over to the deep end, and fill your bucket with as much water as you can.” The student did as he was instructed.
The professor then continued, “Follow me over to the shallow end, and then dump all the water from your bucket into it.” The student was naturally confused, but did as he was told.
The professor then explained they were going to do this many more times, and began walking back to the deep end of the pool.
The confused student asked, “Excuse me, but why are we doing this?”
The professor matter-of-factly stated that he was trying to make the shallow end much deeper.
The student didn’t think the economics professor was serious, but figured that he would find out the real story soon enough.
However, after the 6th trip between the shallow end and the deep end, the student began to become worried that his economics professor had gone mad. The student finally replied, “All we’re doing is wasting valuable time and effort on unproductive pursuits. Even worse, when this process is all over, everything will be at the same level it was before, so all you’ll really have accomplished is the destruction of what could have been truly productive action!”
The professor put down his bucket and replied with a smile, “Congratulations. You now understand the stimulus bill.”
After reading this to the class, I asked my students what they thought of it. Nobody offered an opinion, not at first. But I was patient, giving them a chance to think about it. Finally, one brave young fellow raised his hand and offered this, “I think the explanation is too simple… so simple that the author must think everybody else is stupid.”
Another student said, “Yes, and if economics was that simple we’d all be getting A’s.” In response to this, most of the class started laughing including me.
“Remember, class,” I said, “the John Maynard Keynes quote: ‘Economics is an easy subject at which few excel’.”
Then, the student who had brought the email to class sheepishly asked why the story’s professor was so wrong using a swimming pool as a metaphor for our economy.
“Unlike the professor in the story,” I said, “I will take the time and at least try to explain. Yes, this lesson on the Economic Recovery and Investment Act of 2009 is flawed on many levels.
First, our economy is not at all like a fluid swimming pool. Wealth does not flow freely from the deep end to the shallow. Wealth tends to flow from the shallow end to the deep where much of it tends to stay. At the beginning of the Bush/Cheney years, 80 percent of the water [wealth] in this nation belonged to 20 percent of its citizens, or just 20 percent of the pool. Now nearly 90 percent of it is in the deep end with much of it cashed away in U.S. Treasury Bonds, foreign numbered bank accounts and other investments that impede circulation. This is because the rich have a much lower propensity to consume and a higher propensity to save. Recall our lessons on the aggregate expenditures model. And, be not confused, saving is not the same thing as investing (http://www.finweb.com/financial-planning/finances-savings/saving-vs-investing.html), which is what many monetarist/supply-side economists would have us all believe. By the way, there aren’t very many serious supply-side economists left.
Second, we don’t have a private backyard pool any more. Our nation’s pool is connected to those in the back yards of all other nations.
Third, and there is little controversy over this among most economists now, government spending under the law will not be wasteful/unproductive activity. Infrastructure projects that this country badly needs done will get done. This will make us more efficient and reduce future costs (true investment)… plus, wages paid to get this work done will be spent and money spent eventually becomes someone else’s income — over and over again. Much of it will save state and federal governments’ unemployment and health care costs.
Finally, much of the water moved (government spending) will be used to nurture education and do research on alternative energy sources making us even more efficient and competitive in the future.
Viral disinformation like this swimming pool analogy making the rounds lately, I think, are poor attempts by those who oppose the current administration’s efforts to deal with the recession. They raise doubts and promote fear for political purposes and, as such, are disingenuous. It’s sad because what we need just now in the private sector is a sense of unity and confidence. But informed individuals, or at least those who have open inquisitive minds, won’t be suckered-in by simplistic appeals like this. We know that the world is not flat, and we know that laissez faire economics is anarchy. An economy without structure and rules is like a jungle wherein only the fittest survive. I must admit, however, the Karl Marx quote, does come pretty close to explaining what has happened to us owing to deregulation of the financial sector. Let’s all hope his forecast isn’t correct too. If foreigners decide to stop lending us money, it could come to that, heaven forbid!”
Please feel free to respond to this posting below with a comment, whether or not you agree.