I have made the claim, now repeatedly, that the discussion of a laissez faire vs controlled economy is misplaced. At issue is never the wholesale abandonment of government control, but of specific controls, captured in specific rules, laws, or regulations. Think, as a quick example, of intellectual property laws. Neither the pop singer who has written a new number one hit nor the pharmaceutical company that has invented a new "life-saving" drug wants to abandon the government created and government enforced copyright or patent laws. Indeed, if anything, they would want them "strengthened" to prevent poaching on their intellectual property. On the other hand, neither the pop singer nor the pharmaceutical company wants "restrictions" on how much and how long they might profit from their intellectual property. It is, however, one thing to own a pop song, another thing to own a life-saving drug. Market based restrictions on how much and how long a pop singer might profit seem "sufficient," in part because of the fickle tastes of the masses. A pop song may be inordinately popular, reap inordinate profits, but risks are great (very very few pop songs reach those heights) and "shelf-life" limited (this week's number one is quickly displaced by next weeks number one). As the recent epi-pen controversy suggests, however, market based restrictions on how much and how long a pharmaceutical company might profit seem "insufficient." One can live without the latest pop song and forego its purchase, but insofar as a particular drug is "life-saving" for a given afflicted population, the pharmaceutical company essentially holds that population hostage so long as they have sole rights to the intellectual property in the drug. It seems to be in the best interests of the population as a whole to place some restrictions on how much and how long they might profit. In short, when the pharmaceutical company speaks of laissez faire economics, they are not asking for the abandonment of government controls and protections on patents -- indeed, time-limiting patents are one way of regulating "how much and how long" -- rather they are objecting to those specific set of government created and enforced rules that might limit their profits.
At a very, very high level of abstraction we can debate the relative merits of the free vs the controlled economy, and this debate might be useful on a number of fronts, but it tends to distort the "political" debate. Here again, I have made the claim, now repeatedly, that there exists a "status quo" -- that is to say, at any given point in time, the full set of rules, regulations and laws that govern the exchange of products and services within the economy -- and short of wholesale revolution, of the sort experienced by the Russian people now twice, where the proverbial baby was thrown out with the bathwater, there is really ONLY meddling with the "status quo." Any particular "meddle" will have greater or lessor effect, and some of the effect cannot be anticipated, but I am suggesting on the one hand that we have created the so-called economy, and on the other hand that the "political" questions are relatively simple. Positively, who will benefit and how from any proposed "meddle?" Negatively -- who will be adversely affected and how?
Of course, the political question does not "justify" itself, and the justification for any particular meddle, with its particular set of winners and losers, will penultimately be pragmatic and utilitarian, but ultimately ethical and/or moral. Strong patent laws are a pragmatic incentive to develop new and potentially profitable patents (e.g. new life saving drugs) and those incentives, despite some price gouging, can have a utilitarian effect (e.g. more lives saved). The pragmatic and utilitarian justifications, however, do not answer the broader and more "categorical" ethical and moral questions (e.g. is it "right" to extract high rents from a vulnerable population). The "justification" for any particular economic meddle will always be a "compromise" between the pragmatic/utilitarian and the ethical/moral questions. Having said this, very often, the pragmatic/utilitarian effects can be empirically measured. Do strong patents actually have a positive pragmatic/utilitarian effect? I'm not aware of any such studies, but this seems to me a question that can be answered with verifiable evidence. If, for example, empirical evidence suggest little little positive incentive for strong patent laws (or no more than, for example, government sponsored research) then a "compromise" that protects patents that result would be less and less "conscionable" on the assumption that most would find it at least questionable to extort high prices from a vulnerable population. Altogether, the specific meddle, along with its utilitarian and moral justification, constitute "policy" designed to address "issues."
Of course, the political question does not "justify" itself, and the justification for any particular meddle, with its particular set of winners and losers, will penultimately be pragmatic and utilitarian, but ultimately ethical and/or moral. Strong patent laws are a pragmatic incentive to develop new and potentially profitable patents (e.g. new life saving drugs) and those incentives, despite some price gouging, can have a utilitarian effect (e.g. more lives saved). The pragmatic and utilitarian justifications, however, do not answer the broader and more "categorical" ethical and moral questions (e.g. is it "right" to extract high rents from a vulnerable population). The "justification" for any particular economic meddle will always be a "compromise" between the pragmatic/utilitarian and the ethical/moral questions. Having said this, very often, the pragmatic/utilitarian effects can be empirically measured. Do strong patents actually have a positive pragmatic/utilitarian effect? I'm not aware of any such studies, but this seems to me a question that can be answered with verifiable evidence. If, for example, empirical evidence suggest little little positive incentive for strong patent laws (or no more than, for example, government sponsored research) then a "compromise" that protects patents that result would be less and less "conscionable" on the assumption that most would find it at least questionable to extort high prices from a vulnerable population. Altogether, the specific meddle, along with its utilitarian and moral justification, constitute "policy" designed to address "issues."
This is a very quick sketch, no doubt rife with untested assumptions, but such is my understanding at a very "macro" level, and so far I have seen little or nothing to dissuade me from this point of view. Little did I know that I was articulating what amounted to the fundamentals of a "new liberal economics." Mike Konzel on Vox has suggested that "the 'new liberal economics' is the key to understanding Hillary Clinton's policies." I am not entirely convinced of that headline claim, but as he puts it, "the new liberal economics makes several claims," and he lists three, which I do find convincing:
- Inequality is not a regrettable but inevitable byproduct of an efficient economy, nor a temporary, self-correcting trend. It’s driven by policy choices, and new choices can make a difference.
- The economy will not simply bounce back from any weaknesses, as was assumed under Alan Greenspan’s Great Moderation. Rather, there are deep structural problems that include a global savings glut and unwillingness by US companies to make investments.
- "Nudging" the private market is not always the best way to deliver core goods and economic security. Deploying government services directly can be more effective.
It might be worth exploring each of the three, beginning with the first. To suggest, for example, that inequality "is driven by policy choices, and new choices can make a difference," more or less states my main point that, "at any given point in time," there is a given status quo. I've put scare quotes around "any given point in time," simply to suggest that the given status quo is historical. Meddling in the past brought it to its current state, and meddling in the present will bring it to a new state. having said that, however, neither you, nor I, nor anyone else gets to create the status quo whole cloth. We inherit it, and in that sense it's current state, along with its panoply of winners and losers, is "given." I use the term "meddle," with its slightly pejorative overtone, because any change to the status quo will have its effects, some anticipated, some not. It seems clear enough that the current inequality has had a number of "causes," most of which stem from policy decisions that began in the Reagan years and have continued more or less unabated since -- the so called neo-liberalism. I do believe that Reagan's goals were an "efficient economy," and given the prevailing climate throughout the cold war, at odds with the controlled economies of the evil empire, it is not surprising that he would equate an efficient economy with laissez faire policies of "supply side" economics -- that is to say, removing any government regimes (taxation) and resisting any institutional regimes (collective bargaining) that would impede corporate profits. It was justified on the utilitarian assumption that all would benefit from the resulting "strong" business community -- that is to say, the "trickle down theory." The unanticipated result was widening inequality.
As Konzel points out, "one of the big takeaways in Thomas Piketty’s much-discussed Capital in the Twenty-First Century was that deep gulfs of inequality are the historical norm, and the relatively low inequality of the mid-20th century was in fact an anomaly." As a consequence, there is no reason to suspect that inequality will "self-correct," and good reason to suspect that it will persist unless specific political action is taken to correct for it. Behind all this, however, is the moral assumption that inequality is "bad," equality "good." Consequently, inequality is at issue, is something that must be addressed. Part of the "historical norm" has been a shift in our moral assumptions, from the notion that inequality was part and parcel of a natural (usually God given) order of things -- some were born high, others low. The enlightenment philosophy of Locke, Rousseau, and others made this notion into problematic, and we still haven't solved all the problems of our divergence from the historical norm of "natural inequality." Within the US, for example, as a default position, the notion of "natural inequality" was recast from "heritable" or God given position in the hierarchy to a "merited" or self-made position in the hierarchy -- the notion that the "natural" endowments, the "genius" of a particular character, intelligence, and "industry" held some back, and advanced others to positions of wealth and/or power. Regardless, foundational statements, like Jefferson's "all men are created equal," almost automatically bring inequality, particularly an "unmerited," heritable and hence self-perpetuating "aristocracy," into moral and ethical question.
Having said that, the sources of inequality can be subjected to empirical evidence, and Piketty et al have done just that, though inconclusively. As they point out, "there have been many discussions both in the academic literature and the public debate about the causes of the surge in top incomes, there is not a fully compelling explanation." They see two main streams of argument, market driven changes vs. institution driven changes. The market-driven changes fall in line with the default position within US moral reasoning and "posit that technological progress and globalization have been skilled- biased and have favored top earners relative to average earners." Implicit in this are a couple of utilitarian notions -- that the new techno-global order requires people with particular skill sets, and because those skills are both scarce and in demand, the market has driven specific incomes up -- that maintaining high incomes, despite market forces, is necessary to serve as an incentive for the best and brightest to pursue careers in the new techno-global order. One hears the latter, particularly in the finance industry, as a justification for out-sized bonuses and compensation packages. Having said this, however, market drive changes, along with their justification, are undercut empirically because "they cannot account for the fact that top income shares have only increased modestly in a number of advanced countries (including Japan, Germany, or France) which are also subject to the same technological forces." The institution driven stories, as they go on to point out, "posit that changes in institutions, defined to include labor and financial market regulations, Union policies, tax policy, and more broadly social norms regarding pay disparity, have played a key role in the evolution of inequality." One suspects that this is true, but as they also point out, "the main difficulty is that 'institutions' are multi-dimensional and it is difficult to estimate compellingly the contribution of each specific factor."
Nevertheless, we are left with the imperative to do "something" to address inequality, and most policy statements would meddle with the tax code -- e.g. reversing the decreases in the marginal tax rate on the rich. As Piketty, along with others have pointed out, there is strong "international evidence [that] shows a strong correlation between top tax rate cuts and increases in top income shares in OECD countries since 1960." Which brings us to Konzel's second point, particularly the "deep structural problems that include a global savings glut and unwillingness by US companies to make investments." High corporate profits alone are not sufficient to spur the sorts of investments that create economic growth. In the absence of demand, any profits are not invested, but simply set aside which points to the "global savings glut." In the absence of demand, to maintain any profit, any operating expenses (to include wages/salaries/benefits) are curtailed, but at the same time the resulting "savings" remove most incentives for corporate boards to hold the line on salaries for those who make the so-called tough decisions, insofar as any "excess" capital isn't needed for investment and expansion. The sorts of retrenchment that follow on "weak demand," can be self-perpetuating, insofar as the pressure to maintain profit results in further cuts to operating expenses, further job loss, which in turn further weakens demand. As the economy spirals downward, it becomes more and more "extractive" -- that is to say, more and more of the people's income is expended on the absolutely necessary "core goods" of food, shelter, fuel, medical care, et cetera. If the economy reveals a "self-correcting trend," it is this spiral toward an "extractive equilibrium," where the people are allowed just enough to maintain social order and any "excess" accrues to an "elite."
I'm inventing terms whole cloth, and I see complications even as I write, and I suspect there is nothing new in my argument, nor the notion that normal human greed and arrogance motivate "elites" to push just beyond an "extractive equilibrium," and the result is one form of revolution or another. I would suggest also the notion that the "extractive equilibrium" is relative both within and between societies, for various cultural and historical reasons, and that the "elites" are pushing the boundaries of tolerance within the US. If one senses a decay in the "social order," there is a tendency, mostly perverse, and mostly "supported" by the "elite," to assign blame to various minorities within the population (immigrants, blacks, jews, poor whites, muslims, or gays) or threats from without (communists or radical islamic terrorists). One can see it within conservative party platforms within the US, where the economic meddling of "supply-side" economics corresponded with an increasingly strident "social conservatism," the result being our current election cycle where an unabashed member of the "elite," supporting a continuation of economic meddling of "supply-side" economics, is running on a platform that disparages immigrants as well as ethnic and racial minorities while openly courting the alt-right (aka white nationalist) vote. If one senses decay in the "social order," however, I might suggest that the "elites" are pushing the boundaries of "extractive equilibrium." Though it has gained greater ascendency on the right than the left, with the rise of the Tea Party and the candidacy of Trump, it is not a "right wing" phenomenon One sees it in broad-sides directed at the "insider elites," what Robert Reich enumerated, for example, as the "six principles of the new populism" common to both the left and right.
I am suggesting two things: first, although the more "liberal" policies of the Obama administration have slowed the downward spiral toward and beyond an "extractive equilibrium," they have not reversed the spiral. The affordable care act is a case in point. Although it expanded access to a "core good" of health care, one suspects it did not fully arrest or reverse the expanding share of household income expended on health care. Second, a knee-jerk return to more "supply side" economic policies will not make matters better. On the contrary, one suspects it will exacerbate the downward spiral toward an extractive equilibrium more or less initiated by Reagan, continued by the first Bush, and with the complicity of Bill Clinton's welfare reforms, setting the stage for the second Bush and the great recession. Consider, for example, the job market. Although the job market and wages have rebounded under the more "liberal" pressures of the Obama administration, one still suspects the quality of the "jobs" leave something to be desired and haven't quite up to pre-recession levels. Moreover, as Konzel points out, "a return to the "elite" consensus," common to both Reagan era conservatism and Clinton era liberalism, the assumption "that the labor market basically worked for people who really wanted jobs and who had acquired a reasonable set of skills" is no longer quite operative. The emerging techno-global order not only put a premium on certain skill sets, it has also virtually (pun intended) obliterated other skills sets. Uber's experimentation with self-driving cars is famously a case in point. It will eventually eliminate the need for taxi-drivers. The skill-bias of the techno-global order creates a few highly skilled jobs requiring high levels of education to replace many moderately skilled jobs requiring minimal education. One might argue that "weak median income growth had to be the result of people lacking the right education and motivation," and a necessary policy prescription might be to increase access to the "core good" of education for those sufficiently motivated and intelligent to achieve it, but it will not be sufficient. There are clearly other, number-driven, "deep structural problems" that need to be addressed for those newly marginalized by the techno-global economy.
So what is needed? One thing, of course, is the direct investment of government revenues, particularly as a short term measure to replace and repair a crumbling and antiquated infrastructure. There could be a whole blog post (actually whole books) dedicated to the subject of "infrastructure" and its neglect. As portions of Florida begin to feel the effects of the melting ice caps, global climate change itself has changed the nature and urgency of the need, but we do not really need to engage in those deeply political issues to address infrastructure needs and it seems to be an ideal place to make public investments in projects that would pass conservative muster. It is not direct "welfare," and so avoid the moral hazard associated with "free-loading." Much of the work would be sub-contracted through private firms, no doubt improving dramatically the profits of their owners and likewise the the job prospects of precisely those workers displaced by the techno-global economy. Moreover, because it improves job prospects, one would hope for ancillary effects, particularly increased demand of the sort that might actually induce investment. The difficulty, of course, is more symbolic than actual. It is a "new deal" remedy. If Reagan and his Hoover era economics is the second son of god, FDR is the first son of lucifer and even the mild form democratic socialism he advocated the work of hell.
Another thing, of course, is the so-called "public option," particularly in education and health care. Here again, one cannot do it justice in a blog post, and we have flayed the dead horse of public health care options into dog food, but education? If we really believe, as Hoover put it, that "we build our society upon the attainment of the individual," then we should "safeguard to every individual an equality of opportunity to take that position in the community to which his intelligence, character, ability and ambition entitle him." After that, the race, so to speak, goes to the swift. Again, as Hoover put it, "it is as if we set a race. We, through free and universal education provide the training of the runners; we give them an equal start; we provide in the government the umpire of fairness in the race. The winner is he who shows the most conscientious training, the greatest ability, and the greatest character." Though one might argue that "free and universal education" is available, but the condition of some schools beggar the notion that mere availability provides an "equal start."
Beyond that, however, a change in thinking is required. Setting aside the opprobrium associated with race and immigration that is animating the current presidential race, there is a good deal of Hoover still in the republican party. Although historical analogies are never exact, the deep structural issues we face are not unlike those faced by Hoover. As Hofstadter put it in 1948, "the country was over stocked with savings to be invested and goods to be sold," but the accumulated wealth of the wealthy could not "find good investment outlets in industries that were rapidly saturating their markets," which in turn "drove capital into speculative channels." Nevertheless, we still have an economy "based upon expansion in consumers' goods, and more than any other it was dependent upon sustained consumption." Although we watch consumption with some anxiety, particularly around the holiday seasons, like Hoover, the republican party continues to deny "that there was any serious maldistribution of wealth in the United States," and insisted that the American consumer still had the means to consume. Indeed, as Hoover put it in The Challenge to Liberty (1934), efforts to redistribute wealth is still characterized as a "socialist" strategy "of those who are anxious to destroy liberty." Having said this, however, it is instructive to look at a Brookings Institution study, America's Capacity to Consume, also published in 1934. As Hofstadter summarized:
The nation's 631,000 riches families had a total income considerably larger than the total income of 16,000,000 families at the bottom of the economic scale. From the standpoint of purchasing power, these 16,000,000 families, the Brookings economists concluded, had incomes too small even to purchase "basic necessities." Such was the potential market at home during the years when Secretary Hoover had been working so hard to expand American markets abroad.
We are not there yet, but one suspects that given a continued emphasis on supply side economics, we will get to an "extractive equilibrium" and perhaps push beyond where the people no longer have incomes sufficient to purchase "basic necessities" and "core goods."
It is questionable, however, if a change in thinking is even possible for the Republican party. The so-called Kansas experiment in supply side economics is a case in point. As Eric Zorn writes for the Chicago Tribune, Kansas Governor Brownback had "been elected in the tea party wave of 2010 and, with the enthusiastic backing of Republican legislative majorities." Given the mandate, he "launched a 'pro-growth tax policy'" which consisted of "dramatic cuts for business and high-earning individuals." He promised the measures would be "a 'shot of adrenaline into the heart of the Kansas economy' that would create thousands of jobs and boost funding for schools and local governments." It was, in other words, a field test "of the supply-side theory that the best way to raise more tax revenue is to cut taxes and jolt the economy into overdrive." It did not go well:
Again, there is more of Hoover in our republican party than they might care to admit. Brownback's ideas weren't going well at the end of his first term, so instead of changing course, he doubled down. One could say of him, what Hofstadter said of Hoover, "because ... his program should have been successful, he went on talking as though it were, and the less his ideas worked, the more defiantly he advocated them," even though the income necessary to consumption declined, the educational foundation for equal opportunity declined, and the economic security of the elderly declined. Although Kansas went from being a potential "model" of conservative economics to a "cautionary tale," and yet -- and yet! -- the conservative prescription for what ails us is to model the nation on Kansas.
A change in thinking is needed. To what exactly, I'm not precisely sure. I do know that we're at a crossroads similar to that faced by Woodrow Wilson when he penned The New Freedom in 1912, suggesting that "industry has ceased to be free because the laws do not prevent the strong from crushing the weak." While no saint, particularly in his racial attitudes, Wilson recognized that "the power of accumulated capital was 'in the hands of a comparatively small number of persons' who 'have been able in recent years as never before to control the national development in their own interests.'" Faced with his own version of "too big to fail," there was a centrism in his thinking, an attempt to sail the ship of state between the scylla of the plutocrats and the charybdis of the masses, but he articulated a government where "every new policy proposed has as its immediate or its ultimate object the restrain of the power of accumulated capital for the protection and benefit of those who cannot command its use" -- that is to say, he suggested the "business of government is to organize the common interest against the special interests." As I and others have suggested, the current business of government is precisely the opposite, particularly in the legislative branch, where the inordinate and climbing costs of running an election campaign make our legislators particularly beholden to that panoply of special interests willing to donate cash, strings attached, to their campaigns. So, step one, and question one for any candidate for federal office:
The question of war and peace I will leave to another post. I will suggest, however, that a viable economic conservatism is necessary -- one focused on the fiscal restraint necessary to moderate not only our foreign military adventurism, but also misplaced zeal for domestic reform. Taxes, however, are not evil in and of themselves, nor is the so-called "public option." Indeed, if my initiating assumptions are true -- that the whole notion of "socialism" vs "free markets" is a false dilemma -- that there is only a given "status quo" that inevitably and inherently serves some interests better than others -- that the "policy" question is "who benefits" from the existing rules/regulations/laws that make up the "status quo," and likewise "who benefits" from any proposed "meddling" with the "status quo" -- then, step two, as Wilson put it, is to drive
Konzel celebrates Hillary Clinton's embrace of "demand side economics," where one wonders "whether the labor market is tight enough to give workers real raises," and "whether private firms can make the investment necessary to grow the economy" -- where one asks "what the government can do to keep the economy out of recessions" and sees "joblessness and weak income growth," for example, "less as an individual failure and instead a market-wide one." All of which is to the good, and may be necessary to the future of our country, but it is insufficient. Unless we develop the political will to take step one, we really cannot take step two. The business of government will continue to organize the special interests against the common interests, the middle class will continue to be "squeezed out" in a downward spiral toward an "extractive equilibrium" where the masses have "incomes too small to purchase even the 'basic necessities.'" All of which plows the ground for the demagogue, or worse, who takes the general dissatisfaction hostage to enlarge his own privilege, dispenses "blame" with great largess, revels in "social disintegration" as an opportunity to exert "strong leadership." All of which should sound ominously familiar.
As Konzel points out, "one of the big takeaways in Thomas Piketty’s much-discussed Capital in the Twenty-First Century was that deep gulfs of inequality are the historical norm, and the relatively low inequality of the mid-20th century was in fact an anomaly." As a consequence, there is no reason to suspect that inequality will "self-correct," and good reason to suspect that it will persist unless specific political action is taken to correct for it. Behind all this, however, is the moral assumption that inequality is "bad," equality "good." Consequently, inequality is at issue, is something that must be addressed. Part of the "historical norm" has been a shift in our moral assumptions, from the notion that inequality was part and parcel of a natural (usually God given) order of things -- some were born high, others low. The enlightenment philosophy of Locke, Rousseau, and others made this notion into problematic, and we still haven't solved all the problems of our divergence from the historical norm of "natural inequality." Within the US, for example, as a default position, the notion of "natural inequality" was recast from "heritable" or God given position in the hierarchy to a "merited" or self-made position in the hierarchy -- the notion that the "natural" endowments, the "genius" of a particular character, intelligence, and "industry" held some back, and advanced others to positions of wealth and/or power. Regardless, foundational statements, like Jefferson's "all men are created equal," almost automatically bring inequality, particularly an "unmerited," heritable and hence self-perpetuating "aristocracy," into moral and ethical question.
Having said that, the sources of inequality can be subjected to empirical evidence, and Piketty et al have done just that, though inconclusively. As they point out, "there have been many discussions both in the academic literature and the public debate about the causes of the surge in top incomes, there is not a fully compelling explanation." They see two main streams of argument, market driven changes vs. institution driven changes. The market-driven changes fall in line with the default position within US moral reasoning and "posit that technological progress and globalization have been skilled- biased and have favored top earners relative to average earners." Implicit in this are a couple of utilitarian notions -- that the new techno-global order requires people with particular skill sets, and because those skills are both scarce and in demand, the market has driven specific incomes up -- that maintaining high incomes, despite market forces, is necessary to serve as an incentive for the best and brightest to pursue careers in the new techno-global order. One hears the latter, particularly in the finance industry, as a justification for out-sized bonuses and compensation packages. Having said this, however, market drive changes, along with their justification, are undercut empirically because "they cannot account for the fact that top income shares have only increased modestly in a number of advanced countries (including Japan, Germany, or France) which are also subject to the same technological forces." The institution driven stories, as they go on to point out, "posit that changes in institutions, defined to include labor and financial market regulations, Union policies, tax policy, and more broadly social norms regarding pay disparity, have played a key role in the evolution of inequality." One suspects that this is true, but as they also point out, "the main difficulty is that 'institutions' are multi-dimensional and it is difficult to estimate compellingly the contribution of each specific factor."
Nevertheless, we are left with the imperative to do "something" to address inequality, and most policy statements would meddle with the tax code -- e.g. reversing the decreases in the marginal tax rate on the rich. As Piketty, along with others have pointed out, there is strong "international evidence [that] shows a strong correlation between top tax rate cuts and increases in top income shares in OECD countries since 1960." Which brings us to Konzel's second point, particularly the "deep structural problems that include a global savings glut and unwillingness by US companies to make investments." High corporate profits alone are not sufficient to spur the sorts of investments that create economic growth. In the absence of demand, any profits are not invested, but simply set aside which points to the "global savings glut." In the absence of demand, to maintain any profit, any operating expenses (to include wages/salaries/benefits) are curtailed, but at the same time the resulting "savings" remove most incentives for corporate boards to hold the line on salaries for those who make the so-called tough decisions, insofar as any "excess" capital isn't needed for investment and expansion. The sorts of retrenchment that follow on "weak demand," can be self-perpetuating, insofar as the pressure to maintain profit results in further cuts to operating expenses, further job loss, which in turn further weakens demand. As the economy spirals downward, it becomes more and more "extractive" -- that is to say, more and more of the people's income is expended on the absolutely necessary "core goods" of food, shelter, fuel, medical care, et cetera. If the economy reveals a "self-correcting trend," it is this spiral toward an "extractive equilibrium," where the people are allowed just enough to maintain social order and any "excess" accrues to an "elite."
I'm inventing terms whole cloth, and I see complications even as I write, and I suspect there is nothing new in my argument, nor the notion that normal human greed and arrogance motivate "elites" to push just beyond an "extractive equilibrium," and the result is one form of revolution or another. I would suggest also the notion that the "extractive equilibrium" is relative both within and between societies, for various cultural and historical reasons, and that the "elites" are pushing the boundaries of tolerance within the US. If one senses a decay in the "social order," there is a tendency, mostly perverse, and mostly "supported" by the "elite," to assign blame to various minorities within the population (immigrants, blacks, jews, poor whites, muslims, or gays) or threats from without (communists or radical islamic terrorists). One can see it within conservative party platforms within the US, where the economic meddling of "supply-side" economics corresponded with an increasingly strident "social conservatism," the result being our current election cycle where an unabashed member of the "elite," supporting a continuation of economic meddling of "supply-side" economics, is running on a platform that disparages immigrants as well as ethnic and racial minorities while openly courting the alt-right (aka white nationalist) vote. If one senses decay in the "social order," however, I might suggest that the "elites" are pushing the boundaries of "extractive equilibrium." Though it has gained greater ascendency on the right than the left, with the rise of the Tea Party and the candidacy of Trump, it is not a "right wing" phenomenon One sees it in broad-sides directed at the "insider elites," what Robert Reich enumerated, for example, as the "six principles of the new populism" common to both the left and right.
I am suggesting two things: first, although the more "liberal" policies of the Obama administration have slowed the downward spiral toward and beyond an "extractive equilibrium," they have not reversed the spiral. The affordable care act is a case in point. Although it expanded access to a "core good" of health care, one suspects it did not fully arrest or reverse the expanding share of household income expended on health care. Second, a knee-jerk return to more "supply side" economic policies will not make matters better. On the contrary, one suspects it will exacerbate the downward spiral toward an extractive equilibrium more or less initiated by Reagan, continued by the first Bush, and with the complicity of Bill Clinton's welfare reforms, setting the stage for the second Bush and the great recession. Consider, for example, the job market. Although the job market and wages have rebounded under the more "liberal" pressures of the Obama administration, one still suspects the quality of the "jobs" leave something to be desired and haven't quite up to pre-recession levels. Moreover, as Konzel points out, "a return to the "elite" consensus," common to both Reagan era conservatism and Clinton era liberalism, the assumption "that the labor market basically worked for people who really wanted jobs and who had acquired a reasonable set of skills" is no longer quite operative. The emerging techno-global order not only put a premium on certain skill sets, it has also virtually (pun intended) obliterated other skills sets. Uber's experimentation with self-driving cars is famously a case in point. It will eventually eliminate the need for taxi-drivers. The skill-bias of the techno-global order creates a few highly skilled jobs requiring high levels of education to replace many moderately skilled jobs requiring minimal education. One might argue that "weak median income growth had to be the result of people lacking the right education and motivation," and a necessary policy prescription might be to increase access to the "core good" of education for those sufficiently motivated and intelligent to achieve it, but it will not be sufficient. There are clearly other, number-driven, "deep structural problems" that need to be addressed for those newly marginalized by the techno-global economy.
So what is needed? One thing, of course, is the direct investment of government revenues, particularly as a short term measure to replace and repair a crumbling and antiquated infrastructure. There could be a whole blog post (actually whole books) dedicated to the subject of "infrastructure" and its neglect. As portions of Florida begin to feel the effects of the melting ice caps, global climate change itself has changed the nature and urgency of the need, but we do not really need to engage in those deeply political issues to address infrastructure needs and it seems to be an ideal place to make public investments in projects that would pass conservative muster. It is not direct "welfare," and so avoid the moral hazard associated with "free-loading." Much of the work would be sub-contracted through private firms, no doubt improving dramatically the profits of their owners and likewise the the job prospects of precisely those workers displaced by the techno-global economy. Moreover, because it improves job prospects, one would hope for ancillary effects, particularly increased demand of the sort that might actually induce investment. The difficulty, of course, is more symbolic than actual. It is a "new deal" remedy. If Reagan and his Hoover era economics is the second son of god, FDR is the first son of lucifer and even the mild form democratic socialism he advocated the work of hell.
Another thing, of course, is the so-called "public option," particularly in education and health care. Here again, one cannot do it justice in a blog post, and we have flayed the dead horse of public health care options into dog food, but education? If we really believe, as Hoover put it, that "we build our society upon the attainment of the individual," then we should "safeguard to every individual an equality of opportunity to take that position in the community to which his intelligence, character, ability and ambition entitle him." After that, the race, so to speak, goes to the swift. Again, as Hoover put it, "it is as if we set a race. We, through free and universal education provide the training of the runners; we give them an equal start; we provide in the government the umpire of fairness in the race. The winner is he who shows the most conscientious training, the greatest ability, and the greatest character." Though one might argue that "free and universal education" is available, but the condition of some schools beggar the notion that mere availability provides an "equal start."
Beyond that, however, a change in thinking is required. Setting aside the opprobrium associated with race and immigration that is animating the current presidential race, there is a good deal of Hoover still in the republican party. Although historical analogies are never exact, the deep structural issues we face are not unlike those faced by Hoover. As Hofstadter put it in 1948, "the country was over stocked with savings to be invested and goods to be sold," but the accumulated wealth of the wealthy could not "find good investment outlets in industries that were rapidly saturating their markets," which in turn "drove capital into speculative channels." Nevertheless, we still have an economy "based upon expansion in consumers' goods, and more than any other it was dependent upon sustained consumption." Although we watch consumption with some anxiety, particularly around the holiday seasons, like Hoover, the republican party continues to deny "that there was any serious maldistribution of wealth in the United States," and insisted that the American consumer still had the means to consume. Indeed, as Hoover put it in The Challenge to Liberty (1934), efforts to redistribute wealth is still characterized as a "socialist" strategy "of those who are anxious to destroy liberty." Having said this, however, it is instructive to look at a Brookings Institution study, America's Capacity to Consume, also published in 1934. As Hofstadter summarized:
The nation's 631,000 riches families had a total income considerably larger than the total income of 16,000,000 families at the bottom of the economic scale. From the standpoint of purchasing power, these 16,000,000 families, the Brookings economists concluded, had incomes too small even to purchase "basic necessities." Such was the potential market at home during the years when Secretary Hoover had been working so hard to expand American markets abroad.
We are not there yet, but one suspects that given a continued emphasis on supply side economics, we will get to an "extractive equilibrium" and perhaps push beyond where the people no longer have incomes sufficient to purchase "basic necessities" and "core goods."
It is questionable, however, if a change in thinking is even possible for the Republican party. The so-called Kansas experiment in supply side economics is a case in point. As Eric Zorn writes for the Chicago Tribune, Kansas Governor Brownback had "been elected in the tea party wave of 2010 and, with the enthusiastic backing of Republican legislative majorities." Given the mandate, he "launched a 'pro-growth tax policy'" which consisted of "dramatic cuts for business and high-earning individuals." He promised the measures would be "a 'shot of adrenaline into the heart of the Kansas economy' that would create thousands of jobs and boost funding for schools and local governments." It was, in other words, a field test "of the supply-side theory that the best way to raise more tax revenue is to cut taxes and jolt the economy into overdrive." It did not go well:
- The Congressional Joint Economic Committee reported earlier this year that Kansas had just 9,400 new private-sector jobs in 2015 (out of 2.6 million nationwide). U.S. Department of Commerce data show that, prior to Brownback's tax cuts, Kansas ranked 12th in the nation in personal income growth; after the tax cuts it fell to 41st.
- A handful of school districts in the state had to close early last year for lack of funds, and the state Supreme Court has had to issue orders requiring Kansas to cough up enough money to pay for K-12 education.
- In March, Brownback cut $17 million in funding, 3 percent, from the state's six public universities in response to revenue shortfalls. In April, he announced that he was going to have to delay a $93 million contribution to the state pension fund, prompting Moody's Investors Services to downgrade Kansas' outlook from stable to negative.
Again, there is more of Hoover in our republican party than they might care to admit. Brownback's ideas weren't going well at the end of his first term, so instead of changing course, he doubled down. One could say of him, what Hofstadter said of Hoover, "because ... his program should have been successful, he went on talking as though it were, and the less his ideas worked, the more defiantly he advocated them," even though the income necessary to consumption declined, the educational foundation for equal opportunity declined, and the economic security of the elderly declined. Although Kansas went from being a potential "model" of conservative economics to a "cautionary tale," and yet -- and yet! -- the conservative prescription for what ails us is to model the nation on Kansas.
A change in thinking is needed. To what exactly, I'm not precisely sure. I do know that we're at a crossroads similar to that faced by Woodrow Wilson when he penned The New Freedom in 1912, suggesting that "industry has ceased to be free because the laws do not prevent the strong from crushing the weak." While no saint, particularly in his racial attitudes, Wilson recognized that "the power of accumulated capital was 'in the hands of a comparatively small number of persons' who 'have been able in recent years as never before to control the national development in their own interests.'" Faced with his own version of "too big to fail," there was a centrism in his thinking, an attempt to sail the ship of state between the scylla of the plutocrats and the charybdis of the masses, but he articulated a government where "every new policy proposed has as its immediate or its ultimate object the restrain of the power of accumulated capital for the protection and benefit of those who cannot command its use" -- that is to say, he suggested the "business of government is to organize the common interest against the special interests." As I and others have suggested, the current business of government is precisely the opposite, particularly in the legislative branch, where the inordinate and climbing costs of running an election campaign make our legislators particularly beholden to that panoply of special interests willing to donate cash, strings attached, to their campaigns. So, step one, and question one for any candidate for federal office:
- The reform of campaign finance and conduct. I am suggesting not only a limit on the amount of campaign spending, but also time limits on the conduct of a campaign. I would not be apposed to an "election tax," or a public option for the finance of both state and federal elections.
The question of war and peace I will leave to another post. I will suggest, however, that a viable economic conservatism is necessary -- one focused on the fiscal restraint necessary to moderate not only our foreign military adventurism, but also misplaced zeal for domestic reform. Taxes, however, are not evil in and of themselves, nor is the so-called "public option." Indeed, if my initiating assumptions are true -- that the whole notion of "socialism" vs "free markets" is a false dilemma -- that there is only a given "status quo" that inevitably and inherently serves some interests better than others -- that the "policy" question is "who benefits" from the existing rules/regulations/laws that make up the "status quo," and likewise "who benefits" from any proposed "meddling" with the "status quo" -- then, step two, as Wilson put it, is to drive
- "all beneficiaries of government policy and demand of them by what principle of national advantage, as contrasted with selfish privilege, they enjoy the extraordinary assistance extended to them."
Konzel celebrates Hillary Clinton's embrace of "demand side economics," where one wonders "whether the labor market is tight enough to give workers real raises," and "whether private firms can make the investment necessary to grow the economy" -- where one asks "what the government can do to keep the economy out of recessions" and sees "joblessness and weak income growth," for example, "less as an individual failure and instead a market-wide one." All of which is to the good, and may be necessary to the future of our country, but it is insufficient. Unless we develop the political will to take step one, we really cannot take step two. The business of government will continue to organize the special interests against the common interests, the middle class will continue to be "squeezed out" in a downward spiral toward an "extractive equilibrium" where the masses have "incomes too small to purchase even the 'basic necessities.'" All of which plows the ground for the demagogue, or worse, who takes the general dissatisfaction hostage to enlarge his own privilege, dispenses "blame" with great largess, revels in "social disintegration" as an opportunity to exert "strong leadership." All of which should sound ominously familiar.
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