The Shadow Economy

For many people, economics isn’t that complicated. You work, you make money, you spend that money on other people’s work, and so on. Yet we have stock markets and all kinds of cryptic financial transactions that aren’t founded on labour, but on money that is exchanged, bought, and sold. Why? Answer: because people are forever trying to find new ways to make money. Hence, the subprime loan crisis, originating in the buying and selling of people’s mortgages. There’s a whole money industry out there whose manipulations of money – shown in the daily stock market indices – are conceptually divorced from the everyday reality of our work lives, yet nonetheless have a tremendous influence. This raises concerns such as putting our retirement savings in a stock market that is inherently risky and unpredictable. Sure, I understand that markets typically grow in the long run and that a good investing strategy sees higher-risk investments changed over to more stable investments such as bonds, but as the looming crisis shows, we may be taking the economy’s stability for granted. Crashes happen, with devastating effects.

Capitalism Requires Regulation

One of the biggest crocks in modern times is laissez-faire capitalism, the view that if you deregulate it, money will come. History and experience show the folly of this, beginning with the history of labour before the labour movement demanded change in regards to workplace safety, the status of children in the workforce, etc. But how about the relaxing of media ownership rules, the deregulation of the telecommunications industry? What we’ve seen, instead of the promised golden age of competition, is a consolidation of formerly small businesses into mega-corporations. In other words, monopoly. For evidence, just try to switch phone companies.

Furthermore, when the economy gets skittish, in comes the cavalry – as it must – to save the economy from itself, the Federal Reserve, with adjustments to interest rates. In comes the government with tax rebates – checks in the mail for everyone! – although since it offers no structural change, it’s debatable how much more than a band-aid the rebates will be. And however much we may talk about the “consumer,” many economic interventions are directed towards corporations. Journalist David Cay Johnston, in an interview (http://www.democracynow.org/2008/1/18/) with Democracy Now! gives examples of this. Beyond the question as to why it’s “socialism” when the government’s money – taxpayer money – is used to help people in need (e.g. healthcare) but something else when that money is used for the benefit of private corporations, we get gremlins that come not only from the economy itself, but also from the various policies put in place to game the system.

Obviously, this isn’t the most exhaustive discussion of capitalism’s shortcomings. It should be enough, however, to give a glimpse of next week’s discussion, namely, how politicians and consumers, with all their talk of boosting the economy, will never really succeed unless we deal with the often counter-intuitive underlying assumptions and principles.