Our Age of Imbalance

Dean Baker unloads on Alan Greenspan. Correctly. After all Greenspan’s hands were at one of the tillers that steered us all relentlessly onto the rocks back in before the crisis, so he deserves all the opprobrium we can throw against him.

The problem is that the media still reveres Greenspan and treats him as a current celebrity rather than as a failure. Apparently they are too clueless or lazy not to be able to tell the difference between contrition and defiance. For Greenspan remains very much defiant.

And therein lies the rub.

Our issues are broader than Greenspan’s arrogance and desire to rehabilitate his reputation. We, as a society, need to get to grips with the much broader and deeper running errors of the past few decades if we are to reconstruct our economy so it benefits us all and not just a tiny minority. In other words we need to fight the right war. There appears to be resistance to such an effort, or at least less of a willingness to learn than I would expect.

Why?

Because the lessons are too sweeping for many to contemplate and so they retreat into small scale thinking, technical fixes, or simply into denial.

So let me repeat myself:

The reason we have ongoing stagnation, higher unemployment than we ought, and what appears to be years ahead of depressed expectations is that our entire intellectual elite – academia, business, media and so on – all and collectively let us down. This was not an imposition by a small hard core group. Nor was it just a right wing political tilt in Washington. It was a whole-hearted embrace of a package of ideas that enabled our elite to scarf up rewards without providing the rest of us with anything.

We became two nations.

One within which our elite led, and benefitted, from a steady change in doctrines extending across all sorts of domains of activity. Those doctrines led to the adoption of so-called market driven attitudes in many places that had been left untouched before, and they justified or enabled the massive shift in income disparity that now bedevils us. It wasn’t just the plutocrats who benefitted from the epidemic of market magic ideas, the professional classes did too. Anyone graduating with a law, accounting, or business degree back in the 1970’s and 1980’s has ridden the wave. And since they comprise the leadership and our elite at the moment it is no wonder they cannot comprehend the devastation that the epidemic has caused down below.

That would be in the second of our nations. The non-elite. The 95% or so who have been left out of the game over the past few decades. That group has been led a merry dance. Rather it has been let down and misled.

The epidemic, the intellectual edifice, that Greenspan represents and which is the root cause of our problems, has left the vast majority of our people adrift and fearful. Its product is the exact contradiction of that Greenspan and his ilk espouse. Far from enabling innovation and individual initiative, its stifled it under a blanket of fear and reduced expectation. By eroding the safety net and by undermining the credibility of collective action it placed greater risk on the shoulders of those least able to deal with it. It thus slowed rather than accelerated all the outpouring of energy its advocates told us would drive the economy forward once it was free of the dead hand of government.

For an elite that talks so commonly and so glibly about the great benefits of clear risk and reward trade-offs, and who presume that their great advances in wealth represent their facility with that trade-off, there seems to be somewhat of a problem when all that is translated into action down below. When, for instance, an employee’s pension plan is changed from a direct benefit into a direct contribution plan. Annuities are so old fashioned nowadays and are scoffed at by the elite, but to a person with a low income and relatively poor prospects they represent a level of security unmatched by any of the high flying flexibility that supposed control over their own money offers.

Couple that with the depression of wages by the privilege afforded returns to capital in our tax system and by the social acceptance of shareholder primacy in our corporate decision making, and the ability to offset the heightened risk being offloaded by employers onto employees is totally undermined.

In other words our elite managed to outsource not just jobs, but residual risk in the economic world too. The overt and massive shift in rewards towards profit at the expense of wages – which is what many commentators focus on – is simply a symptom, it not the cause of our malaise. That cause is the increased risk now shouldered by the vast majority of people who are ill equipped, and are certainly insufficiently rewarded, to proposer in such circumstances.

It is no wonder that our society is ever more unequal. The risks inherent in being a member of it are increasingly asymmetrically distributed. We are living in an Age of Imbalance. We have to be careful that the tilt of that imbalance doesn’t end up capsizing the boat.

Our toxic politics today is a direct outcome of this asymmetry. Our two nations are coming into conflict. They scarcely talk with each other. How else do we explain the elite’s obsession with issues that only affect them? Debt reduction, the avoidance of inflation – even when there’s none, entitlement cuts, and chatter about reduced investment prospects are all topics that the elite stands to gain from if cured. None speak to getting the other nation afloat again. Indeed they presume that the other nation stays stuck on the rocks. They presume that there is no choice other than to cut further into the risk protection afforded to that other nation.

Look at the furore whipped up around the attempt to extend health care coverage to millions of our fellow citizens. It is treated as if it were a cruelty not a help. It is seen as a vanity in the face of our supposed constrained circumstances. Likewise we are told, repeatedly, that we need to restrain entitlement spending because of those perceived constraints.

Perceived by whom?

By our elite.

Our circumstances are only constrained by the paucity of our elite’s ideas, and by its fear that its ability to garner asymmetrical rewards by further shifting risk out of its domain will be curtailed.

Risk/reward. This is a basic notion that our elite loves to talk about. Perhaps it’s time to connect the two again. Our elite certainly reaps most of the reward. It ought accept the risk that goes along with it. Right now it doesn’t.