In India and China, food price rises are rampant.  We have argued that this is a worldwide financial bubble due to speculation in financial markets on commodities, via index traded funds and other market instruments.  This is the same experience as the first half of 2008.

But this is not the whole story.  Food and energy price spikes are also due to the ability of some of the population to pay the higher prices. 

Minsky assumes that the wages in the consumer sector are the same as the wages in the investment sector, but this is not the case.  Design, high tech production, and higher skill sets are all more common in production of investment goods, from roads to machinery, from plant to equipment, than in production of consumption goods.

When investment capital flows into a country, it creates the dynamic of Minsky's -- or Kalecki's -- two-part economy.  The more investment, the more workers are in investment goods production, that is, the higher the ratio of investment goods labor to consumption goods labor, the higher will be inflation.  More workers are bidding for the same consumption goods, and on the other side of the coin, the costs and profits of investment have to be built into the price structure.

The experience is that consumption goods workers have stagnant incomes and rising prices are extremely dangerous for them.  Investment goods workers can pay the price, until the bubble breaks.  And in the end, the bubble breaks, asset values drop, investment stops, growth stops.  Sound familiar?
Chapter 1:

Many Parts

preview of the concepts
the words

This is a book of history, a book of statistics, a book of theory, but at its base it is a book of a few big words.

This is a book of history because economics takes its meaning from its context. Economic and financial institutions are born, developed, reformed, manipulated, and in time they age and die.The economic challenges are not abstract.  They the issues of the day. Economic tools have been developed to meet the real world, insofar as they are useful, although sad to say, many tools have been developed at great cost to meet hypothetical worlds.  The economics profession is recognized primarily by voices who have risen in one or another order of a priesthood most political and insular.  The economics of today is not the economics of fifty years ago nor fifty years hence, but the discussion is conducted as if it is.

This is a book of statistics and case studies because economics ought to be the most practical discipline, concerned with what works and how to get to there from here. While statisticss are often designed to prove the statistician's intent -- designer statistics -- they are evidence and proof if used correctly.

And this is a book of theory, simply because theory is the brain behind economic policy.  What works?  Why does it work?  How does the mind of the aggregate reflect the mind of the individual?  How can the whole be made safe and free and fair for its member parts?

But at its base it is a book of a few big words. Some of the words may be familiar, some may not be recognizable. Demand Side. Supply Side. Free-Market Capitalism. Corporate Oligarchy. Conservative or Classical Economics. The Commons. Public Goods.

Demand Side is the biggest word, and it may be the least trafficked. Most will initially understand it as a counter to Supply Side, the economic fad of the Reagan Era that failed so well and continues to fail wherever it is tried. But Demand Side has a longer and more noble history. It began in the 1930s, spearheaded by the greatest economist of the past century John Maynard Keynes. Keynesianism was one of the two major streams that combined to form Demand Side.  The other stream arise from the New Deal and its pragmatic combination of social insurance, market regulation and government direction of the economy.  The theory and practice of Demand Side were borne out by the Great Depression and the Second World War, as well as by the prosperity and political stability that followed the war, and organized economic thought into the 1970s.

The Demand Side presented here is this combined stream of Keynesian and New Deal thinking as augmented by the work of Leon Keyserling and John Kenneth Galbraith and by Hyman Minsky, Joseph Stiglitz, James K. Galbraith, and George Soros.  We add here an emphasis on public goods and the commons.

Demand Side is not a belief system, but a science of economics that has been examined and proven, and continues to prove out.

Supply Side was a short-lived experiment in Pollyanna-ism which proved a failure as an economic school, but lucrative to the political backers of then president Ronald Reagan. Its tenets held that freeing markets from government red tape skewing financial rewards upward would unleash new waves of growth, promises which  quickly faded in recession and debt. It was economics, as Thorsten Veblen put it, as "an exercise in ceremonial adequacy." Supply Side is a big word with a small meaning. It was promulgated by the powerful and most often accorded only with the interests of power.  Because of its powerful sponsors, it remains alive today in quasi-independent institutions such as the Heritage Foundation and American Enterprise Institute.

Free-Market Capitalism is a big word indeed. It represents an exposition of a concept that a vibrant provisioning of the planet's people is possible based only on the incentives to profit. Its titular prophet was Adam Smith. His Invisible Hand is as close as many economists get to theology. The premise is that if left unfettered by governmental interference, each person and business will by the magic of the market produce what is needed in the optimal amounts by no other compulsion than the great virtue of personal interest.

This is, as John Kenneth Galbraith wrote in his Economics in Perspective, "a celebration of approved belief ... thought founded not on what is actual but on what is agreeable and convenient to the influential interest." As we look at the work of Galbraith, we will see that the market is not free, but controlled and controlled most often by the corporate giants whose existence is assumed away by Free Marketeers. Nor does the optimal complement of goods come into existence, magically or otherwise, but most often only those goods which produce wealth for the wealthy. The product of pollution, global warming, mind-numbing jobs, poverty and ignorance are, in economist-speak "externalities" to this free market. External only to the sacred event of purchase and sale. Free Market Economics is a word as big as Oz.

Corporate Oligarchy. When this term is defined, it will be instantly recognizable. An oligopoly is an economic term referring to the control of a market by a few large firms, the reality of the market as opposed to the free-market fantasy. Oligarchy is the control of the state by a few people. "Corporate Oligarchy" refers to control of the state and the economy by corporate interests: Big Pharma, Auto, Defense, Big Oil, Wall Street. The defining contest of the present day is the competition between representative democracy and Corporate Oligarchy for control of the state.

Conservative or Classical Economics is that primarily academic pursuit which posits long-term stability and functionality absent an overt organizing hand. This is the invisible hand economics.  In some ways it is congruent with Free-Market Capitalism. It is to Free Market Capitalism as the Bible is to a religious tract, more complete, but less simplistic, and infinitely more susceptible to interpretation.

Classical Economics took quite a blow from reality with the advent of the Great Depression, made a strong comeback, but is now again in deep defensive mode.  It has always been behind the curve.  Its purpose seems not so much to assist the survival of the world's civilizations as to provide, in paraphrase of Galbraith the elder, non-offensive employment to professors and instructors. The mathematical exercises of much of Classical Economics relate to historical reality in the same way the reactions in a petri dish refers to evolution. There is a certain similarity in pattern, but the scale and gravity is of a different dimension. Unrealistic, simplistic, myopic assumptions remove findings from the world of relevance to the laboratory of peripheral interest.

The Commons is an elementary economics word which originally referred to pasture held in common by villagers. Today the Commons is rightly seen as the air, the water, ecosystems and resources shared or used in common. The Tragedy of the Commons is the full title for the original observation. Tragedy because inevitably the Commons became overgrazed and barren, for there was no incentive for any one user to show responsibility. If his cow was restrained from the pasture, another's would take its place. So in addition to barren pasture, the Commons produced gaunt and profitless cattle. Overuse of the world's ecosystems and resources will reproduce those outcomes on a planetary scale. Developing the institutions and moral fortitude to take responsibility for the Commons a necessary next step in evolution.

Public Goods are in distinction to private goods. The market produces private goods, individually consumed goods, from candy bars to cars, in abundance. Public Goods are not produced so abundantly. Public Goods are the province of federal, state and local governments. They include roads, police, education, national defense, courts and prisons, some health and social services, libraries, and so on.

Public Goods is a big word because it is by way of Public Goods that prosperity is seeded, nurtured, grown and ripened. The roads, national defense and education systems of the U.S. have been the platform upon which the society has risen. Policy which prefers that private goods dominate is a route not to well-being, but demonstrably, to instability and failure.

This is not a theoretical contest, this contest of theories.  There is empirical evidence.  We offer some in Chapter [pres] with an examination of economic outcomes by party of the president.  Elsewhere [chapters ...] we look at productivity, growth, employment and unemployment, inflation/deflation, markets, specific sectors like Agriculture and Energy.  Historically and statistically the economy has done better under the practice of Demand Side Economics. Classical Economics, Free-Market Economics, and their stepchild Supply Side inspire religious devotion, but do not work.

We also look at those issues, obstacles, challenges and threats which society must solve for its own survival and which will need the organization of economics. In large part the critical path is blocked by the entrenched corporate control of the economy and abetted by an economics of confusion. Global climate change, desperate poverty in the Third World, immigration, loss of democratic control of political institutions, inability to adapt, all are connected in an economic context and through economic institutions.

And we offer a way forward.  It may be surprising, given the harsh terms employed in the first two parts, that the remedies here are seemingly so mild. One eye has been kept on political practicality, to be sure, because a remedy is no remedy if it cannot be applied. But, for example, the cleansing of the market process from manipulation by corporations ought to be amenable to theoretical Conservatives as well as progressives. It is those who employ the tenets of a free market faith in their sermons, but whose purpose is not to support strong economics, but to excuse corporate control, who will be most exercised. A symbol of this might be that the proposal to free the tax code from purposes ulterior to funding the government, no doubt politically  wildly impractical, is probably the least dubious in theory. Elsewhere, the value of public goods is not so much controversial as it is misunderstood. A fair look at public goods and the necessity of maintaining the Commons will lead to approval in most eyes.

This is not a book for economists. Some may see it as a book AGAINST economists. It is instead a book for people concerned with public policy. The minutia and sophistry with which economics is usually occupied are distractions we can no longer afford.  Instead we need a lens for penetrating the confusion of competing theories and explanations. Whether or not the reader accepts all the arguments and observations, we hope he or she will admit that at least the scope and perspective is appropriate.

The well-being of the poor and middle class are of infinitely more importance than that of the wealthy, not only because there are more of them, but because when they do better the whole does better. The great nonsense of modern times is that wealthy individuals and countries are so by necessity, to keep some sort of economic machinery running smoothly. Quite the opposite is the case. When well-being is concentrated in a few, imbalances are created that not only produce immoral poverty and deprivation, but that threaten a successful progress into the future.  Personal security cannot be the province only of the wealthy, nor can the incentives to do better be confined to the upper quintiles.