Are Utopian Dreams Going Pop?

That sound you hear is my muffled shout of exasperation. There are signs, few but significant, that the penny is slowly dropping. Our economy has been driven onto the rocks, where it remains firmly stuck. Some of us have been talking ourselves hoarse about this for what feels like a lifetime. Others have blithely gone about their business as if the crisis was a million years ago and was not that significant either. They believe that with one more deregulatory heave we will all be on our way.

I have, for some time, been trying to understand why it is that many of my friends and practically everyone in our leadership – in both the public and private sectors – seem bemused by our economic blues. To me the reason surely screams: after thirty years of relentless deregulation and denigration of government, and after serial attacks on our fiscal security by right wing zealots, we have exhausted the utopian dream. All that remains is the debris the social re-engineering unleashed by Reagan and his followers created, and the shell of a middle class that the zealots have now denuded of wealth and income to the extent that is a lifeless anchor rather than an energetic driver of growth.

You see, when you set out to unfetter free markets it is almost inevitable, in this harsh and uneven world, that some will win and some will lose. It is even more likely that the winners will steadily acquire the power to accumulate ever more power and hence ever more wealth. The end result of this process of accumulation is that a few will own most of the assets, and the many will be left to share a much diminished portion. Right wingers applaud this. They see it as unleashing the individual to rise to whatever level their abilities allow them too. The more extreme libertarians amongst us focus only on what they call liberty. By which they really mean the ability of the powerful to do as they please. The gathering of wealth by the few is simply a demonstration of the superior effort and ability. The rest should try harder. The poor are poor only because they are lazy. The weak are weak and should heal themselves. The appropriation of taxes to alleviate poverty is an attack on liberty. This is the kernel of the right wing worldview we have acted upon since Reagan poured scorn on government intervention in the economy.

In this view, the last redoubt of the left wing citadel to be smashed consists of the New Deal and Great Society entitlement programs. Libertarians despise them as the most evil of all intrusions into their liberty. Let the sick be sick. Let the poor be poor. They have an opportunity to be otherwise. If they choose not to act on that opportunity, so be it. Others, the libertarians argue, should not pay for the errors and laziness of the indigent.

It may be that I paint the libertarians with a more vivid brush than they would like. But they must take responsibility for their position. They despise society. They call for a small scale, local, messy democracy by way of hiding their innate hatred of collective, cooperative, or community action. In their world there can be no entitlements because there would never be a state large enough to support them. Their message reached the absurd in yesterday’s effort to undo the Federal law banning those old lightbulbs we all grew up with. Apparently the libertarians want us to continue to waste energy. Better to be free than have energy or save money. The wild eyed pursuit of liberty trumps sanity at every turn. So an attempt to nudge society towards a sensible use of small things like energy efficient light bulbs becomes translated as a massive example of authoritarian state intrusion into private life. Reach for the guns everyone! Big brother is coming for our light bulbs.

This is nuts.

Tea Party nuts. Libertarian nuts. But as their hero Hayek always preached: the slope down towards tyranny begins with little things like state control of our light bulbs. His basic idea was that there is no society, just a bunch of individuals. To think otherwise was to commit what Whitehead called a fallacy of misplaced concreteness: to treat an abstraction as a reality. So society is abstract and only the individual is real. We delude ourselves when we speak of society acting as if it were real. And any attempt to act collectively is therefore, necessarily, to do harm to the only true reality: the individual.

So we have lived. For three or more decades. Policy has been deployed to free up business and individuals from the evil that is state intrusion into our lives. We have stripped the government of operational efficiency, of revenue, and of respect. The defunding by Bush was just one more wave in the relentless war on the state. But something odd happened along the way. The consequences of all this unleashing of private liberty have accumulated and produced the economy we now live with.

As Martin Wolf argued in this morning’s Financial Times the utopian dreamscapes of the right wing social engineers have clattered unceremoniously into reality. The libertarian utopian zealots want to double down. They want to eradicate the last vestiges of authoritarianism: Medicare and Social Security. They want to complete the Reagan revolution. If they have to tear down the United States itself do accomplish their dreams, that is just too bad. Zealotry is always blinded by its own affirmation of its undoubted righteousness. Just one more attack and they are sure they can complete the destruction of the evil that infests Washington. Burn the village, we can always rebuild it after the cleansing is complete.

Why has all this been triggered in my mind? Why am I so exasperated?

The hints are emerging that within the utopian bubble, where the Republican social engineers worry over which programs to cut next, reality is biting. Badly biting.

The economy is not acting liker a great big pile of happily liberated individuals just raring to go once the government is finally destroyed. On the contrary it is acting exactly in the way that that ultimate evil doer – Keynes – said it would. It is stuck. Royally and totally stuck. Worse it is stuck in a special way: it is mired in an enormous debt de-leveraging. We are suffering a classic balance sheet recession. Households are still in shell shock from the collapse of their asset base. Their liabilities are out of balance with that diminished asset base. So, naturally, they are trying to get back into balance. That means savings. It means not spending. It means taking all those tax cuts and saving them. This is why I argued against using tax cuts as part of any stimulus. People would act rationally: they would not spend.

Worse: the pursuit of the utopian dream had the direct consequence of undoing the post war contract. Productivity gains went to profit instead of wages. I have said all this before, but apparently the Republicans are just now discovering what they have wrought: when you asymmetrically distribute wealth to just a very few, as their policies have deliberately done through their emphasis on free markets, you leave the mass, what we used to call the middle class, incapable of providing the impetus behind growth. Remember: it was the middle class that led the surge in growth during the 1950’s and 1960’s. Their rising spending power allowed them to set in motion the virtuous cycle of spending through profit, to rising wages, to more spending, that drove America forward. That drive was underpinned by the New Deal programs that allowed the mass of households to spend nearer to the peak of their incomes safe that a retirement awaited them. Their lifetime financial risk was reduced by the safety net. They could thus afford to be more aggressive in their spending. They reacted accordingly. As soon as corporations started to act out according to the utopia driven financial and management theories that have dominated since the late 1970’s that risk protection was eroded. Wages were sacrificed to build shareholder value. Pensions were switched from defined benefits to defined contributions. The middle class found itself shouldering more of their lifetime financial risk, but were never rewarded for accepting that risk. The rising wages that would have been the textbook offset never materialized. That wealth went to shareholders as short term profit. And shares are disproportionately owned by the few. A historic and deliberate shift in wealth was underway. The only way our middle class could pay for a rising standard of living was to borrow. We now know how that turned out.

None of this should be a surprise.

But the Republicans and their right wing media supporters are only now waking up to it. All of a sudden people like Orrin Hatch are noticing that a majority of citizens are too poor to pay income tax. How, he asks, did that happen? It means we have to tax the upper class a great deal. That, he argues, is unfair. Which is why he opposes the elimination of the Bush tax cuts for the upper earners: they already shoulder the burden, they should not be asked to pay more. After all, he even said, $200,000 a year is not that much any more.

Only to someone in a utopian bubble. Libertarian and neoclassical dreamers are befuddled: it doesn’t happen this way in their dream worlds. It cannot be that their dreams are wrong. It must be something else. No it isn’t.Only someone totally unaware, or indifferent, to the consequences of unfettered free markets in an inherently unfair, uncertain, and uneven world could talk that way. When their are no institutions to protect the weak from the predation of the powerful, or to ensure a more balanced distribution of wealth, or to mitigate the wrong footing caused by uncertainty, it is inevitable – inevitable – that society edges towards where ours is today. It will always end up with a bifurcated distribution of wealth. What was the middle class will always melt away.

Our economy’s engine will be diminished. Hence our inability to crank that engine and power our way out of the mess we are in.

They did this to us. On purpose. In pursuit of their dreams.

This is all a direct consequence, and a predictable one, of decision making – both public and private – over last thirty years.

The whole social re-enginering enterprise was underpinned by a combination of two utopian visions. Those of the libertarians and their economic fellow travelers. They designed this society. They designed the decline of middle America. This is what they wanted. They built their theories in mid air. When they fall to ground they should be blamed. Perhaps ridiculed. Their economics is built mid air because it relies at its heart on presumptions that have no contact with solid ground.It is are supported by absurd and naive ideas of how people act. It is based on ideas appropriate in pre-industrial villages. It includes the world views of men who grew up in Central European imperial monarchies in terminal decline and threatened on all sides by totalitarian dictatorships. Nowhere in it is there space for the modern corporation, for the complexities of modern production, for the effects of elective democracy, or for the limitations of the human capacity to make rational decisions. It is a set of ideas based on late 1800 sensibilities and experiences. It is as if the entire twentieth century never happened.

This out-datedness gives it a simplistic sepia tinted appeal. It gives off an aura of a lost golden era, an innocence based on the days before the rise of the big governments around us today. It attracts support from those who want to cut through the complexity and restore a simpler, smaller, more romanticized way of life. My libertarian and neoclassical friends are stuck with this inheritance. They live in the utopian bubble too.

But you can ignore reality only just so long. And we have reached the end of the dream. The right wingers and their social theories have come face to face with the end point of their constructs. This is their economy. They built it. It was their experiment. And they seem bemused that the reality out there in middle America doesn’t match their dreamscape designs.

Yes, Orrin, there are poor people who don’t pay tax. That shouldn’t shock you. You and your theorist buddies made it that way. They are enfeebled by design. Your design.

If you want your richer friends not to shoulder so much of the burden, perhaps you should add to their ranks. Spread the wealth a bit. Re-build the middle class. Or does that offend your libertarian feelings too much? After all, it smacks of big government safety nets.