American No-How

In the raw capitalist model, some percentage of people need to be unemployed – a point Karl Marx sharply critiqued and, later, John Maynard Keynes used to justify government's role promoting full employment. While any level of unemployment seems untenable to average Americans trying to pay their bills, economist-types have long accepted that, left to its own devices, the unemployment rate will never be zero.

Ongoing 5% unemployment is considered the norm, though in February, the Federal Reserve Bank of San Francisco released a paper arguing that 6% unemployment might be the new baseline. But what if it's worse? What if we've reached a new low in unchecked capitalist greed that will perpetually drive up the unemployment rate as long as companies can keep extracting a profit?

The financial sector occupies an increasing share of America's economy. Between 1973 and 1985, the financial sector comprised 16% of domestic corporate profits. In the 1990s, it hit 30%. In the past decade, the financial industry's slice of the economy topped 41% – and it may even go higher. These businesses make money not by making things, but by making bets on other money. Employees sold separately.
~ from Profit on Wall Street, Recession on Main Street by Sally Kohn ~

If you spend much time reading the Old Testament, you are struck by the amount of praise heaped upon people who labor. It appears that God sees it as virtuous for us to make our way through life by the sweat of our own brow.

Liberal philosophers like John Locke carried this idea on with his pronouncement that men (alas, not women) have the unalienable rights to life, liberty and the pursuit of property (what Jefferson changed to "happiness"). Philosophers of Locke's ilk had a vision of men taking fallow ground and turning it into farmland or taking forests and utilizing the wood to make products.

In the 1800s, this belief in labor to create tangible assets was one of the motivators for the Homestead Act. Americans were encouraged to claim tracts of unowned land (sorry, native communal ownership ideas didn't count here) and to make something tangible out of it.

Throughout American history -- it is just as true in most other corners of the globe as well -- our work ethic was something we were very proud of. We always seemed to brag about American know-how and innovation. We were adept at growing or manufacturing tangible commodities that benefited some or all of the population.

The advent of the computer age has changed this dynamic significantly. While computers have benefited humankind in many ways, they have also been the spur for us to move away from producing the physical commodities that serve as the basis for the "good life."

The manufacturing base in the US now is a shell of its former self. Family-owned farms are few and far between. Simply put, America -- as a whole -- doesn't make many tangible things anymore and it is this dearth of productivity that is driving unemployment ever higher.

In place of producing tangible commodities, financiers use computers to generate virtual wealth. They take financial instruments and cut them up in a wide variety of packages (derivatives) and then spend their time placing bets based on which ones they believe will do well and which ones will not. In other words, a major portion of our national economy has become an electronic poker game -- a lot of it played with public money!

And there's the rub. When the bets don't pay off, the public is forced to pickup the tab. However, when the bets do pay off, all profits go to the gamblers, not the public. This offers yet another example of externalizing the costs, while internalizing the profits!