Class Conflict?

It is taboo in America to talk of “class” as if it doesn’t exist. Of course it does, we just don’t like to admit it. I say this because so much of the current crisis seems to have class-like connotations, and more commentators are arguing in ways that indicate they agree.

A case in point is the recent article in The Nation by Joshua Clover – thanks to Phil Cunningham for pointing it out to me. James Kwak at The Baseline Scenario posts a parallel article. Finally Tony Judt, the historian, devoted almost his entire book “Ill Fares The Land” to the increased separation within American society.

The common theme that all three of these writers is their focus on the enormous shift in wealth that the last three decades have wrought. This shift was no accident. It was deliberate, and orchestrated by those who benefitted most. That they were enabled and assisted with enthusiasm by middle class Americans who have been left much worse off remains a mystery in need of thorough explanation.

The facts are clear and well known: wealth has been systematically concentrated by the very upper tier of wage earners, and by corporations whose policies and activities are, in general, dictated by that tier. The professional elite took full advantage of the tax regime put in place by Reagan and then modified by Clinton and the two Bush’s to secure their income stream. They also were the best positioned to exploit the deregulatory environment that has been the predominant governance structure since Reagan also. Pay scales were twisted towards the upper echelons, and those infamous bonuses in banking poured riches into the hands of a very few. A new privileged generation was created, and they are defending their privilege fiercely and astutely. Any talk of class warfare is squelched immediately as “un-American”. The only folks who benefit from dismissal of such talk are those who have the wealth. The rest are left to their anger and increasing sense of disconnection from the old “American Dream”.

I have hammered this issue recently, so I won’t repeat myself except to say that I think that the imbalance in wealth that now is so pronounced within American society is a major, if not the major, contributory factor in our crisis.

That no one on the left in politics has roared against the injustice being done is testimony to how thorough the ideas of the right have taken hold: even our media and academic elites are entrapped by the illusion. Further, politicians of all stripes have succumbed to the money that the power brokers can throw into elections. We have so many elections that the ability of a politician to resist the cash is reduced to zero. Members of Congress are now devoted to fundraising rather than governing. Senatorial races are so expensive that even the six year cycle is not long enough to allow for sufficient fundraising. Our Senate is fast becoming – if it is not already – a rich person’s club. It is no wonder that the banks and big corporations have disproportionate influence. They are the ones with the deepest pockets.

This theme will only loom larger as the wealthy attempt to stave off a return to the better balance of the 1950’s and 1960’s. They stand to lose a great deal, they will not go down without a fight.

But that’s no news.

My point today is to illustrate the gulf that now has opened up in our society.

I was fortunate enough to spend much of the summer this year in Dorset Vermont, a town characterized both by its physical beauty and its comparative wealth. Home prices in Dorset are established by the flood of money from New York City and Boston. True Vermonters cannot afford to live there. The locals are reduced to living on the periphery and providing the services needed by the largely absentee property owners: they mow lawns, clean homes, and shovel snow. They run gift shops and take care of the golf courses. In other words they ensure that the property owners can enjoy their privileges with ease.

This arrangement is two edged. The locals certainly benefit from the jobs generated by the influx of cash. But they are priced out of the community. The town is beyond them. Discontent lurks very close to the surface, and can easily be detected in conversation. While New Englanders are not exactly known for their warm embrace of outsiders, the situation has become more acute as more and more of the town is devoted to large and expensive homes that are occupied only occasionally. My own observation is that most of the homes on one prestigious street are used by their owners once or twice a summer. One at least seems to be simply a Labor Day retreat. The luxury implied by the ability of an owner to use a very expensive home a few days a year is the point to be driven home.

Inequality has always existed. And it always will. But not for decades has the distortion been so great that we have enough families to own enough towns like Dorset that they can reduce so many others to a support function. In the old days the folks providing the services were tied to a family. They were servants. That they are somewhat less closely tied nowadays simply means we can avoid calling them servants. They are now the service economy. But they are just as dependent. They are just as incapable of experiencing the life of luxury as the servants of yore. It is no accident that the majority of jobs generated in the recent past have been in these low wage service functions. The middle income layer has been stripped away either through global shifts to low wage nations, or through the destabilization of “flattened corporate hierarchies”. We have no middle management anymore, so we should not be surprised to have fewer middle income wage earners. In each case – globalization and lean management – the benefits flowed to profits and those with professional skills. Those left at the top of the now narrower pyramid received a disproportionate share of the increase on social wealth created. They used their advanced educations to “rent seek”. Which they did with a vengeance.

That this is now America and is not worthy of commentary is my issue. The division exists and is opening up. Eventually, as it always has in the past, it will breed a backlash. I believe the Tea Party challenge to the Republicans is part of that backlash. Anger is rising. It needs to be well understood and not dismissed.

One last thing: both Joshua Clover and Tony Judt point the finger at Hayek. I would add von Mises, Berlin, and Popper as well. As Judt articulates there were a number of Austrian born theorists back in the 1930’s who devoted their analysis towards a justification, and spirited defense, of a liberal worldview. That they overcompensated in their zeal is easily understood: they were embroiled in a passionate defense of capitalism and democracy in the face of the apparent success of communism – in the Soviet Union – and fascism – in Germany and Italy. During the 1930’s the depression and the manifest failure of capitalism represented a true existential threat to the liberal conception of society. Hence the works of Hayek and von Mises in economics and Popper and Berlin in philosophy. Most postwar neo-liberal economics can be traced back to Hayek or von Mises as reinterpreted by Milton Friedman and Robert Lucas and their cohorts at the University of Chicago.

I can excuse Hayek and von Mises for their mistakes. They were made in a good cause as they fought to save the liberal worldview from the extremism threatening the West back then. I cannot excuse Friedman et al since they were under no similar existential threat, and had the opportunity to see the benefits that the greater income equality of the immediate postwar years had brought to America.

That greater equality was a result of one major idea: that the government can, and should, play a positive role in society by ensuring all its layers of income earners prosper and derive benefit from the productivity increases brought about by technological advance. This idea was best articulated by Keynes whose work both Hayek and von Mises attacked with vigor. They failed to appreciate that capitalism requires limits if it is to not to be antithetical to democracy. Untrammeled capitalism runs headlong into the democratic ideal. Why? Because capitalism is essentially elitist. It inevitably concentrates wealth. Not just in the hands of the successful, but in their offspring. It creates class structure through time. Democracy, in direct contrast, is egalitarian. It presumes a degree of equality. It degrades class, and presumes opportunity is available to all. By involving everyone it inevitably ends up redistributing wealth through social programs and entitlements.

So democracy and capitalism collide in their extreme forms.

It is only when both are modified that they provide mutual support. Capitalism only survives when the middle class benefit from it. Democracy only survives as long as inequality remains within bounds and there is some engine for the provision of greater wealth.

It was Keynes who saved capitalism from its failures in the 1930’s. He insisted on it being limited. Hayek, von Mises, and their later followers reviled and ignored Keynes by insisting on its purity. Their’s was an idealism born of zealotry. It was decoupled from history and reality. It was easily co-opted by the elites for their own ends. It provided an easy story to tell. And it fitted nicely with the pre-existing American mythology of the rugged individual. The Keynesian message was too pragmatic and failed to resonate with voters during the sharply defined Cold War era. Americans sought, and then fell for, an ideal that could not produce its promise in the uncertain and flawed environment of the real world.

Just as the rugged individual was never real, nor was the free market and its supposed cure all qualities.

But by choosing the myth Americans have undone the great leveling that created the wellbeing that characterized the postwar years. The middle class was complicit in its own downfall.

So now we have rampant capitalism and weakened democracy just as Keynes would have predicted. That the two great liberal ideas are now in conflict does not augur well. They need reconciliation. We need to throw out the rotten purities advocated by Hayek, von Mises, Friedman and Lucas. They were an illusion that generated a class conflict.

Which is something we can do without.