'Our Problem is NOT "The Economy" (Stupid)'

Our Problem is NOT “The Economy” (Stupid)

Richard Winter

October 2013

Ever since Bill Clinton used the slogan ‘It’s the economy, stupid’ in his 1992
presidential campaign, political leaders have urged us all to agree that society’s
problems and governments’ policy options are entirely defined by something called
‘The Economy’. One striking indication of the limitations of the model of ‘The
Economy’ that we are asked to accept is that hardly a day goes by without yet another
highly critical report on hospitals, all with the general theme that dangerously
inadequate levels of care are in large measure due to cuts in the number of doctors,
nurses and cleaners. (‘Danger’ in this context refers to the loss of patients’ lives and
litigation against the organization and its staff.) In each case the explanation offered
is that ‘adequate’ staffing is, in the sixth largest national economy in the world,
‘unaffordable’. How can we understand this appalling paradox?

As a starting point, let us recognise that underlying what I have called a paradox is a
deceptive and quite ingenious political ploy, which poses problems for anyone
wishing to put forward an effective oppositional strategy. Because it suggests that
what confronts us (‘The Economy’), is, objectively, an external reality affecting
everyone alike (‘We are all in it together’), creating a shared experience of
‘austerity’, and requiring each one of us (supposedly) to exercise virtuous restraint by
‘tightening our belts’. The ingenuity of the argument is that those who contest it can
be easily dismissed, in the largely right wing media, as representatives of political
factions pursuing their own interests who simply do not understand complex technical
matters. The deception is that ‘The Economy’, far from being an incontestable
technical phenomenon, is, of course, a set of political choices that promote the
interests of a wealthy, powerful and exploitative elite.

The Politics of GDP

So how have we come to accept this paradoxical and deceptive model of economic
affairs? Samuelson begins his widely influential textbook (Economics, 11th edition,
1980, p.2) by defining economics very generally as the study of how populations
choose between different ways of producing and distributing the goods and services
needed for ‘the ordinary business of life’ and for the creation of a ‘humane
civilization’. Which is all very well. But in concrete, practical terms what is now
called ‘The Economy’ is a particular set of stipulations concerning how nations are
required to ‘keep accounts’ of their financial affairs – namely a calculation of their
Gross Domestic Product (GDP), which record only those social interactions that can
be given a mathematical expression in terms of a measurable market value.

The state of The Economy is thus generally presented in the apparently objective form
of statistics. But we all know that for a given set of circumstances there are alternative
ways of collecting statistics, depending on the decisions (and hence the values and
political interests) of the agencies doing the collecting.

And indeed, the political interests behind the creation of GDP statistics are all too
revealing. For example, Fioramonti (Gross Domestic Problem, 2013, p.41; p.111))
reminds us that since 1991 the GDP of a nation has included the income of a foreign
company within its borders even though the profits of the company are declared or
invested elsewhere. Consequently, an increase in a nation’s GDP need not produce
any tangible benefit for its population. And since 1998 GDP has included military
expenditure as a profitable ‘gain’ for the economy (rather than, as one might well
suggest, being written off as a regrettable ‘loss’). At the same time speculative trading
in derivatives was also deemed to be a ‘contribution’ to GDP even though it leads to
massive increases in food prices (immediately threatening populations with hunger)
and, in the longer term, to widespread impoverishment as a result of the collapse of
trust in financial institutions.

Underlying all this is a banking system in which consumption is universally financed
through interest payments on debt, where debt is thus a normal state of affairs and
where banks’ reserves are so loosely regulated that they are able to lend money they
do not have, so that ‘wealth’ itself becomes a financial fabrication under the
permanent threat of collapse. In contrast, as part of the overall deception, we are
warned that The Economy is just like everyone’s household budget, so that to be ‘in
deficit’ is not just a danger but morally wrong.

Most importantly, GDP calculations exclude the ‘informal economy’, i.e. the
supportive interactions that contribute to social well-being without generating a
measurable profit: housework, subsistence farming, care of family members,
volunteer work to enhance social and natural environments, and the manifold forms of
mutual practical assistance between members of a community. All such interactions
are excluded from the GDP because they are not profit-generating transactions within
a market and thus do not generate measurable income. No wonder, then that there is
very little relationship between the economic activity that creates a growth of GDP
and the development of what Samuelson called a ‘humane civilization’ or between
GDP growth and the happiness or ‘life satisfaction’ of populations (Jackson:
Prosperity without Growth, 2009, p. 38). Indeed, as early as 1968 Robert Kennedy
observed, in a speech at the University Kansas, that the GDP form of accounting
‘measures everything… except that which makes life worthwhile’. Moreover, the
suggestion that a higher GDP represents a higher standard of general well-being is
another carefully fostered illusion, created by averaging incomes and ignoring
grotesque inequalities.

The GDP insistence on the priority of market transactions is justified by the claim that
they alone allocate resources in a way that preserves the freedom of individuals
through their decisions as consumers, so that a ‘free market’ is asserted as the basis
for ‘democracy’. But the limitations of this claim are obvious. First, it assumes that
markets normally consist of a large number of competing small producers, whereas in
fact, as a result of the gradual concentration of capital, the market is dominated by a
small number of monopolistic producers with enormous power to control competition
(and often stifle it) in their own interests. Secondly, these monopolistic interests are
able to manipulate consumer choices by means of powerful marketing processes in all
the media on which populations rely for their information. Thus, the economy in its
market form is not a system for the realisation of everyone’s freedom to make
decisions for themselves but a system for the subjection of the many to the
overwhelming power of the few, i.e. the colonization or enclosure of previously
communal assets in order to convert them into profitable privately owned commercial

The project of systematically confiscating and expropriating public assets in order to
safeguard the interests of private markets, often with a negative impact on the wellbeing
of the general population, has long been the explicit policy of international
financial authorities. The IMF, The World Bank and The European Union all decree
that a nation’s right to invest in public welfare is dependent on its measured GDP
performance. If a nation’s GDP statistics indicate a debt in the public accounts, then it
is not permitted to ‘afford’ subsidies for education, healthcare, social services,
transport, etc. Thus, in the name of economic efficiency, the number of people
employed in essential social services is drastically reduced. And this leads us to the
most savagely paradoxical consequence of the GDP-based model of the economy:
since labour is always defined as being an organizational cost, the ‘health’ of The
Economy can always (supposedly) be improved by creating unemployment.

‘Unaffordable’ Labour and the Value of ‘Work’

In capitalist economies the creation of unemployment has always been a familiar
strategy for enhancing market value. Workers are made redundant when they can be
replaced by new production technologies or when managers are able to find more
profitable sites for the organization’s activities elsewhere, i.e. where wages are lower
and regulation is less effective. In this way, senior managers will routinely strip
workers out of their organization in order to make it more attractive as a profitmaking
prospect, and especially as preparation for a lucrative take-over. In doing so,
they can hide their own financial motives behind the legal right of shareholders to
insist that any managerial policy must maximise the market value of their shares.
In this way, labour is treated as a tradable commodity whose price is to be reduced
wherever possible by the forces of a free market. But even within its own logic the
‘free trade’ in labour is potentially counterproductive. The legal priority of
shareholders’ rights to immediate financial gain leads to short-term priorities that
undermine the long-term investment planning which is in the real interest of an
organization’s employees and of the economy as a whole. Not surprisingly, then,
industrial economies such as the UK, the USA, Japan, South Korea and Taiwan did
not in fact, as a matter of historical record, achieve their economic growth by
embracing policies of unregulated free trade in the interests of shareholders, but
through state regulation and subsidy (see Chang: 23 Things They Don’t Tell You
About Capitalism, 2010, p. 70). Indeed, employment insecurity undermines the
confidence needed for all economic activity: the protection against unemployment
provided by the social security arrangement of the welfare state merely gives workers
the same sort of safeguard against adversity as the bankruptcy laws have provided,
since the mid-nineteenth century, for entrepreneurs.

But the intentional creation of unemployment as a strategy for enhancing economic
growth is not only counterproductive and not only unjust (workers forced into poverty
to pay for the errors and greed of financiers). It also the clearest possible indication
that there is, at the deepest level a disconnection between the GDP model of the
economy and human well-being (‘humane civilization’). Economic ‘indicators’
inform us that there is simply no money to pay firemen, coastguards, safety
inspectors, legal aid solicitors or health workers, and that all public welfare payments
must be reduced in the name of increased efficiency. And when this leads to
increasing unemployment, food banks for the impoverished, the distress of
householders losing their housing benefit because they have a spare room, and the
distress of disabled people newly classified as ‘fit for work’, the policies responsible
for this explosion of suffering are justified as regrettable but necessary ‘efficient
economic management’.

The heart of the problem is that when, according to the GDP model of economic
affairs, labour must be treated as a commodity, its availability and its costs become
subject to GDP stipulations concerning the need for profitable production and
increasing consumption. In other words, when unemployment is created, for example,
among hospital staff this is not because of any real lack of demand for their services
but because the GDP model cannot currently incorporate the employment of nurses,
doctors, porters and cleaners as an opportunity for profitable commercial investment
(Harvey: The Enigma of Capital, 2010, p.116).

Thus, we have two crucially contrasting conceptions of labour. On the one hand, we
have labour as a commodity, which can only be afforded if it contributes to a
profitable growth in consumption, even though ever-increasing consumption is widely
recognised as being ecologically unsustainable. On the other hand we have work, as
the exchange of necessary services, which can, without using up scarce resources and
thus without any problem of sustainability, provide for the well-being both of those
who receive the services (care, education, advice, practical support, etc) and of those
who provide them (a sense of value, purpose and social connectedness). The basis for
this latter conception of work rests in part on historical and anthropological evidence
that the underlying and primal form of all economic exchange is a general social
system of mutual obligation and trust (see Graeber: Debt: The First Five Thousand
Years, 2011, chapter five).

Those who assert the GDP model of the economy would of course have us believe
that the concept of work as the creation and source of well-being is merely a
sentimental yearning for a mythical era of innocent communalism. However, we can
refute this by showing that work-as-essentially-the-sustainable-exchanges-of-services
could have its own basis in economic theory, even as presented in Samuelson’s own

The argument is as follows. Admittedly, given current social arrangements, the
provision of services needs to be treated as a money transaction. But this need not
mean that service provision has to be subject to a profit-oriented market. Instead it can
simply be argued that the greater the number of services exchanged the greater will be
the ‘velocity’ with which money circulates between the members of a society. And so
the wealth of a society can be calculated as the velocity of the circulation of money
paid for services, adjusted for currency inflation or deflation (Samuelson: Economics,
p.267). This means that economic growth can simply and directly be linked to, and
measured in terms of, the number and extent of services provided and recorded, rather
than their profitability. Services do not therefore need to be unaffordable: their
expansion to meet social needs could itself be a form of measurable economic growth.
Also, since the provision of necessary services does not need to consume scarce
resources, the growth of such services avoids the problem of ecological sustainability.
This is only a glimpse, a fragment; but it suggests that we can contest the GDP model
of economics not only by objecting on moral or political grounds to its consequences,
i.e. creating unemployment among those providing the services necessary for social
well-being. Rather, we can argue that there is an alternative theory of The Economy
itself, a theory that sees work as an asset rather than a cost and does not recast social
need in terms of public debt: a theory that implicitly encourages the creation of
precisely those forms of humane civilization that the GDP model excludes.

Let us, therefore, remember that our problems are not located in The Economy
(‘Stupid’) but in the political forces that urge upon us one particular model of social
exchange. With this in mind we can feel confident we are not somehow failing to
understand an unavoidable force of nature when we contest the powers that keep The
Economy in its current form. When, for example, we urge changes in the law to
remove the priority of shareholder interest; to ensure that all forms of income are
available for public inspection; to prohibit monopoly ownership of information media;
and to outlaw the system of shell companies and off-shore banking that enables
private individuals to avoid paying taxes to the public purse. And, above all, when we
press for the setting up of community funding so that any service provision can be
registered as the creation of wealth.