August 31 to September 10

Q1: Does Mainstream Economics fall within Political Economics, since P.E. considers political, social, and moral considerations?

R: Political Economics falls outside Mainstream Economics. Mainstream Economics is often called Neoclassical Economics, having its origins at the turn of the 19th century when a British economist named Alfred Marshall wrote the first economics principles book used at the college level. Marshall's book reduced economics to a mathematical science, eliminating the social, political and cultural character of society. The notion of "economic man" was established wherein humans were simply rational calculators of benefits and costs. The concepts of the supply and demand curves were first introduced as the conventional approach to understanding markets. Economists who came later (Veblin, Galbraith and others) created alternative approaches which used psychology, analyses of the institutions of society and discussions of forces and trends to provide a richer understanding of economic events.

Q2: Excessive consumption is what pulls most governments out of debt when used properly. I think that capitalism can work if used properly. It is ... just as hypothetical as communism which of course Marx propagated. [But] the market is too large to control ... there are no more nations to conquer ... capitalism is the new system of modern dictatorships and warfare.

R: Refining your first point slightly ~ spending is simultaneously income to those who receive it. Income is taxed by government and so rising spending causes an increase in tax revenues. This is understood more clearly when we discuss Keynesian economics (John M. Keynes). Regarding your other points ~ it's not true that capitalism and communism are just hypothetical systems. They both have distinct characteristics and we should be careful in the use of the terms. Capitalism is an economic system based upon the private ownership of the means of production. Capitalists own the means of production and a working class sells its laborpower to the capitalist who uses it to earn a profit. Communism is a system in which the means of production are owned by the people -- society at large. The distribution of produced goods and services is determined in committees composed of representatives of the working class. The working class has control of the production process, hires a managerial class and determines the use of the surplus. In writing your comments/questions you should clearly state an idea or question, be careful in the use of terms and work on relating your separate points. Reduce the randomness of your comments. Tough to do in just a few minutes, but that's why it's better to raise just one question or make just one comment per card.

Q3: The idea of continuous excess and expansion is impossible to believe in, nothing can go on forever, so why do our economists in the mainstream seem to think it can and will work?

R: We know that in the 350 year history of capitalism there is a rich legacy of recessions and depressions. The market system has not expanded in a linear fashion, but in its pattern of booms and busts it has always recovered and reached continuously higher levels of production and consumption. Macroeconomists refer to short-run waves and long-run business cycles. John M. Keynes once said "In the long-run we're all dead." Will the system continue to expand forever? -- that's doubtful since capitalism is relatively young, highly volatile and constantly in need of new markets. Since resources are finite, it's likely that we will gravitate to a system with greater central, regulatory management of resource use. Mainstream economists are focused chiefly on what interests government and business, which is what will happen in the next fiscal quarter or perhaps year. Few economists work on forecasting decades or centuries ahead.

Q4: Are there any more monopolies in the U.S. [since the passage] of the Sherman Anti-trust Act (1890)?

R: Strictly speaking, a monopoly is one company in a well-defined market. Given that definition, economists will tell you there is no monopoly since perhaps Alcoa Aluminum prior to its forced divestiture of some of its bauxite mines in the 1940s. Setting aside "perfect monopoly", Microsoft; Exxon-Mobil; the telecommunications industry; the transportation industry; mining and the agribusiness industries are all significantly consolidated. This is serious monopoly power that creates very high barriers to the entry of competitors. The CEO of the Intel Corporation once said that anyone can enter the semiconductor industry, all you need is a billion dollars-- now it's probably more like ten billion. Very few capitalists could enter that competition.

Q5: If people reinforce the causes for beliefs of what is right and natural, what keeps people from making major changes in a society?

R: Actually, the process whereby popular belief about the rightness of the market system (for example) is constantly supported by the media, advertising, government and schools makes it difficult for serious reform to be undertaken. For example, efforts to establish a single-payer health care system were beaten back partly because it was thought to represent a breach with the efficient, individualized market system. Anything that involves the use of government regulation is suspect and often ends the discussion. This is true even though most people recognize that when 43 million people are without health insurance a serious crisis exists.

Q6: How close are we to enduring another era similar to the Great Depression?

R: When I was teaching a course at Brooklyn College in 1975 I wrote a column in the student newspaper that indicated we were entering a period when economic collapse might be imminent. The economy was suffering from both high inflation and high unemployment (both above 10 percent). The policymakers in Washington had no answers -- the Federal Reserve couldn't manage the financial sector, fiscal policy (gov. spending and taxation) was of no use. Nixon's wage and price controls had been tried and rejected. We had not experienced inflation and unemployment above 10 percent in the entire 20th century. Many economists were echoing the same pessimism. One thing is clear -- the market economy is incredibly adaptive. What we were seeing was not the beginning of an era of economic collapse but the end of an era of unbelievable growth and prosperity. We were coming back to earth. The period from the end of World War II to 1974 experienced virtually no economic slowdowns -- unemployment rarely above 2.5% and inflation ranging from 1.5 to 2% on average.  A book by Gordon, Bowles and Weisskopf, Beyond the Wasteland, written in 1982 describes this transformation as a loss of U.S. economic hegemony. The rest of the industrialized world had reconstructed their economies from the world war and they were coming after our markets. They still are.  And economists admit to being unable to predict the economic future.

Q7: What was the percentage of production made in the U.S. (instead of China) 50 years ago compared to 2004?

R: In the month of July we had a trade deficit with China of $14.9 billion which is slightly less than 1/3 of the total trade deficit between the U.S. and the rest of the world. We had a trade deficit of $11 billion with all of Europe. Fifty years ago we had virtually no trade with China. A direct answer to your question is more difficult to find.

Q8: Is there a chance that manual labor will eventually disappear in the face of technological development?

R: There are factories now that operate with almost no labor in the U.S. Companies that paint components for the automobile industry, for example, simply fill bins with parts, huge containers with paint; turn on the factory and leave.  However, we can never eliminate all labor or the realization of profit (sale of products) would be impossible.

Q9: "Man seeks pleasure and avoids pain." What exactly did Jeremy Bentham mean by this?

R: In fact, this quote is so famous that references to Bentham's philosophy are often  just called "Benthamite" and economists know what is meant. Bentham meant that human beings are simply motivated by self-interest. They only do things if they are rewarded and otherwise refuse to incur discomfort. So, humans are essentially inert (lazy) and would lie around all day if they weren't forced to work in order to eat. This denies that humans act altruistically, i.e., for the benefit of others or society without expecting payment in return. It was an extreme view but fit the assumptions of those who took Adam Smith's invisible hand concept literally.

Q10: Would you consider the humans in a reserve army [of the unemployed] a disposable commodity?

R: That is certainly one way of looking at it. There is an increasing trend toward contingent labor, that is workers who are on short-term contracts, part-time or part-year. The employer can let them go anytime and does not have to pay overtime or benefits. Even some teaching contracts for college instructors are for just three years, not to mention the increased use of adjunct instructors or graduate teaching assistants at even our most prestigious universities.