plutocracy

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Economy Base Level

We are, no doubt, about to be barraged by a torrent of alternative facts concerning the economy and economic growth under our new leader. So let’s get a few facts on the table in order to set a base level for future reference. Let’s start with growth during the past six presidencies:

So, no, Obama was not the disaster Trump and the Republicans are trying to paint him as. The economy during Obama’s term outperformed that of his predecessor. This includes the enormous difficulty of digging out of the Great Recession without much help from Congress.

Average growth through all that last six presidencies is around 2.8% a year, so boosting it to, and then maintaining it at, the 4.0% promised by Trump will take some extraordinary efforts, not to mention a defiance of history and is thus unlikely to occur.

More likely Trump will benefit from the current relatively good pace of growth, and then be able to add a little to it by introducing some deficit spending related to infrastructure. We must, though, be cautious about making that forecast: as of now we have no idea what team Trump has in store for us. We do know that the Republicans have, since Reagan, opposed infrastructure spending financed by increasing the Federal deficit. They had no problem blowing a hole in the Federal budget under Reagan — we all recall Dick Cheney telling us that, in his words:  “deficits don’t matter” — but since the rise of the Tea Party the GOP has been dominated by a austerity hawk policy bias that has stymied any attempt to boost growth using government spending.

Given this, I imagine growth will accelerate this year — the economy has healed well even if the distribution of all this newfound prosperity is appallingly distributed — so look for GDP growth of about 3%. Next year it could be higher if Trump gets some sort of deficit spending through Congress. But after that I doubt this higher pace could be maintained, and I would expect GDOP to slide back towards the slower pattern of recent years.

I am only mentioning any of this so we can be clear about the facts and the base from which we are about to start. Presidents have remarkably little direct impact on the course of the economy so I am leery of associating growth with presidencies in principle. The policies of earlier presidents have a nasty habit of echoing in unexpected ways through time. Reagan, for instance, is responsible for the rapid uptake of the anti-social policy making that was carried on by Clinton. And the awful switch in corporate activity towards the pre-eminence of shareholder value as a key metric of management success was clearly a product of the neoliberal shift Reagan’s election heralded. He did not advocate such corporate behavior, but he undoubtedly set the stage for it. And history has shown that his administration marks the beginning of the slide in standards for the middle class and especially for workers in the lower income strata. Reagan himself, in terms of policies, may not have been responsible for that slide, but there is no doubt his ideological leadership was.

The question for us is, then, does Trump’s election mark the beginning of a new era and the rejection of the past forty years? Or is it simply an interlude dominated by a series of futile and short lived injections of energy that will rapidly dissipate and leave the economy basically unchanged? Will he tackle inequality? I doubt it. Will he introduce institutional changes to deal with the asymmetries of risk piled upon the shoulders of workers by the corporate led changes in the nature of work? Maybe, but that assumes he understands those changes. The evidence for that is thin: he looks very much like an old fashioned pro-business trickle down plutocrat. So don’t expect much other than  lot of hoopla, fanfare, and then not much else.

Let’s hope I am wrong, our workers need all the help they can get, but there’s no sign of Trump being their savior. His administration is packed with other plutocrats whose basic understanding of the how we arrived where we are is, to put it politely, next to zero. The next few years are more likely to be a cloud of dust than a step forward. And the bigger risks — such as mismanagement — are on the downside not the upside.

Caveat emptor.

 

 

 

 

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Only Class Can Trump Trump

I came across the Trump phenomenon up close yesterday. The cause was prosaic, I was having a technician fix our washing machine. How ordinary is that? During the usual chat back and forth we started to tread a little too closely to politics, but all was amiable so I didn’t care. Then the source of our machine’s problem became clear: a solitary and very well worn dime had found its way into the pump and brought it to a halt. I made the comment that such a small thing causing such a large fault seemed out of proportion and that — and this was my error — wouldn’t it be good were Washington’s problems also so easily remedied.

That benign comment was met with a very stern question:

“There’s so much anger out there, it will take a lot more than this”

Anger?

We have all heard about the anger of the white working class. Especially the men. After all their standard of living has stagnated for decades under the thumb of neoliberal economics and corporate shareholder value diktat. And, in contrast, we have all been chastened by women and minorities that Trump’s rise to power was a misogynist or racist moment rather than a cry from the heart of white workers.

The truth, as always, is a whole lot more complicated, and is more tractable through conversation than through the kind of modeling most social scientists indulge in nowadays.

The fact is that white male workers have borne the main brunt of the economic ideology of past forty years — they have suffered a tangible decline rather than a lack of improvement. Women and minorities have, during that same time, been enduring their own struggles, both of which deserve more attention and resolution, but those struggles were attempts to achieve equality and deserving respect, not attempts to retrieve something that hadalready existed. The psychology of the two situations needs to be borne in mind as we sift through the debris of that last election.

Whilst this sounds quite non-progressive to many I would reject any such notion, and I would caution my feminist friends against seeking to diminish the anger of the white working men of America: their angst is very real and needs to be taken into account in any liberal conversation. It is perverse, in my mind, to march in the streets to establish rights for women and minorities if, in the thoughts of this different and surly sub-segment of the population, all that search for equality is well and good but seems to ignore them. If ever there were a moment for a class based response, this is it. But we seem far from it.

A healthy progressive society is not fragmented into a series of parallel identities all clamoring for space in some zero-sum contest. It is one where the interconnections are recognized and the broader struggles for democratic freedom and economic prosperity are not bogged down by internecine warfare between groups that ought to be united.

We are constantly told by our elite — which includes people in both our main political parties — that our economy is constrained and that, therefore, certain aspects of the past cannot be carried forward. Usually this is simply a disguised attack on what we call entitlements. My personal opposition to Clinton was grounded on my belief that she was too attached to this point of view. Her neoliberal roots are strong and her conversion to a more strident defense of working people was too recent and too shallow to be much else other than a response to Bernie Sanders and Donald Trump.

We must never forget that a great deal of the long term damage to the middle and working classes was done precisely as a result of Clinton policies. Deregulation, free trade, and welfare reform all are characteristics of a Clinton regime. They are not solely the province of right of center anti-social politicians.

Unfortunately the Democratic party is now plunged into a false self-reflection, with a large part of its elite arguing that Clinton’s defeat was due to a massive upsurge in misogyny and racism. I look at it differently: if this were the case, then Clinton would have performed better amongst women voters. She would have motivated more minority voters. She failed on both counts. Further: the ugliness of the election and its undoubted misogynistic and racist tones do not reflect the motivation for most voters in voting for Trump. I simply do not believe that every Trump voter is a raging misogynist or racist. But I do think they were angry enough to ignore the nastiness, which was, to them, a cost of getting the change they want.

The more strident of my feminist friends constantly talk of “white male privilege”, as if it is a constant across society. This gets me back to my conversation and that technician.

He is a white male. I doubt very much that he thinks he has much privilege. To throw such an aspersion in his face is certain to engender a great deal of hostility, where with a different approach he would be sympathetic. He is, for instance, very proud that his daughter is a pharmacist and doing very well economically. He has been supportive and is, in many ways, the very epitome of what was once thought to be the ideal of American Opportunity. He worked so that she could advance.

Only that narrative has a major flaw in it. She did advance, but he has fallen down. Instead of hard work producing a decent life with the prospect of a better future for his daughter, all that hard work has left him, not even in some steady state, but in decline. He no longer believes the narrative. So he is prepared to tear it down.

That’s the anger we must deal with if we are to protect what advances those parallel identities that comprise the Democrats have made. Those gains are fragile too. The neoliberal project is designed to reduce them also.

What were the two most aggravating sources of his anger?

Immigration and Obamacare. On neither did he have the full facts. On both his opinion was fueled by his own confrontation with them — Obamacare especially brought his ire since his own health care policy had risen in cost so much. Both are central parts of the leftist approach, both drew fierce attacks from my interlocutor. Yet he supports health care for all. What he wants, and what Obamacare failed to deliver, is lower costs for drugs and doctor visits. He thinks doctors earn too much and do too little. He thinks pharmaceutical companies ought to be forced to reduce prices. He is, in other words, a supporter of a more radical leftist agenda. But he is a Trump voter.

This voter would, I wager, support a united more class driven Democratic party. But he does not support its current incarnation as a set of parallel identities sitting on top of a neoliberal economic policy. A party, in other words, that seems deliberately to exclude him.

And, it is quite obvious, the left needs a response to the fears that immigration have stirred up other than to brand all those who urge a stronger response as racists. They are not.

Nativism, misogyny, and racism are all evils that we need to guard against. Trump incorporates all three. He is a vile person. But his supporters are not. They voted for him because of the bankruptcy of his opponents in both parties. After forty years of failure and the demise of the American Dream it is time for change. It ought not have been Trump, but in the absence of alternatives it was.

I hope this message gets through to the elite before Trump gets too far with his messianic project. Otherwise the descent into less moderate conversation will continue.

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Putney Debates and The Trump Adminstration

Here’s a well known quote:

“For really I think that the poorest he that is in England hath a life to live, as the greatest he; and therefore truly, sir, I think it’s clear, that every man that is to live under a government ought first by his own consent to put himself under that government … and I do think that the poorest man in England is not bound in a strict sense to that government that he hath not had a voice to put himself under.”

Thus spoke Colonel Rainsborough at Putney in 1647.

This is an early instance of the rise of the modern liberal view of government. Rainsborough lost the argument with Cromwell and Ireton because the issue of property ownership intruded into the debate. That issue revolved around the question of the likelihood that those who owned no property would infringe on the rights of those who did, were the former allowed to participate in their own governance. So even at this formative moment in modern constitutional development the possibility that a liberal stance could evolve down two parallel tracks was clear.

Liberalism was subject to division at its inception.

One track, the one that dominated early on and which echoes strongly to this day, argues that for a person to have a voice in their own government they ought to have an overt stake in society. And the most obvious and material such stake is the ownership of property.

Prior to the modern liberal age it was the norm for landowners to dominate society. Land was, after all, the primary source of wealth and hence power. So the early self-assertion of the modern bourgeois class naturally gravitated towards being able to protect their recently won or earned property from arbitrary sequester by the monarchic state. Wars were fought to establish this protection and property rights became central to any thoughts of liberal self-governance.

So when Ireton and Cromwell replied to Rainsborough that the soldiers who fought against the Crown had fought to limit the prerogative of the Crown to infringe on their personal rights, but had not fought to be involved directly in their own self government, property was very much in their minds.

This view is reinforced by another of the reasons Ireton and Cromwell gave: they argued that the rebellion’s soldiers had also fought to establish for themselves the freedom to trade, earn money, and thus buy the estates that would earn them political rights.

Our modern predicament is presaged in that exchange at Putney three hundred and seventy years ago.

As modern liberalism split inexorably into a view of freedom based upon property — our modern version is called capitalism — and the alternative view that freedom hinged on self-governance independent of property ownership — our modern version is called democracy — the tension we experience today was made a permanent feature of liberty.

Of course both have evolved mightily since 1647. Capitalism has run through many variations since then, and has appeared to be on the brink of self-destruction almost permanently. Democracy was a much slower starter and only reached its contemporary form in recent decades after the extension of voting rights to entire populations including those who had previously been legally excluded from liberation of any form.

And it was only when democracy began to emerge as a strong alternative to its capitalist liberal sibling that societies were able, at last, to fulfill the promise of what people like Rainsborough envisaged.

That is to say: true freedom finally became a real rather than hypothetical promise for everyone.

For, prior to such freedom, it was only natural for property owners to govern in the interests of property. They saw the interests of property as the interests of state and of the nation. They saw the privileges accorded property as a rightful reward for the risks that property owners take. They asserted that because property owners put their livelihoods at risk when they establish business and employ others, they ought — justifiably and morally  — be given deference.

After all, as Ireton and Cromwell argued successfully, the liberal uprising against monarchic tyranny was partly driven by the desire to allow anyone, not just traditional aristocratic or religious authorities, to have the right to earn and own property.

The essence of bourgeois liberty is thus both a freedom from arbitrary invasion of property and a freedom to the right to own property.

It wasn’t until much later, after the arrival of industrialization and urbanization, and the squalor that both produced, that the non-property version of freedom began to be more forcefully argued. By then the newly free property-owning class had taken on some of the more aggressive and hated characteristics of the old monarchic, aristocratic, and religious landowning class that the liberal rebellion had sought to toss out. Instead of feudal landowners exploiting their workers, now factory owners did. The rebellion had  produced a lopsided and narrow victory that needed to be made more broad.

So thus it was that the fight for worker’s rights, for trade unions, for higher wages, workplace regulation, and eventually for full emancipation became the primary characteristic of late 1800’s and early 1900’s politics.

So as we enter a regressive administration populated entirely of plutocrats we must all recall that the fight for democratic freedom was a very recent one indeed. Our grandparents were born before democracy became what we know it as today. It is a fragile and novel experiment. It can be taken away from us with ease if we fall for the toxic arguments of those with excessive wealth or property. They are only seeking to protect themselves. They brook us no equality since they believe they “earned” what they have, and therefore for us to stake a claim to what we see as our joint prosperity is necessarily, in their eyes, an arbitrary seizure of what they justifiably own.

We are back to 1647.

Only this time Rainsborough’s argument must win. Otherwise our democracy is gone.

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The Market Turn

I am going to be writing an extensive review of Avner Offer and Gabriel Söderberg’s excellent book: “The Nobel Factor” in the near future. Meanwhile allow me to share a a couple of early comments because they bear heavily on how we all approach the Trump administration.

Offer and Söderberg clarify the circumstances behind the shift in economics that occurred in the late 1970’s and came into full effect in the subsequent decades. Their  focus is heavily on how the Nobel Prize in economics has reinforced that shift and how the very origins of the prize were steeped in political bias on the part of the Swedish Central Bank, which was involved at the time in a guerrilla war against the then prevailing (in Sweden) economics of social democracy.

This history is, perhaps, the clearest indication of the inherent anti-democractic intentions of modern economics.

Democratically aware economics and the more commonly quoted mainstream or neoclassical economics have very different attitudes towards the mitigation of lifetime risks that we all experience.

In a socially democratic world such risks are borne by the community via the redistribution of wealth, taxation, and the establishment of government provided safety-net programs of various sorts. In the world of modern economics the libertarian approach dominates: people provide their own risk mitigation through the purchase of private insurance. In this latter world the government plays no role. Indeed, any attempt on the part of government to play a positive role is regarded as, by definition, an attack on the ability of so-called free markets to produce maximal social welfare.

The two approaches rest on totally different bases. The democratic version assumes the existence of community with citizens bearing collective responsibility towards each other. The libertarian version expunges the collective altogether and assumes that all activity is best left to individuals pursuing purely individual interests.

There are, of course, anomalies. Especially in the libertarian version. For instance the community is suddenly brought back from the dead and presumed to be the locus of the provision of certain services including defense, and the enforcement of laws that protect private property. Libertarians also tolerate the collective action of the market with its emergent properties of prices, supply and demand quotients and so on. This tolerance brings into full view the political nature of their agenda: the elimination of a role for democratically inspired government in the economy.

In contrast, the democratic version limits the activity of the community to the provision of risk mitigation. It allows plenty of space for the activities of the private sector to innovate and create wealth. It simply takes a collective view of the allocation of that wealth.

This is far better presented in the Offer and Söderberg book and I urge you to read it.

Meanwhile we can trace the emergence of the libertarian and anti-democratic strain of economics from its rise and ascendancy right through to the 2017 agenda in American politics. The vocal opposition of the Republican Party to the Affordable Healthcare Act [aka “Obamacare”] rests squarely on the political agenda that the libertarians introduced into economics under the false guise of “positive” theory subsequent to the work of Hayek. So we can see the enabling role that economics plays in our political discourse. There is nothing “positive” at all about it. Indeed the libertarian version of economics sits proudly in the van of the Republican efforts to get rid of any semblance of entitlement.

Think about that for a moment: even the word “entitlement” drips with a scornful dismissal of the possibility of community action. Someone who presumes to be “entitled” cannot be said to have earned it as an individual. They simply stake a claim because they are a citizen, and citizens have certain rights to collective protection. The libertarian attitude is based, as Offer and Soderberg remind us, on a vision of a “Just World Theory”. In such theories individuals earn outcomes that they deserve. Luck, accidents of birth, and other adjustments to the experience of lifetime risk are inconsequential. Outcomes are fully earned.

We hear this dismissal in the voices of right of center politicians who are fully invested in Just World Theories. To them people earn and deserve whatever outcome they experience. There is no concept of citizenry egalitarianism in such a position. Inequality is simply a just outcome of the hurly burly of life. Corporate CEO’s fully deserve their riches even if the results of their actions don’t seem to accord with them. Innate talent must account for all outcomes and no one does well because of privileged upbringing.

Along the way the libertarian version of economics spawned corporate technologies such as the notion of “shareholder value”. So it is not simply economic policy making that is in the thrall of anti-democratic theory. Corporate governance is too. The current version  of capitalism that dominates our economy is managerial and oligarchic. It is ossified. It is creaking under the weight of the failure of the logic of its libertarian theoretical underpinnings. Innovation is stifled by big businesses who fear competition. Business start-ups are less frequent. Young businesses, the epicenter of employment growth, are fewer. Why? Because the asymmetrical burden of risk on everyday workers has made them risk averse, less able to consume the goods being produced by big business, and far less optimistic. This version of capitalism is suffocating itself.

This augers well for social democracy.

To re-ignite growth, to make that growth sustainable both through time and with respect too our environment, and to offset the fragmentation of employment — the so-called “gig economy” — we need more explicit collectively driven responses. Workers will have to act together to re-capture a decent share of our collective prosperity. And since they are now bearing more risk than their former employers and big business, that share can justifiably come from the taxation of those former employers and big businesses. After all, aren’t we all taught atet risk and reward ought be in balance?

After forty years of drift into the desert created by libertarian driven economic theory, it is time for a push back. That’s an agenda we can embrace while Trump does whatever he does.

So ignore him. Focus on the future.

 

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A New Year — Happy or Not

I am not going to become involved in endless analysis of Trump’s presidency. I think we ought let it speak for itself.

Nor am I going to waste space critiquing the huge contribution that academic economics has made to Trump’s rise to power. I think the anti-democratic nature of mainstream economics is both palpable and speaks for itself too. Economics is largely a libertarian discipline and sneers at anything remotely involving “we the people” unless it can re-package us as some sort of mystical marketplace. In which case we all are perfect. It’s only when we vote that we, apparently, become venal, self-serving, irrational, and riddled with error.

Nor am I going to re-litigate the Clinton campaign, it was so lamentable in its total misunderstanding of the state of the nation that it deserves legendary status as an all time bust. Then again we ought to have been warned: Clinton was rejected in 2008 for very similar reasons. Quite why the Democratic Party powers-that-be allowed themselves to be fooled by her combination of incompetence and neoliberal nonsense is beyond me.

With that out of the way: we enter a new year of remarkable uncertainty. Trump is an extraordinarily weak man, he is prone to gaffes, he has no clue about economics, his foreign policy is already disrupting alliances and making the world less safe, and he will undoubtedly be at odds with the Republicans in Congress before long. My guess is that they realize how easily he can be maneuvered by the simplest of flattery and they are thus salivating at the chance to ram through their anti-social attack on workers, the safety net, and all things vaguely Obama as soon as things start up again later this month.

I would like to be able to say that Obama left the economy in reasonable shape, but the scar of inequality prevents me from being able to. The enormous gulf that has opened up in society, with one part able to trumpet opportunity, wealth, and optimism, and the much larger part facing decline, stagnation, pessimism, and decreasing healthiness is the legacy of the entire Reagan/Clinton/Bush/Obama era. It is a blot on our own sense of achievement. It is a blight that the next few decades will have to both endure and attempt to eliminate.

In many ways Trump is the perfect coda to that failed era.

No one in high policy position has had the courage to confront the great sea-changes in our prosperity being wrought by the scourge of globalization, automation, and oligarchic control of power. They all lie about the possibility of manufacturing returning to these shores. Perhaps it will, but only as an automated activity.

Nor do they address the emerging de-construction of traditional business being brought about by the relentless pursuit of shareholder value. Managerial capitalism is steadily cannibalizing itself as executives seek to maintain unattainable growth goals and to reward themselves for ever shorter-lived and less sustainable profit margins. Unlike a few others I don’t see this as a death knell for capitalism as a general phenomenon. I see it more as yet another mutation along the way. The oligarchs and executives will cling on for a while in order to squeeze unearned rents from the rest of us, but their own greed will eventually tip the economy into a new configuration that they no longer  control. The dawn of the “gig-economy” is upon us. Whilst it looks bleak at the moment — far too many people are sucked into it against their will — after a decade or so that will change and the power relationship will shift against the bureaucrats running our oligopolies.

What we need is a thorough revision of the institutional landscape that supports business activity in order to counter-balance the shift in risk that everyday workers have had to assume as business leaders have steadily attacked the old order of employment. That attack was instituted to bolster profit in the face of ever decreasing inventiveness and the growth opportunity. Business leaders compensated for their lack of imagination and talent by eroding the post-war contract with workers and replacing it with a patched-together alternative in which workers bore the brunt of life’s risks. That burden decreased people’s ability to spend, setting in motion the slow stagnation that now has us in its grip.

So retirement, training, health care, and other sorts of benefits that helped workers in the old order were steadily reduced or stripped away to save business money.

But as workers were forced to accept theses risks they were not compensated with higher rewards. No. Those rewards were syphoned off by capital owners who sought ever increasing returns even in an economy quite obviously incapable of supplying them in the longer term.

The result was a top-heavy economy, awash with excess capital which found its way into various bubbles, with stagnating wages and rising inequality, with lost opportunity, and with slowly foreclosing prospects for future generations. America has produced a class system in an economy that once was proudly the most egalitarian in the industrialized world. Enter Trump.

As, however, a new generation rises up within this new landscape, it has the chance to re-make the egalitarian dream. It can, and I think it will, break the back of the oligarchs. Why? Because the oligarchs represent the past of business. They are cannot comprehend the future nature of the loose employment contracts that they seek to exploit because they see them in the context of the industrial era institutional arrangements they benefit from. But as the institutions of the economy change, and as those new institutions restore the balance of risk and reward in the economy, the oligarchs themselves become less and less relevant.

The new year is simply a step into this tumultuous future. Changes are afoot. Trump is a reflection of what has gone. He is nothing to do with the future beyond, of course, his ability to muck things up over the next four years.

And here’s the exciting part: as we move into the post-industrial economy more deeply the ability of capital to dictate its course diminishes. The digital economy is based more on intangible goods and services than on massed-produced stuff. Intangible things use less capital to produce. Indeed we can self-produce a part of it ourselves. So the capital accumulation of the past hundred years — those few generations in which the might of industry dominated our economic lives — will become an historic aberration. There will be an excess of capital. Not simply because of the incompetence of our businesses in generating innovations in which to invest, but also because future innovations are less capital intensive.

That leaves a great pool of capital sitting around for us to tax and re-distribute.

Now if only we had politicians who realized that.

Happy New Year.

 

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