The need for greater economic leverage

For the noneconomist, which includes this writer, the field of research dedicated to understanding our economy has been a great disappointment in the past few years.  Not only were most economists blindsided by the Great Recession, the over emphasize on financial instruments and other nonmaterial elements of our economy helped magnify the economic catastrophe by inflating growth on the stock exchanges at the expense of the real economy.  Failing to show leadership and true insight, these experts cannot offer the average person a reasonable response to their failings nor a model that supports a sustainable economy for the general population.

It is my fear that policymakers and researchers cannot foresee an economy capable of supporting a decent middle class lifestyle for the bulk of the human population.  In other words, they are settling for an economy that will enrich a handful of individuals in each country, thus creating a sustainable economy for the few that will be composed of the superrich and a global middle class.  Although I am certain there are many affluent individuals who want to create a broader economy, they lack the insight to see a way forward whiles others perceive few incentives to consider the needs of the many. 

It is, therefore, pivotal for the middle and poor classes to take control of their economic destiny.  This starts with a clearer understanding of how our economy needs to work.  Because the vast majority of individuals struggle to understand economic theory, they are often pushed into supporting policies that actually hurt them.  People need a measure that ensures their interests will be addressed and that they can understand; one such measure is leverage.

In this day and age, celebrities and CEOs are often able to extort millions of dollar in pay for their services on an annual basis.  The average person cannot do this.  The reason is that affluent people have greater leverage when they are seeking compensation, i.e. the potential revenue they can make their employers affords them leverage.  For most other individuals, education, expertise, union membership, professional affiliation, and a whole host of other factors give them varying degrees of leverage.  As one of many bold examples, Wall Street firms in 2008 were able to coerce a large taxpayer bailout, because they wired the economy with a dead man switch to ensure they would thrive no matter the consequences of their actions; whereas, anyone outside of their interests was, and is, considered economically disposable. 

Furthermore, much of the twentieth century was spent empowering the masses with greater leverage.  Some of this was accomplished by government bolstering the leverage of individuals with the force of law, i.e. government as the hand of the People became the norm.  This was seen with the passage of laws designed to protect worker rights, customer rights, civil liberties, and the environment.  Additionally, the expansion of education afforded more people greater leverage in the economy, until too many acquired college level degrees.  In other cases, nongovernment actions, such as the organization of labor unions, allowed individual workers to establish an equal footing against abusive corporations.  Although a myriad of policy and ideological shifts secured the American Golden Age, which was marked by a high standard of living enjoyed by an unprecedented number of people, short-sighted, self-serving thinking started to undercut progress. 

In the 1990’s, the push for accelerated economic globalization forced workers in wealthy western countries to directly compete against those working in under-regulated, under-taxed, far poorer nations.  While NAFTA, for example, was sold to the American People as an opportunity to  gain access to new markets and cheaper goods, which it did, it more importantly further deleveraged workers in the US, Canada, and Mexico.  China’s special trade status was an even bigger assault on individual power due to the size of the Communist country.  Further, the formation of the Europe Union helped give the US a stronger economic partner and allowed the Europeans to balance American influence in the global economy.  It also created layers of bureaucracy that put distance between the People and their democratically elected leaders, thereby undercutting the democratic authority of individuals.  Overall, the over liberalization of international trade undercut the ability of governments to tax, regulate, and protect their national economies, thus neutralizing the leverage governments had once extended to their Peoples.  In other words, countries outsourced their economic sovereignty and deleveraged their Peoples.

A healthy economy, as a balanced part of a healthy society, depends upon the financial health of the masses.  Only when individuals have leverage in a given situation can they, or their advocates, ensure their interests will be met in the present and in the future.  As such, it is important to understand a sustainable economy can only be built if the interests of the many can be addressed.  When the People lack meaningful leverage, more and more of their interests with go unaddressed.  Consequently, economic researchers need to start building economic models that incorporate the issue of leverage.  In turn, policymakers must seek to extend greater leverage to individuals in all aspects of society.  Moreover, our society needs to do a better job of addressing the negotiating powers afforded to the People when developing our economies.