What A Depressing Week

I tried my hardest to hide from the flow of depressing news this week, but here I am on Friday feeling battered by it all. This was a week in which we had our worst suspicions confirmed.

Yes, the American economy is now deeply divided into haves and have nots.

Yes, the so-called recovery is evaporating as we meander about in the no man’s land of stagnation.

Yes, our elite is fumbling at every opportunity to do something about the malaise.

Yes, the threat from European ineptitude is almost as strong as that fro our own incompetence.

And, yes, the Republican hard core supporters are as extreme as we all feared.

Combine this lot and you end up with a toxic, corrosive, and potentially devastating brew. No wonder I wanted to hide from it all.

Where do I start?

Well, let’s get the normal numbers out of the way. Quickly, since they will make us all queasy. New claims for unemployment assistance rose again. They are back to the level they reached in June – 428,000 – and show no sign of relenting. Gone are the weeks where we could fantasize that claims were distorted by clerical, seasonal, statistical, or weather related quirks. The well of excuses has dried up. Our economy is simply not capable of creating jobs. It was what now seems an eternity ago when we were celebrating weekly claims trending down towards the magical mid-300,000 range. That is well out of reach at the moment. Unfortunately our unemployment problem is going to stick with us for a long while. Equally, or perhaps more, unfortunately I doubt there will be any serious attempt as a resolution. Our interminable election cycle implies that it is in the Republican party’s interest to remain obstinately anti-worker as it seeks to create an electoral advantage. So I expect a great deal of smokey rhetoric about fixes backed by an equal amount of cynical inaction.

We also learned this week that inflation has edged up somewhat. Even core inflation – the measure that strips out volatile stuff like energy and food costs – has risen to touch the 2.0% mark. While that’s not a problem, despite what you will be hearing from the right wingers, it implies that the average family is being squeezed Since incomes are flat, any rise in inflation erodes real purchasing power.

No wonder people are uneasy or angry.

Meanwhile our elite fiddles.

The explanation for our elite’s complete inability, and unwillingness, to resolve the malaise is apparent when you read the awful Census Bureau report on poverty released earlier this week. It is a damning indictment of the last thirty years. Inequality is now so extreme here that America ranks alongside what we would all claim to be third world countries. These are places the average American would disdain as badly run, corrupt, and poverty riddled backwaters. They are places we, in our finer moments, pity. We look at the as places where the poor are mistreated, forgotten, and abused by their obviously corrupt leaders.

Well we are one of those places.

We rank alongside The Philippines and Mexico. So not only is our health care system sinking rapidly to that level, but our economy is also. At least in terms of its ability to distribute or share the wealth it generates. And lest we forget: it certainly generates wealth. But that wealth is now super concentrated in the hands of the well educated. Our society has an Edwardian air to it. A servant class is thriving to assist the wealthy. And an underclass is growing rapidly to provide cheap labor to supply the rich with the food and services they require to maintain their own lifestyles.

There are signs of angst in the elite: stories about the decline of the middle class are now abundant. This outbreak of handwringing is touching. And totally ineffective since it is inevitably accompanied by statements about the long term intractability of the problem, and the urgent message to us all that we must avoid class conflict.

As if that conflict doesn’t already exist.

It does.

Don’t fool yourselves. We are riven through with class conflict. Our political discourse doesn’t reflect it yet. But it will if we don’t change course.

With our poverty levels rising, wages stagnant, and the chances of securing a solid middle class lifestyle diminishing for millions of families, the central question we will be facing over the nest decade is how to avoid social unrest as the gaps in our society widen even more. The elite has benefitted from a perfect storm: globalization came along to squeeze our workers just as technocratic education became the key to wealth. Our growing industrial productivity means we can make things without the workers that formed the backbone of the middle class of the 1950’s, 60’s and even the 70’s. Those days are gone. They are not coming back, despite the luddite instincts of some on the left who seem to want to draw down the curtain of global integration.

The poverty of ideas runs as deeply on the left as it does on the right.

Indeed, as contradictory as it may sound, it is big business most likely to sound the alarm most effectively. Business, after all seeks profit. It suffers when our middle class stops buying. It has to react. Just this week we read in the Wall Street Journal that Proctor & Gamble, that iconic provider of goods to the middle class, is abandoning most of its marketing efforts in that direction. Why? Their analysis – something they are knee deep in – tells them that the middle class is so threadbare that it is no longer worth the effort. Instead they are beefing up product development and programs designed to sell to our society as it now is: divided. Some very rich. Most poor.

So big business is a canary in the mine. And their actions suggest that the current malaise is not a temporary phenomenon needing a fix from a stale text developed in the 1930’s. That would solve only the magneto problem – to borrow Keynes’ apt phrasing. It would not undo the division of our society that is the root cause of our longer term issues. For that we need to turn to a politically connected economic theory. It doesn’t exist.

What does exist, unfortunately for us, is an extreme right wing theory adapted by our contemporary Republican party.

They are reacting to another canary in the mine: the Tea Party. Laughable, scary, and extreme these folks are real. And they are worth our paying attention to. They exist because they feel threatened. Looking at the typical demographic we learn that the average Tea Party supporter is white middle class and nearing retirement. These are exactly the people who feel the accumulated changes in our society the most. Right or wrong – mostly wrong – they feel as if they behaved according to the rules. And yet those rules are not returning the pot of gold they were promised. So they lash out. Indiscriminately. Irrationally. They pick on “the other” whether it be minorities, immigrants, atheists, or educated people. The list of enemies is long and heterogenous. No two Tea Party supporter have the same grudge. But they all have some sort of grudge. And they need someone to blame. The neo-libertarian right has managed to channel the blame onto government. Hence the notion that Obama is a socialist.

The left, as usual, has adopted a superior tone when dealing with the unwashed of the Tea Party. Instead of articulating anything new in response to the anger, the left has simply ridiculed the confused and often ignorant antics associated with the movement. The result has been that we have not fully embraced the message being sent: there is deep seated resentment throughout society about the failure of the economy to deliver the long assumed relentless increase in standard of living.

Left wingers may think, as many I know do, that the failure stems from right wing policies. The belief is that the steady erosion of union power, the vilification of government, and the drumbeat of deregulation – all central tenets of libertarian thinking – will inevitably, and I stress that inevitability, produce the very society we now condemn.

In stark terms the clash between the individual liberty so central to capitalism and the egalitarian pull so central to democracy has been won convincingly by the capitalists. Democracy has been rolled back. The libertarian aim is to gut it even further by eliminating social programs altogether. Those programs offend the libertarians both because they imply a need for taxation in order to pay for them, and because they imply an erosion of the rugged individualism that stands behind their philosophy.

This impulse was given clear manifestation at the latest Republican debate. The crowd, and avowedly extreme group, cheered at the idea of a sick person dying, when the alternative was providing social health care. That Hayek, the great hero of libertarians, advocated social health care in order to mitigate the anger of the poor, went unnoticed. Our modern libertarians have moved beyond their core beliefs into a fear driven cynicism and outright hatred of their fellow citizens that is frightening. History will not judge them kindly.

But.

That there are Americans who follow those ideas is sufficient evidence to support the notion that our problems are deep rooted and need long term, collective, and well thought out responses.

Right now we are not seeing anything remotely adequate.

We need to tackle inequality. To do that we need to educate our people, not simply to compete in a global workplace, but so they can perform as citizens. The left’s frustration over things like the environment, over teaching of evolution, and many other issues can be solved were our education system producing citizens well versed in those issues. Clearly is isn’t. That so many erstwhile middle class voters can support policies that ruin the middle class is a great paradox needing remedy. And the delusion of libertarianism and its hatred of government needs to be exposed as the profoundly anti-social message that it self-avowedly is.

After all, “we the people” is a clarion call for democracy, not for capitalism. Nor for libertarianism. We are our government. We are not our own problem. The lack of balance between capitalism and democracy is the source of our malaise. It is time to re-establish a more democratic balance.

I would like to think that economists could contribute to regaining this balance. But, unfortunately, they have defined economics deliberately to ignore social, institutional, cultural, and other impulses that constrain economic activity. They pretend society doesn’t exist in order to model society’s economic aspects. The error in that should be obvious. Apparently it isn’t. So most economic theory is rendered useless or irrelevant awaiting the outcome of the more important debates about how society should construct and apportion wealth.

Once that great debate about the core issues of economic activity are completed, economists can re-enter the discussion and tell us how best to set up markets. They are the engineers who implement someone else’s science.

Pathetic.

As I said: it’s been a depressing week.