Category: Economics and Inequality

American Decline

I have never had much patience for the kind of universal history that trades in ideas like “decline and fall.” I look at Italy or Spain in 2018 and don’t really buy that life for the ordinary Italian in 1470 or ordinary Spaniard in 1570 was better than life for a comparable person today. Power and empire have their obvious pathologies—and their perhaps a little less obvious costs.

Is the US today worse off than it was in 1955? Not for blacks and gays, it would seem obvious to say. Or even for leftists, one might add, given the rather terrifying impact of Joe McCarthy’s ravings. For the grand American middle class, things generally are worse. We can tell ourselves a story about how, coming out of the collective effort and collective sacrifice of the War, we entered the most egalitarian moment in US history, the moment when a grateful nation rewarded all its citizens for what they had done for the war effort. It is certainly true that Harry Truman’s embrace of civil rights (as far as it went) was driven partly by electoral calculations, but also partly by his outrage that black veterans could be treated so shabbily at home. Truman’s ah-ha moment came with the killing (not quite a lynching, but damn close) of a black Army veteran in Georgia in 1947.

American confidence—and rude health—in the post-War years can also be seen in its investments. The interstate highway system, the airports, the public universities and health care facilities were all products of a positive outlook on society and its future. American decline can be measured, it seems to me, in the growing refusal to invest in the future—either in infrastructure or in our children’s health or education—since the 1970s recession. The contrast to China (as illustrated in the most recent issue of The New Yorker) could not be more stark. While they are building universities, roads, high speed trains, we are letting our infrastructure decay all around us. Our subways and highways are falling apart—and our universities are being left to rot.

Of course, this is a story about privatization, about the evils of neoliberalism, about the loss of any sense that the public coffers should finance such things as education, health, or transportation. But we can also tell a story in which it stems from the on-going (and seamlessly endless) backlash from the 1960s, the interminable culture wars. The right has insisted on an “us” vs. “them” narrative since 1968 (at least), where “them” are the uppity blacks of the civil rights movement and the hippies of the anti-war movement, later joined by feminists and gay activists. The right will be damned before spending public money (“our taxes”) on these god-forsaken folks. Cutting off one’s nose to spite one’s face it all too often is, but to hell with the consequences.

It’s the loss of any sense of fellow-feeling with whole cross-sections of one’s fellow Americans that makes abandonment of infrastructure investment so easy to countenance. We know it is not for lack of funds. So we all get to live in a crumbling physical environment in which higher education and decent health care become increasingly unaffordable. Each day present day America resembles

Neoliberalism as Reactionary

Yesterday’s post worried the question of (in Lear’s words) whether there is “any cause in nature that makes these hard hearts”? Seeking the answer in psychology, in some persistent, albeit not universal, set of motivating impulses (ambition, the quest for status, envy, and resentment) is one way to go.

Another possibility is to refuse to personalize things in that way—and to look instead to structural causes. That path is suggested by Hardt and Negri’s insistence that neoliberalism is reactionary. (I am reading their latest tome, Assembly [Oxford UP, 2017].)

Here’s my reconstruction of the argument: The Keynesian welfare state compromise worked well enough from 1950 to 1965, but the social upheavals of the sixties revealed the deep discontent produced by capitalism even in its most benign form. Neoliberalism—starting with Reagan and Thatcher—was a direct move to reign in the students, union workers, and other malcontents who had shaken things to the core in the 60s. Turning the economic screws down tighter went hand-in-glove with various strategies to diminish democratic input, heighten the power of elites, and demonize both dissenters and those who agitated for continued and even increased welfare (such as provisions for health care).

This analysis has more than a little plausibility going for it. Oddly, it is not accompanied in Hardt and Negri (who, when all is said and done, are Marxists) with an economic analysis focusing on the economic woes of the 1970s. Certainly, it is true that today’s conservative economists are continually refighting the wars of the 70s, where inflation is the dragon to be slain—despite the fact of almost non-existent inflation for over twenty years now. Similarly, the zombie of the welfare queen and, more generally, of the undeserving poor has proved unkillable—perhaps even more as the danger conservatives must continually work against than as a figure in the public imagination. Neoliberalism is the set of nostrums meant to control the hungry masses who are coming after the plutocrat’s and the nation’s wealth.

Ironically, of course, the traditional fear that in a democracy the masses will plunder the public treasury has been turned on its head over the past forty years in America—and around the globe. It is the rich, through privatization primarily but also through the state abetting more predatory business practices, that has plundered the collective wealth of the nation. Hardt and Negri are good on this score, even if their way of describing it—namely, as “extraction of the common”—is rather different than mine.

In short, don’t look for the evil in men’s hearts—or even for the errors their passions lead them into. Look instead to whom they identify as their enemies, what they understand as the threats to their well-being. It’s a conflict ridden world—and the key is to see where and how the lines are drawn. Then identify on which side someone stands.

Still, what happened in the 1970s beyond the counter-revolution against the radical forces of the 1960s? What produced inflation accompanied by stalled economic growth—the combination that led to the belief on the part of many elites that the largesse of post-war Keynesian state was no longer sustainable? Yes, there were tax revolts etc., just the niggardly refusal to pay the bill any longer. So we could say that cutting off the funds led, predictably, to a recession caused by a lack of demand—in other words, a classic capitalist downturn. When you don’t pay the workers enough, when you extract excessive profits that immiserate the many, you end up with a crisis of over-production and need to shut down the factories for a while, which means laying off the workers, which impoverishes them even further, and thus deepens the crisis because demand is depressed even further. The classic viscous circle.

But that doesn’t explain inflation, which (just as classically) occurs when too much money is chasing too few goods. Inflation should be the result of under-production. Except—and here comes the rub. The other source of inflation is the result of open, globalized trade relations as contrasted to the kind of closed system analysis that explains inflation through under-production. Inflation in a globalized system occurs when the national currency no longer buys as much on the world market. The “oil shock” meant the American dollar went into the tank. In 1972, a three week visit to England and Scotland (not counting the airfare) cost me $200. Yes, I was doing it on the cheap, but still . . . Another three weeks in England in 1978 cost me $1200. The change in the almighty dollar was that drastic and that fast.

The eventual response to this shift in America’s position in the global economy was to outsource manufacturing to other lands and to have America concentrate on finance capital rather than industrial capital. Neoliberalism—and its imperatives—can’t be understood without taking this transformation into account. Here, again, Hardt and Negri are useful. And maybe even help to answer a puzzle that goes back to the hard hearts of our Republican legislators.

The puzzle is a familiar one: if capitalism depends on consumers to fuel continual growth (i.e. if capitalism is always in need of new markets or in ways of exploiting existing markets more efficiently), then why does capitalism, especially in its neo-liberal and globalized form, seek so relentlessly to drive down wages. It’s the opposite of the Henry Ford principle of paying his workers enough so they could buy his cars. It takes the soft-hearted liberals from FDR to Bernie Sanders to save capitalism from the fate Marx predicted for it.

BUT . . . maybe the logic of finance capital makes that view of things a misunderstanding of the forces currently in play. Finance capital is not seeking profits from people buying produced goods. Instead, finance capital finds its profits in ROI (return on investment). Think of how private equity firms work. They swoop in to buy up a company, they then use those company’s assets to take out loans, and then (in many cases) drive the company into bankruptcy because of that high debt. The game here is not to get people to buy things. They just need people (usually other financial institutions) to buy debt. The profits are the result of “extraction,” as Hardt and Negri say. So long as someone places a value on something, that thing can be leveraged—and money made. Who needs consumers? Who needs the people? It’s just a self-enclosed world of financial dealings, only related in incredibly abstract and distant ways to anything “real.”

This might seem far-fetched, but Hardt and Negri offer a great example: gentrification. Properties in the most desired cities—New York, Vancouver, London, San Francisco etc.—spiral upward in price not just because people wish to live there, but also because they are seen as both safe and incredibly lucrative investments. Money just chases money, with nothing “real” (except perhaps the “upgrades” to granite countertops and glass brick showers) changing. Of course, such spirals lead, inevitably, to bubbles and collapses. An odd term: bubble. Because you can’t know it’s a bubble because it isn’t a bubble until the moment when confidence collapses, when the hive mind decides everything is overpriced. Overpriced in relation to what? There is no measure, no standard, beyond that mysterious collective sense of what is sensible. Of course for most of us—those not in 1% or 5%–“sensible” prices were left behind four or five years ago.

Critiques of speculation as disconnected from anything real are as old as the Tulip craze and the South Sea Bubble of the 1700s. As is the use of debt—both taking it on and forcing it upon others—to gain wealth. (If we believe David Graeber, debt goes back 5000 years.) What seems to distinguish neoliberalism is the orientation of capitalism (and of the political, legal, and social institutions that enable it) away from production of goods and towards the profits to be made through finance. In other words, financial speculation was always there—but social and political policy was not constructed to aid and abet it since the conventional wisdom remained that the production of goods was the primary road to wealth—both personal and national.

Trump offers a good case for how hard it is to think about this shift. The man never produced a single thing in his life, yet seems to think that wealth comes from the production of goods. He even seems to think that he has produced some things. In any case, his rhetoric is all about restoring prosperity through a return to industrial capitalism. But most of his actions (his anti-immigration policies are an exception here) are directed toward enabling finance capitalism. In other words, the full import of the shift hasn’t registered yet for many people.

A full-scale economic determinism, then, would tell us not to look for motives for hard-heartedness within the Republicans, but look instead to the changed nature of capitalism to explain their actions. Causes are external, not internal. The masses—defined here as those with no money to invest—are no longer relevant to prosperity, so should be ignored on that account. And if democracy can be contained, then the masses need no longer be feared either. The legislator will prosper by knowing who his true master is: not the voters, but the plutocrat.

So, for the determinist, neliberalism is reactionary in another sense: it is a reaction to this shift from industrial to financial capitalism.

Passions, Political and Otherwise

I ended my last post with the observation that the left should be more passionate than the right because the left includes all those being trashed by the current arrangements.

That, of course, is hardly true. The populist right includes many of the “losers” in contemporary society—and various analyses of their “anger” have been produced over the past three, five, ten years.

It is, however, the passion of the winners that perplexes me. Where does their anger, vindictiveness, and general nastiness come from? To cite just current news, what motivates someone who is doing quite well to vote for tax relief for the wealthy but refuse to extend health insurance to poor children? What story could you possibly tell yourself that would make such an action virtuous? Partisan passion, the need to get a “win,” overrides all other values (it would seem) in voting for a tax bill that is manifestly, in fact quite absurdly, a bad deal for the country and most of its citizens. And laziness, the disinclination to do anything that requires a modicum of effort, might explain the inaction on renewing the children health insurance program.

Certainly, the indignant outrage the privileged feel when their privileges are threatened—or when others clamor for access to the same privileges—should not be underestimated. But the tax bill, after all, is not a response to a threat. It is just piling more privilege on top of already extreme privilege. It looks much more like greed than self-protection from the rabble.

Greed, yes, but greed disconnected from any sense of reality. There is, quite simply, nothing that could be done with that extra money. You couldn’t spend it all if you had four lifetimes. Even an idiot as big as Donald Trump, with his basketful of bad business deals, couldn’t spend himself into bankruptcy given the massive amount of money with which he started.

So then the greed seems connected to a different pathology: the comparative sickness that boils down to some male game about having a bigger one than the other guys. Crude. But there it is, and Donald Trump is nothing if not crude. The depressing thought is that there are millions more like him, driven by the same need to dominate through accumulation.

But let’s outsource this discussion to a true misanthrope: Jean-Jacques Rousseau. Here is his description of the pathologies of civilized man (the use of “man” is well-advised here). The source is the long footnote IX in his Discourse on Inequality:

“For man in society, there are very different concerns [then for the savage as Rousseau portrays that mythical figure]; there is, in the first place, the matter of providing for the necessities and then for the superfluities; next come the luxuries, then immense riches, then subjects and slaves; he does not have a moment of respite. What is most remarkable is that the less natural and urgent his needs, the more his passions grow, and, what is worse, his power to satisfy them, so that after lengthy prosperity, after having swallowed up many treasures and having destroyed many men, my hero will end up by slaughtering everything until he is the sole master of the universe. Such is, in brief, the moral picture, if not of human life, at least of the secret aspirations in the heart of every civilized man.”

Later in the same footnote, Rousseau writes:

“Luxury, which is impossible to prevent among men who are greedy for their own conveniences and for the consideration of others, soon completes the harm done by societies, and under the pretext of supporting the poor, who need not have been created, it impoverishes all the rest, and sooner or later depopulates the state.”

The illness, in Rousseau’s view, goes back to the loss of self-sufficiency. Let’s grant that Rousseau’s notion that humans in the state of nature were self-sufficient, had no need of others, is completely absurd. (Rousseau himself admits that the “the state of nature” describes “a state which no longer exists, which has, perhaps, never existed” [p. 5 in the Norton edition of Rousseau’s Political Writings].) However, even if we are materially dependent on others in order to survive, i.e. if we grant that no person in isolation could actually produce the necessities for sustaining life, that doesn’t necessarily entail our deep psychological dependence on others’ opinions of us. It is that vulnerability to what others think that is the real poison that Rousseau sees society as introducing.

It is civilized man’s terror of contempt—and his resentful and vengeful—response to perceived contempt that underwrites his fury toward his fellows.

“Anyone who sang or danced the best, who was the most handsome, the strongest, the most skillful, or the most eloquent became the most highly regarded, and this was the first step toward inequality and, at the same time, toward vice. From these first preferences vanity and contempt were born on the one hand, and shame and envy on the other; and the fermentation caused by these new leavens finally produced compounds fatal to happiness and innocence. As soon as men had begun to appraise each other and the idea of esteem was formulated in their minds, each claimed a right to it, and it was no longer possible to deny it to anyone with impunity. In that way, the first duties of civility arose, even among savages, and in that way, every intentional wrong became an open insult, because along with the injury which resulted from it, the offended party saw in it a contempt for his person, which was often more unbearable than the injury itself. Thus, as each person punished the contempt shown to him by others in proportion to the degree to which he valued himself, vengeance became terrible, and men bloodthirsty and cruel” (p. 38).

The vindictiveness of the tax bill is direct. The coastal elites and the over-educated (produced by universities) are deliberate targets. The Republicans know that such people hold them in contempt. What we might say that Rousseau misses are two additional factors: one, those who seek esteem often can only enjoy it if they also know that are others are being denied their privileges, their marks of status. This is a game that requires the existence of losers to assure me that I am winner. All the better for my sense of self-righteousness is those losers can be characterized as lazy, corrupt, immoral etc. (which is where racial stereotypes prove so useful.)

Second, those afflicted with status anxiety of this type don’t only need to punish those who withhold their approbation, but must sycophantically seek out the approval of their betters. I don’t think we should underestimate the extent to which Republican members of Congress want to be counted among the “real men,” who can be identified as either the party leaders or the rich donors. Those are the guys with “real power,” the ones who are self-evidently the big winners—and I want to be in with that “in crowd.”

All of this is so crude, so reductionist in a Bourdieu type fashion, that I want to repudiate it even as I articulate it. Of course, such status anxiety afflicts academic life just as pervasively and perniciously as it does politics or the business world. But I 1) think lots of other motives are at play, so hate suggesting the search for status is some kind of master motive and 2) am daily impressed with the extent to which people don’t let their lives be ruled by the search for status and have devised any number of ways to be content with their lot, with where they have landed after their struggle to find a foothold in this cruel society of ours.

Which is a way of saying that ambition comes in all sizes. Lots of people don’t aim very high—and all honor to them. All the more praise since I am inclined at this point to ascribe the lion’s share of our society’s ills to those with outsized ambition, to those who play the status game with deadly intent.

I have heard businessmen say that “money is only a way of keeping score.” It’s not really about the money, it’s about proving something else, although they usually fight shy of describing just what that something else is. What I object to is their insatiable need to run up the score. When is enough enough? Especially if it’s a game where the actual money is secondary.

And, finally for today, there is also the question of how you play the game. If the money reveals your competence, your innovative chops, your managerial skills, OK. It’s something like an objective scorecard, albeit (can’t we admit this?) an imperfect one. But if the money comes because you gamed the system, along with buying a few politicians to write in your favorite tax loophole, what exactly is being measured? Not anything that should win you esteem—unless “sharp practice” is esteem worthy.

Once I start thinking that way, the whole value system, the whole scale on which esteem is measured and won, seems so utterly out of whack, that some fundamental perversity becomes the only explanation. Maybe Rousseau is right to locate the causes of that perversity in the human animal’s social being. But the fact that some people do seem immune to the illness makes me suspicious of any claim that the fault lies in our nature or our society, since such general accounts leave the actual perpetrators off the hook.

Direct Ways to Combat Economic Inequality

Social democrats are spurned by hard-core leftists because the former do not espouse the complete overthrow of the market. Rather, the social democrat accepts that market economies have various things to recommend them, including efficient production of goods and provision of economic well-being to large numbers. That economic well-being is also a crucial source of countervailing power against the potential tyranny of the state.

The point is decidedly not some claim that the market is perfect. Far from it. Like all sublunary things, it is very imperfect (hence its efficiencies are far from ideal, but are still a real thing given that we do not live in a frictionless world). But non-market processes and institutions are far from perfect as well. The idea is 1) to have checks and balances so that the worst tendencies of any and all human arrangements (from the family to the market to the state) are prevented, and 2) to use what powers we have to move from the negative goal of preventing harm to the positive goal of promoting well-being (or “flourishing” to use the term Martha Nussbaum has appropriated from Aristotle).

Central to this debate on the left is a kind of fatalism adopted by the non-social-democratic left, a fatalism that echoes the fatalism of the market fundamentalists on the right. Right-wing fatalists, famously in Margaret Thatcher’s words, tell us that there is no alternative. We are doomed to the market—and the market just means one thing. Any tampering with that market, any regulation or interference, sets us on the road to serfdom. Everything—from the EPA to state ownership of the steel factories—gets tarred with the same brush. In Hayek’s bracing, macho, vision, there isn’t even much pretense that the market enables good lives. It gives us freedom—and Hayekian freedom is about as conducive to happiness as Sartrean freedom. It’s a grim world and you should just take your medicine like a man.

On the left, this becomes the doctrine that any form of capitalism is disastrous—with no distinction of any merit to be made between 1850 Manchester and 1950 Pittsburgh. Both are equally evil, equally soul and body destroying, equally to be consigned to the dustbins of history. No remedial action is worth a damn; it all must be torn down.

Under current conditions, this view underwrites the assumption that capitalism inevitably leads to extreme inequalities in income and wealth. Yet, as Dean Baker argues in this superb piece, such a claim flies in the face of historical and contemporary evidence. The extreme inequalities of the Anglo-Saxon world are both only recent (ramping up since 1970) and are not found in non-Anglo-Saxon capitalist economies.

Which means that are various things the state can do in order to follow Robert Kuttner’s injunction (discussed in the last post) to use politics to tame the market. Yes, left to itself, capitalist markets tend toward inequality (that is the major point of Piketty’s Capital in the Twenty-First Century). But markets needn’t be left to themselves. In fact, Baker’s point (and one that Karl Polanyi always insisted on) is that markets are never left to themselves. There is no such thing as “the free market.” The market is always structured, always a political and legal creation. The issue is whether it will be structured such as to benefit the wealthy or to benefit the many.

Baker, then, admirably lists a series of ways to counteract the current movement toward increasing inequality. He advocates for a Financial Transaction Tax; for a revamping of the current patent and copyright laws; for direct intervention in the ways that doctors, lawyers, and dentists are compensated; and a number of other measures. And these are separate from more aggressively progressive tax rates and the kind of wealth tax that Piketty advocates.

Hardt and Negri declare themselves sympathetic to such proposals, but are also pretty clear that they consider them only half-measures, not likely to cure what ails us. My own position is to be suspicious of any search for cures. The struggle between rich and poor for control over resources and wealth is not going to be ended by an entrance into the utopia of the perfect social arrangements. I think the left needs to abandon its dream that some permanent solution to social and economic conflict is on offer. I think the left’s addiction to theory stems from this idea that we can think our way to justice. I don’t think we lack the right ideas, the right formula. We have just been getting beat. The other side has out-organized, out-spent, and out-flanked us. And what is true now has been what is always true. They have the money and the power, we have the numbers. Our organizational challenge is much greater than theirs—but so should be our passion because we are the ones being trashed.

Thinking about that passion issue will be the next post.