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WHARTON AND HARVARD AND ECONOMICS 101

September 23, 2013

WHARTON AND HARVARD AND ECONOMICS 101

It seems that the premier business schools in our country who prepare their MBAs for careers in money grubbing on Wall Street have neglected one aspect of Economics 101 (invented before spreadsheets and the intricacies of interest movements in the bondholding world). It predates Adam Smith (sometimes known as the father of modern economics) and has been known for centuries as aggregate demand.

However IMF and Merkel-EU rules and regulations may currently affect interest rates on debt in poor nations, and however Wall Street ruthlessly continues to gobble up newly created wealth and even reconfigured old wealth in this country (via its squeeze of continued impoverishment of the poor and middle classes), the economic reality of aggregate demand will not go away, whether here or in Greece or anywhere else. Thus while at present the rich and corporate class is prospering while hogging new and reconfigured wealth, such a class is digging its own grave since aggregate demand in this country has tanked by reason of chronic and ongoing inequality created by such greed. There is thus no fair sharing of the wealth (such as it is and however created), and that inequality (though practiced in the name of free market economics) will, unless ended, ultimately be fatal to ALL classes.

This should be taught in Econ 101. In plain terms, when nobody is coming into your shop to buy your goods or services, you lay off your help and/or close up shop. The people you laid off have no wherewithal to shop, so they don’t, with the result that other shops close, and so goes the overall downward spiral for lack of aggregate demand. Bankruptcy filings by some of such shop owners also stiff yet other creditors of the bankrupts, which is not helpful to their balance sheets, either. It’s a lose-lose proposition for the vast majority of Americana and a (temporary) bonanza for the one percent, though all are destined to take a fall unless policies change – and soon. There are limitations to the current bonanza afforded by globalized efforts and socialization of losses incurred (such as those suffered by big Wall Street banks but billed to us with their recent near-criminal sales of credit derivatives around the globe).

While government and private enterprise or a combination of the two can create the conditions for either more or less aggregate demand, it is aggregate demand itself which is the “job creator” and not government or private enterprise or a combination of the two. In my opinion, it is long past time for government to intervene in this downward spiral. A good start would be a substantial increase in the minimum wage, because unless we get more money in the pockets of the many, aggregate demand will continue to wither (especially with inflation). Fairer bankruptcy and tax codes and investments in education and infrastructure would help, too.

Whether by adjunct, instructor, or renowned professor, Harvard and Wharton and their academic ilk across the country should be teaching this fundamental truth of economics, one that persists through policy changes by government, greedy antics of those such as Wall Street (who currently control political processes), and any other so-called “free market” economy, real or pretended. The bedrock teaching in a nutshell should be this: That aggregate demand is the grease that makes an economy hum, whether in free market or not so free market economies. Neither government nor corporations “create” jobs. They are mere conduits. Aggregate demand creates jobs. We are seeing in our economy today the effects of the lack of aggregate demand in the marketplace. We are on the edge of chronic and systemic recession, and for no good reason.  There is an enormous back-up of work to be done and millions of the unemployed willing and able to do it. A persevering dose of Keynesianism would cure what ails us.

With the economic truism of aggregate demand that any organized society has to deal with (irrespective of its particular brand of “ism”), it follows, then, that those who wish to see their country and its people prosper should as good citizens agitate for governmental policies that spread wealth of all varieties among the many. One percent of our citizens is insufficient to support the requirements of the iron law of aggregate demand. In plain terms, they don’t spend enough. There are too few of them. In order to meet the demands of an aggregate demand necessary to prosperity of all over the long term (including the one percent), we need to agitate for policies that spread such wealth as the economy produces among the many so that all can prosper.

Socialism? Hardly. It is capitalism and fair play at its best when everyone (including the rich and corporate class) prospers. A vibrant middle class of happy people gainfully employed and spending their money in a humming economy where EVERYONE is doing well is not only possible; with a responsible sharing of the fruits of this economy, it is virtually certain.

Do yourself and your family and friends and country a favor and join me in agitating for the reforms necessary to bring about such a happy result. We changed a set of policies to get into this mess and we can change policies to get out of it. Let’s do it. Let’s tell our politicians of whatever stripe that they can either support policies that favor the rich and corporate class or policies that end deepening inequality for the rest of us and get this country moving again, and if they choose the former, they can start looking for a new job. Join me in such agitation. Let’s end this insanity of economic favoritism! GERALD E

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