Does it Matter?

To some people there are signs that 2014 will be a better year than 2013 for the economy. Not much better perhaps, but better. Perhaps. I think the most likely outlook is for prolonged tepid growth. But, perhaps, the more interesting question is whether the improvement will matter much or at all to most Americans. Will there be a noticeable improvement in their lifestyle as a result of that extra growth? Or will they continue to wallow in the quagmire of stagnation?

I would bet on stagnation.

Why?

Because the spoils from growth and the productivity that have spurred rising living standards in the past are not flowing freely throughout the economy, but are being scooped up by only a few. If you’re one of them, great. If not, welcome to the new reality for our economy. It is decidedly not one of opportunity.

It used to be that a willingness to work hard would guarantee a life above the poverty line. In those better times it meant rising living standards throughout your life, a chance to improve, to buy a few luxuries, and to save for a decent if not spectacular retirement. This is  no longer true. On the contrary, it is now quite common to put in a good honest work shift and be paid so little that you need to rely on hand outs to pay your bills. Things that were deemed necessities a few years back have suddenly become luxuries. The notion of a lifetime of improvement has become a hollow joke, and retirement is in danger of becoming the ghastly plunge into poverty that it was once before.

No amount of rosy GDP numbers or great surges in stock prices can hide this new reality. The average American, no matter whether you’re a small business owner or whether you work for a big company, has been screwed. There will be no relief. There will be no return to those golden years. What we have now is what we will have in the near future. Singing the praises of the land of opportunity is a sick joke for many already. It will become so for many more over the next few years.

You see, the game is rigged. I mean really and truly rigged.

We all want to deny this and so we turn away from the evidence. We don’t want to contemplate America as just one more old, tired, and stodgy economy, so we ignore the symptoms of decline and, instead, divert our attention into the blind alleys of culture wars and other political sideshows. We avoid the core issue because it pains us to think about it. Besides, fixing it will be difficult.

That core issue would be the imbalance in our society. The imbalance between our desire for what we call freedom, and our simultaneous desire for security.

In the economic realm freedom was first manifested as capitalism. This will annoy many of you, but I think it’s a matter of fact in the American experience. The particular freedom that most underpins capitalism is that of property, and is embodied in the right to own, buy and sell personal property with minimal interference from the authorities. That mattered a lot to the aristocracy and emerging industrial class during the early years of the industrial revolution because the perpetual and near whimsical nature of autocratic rule made planning and development in trade next to impossible. Or, at least, highly risky and thus unprofitable.

It was only later, well after the establishment of secure property rights and the emergence of industrialization that society turned its attention to security or rather freedom from the downsides of industrialization. In particular the security of the average citizen/worker. Up until that point workers and the lower echelons of society were dismissed by generations of the elite as inconsequential, as uneducated, and simply as a source of labor. Once the need for mass education came to the fore as a means to continue the progress of industrialization – average factory workers needed more formal education than average agricultural workers did – the voice of workers became harder to ignore. Unionization and political action eventually forced democracy in various guises onto the less than enthusiastic elites of the late 1800’s and early 1900’s. And one of the direct consequences of democratic government was the urge to protect the average citizen from the vagaries of life in an industrial setting. Health and safety rules in the workplace came first, followed by retirement and health security in the form of social programs paid for by general taxation. Those taxes were perceived to be an infringement on the prior existing property rights of individuals, especially the right to keep control of the spoils of their own work.

So the great game was set up: one one side was the desire to protect a particular sort of freedom – i.e. capitalism – and on the other was the desire to reduce key lifetime risk – i.e. democracy and its consequent redistribution of wealth.

The balance between these two opposing forces has ebbed and flowed in most western societies for at least a century. Our political landscape is defined by the contest of ideas they represent and by the powers pressing each side of the argument.

Right now that balance has moved decisively in favor of capitalism. It is a great time to be a capitalist or a rentier. Profits are strong. The stock market is strong. Dividends are flowing. And the taxes imposed on income from capital and rent is at a low. Those taxes are much lower than those imposed on the income earned from work. The bias in our system is clear: capital is privileged. Work is disadvantaged.

This bias shows up in many forms besides the tax rate.

It shows up, for example, in the way in which business was able to redefine the pension benefits it gave out to employees. The older plans gave a defined benefit, which meant the plan, and thus the business, bore the risk of setting aside sufficient funds to pay the pension. This threatened profit growth, so eventually business switched to providing plans where the risk is borne by the pensioner. Thus the emergence of the so-called 401k plans, which are now almost universally seen as failures in terms of pension provision. People just haven’t been able to, or have been unwilling to, set aside sufficient funds. The result is a whole generation of people relying more than ever on the state provided retirement plan of Social Security. It is important to remember that Social Security was never intended to be a provider of primary retirement income, but was designed to top up those old defined benefit plans. It is now performing a role it was not supposed to do, and for a longer living population to boot.

Worse, the bias shows up in the decision making of our politicians.

When Bill DeBlasio won election as mayor in New York City recently his overtly popular and democratic message was widely derided in the media and by the pundit class. Why? Because, so the wisdom goes, he is trying to get a populist set of policies voted on by politicians who depend on capitalists and rentiers for their election funding. So the wise suggest that the hold of the wealthy on the political process via their willingness to pay for elections is sufficient to derail a democratic agenda.

Think about that.

Our political process is beholden to those who pay for elections. They own it. So they expect politicians to preserve their various privileges, pay attention to their problems, and to protect their ability to take away a majority of the spoils.

It’s called patronage. If it pervades and lasts it produces plutocracy. It definitely undermines democracy.

So. Does it matter?

That depends. Are you a capitalist or rentier? If so, yes it matters that 2014 might be a better year than 2013. Otherwise, not so much.

And if you are one of the hard working, fully employed poor. It matters not one whit. You will fall further behind despite your best efforts. Worse: you will have to listen to endless homilies from the media and right wingers about how you should a manage your money more effectively. You know, save a little. That way you too can star in the great mythology known as the land of opportunity.

I think Disney is making a movie about it. Or it seems that way.