The "Let's Pretend" Economy and False Consciousness

Is the US economy steeped in a sense of "false consciousness", and if so, what will it take to rectify the situation?

I. Let's Pretend

Charles Hugh Smith of the blog Of Two Minds has recently published several interesting articles regarding "our 'let's pretend' economy." The first article suggested that student loans are not about education. Smith: "Student loans have little to do with education and everything to do with creating a new profit center for subprime-type lenders guaranteed by the Savior State." Smith's analysis regarding higher education portends that student loans function to throw young Americans into "debt-serfdom" and that higher education is simply a profit-making scam.

In light of stagnant incomes and rising costs, Smith suggested that while tuition costs rise the value of a college degree has fallen. Smith: "The supply of those with college degrees exceeds the demand." Even further, "student loans enable young people to 'stay in school' or 'go back to school'", i.e., individuals are "taking out student loans just to live; the loans are essentially a form of 'state funding' a.k.a. welfare that must be paid back." Whereas global corporations are hiring overseas while students graduate with excessive student loan debt only to find a disastrous job market, Smith concluded that the $1 trillion in student loans furthers "profits and debt serfdom". That being the case, Smith suggested that as a growing number of students are beginning to default, the student loan market appears to be starting to implode.

In a second article on the "let's pretend" economy in the US, Smith discussed "financialization", which he defined as "finance infecting and hollowing out all levels of an economy by incentivizing leverage, debt, opacity, speculation, financial fraud, collusion and the perfection of crony capitalism." From the article: "Like the bubonic plague, financialization has a lifecycle that cannot be reversed by Federal Reserve or European Central Bank intervention." Smith dissected the process of financial bubbles and resulting collapses in order to suggest that "the world has run out of sectors that can be financialized". Smith seemed to suggest that examples of this process can be found in Greek debt, the housing market, and though (not discussed in this particular article) I would imagine that one could add student loans to the list. Smith concluded that since financialization cannot be revived as the "plague" of financialization has run through a critical number of markets, "we are stuck with a multi-year process of decline that will inevitably end with a massive fireworks-lit finale of collapse."

In a third article regarding our "let's pretend" economy, Smith discussed job growth. In contrast to the ideas that "job growth is on a tear" and that we're having the "best [job] growth since 2006", Smith suggested that current numbers on the employment situation are skewed in light of "discouraged" or "marginally attached" individuals. Furthermore, in light of the fact that real household income is declining and the number of jobs in the marketplace has remained "stuck at 115 million", Smith suggested that "accepting [the] illusion" of job growth does not better the nation. The theme of skepticism regarding the government's job numbers appears to be recurring in financial news media. For example, regarding the most recent unemployment number, the Drudge Report linked the news piece as "Gov't says unemployment remains at 8.3%..." This is in contrast to Gallup's job numbers, which reported that unemployment is at 9.1%.

II. False Consciousness

Smith's commentary regarding a "let's pretend" economy appeared to allude to the Marxian notion of "false consciousness". We can define "false consciousness" as "ideology dominating the consciousness of exploited groups and classes which at the same time justifies and perpetuates their exploitation." Karl Marx himself never used the phrase "false consciousness". However, the phrase was used once by Friedrich Engels in 1893 in the context of critiquing ideology. In light of similar concepts like "commodity fetishism" and "alienation", "false consciousness" has found a place in the Marxian vocabulary. Whereas the concept of false consciousness may be problematic in presuming to objectively judge social interests, the mainstream media's doublethink clouding of public discourse could be considered an everyday example of the perpetuation of false consciousness in American society.

In this light, Smith's analyses of student loans, financialization, and job growth seems to suggest that American society is steeped in a sense of "false consciousness", i.e., much of the mainstream perspective on financial issues is based on illusions. While one may want to put the blame for this "false consciousness" on the media or the government, Marx may have attributed this sense of "false consciousness" to aspects of the capitalist superstructure itself. Given the dilemma (or contradiction) of individuals seeking to serve themselves yet serving capitalists' ends, we can in some ways perceive an underlying conflict between facts and desires. For example, in the case of the subprime mortgage crisis, one might argue that credit rating agencies were encouraged to give better ratings owing to the fact that the rating agencies wanted to continue to receive fees from securities' creators. In comparing the subprime mortgage crisis to the student loan bubble, one could argue that students were encouraged to take on more debt as student loans became easy credit. Further, educational institutions were encouraged to raise tuition rates to meet this influx of credit in the hands of young Americans. The "false consciousness" becomes apparent in the belief that a college education is necessary for a better and more fulfilling lifestyle. While one may argue that "education pays" in terms of having a particular degree and one's level of income, the underlying problems of the higher ed bubble remain; the problem with the higher ed bubble is not necessarily education per se, but rather easy credit and excessive debt (without underlying collateral or assets) for degrees with lackluster employment prospects.

In taking into account "false consciousness", political ideology based on individualized temporal interests helps to perpetuate problems related to education, finance, and unemployment. Throughout history there have been various ideologies that have more or less risen in popularity in a given population only to utterly crash once reality sets in. I believe that Smith's analyses sought to pull back the veil a bit on issues like higher education, financial capitalization, and jobs numbers -- in the sense that at some point, the truth will have to come out; at some point, society will have to come face-to-face with the reality of our situation.

Per my previous analysis regarding student loans and financial bubbles, history suggests that at some point the higher education bubble will burst leading to disastrous consequences for higher education in the US. Obviously, we will most likely not fully understand the repercussions of the student loan bubble until years after the bubble has burst. At that point, the veil will be removed, the truth will be apparent, and those in the marketplace will see that the entire scheme was faulty. That being the case, our current situation portends that the scheme will have dire consequences for not only student-borrowers but also the educational institutions themselves and other corporate entities related to higher education, e.g., Barnes and Noble BKS and the Washington Post Company WPO. Such consequences may include professor layoffs and the closing of schools. As for how this situation will play out in the long run, only time will tell.

III. Between Recovery and Reality

Whereas the stock market has rallied in 2012, it would appear that Main Street is not experiencing as much of a recovery. As gas prices continue to rise and wages stagnate, one might say that the opiate of economic optimism appears to be wearing off. The glaring sight of $5 per gallon gas may be enough for individuals to pull the veil back in terms of false consciousness in society. Per philosopher Ludwig Wittgenstein's thoughts, one might want to say that the only way false consciousness can be shed from the public discourse is in the midst of social upheaval and disasters.

In this sense though, there is good news in the fact that when it comes to economic realities, the veil is starting to be pulled back. Individuals are beginning to see how inflation is ruining nest eggs and how higher education is saddling young Americans with excessive, burdensome debt in a dire job market. One can also see the trail of financial bubbles wreaking havoc on both the national and global economies from the dot-com bubble, the subprime mortgage crisis, the oil bubble, and now the higher education bubble. Nevertheless, in terms of Smith's analyses with student loans, financialization, and unemployment, much of the damage has already been done.

Even in light of Smith's ominous discussion, there is another side to the coin. Whereas the global financial crisis has affected some more than others, while some are feeling the benefits of a recovery, others are not. One could very well be under the honest impression that the economy is getting better. That being the case, unemployment remains high and with gas prices likely to substantially rise in the near future in conjunction with an impending student loan bubble (among other global factors), there is reason to believe that things will get worse economically.

In addition, one cannot forget about the specter of societal unrest. In light of the Occupy movement, one has to wonder what the bursting of the higher education bubble will portend. In a society where young Americans find themselves effectively denied a college education and a meaningful occupation, what will be the aftermath of the higher ed bubble's bursting? Even further, as the veil of "equal opportunity" is rent asunder in the wake of steep income inequality and more citizens become estranged from both the mainstream media and the political process, the situation could evolve to the point where citizens demand legitimacy, credibility, integrity, and accountability in the public discourse -- from education to finance to politics to the media.

Per Smith's first "let's pretend" article on student loans, the higher education bubble is perhaps one of the foremost problems with the US economy today. Here we have a situation where younger Americans have been pretty much discriminatorily (in terms of age and occupational opportunities) saddled with excessive debt under the false belief that a college degree will help in gaining meaningful employment. In return for this false belief, many young Americans are finding themselves having to live unemployed in their parents' basement. What is interesting is that the higher ed bubble for the most part pertains to an entire generation, and there appear to be no easy answers to this quagmire. Yes, we can ignore the situation or pretend that the situation will work itself out somehow, but at some point, the rubber has to meet the road. At some point, the truth is going to rise to the surface. Unfortunately, as with many illusions and delusions that afflict humanity on individual and societal levels, readiness to accept the truth comes only when faced with impending disaster. When it comes to finance with dollars and cents at work in the marketplace, you can only pretend for so long.