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Lost
Balance: Were Is The Anger? - January 4, 2011 With the steady increase in
activity that seems to be characterizing the US economy currently the early frenzy
of placing the blame for our crisis is ebbing. Already we are being treated
to “year end” articles calling people such as myself, those who view things a
little more skeptically, unnecessary naysayers. The improvement in the
general economic numbers now being reported is being used as a vehicle to
justify yet another round of optimism and good news stories. The market, we are told, is poised for a banner year.
With profits on the up, and Wall Street back on its feet, 2011 has all the
makings of a good year. So, apparently the skeptics were wrong, and their
mediocre forecasts failed to take into sufficient account the remarkable
resiliency of the great American money machine. Our problems, we are told,
are now more those of mopping up the mess, rather than worrying about sinking
under its weight. Well, I don’t care much about
profits. Not unless they are put to good use. Corporate profits have seen
banner times in America for over a decade. Shareholders may have been
buffeted in the downdraft of 2008, but they have either been bailed out
directly by the government or they have benefitted from benign government
policies ever since. They can have no gripes at all. Cash is piling up in
corporate coffers. Profits are back with a vengeance. So what? I care about the general
economy, and about rusty boring details like wage and job growth. I care
about opportunity. I care about balance. In that context the economy is
still festering. Indeed without endless government support there is little
evidence that it would yet have recovered much at all. But above all else I
fear that the great recession will simply reinforce the pre-existing trends
dividing the country between those who have an advantage and those who are
left behind. That divide shows up in the enormous income and wealth
inequalities that now bedevil society, and the huge discrepancies in
expectations now reasonable for the mass of middle and lower class families,
and those of the privileged above them. To this extent I think that the
generalized numbers are masking something important. Something we should be
angry about, but aren’t. The steady separation of the economy into two
distinct economies, one of the rentiers and capitalists and the other of the
average workers, is getting more stark every year, and the gap may well have
opened even wider with this crisis. Which is really infuriating, to me at
least, because it was the folly of financiers that brought the crisis upon
us. I am struck by the constant
marginalization of anyone who dares talk about inequality as a core subject
for economic discussion. Orthodox economists, or at least the less
thoughtful, simply treat inequality as a side product, or after effect, of
the workings of capitalism. Periodically the media produces an article or two
talking about the income gap that yawns wide nowadays, but they quickly move
onto more acceptable mainstream topics like inflation or interest rates, as
if the only grown up subjects to discuss are what ails the market. The New
York Times produced such an article recently talking about the pay of
“super stars” and how it distorts incentives. Buried in the article, and
treated as a minor rather than the main fact, was a revealing statistic.
America is less upwardly mobile, in terms of wage earning opportunity, than
any other large industrial nation. Think about that for a moment. This is the self promoted “land
of opportunity”. A very large component of the “American dream” rests
squarely on the notion that the US is the place to be if you want to profit
from hard work and industrial innovation. Old Europe, in particular, is
derided as sclerotic and inept at providing such opportunities. So why is it
that a lower wage earning European has a much higher chance of moving upwards
than a similarly placed American? Capitalism. The more naked the capitalism
the more unequal the income. This we all know. What we have ignored is the
social corollary: the more naked the capitalism the more rigid the society.
Let’s set aside the failed alternatives: we could debate endlessly the merits
and demerits of either socialism or communism. I do not intend to, I have a
natural distaste for all solutions to problems that rely upon idealistic assumptions
about human behavior. There is too much contrary evidence to allow me to view
them with anything other than deep mistrust. Capitalism, by contrast has no
such flaw: it works exactly the way it comes advertised. It is divisive,
abusive, prone to manipulation, and encourages inequality. There is no magic
to it: that’s what it is. Unleash capitalism, and that’s what you end up
with. Every time. But human beings may be less
rational and messy than utopian economists of either left or right would like
to pretend. They, after all, are simply trying to justify their ideologically
preferred social arrangement. We, in the middle, know better. We know that
there are ways to mitigate capitalism without killing off its energy and
wealth production. Our primary weapon is democracy. As in income redistribution. As
in progressive taxation. As in the provision of safety nets. As in
affirmative action. As in women’s rights. And so on. We have a whole armory
to stop the wealthy from building citadels and extending privilege only to
themselves and their kind. It’s called balance. All utopian economic systems,
from genuine Marxism through to neoclassical economics, make self serving and
unreal assumptions about human beings and their behavior. Thus they all
produce solutions that need to be enforced against the flow of that behavior.
Because they are not based upon real humanity, but upon an idealized version
of it – because they are Platonic and not Aristotelian – they also
force their advocates to bend society to their wills. Thus they become
authoritarian, often despite their advance intentions. This is the great weakness now
breaking the American dream apart. The dream, such as it was,
assumed a balance. It assumed that the lessons of the 1920′s and 1930′s
would not be forgotten and that the economy would be managed for the benefit
of all. For two or three post-war decades it was. But after the onset of the
Reagan illusion and the triumph of neoclassical economic thought, balance was
tossed aside as an impediment. Complacency prevented the newly minted middle
class from identifying the error in Reaganism and its advocacy of naked
capitalism. After all if we can read, as we do, in the introduction to basic
economic textbooks that Americans are wealthy because their economy is
“market based”, then spotting the error is hard for anyone not grounded in
alternative economics to do. The average American is wealthy
not because of free markets, but because those markets were strongly
monitored and regulated for decades. Once that monitoring and regulation was
re-interpreted as the “dead hand” of government and removed, the path to
wealth for the masses dried up. So why are we not angry about
this? Because we still live within
the illusion. We conflate capitalism and democracy. They might both depend on
similar core principles, but they are antithetical. The one concentrates
power and wealth, the other seeks to diffuse them. They may be symbiotic, but
only when we have a clear understanding of their conflict. It is only when a society
enforces itself against the results of naked capitalism, when it makes sure
that the elite does not rent seek, and that people like the bankers of
2007/2008 actually pay for their errors, that it can benefit from that
capitalism. Every other time, as in the post Reagan decades, including the
Clinton years, society will fracture along the lines we are now so
aware of. The lower and middle will ossify and lose traction. The upper will
scarf up ever more of the rewards. In this context the
contemporary and persistent attack on our safety net seems to me to be an
attack on opportunity, and as an attack on the democratic bulwark against the
pernicious effects of inequality. So every attempt top enforce austerity in
order to assuage markets pains me. The benefit of austerity flows only to the
elite while the cost is borne by the less privileged majority. Early
industrial nations abandoned classical economics for a reason: it was
designed to justify the actions of the new industrial class. In Britain, first
Smith then Ricardo attacked the old world in order to foster capitalist
growth. A hundred and fifty or so years later Keynes sought to save
capitalism from itself by injecting the government into the heart of
activity. In between the two, the severity of inequality made it evident that
naked capitalism imperiled itself. It was doomed if left unattended. Yet all
our current attempts at austerity cut away at what is left of the boundaries
of capitalist behavior. Instead of re-estabkishing balance we are deliberately
veering further away. A long time ago I came across
models of the economy built by Kaldor. One explicitly encompasses the impact
of balance. The more wages take of the fruits of growth the less incentive
there is for capitalist innovation, and thus growth slows to everyone’s
disadvantage. And, in contrast, when profits take too much, workers become
discouraged, unable to maintain advancement, and ultimately impose themselves
on capital. In other words society becomes politically unstable at either extreme. Are we there yet? I do not know. But I do know we are headed
that way, and that textbook economics is culpable for spreading market myths
far enough to help destroy the opportunity it was designed to justify. It
ignores balance. It ignores reality. Let me change my mind. I do
care about profits after all. We need less, so that wages can flourish again.
We need to get back into balance. Only then will the economic engine hum
again. |