A Terrible Blogger is Born!

January 23, 2009

Ford’s in His Flivver pt. 2: Business as Usual in America

Filed under: Contra Keynes,Economics,State,U.S.A — rmangum @ 12:36 am
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In a previous post, I spoke about the auto bailout, and the debate over whether the industries economic woes stemmed primarily from the excessive wage demands of the Unions, or the excessive salaries of CEOs. I felt that, though I admitted unfamiliarity with the specific practices of this industry, there was no reason it couldn’t both. Well, Kevin Carson has a new article up at Center for a Stateless Society which brings some clarity to the issue. He quotes Dean Baker that American executives earn millions of dollars more than their Japanese counterparts. It would seem obvious that to stay competitive, executives at the Big Three would be forced to take big pay cuts, if it did not have help from the federal government to prop up their exorbitant salaries. But editorials coming from the Washington Post and that great “free-market” mouthpiece, The Wall Street Journal, stress worker pay cuts as vital. Carson also points out that they would acutally have to change their whole business model, since

GM still produces cars to sell to inventory without regard to current orders for them, and treats human capital as a variable cost to be downsized whenever business fluctuates.  But management salaries are treated as a fixed cost, and swept under the rug through the practice of “overhead absorption” (incorporating them into the price of the cars sold to inventory, so they are magically reclassified as an asset).

So there you have it.  In what passes for “free market” thought among Republican politicians and neoliberal hack journalists, “restructuring” is good if it means rolling back union wages and benefits, but bad if it means abandoning the gas guzzling business model that put Detroit in the tank.  Government-imposed discipline is good and pro-market only if it’s aimed at labor, and not capital or management.

And of course the Democrats and their associated hack journalists pretend that this is what the “free market” means also, in order to justify government expansion and Keynesian economic policy. Yet it’s clear that all that is needed is genuine laissez-faire, and the auto industry would scale back to its proper size and level of produciton to what is actually demanded by consumers. The disparity of pay between workers and executives would actually be less.

Carson, as always, challanges our assumption that a “Free Market” and “Capitalism” are the same thing.

In neoliberal orthodoxy, supposedly, labor and capital are just coequal “factors of production.”  So why name an economic system after one of the factors of production, in particular?  What we’re seeing is that, beneath the ideological veneer of “free contract” and all the rest of it, some “factors of production” are more equal than others.  That’s why, when Costco pays its workers above-average wages for the retail industry, business analysts squirm with the same undisquised moral disapproval that some people reserve for diamond-studded dog collars.  But when a Bob Nardelli or Carly Fiorina gets a retirement package worth tens or hundreds of millions, after gutting their companies to massage the quarterly numbers and game their own bonuses and stock options, that’s just the way “our free enterprise system” rewards them for “the value they created.”

What the politicians and journalists are for, behind all the “pro-market” rhetoric, isn’t the market at all.  It’s the interests of capital.

And that’s what typically goes under the name “Capitalism”, which also serves the interest of the political class in Washinton too, as it produces a never-ending stream of opportunistic legislation justified by the logic that goes, “We have a free-market Capitalist economy. Our economy is bad. Therefore free-market Capitalism is to blame. Therefore we need to alter this free market economy.” As if no intervention had occurred before which might at some point have caused it to stop being a free market, if indeed it ever was one.

What this all reminds me of is Bastiat’s dictum, “The state is that great fictitious entity whereby everyone seeks to live at the expense of everyone else.” Yet some are better disposed to do this than others. They are called “Capitalists”, and I think this “Calvin and Hobbes” strip sums up the behavior of this class quite well.

image0012

Business as usual in Capitalist America means that Calvin gets his subsidy via Mommy and Daddy Government, who picks it from Susie’s pocket, who then has no choice but to drink Calivin’s awful swill. She gets fed up with this “free market” and asks Mommy and Daddy Government take more money to make the swill more drinkable (though not likely from Susie’s pocket herself, who will no doubt be made head of the bureau overseeing swill quality) . And round and round it goes. Of course, Calvin could have just made good lemonade at a reasonable price in the first place. But then what would Mommy and Daddy do?

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2 Comments »

  1. Thanks a lot for the link. That C&H cartoon is a classic. I downloaded it a few weeks ago when Arthur Silber ran it on his blog.

    Comment by Kevin Carson — January 23, 2009 @ 4:27 am | Reply

  2. […] was critical of the bonuses but disturbed about the rising tide of populism, which could be bad for Business as Usual in America. So apparently the practices of State Capitalism are bad, but populism of any kind is far worse. […]

    Pingback by The shell game of democracy or, now the glove is off the other fist « A Terrible Blogger is Born! — May 6, 2009 @ 9:47 pm | Reply


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