A Better Rooted and Grounded State of the Union

Umberto Mazzei, Colum Murphy

20/02/2013

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In his recent State of the Union address, President Obama admitted that “corporate profits have rocketed to all-time highs - but for more than a decade, wages and incomes have barely budged”. In that one sentence lies the essence of current US economic woes. It reflects the core cause of what has evolved into a chronically disordered economic landscape - acknowledged as such when the President stated a bit further on that “The greatest nation on earth cannot keep conducting its business by drifting from one manufactured crisis to the next”. If, for very different reasons, the ghosts of Karl Marx and John Maynard Keynes are grinning, the ghost of Jean Charles Sismondi is smiling affectionately, hopeful that now, after such a long hiatus, the USA is finally getting its act together and at least beginning to move to wiser economic paths.

President Obama pointed to the correct approach when he admitted that “deficit reduction alone is not an economic plan”. And the President pointed in the right direction when adding that “a growing economy that creates good, middle class jobs - that must be the North Star that guides our efforts”. The main policy goals to redress the US economy are neatly outlined: “How do we attract more jobs to our shores? How do we equip our people with the skills needed to do those jobs? And how do we make sure that hard work leads to a decent living?”

The Obama Administration recognizes that present economic problems cannot be solved by a Ricardian spill-over effect - like the Ultra-Rich spending their accumulated wealth to mobilise the rest of the economy. The Ultra-Rich, indeed, are busy investing in stock markets to keep up the value of their digital fortunes. But President Obama now seems to clearly recognize the value and usefulness of an economic philosophy that, for two hundred years, has held that work is the true origin and foundation of all wealth.

Work is what allows the creation and accumulation of useful things - acquisitions we call wealth. Already in 1818 Jean Charles Sismondi deduced this - through his dynamic socioeconomic analytic method - as (we may comfortably assert) either a scientific “fact”, or as something factually “scientific”. The idea, anyway, is the common trait behind the divergent views of Karl Marx and John Maynard Keynes. Marx evolved the idea into a theory of violence that he called scientific. Keynes evolved the idea into a theory that he called science.

It is an excellent time for a US President to look at options other than a “hands off” approach to the US economy which is, or was, the leading economy in a globalizing world. Economic deregulation and a naïve belief in auto-discipline, from the very people wishing to make the greatest profit in the shortest time, is unlikely to make for wise policy. Supply-side economics assumes that production always finds a buyer. The assumption, though, causes a succession of overproduction bubbles.

Keynes - like his predecessor Sismondi - stated that for an economy to work evenly and for general prosperity to ensue, employers needed to pay workers enough to consume what they produce. Both thinkers pointed out that demand means jobs, and demand means more money in workers’ pockets.

Without demand there are neither sales nor profits. That is the rule, not just for that famous 47% Governor Romney spoke of, but for that more than 90% of the population that live in the real economy, the one where people spend money they actually earned. The shortest path to new jobs, à la Keynes, is intensive spending in physical and social infrastructure, something President Obama also recognized. For those Republicans who prefer what was recently referred to as “zombie economics” (discredited prejudices that nevertheless refuse to die) and consider themselves, as “practical men”, absolved from and immune to mere ideas, Keynes had this to say: "Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually (themselves) the slaves of some defunct economist.”

In his speech, President Obama announced another remarkable goal: “to grow our middle class, our citizens must have access to the education and training that today’s jobs require”. The President must have read Sismondi, who said exactly that in 1827. The latter gentleman was a cosmopolitan economic philosopher and historian, born and buried in Geneva, Switzerland, whose works are now revisited by the Geneva School of Diplomacy because of Sismondi’s foresight and modernity. Maybe the White House and the Pentagon could ground a few drones and rockets to allow such an intelligent Sismondi-style initiative to achieve lift-off. Ignorance is a graver and closer threat to US might and prosperity than some of the supposed conspiracies of far off tribes. Let us hope, for the US and the rest of the world, that President Obama is now allowed to actually carry forward his impressive State of the Union vision. And a more resolute Obama Administration might well, politely but firmly, now ask the ghouls of zombie economics, the know-nothings, the disparagers of that 47% of the electorate, to take an overdue hike. As President Kennedy once said: “you can’t beat brains!”. You can’t beat work either. Ultimately too, thinkers like Keynes - and perhaps even more so, his spiritual father Sismondi - are, after all, there to help.

- Umberto Mazzei is Director of the International Economic Relations Institute in Geneva

- Colum Murphy is President of the Geneva School of Diplomacy and International Relations

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