Tag Archives: Inequality

Proposals for freedom in the economy: unconditional basic income, cooperative ownership of enterprise, socialized health care.

8 Mar

In a little over a week, one of the editors of this blog, Alex Gourevitch, will be speaking at the Left Forum with Corey Robin and Doug Henwood on a panel on freedom and the economy. The panel is one of three organized under the general theme ‘reclaiming freedom for the left,’ in part inspired by this excellent article by Corey Robin. In anticipation of the panel, we thought we would try out some of the ideas that we will discuss at the Left Forum itself.

The impetus for the economics panel was the economic tendencies of the Occupy happenings, which bounced between anti-Fed, goldbug Ron Paulism and a general attack on corporate personhood. But instead of continue to criticize those economic tendencies, we thought it worth presenting something more positive – not exactly a utopian image of a radically transformed future, but three major economic changes that we believe would significantly increase human freedom. In what follows, we discuss the first: an unconditional basic income.

The idea of an unconditional basic income has floated around policy circles for ages. It has such strange bedfellows as post-Marxist Socialist Andre Gorz, legal theorist Bruce Ackerman, and right-wing crank Charles Murray. It can claim a tradition reaching as far back as Thomas Paine and Thomas Skidmore’s proposals to give all persons a land grant or equivalent value upon reaching adulthood. It is an idea floated at different times by famous socialists like Oscar Lange, left-libertarians like Philippe Van Parijs, and aggressively defended by her Mavericky Maverickness, Sarah Palin.

That’s right, you read that last bit correctly. Lost in the hubbub of the 2008 right-wing debate about whether Obama was a socialists, a fascist, or something worse, was the fact that Sarah Palin, as governor of Alaska, ruled over the only socialist state in the United States. The State of Alaskaowns the major means of production – the Alaskan oil pipeline – and uses the surplus generated from that pipeline to grant, unconditionally, a basic income to all Alaskan citizens. It is called the Alaska Permanent Fund Dividend and as governor, Palin not only happily presided over this economic arrangement, she voted to increase the basic income payout.

A basic income has multiple virtues. Unlike means-tested welfare payments, a basic income is extended to all citizens. This means that the horrible welfare bureaucracy would disappear, replaced by automatic monthly deposits in a bank account. That, in and of itself, would be a gain to human freedom. The USwelfare system can be unbelievably invasive – including unannounced searches of recipient apartments, which get as personal as checking underwear drawers for extra cash, and bathroom sinks for extra toothbrushes (if cohabitating with someone earning an income, you might be cheating the system.) Welfare recipients who need the income are dependent on the state, and must accept this sacrifice of personal freedom for welfare payments. The current welfare system serves more to regulate the poor and to create corrosive distinctions between the deserving  and undeserving poor, rather than deal with poverty itself. A basic income would eliminate that.

A further advantage of a basic income, especially if it were adequately large, would be the reduction of the economic dependence of workers on employers. Those afraid to resist crappy, overbearing, or downright mean employers, would find it much easier to leave a job, or contest conditions at work on equal terms. After all, no matter how ‘fair’ or reasonable a wage-contract is, they are still terms for the sale of one’s labor, and say little about the control one will have over one’s work. The virtue of a basic income is not just that a worker can leave work, but that the added bargaining power makes it harder to walk all over him or her in whatever job the worker happens to find. Here too, the basic income would reduce, if not eliminate, various relations of domination.

A basic income is no magic bullet, but it is more than just an anti-poverty measure. It is the best way to increase the actual and reasonable alternatives of most people, and thus their real freedom.

François Hollande and the conservative critique of capitalism

29 Feb

In an earlier post, we criticized the French Socialist Party candidate, François Hollande, for his moralizing approach to economic policy. The ills of contemporary capitalism are, for him, a matter of evil intentions pursued by unscrupulous individuals. In his first major campaign speech, he declared that his real enemy was finance. Most recently, in a television interview for TF1, Hollande announced that if he was elected president he would introduce a new tax on high earners (Le Monde, 29 February). For those earning over 1 million Euros a year, the tax rate would be 75%. This would affect about 3000 people in France and would bring into the French treasury around 200 to 300 million Euros.

Upping the attack on the country’s rich and on its financial institutions seems in part a calculated response, in part a spontaneous reaction by Hollande and his entourage to the dynamics of the campaign. Whilst Hollande’s speech at the end of January was a carefully crafted affair, this latest announcement of a tax hike on high incomes seems entirely off the cuff. Announced by Hollande on TV and radio, even his taxation and budgets specialist within his own campaign team was unaware of the new policy. Hollande’s decision to crank up the anti-rich rhetoric is clearly both a strategy and an integral part of his world-view.

The problem with this moralizing approach to capitalism was put succinctly in a comment to The Current Moment: an ethical critique of capitalism leaves the system itself untouched and in fact only goes to legitimize the status quo further. It does this by attacking the present for being dominated by a materialistic, vulgar and anti-egalitarian culture, encapsulated in the figure of the bankster and the celebrity lifestyle of its political class. In its place, it proposes a deeply conservative alternative: austere, responsible, more egalitarian and less showy in its attitude to wealth and consumption. This is exactly François Hollande’s argument: he justified his new tax measure not on the grounds of how much money it can raise but in terms of morality and national patriotism. France’s rich elite, by paying more into the national coffers, will be doing its patriotic duty.

Instead of being asked to choose between different economic programmes, what Hollande is proposing is a different style of rule. In place of the crass materialism of Sarkozy, with his rich friends and rich wife, we are presented with François Hollande, a more ordinary and serious individual, with tastes that are less extravagant than those of Sarkozy. Here we can see very strong echoes between the campaign in France and developments in Italy. What Monti brings to Italian politics is more than anything a change of style: far removed from the glamour and glitz of Berlusconi, Monti represents the austere alternative, suited to times of generalized national austerity. When asked about the cost of his end-of-year celebrations, Monti replied by publishing a detailed list of his end of 2011 dinner party at the Chigi palace: 10 guests, all family members, a traditional New Year’s Eve menu, and a list of where Elsa Monti went shopping and how much it all cost.

This is in fact the key: this cultural shift proposed by Hollande and others such as Monti is what is required to legitimize the present age of austerity. Hollande’s moralizing critique of capitalism thus preserves the system in two ways: by proposing a set of conservative values, such as patriotism, duty and national responsibility: and by providing a closer fit between the downturn in France’s economy and the values and conduct of its political class. So far this is working for Italy, as Italians welcome an end to the Berlusconian orgy. Hollande’s bet is that it will work for him in the forthcoming elections. It may do, especially if the wealthy in France catch-on that Hollande isn’t out to get them, he is their saviour.

TCM author Alex Gourevitch responds to critics of ‘equal opportunity’ article

14 Feb

The recent piece that Aziz and I published at Salon.com was a thought piece. Its purpose was to start a conversation about how to organize an economy in which each participant has the possibility of enjoying equal independence. We called this the ‘Lincoln’ vision, and contrasted it with the current meritocratic approach to equal opportunity, which we likened toJefferson’s notion of a ‘natural aristocracy’ (itself taken from James Harrington). On the latter view, there are a few talented individuals, and the primary purpose of an economy is to sort these few from the less talented many. The natural aristocracy is entitled to scarce positions of social and political power because of their purported virtue, a virtue supposedly established by their ability to win an economic rat-race. This is equal opportunity to become radically unequal, and in which most to end up enjoying little real freedom in their daily, economic lives. It is an unattractive ideal in its own terms, and has, anyhow, given some actual facts about theUnited States, become a dead letter.

The attraction of the view we associated with Lincoln is that it presented the economic order with a different task. Its purpose was to make available to all the possibility of economic independence, a condition understood as control over work activity, not just ability to sell one’s labor. Lincoln called this truly free labor, and contrasted it not just with slavery but with wage-labor too (or at least with being a permanent wage-laborer). The overall emphasis is not on selecting the talented few but on freedom for all. Lincoln himself, of course, was limited by a somewhat agrarian vision of what free labor would look like – an individuated condition of personal autonomy. Each individual owned a small share of the ownership of the means of production – land. We live on the other end of the industrial revolution, and any translation of this conception of economic independence has to take account of the collective character and scale of most work. But to get to that conversation, we first thought it necessary to draw the general contrast between the inegalitarian, meritocratic view of equal opportunity, whose purpose is to generate a ‘natural aristocracy’, with another view whose aim is to secure the equal freedom of all.

A response to a few critics of the piece:

‘Equality of opportunity’ v. ‘equality of outcomes’

More than one commenter has argued we are proposing to replace ‘equality of opportunity’ with ‘equality of outcomes.’ First, this forgets the basic factual point that ‘equality of opportunity’ never existed, we did not replace it with anything, and even if you think it at one point existed, it certainly does not exist in any reasonable measure in the United States at present. The gap between the rewards to positions for those ‘natural aristocrats’ and the rest has widened radically, and this economy is creating two kinds of jobs – a few very high paying, high status positions that come with significant amounts of power and influence, and the rest fairly crappy ones. As we noted, in this supposed knowledge economy, “according to the Bureau of Labor Statistics, of the 20 occupations projected to grow rapidly over next decade, just five require an associate’s degree or more. Just two require a doctorate or professional degree.” And everyone knows the direction of the wealth and income statistics.

But more than that the distinction between ‘equality of opportunity’ and ‘equality of outcomes’ is too vague to be meaningful. What is meant by opportunity or outcomes here? Even on current ‘meritocratic’ interpretations, equality of opportunity requires equality of certain outcomes. Minimally, certain laws must be in place, from equal civil rights to anti-discrimination statutes. More, everyone must have a certain level of educational achievement, range of skills, amount of mobility, and access to certain basic social goods; otherwise they won’t be able to compete for the available opportunities. Lack of education leaves individuals unqualified; lack of basic social goods makes individuals unable to take the risks, or at least not feel the pressure of the labor market so intensely that they cannot wait for something better to come up. If the relevant opportunities include something like starting a business, then some access to capital is necessary. But all of these preconditions – education, welfare, access to capital – are ‘outcomes.’ They are conditions that individuals have to actually achieve before we can say they enjoy anything like equality of opportunity. But those achievements or outcomes are not conditions that create themselves. They have to be maintained by social policy. So even on its own terms, the quest for equal opportunity is not the opposite of equal outcomes. Of course, the opportunities for economic freedom that we were talking about would require more radical economic reorganization than all that – the creation of a much different set of opportunities, of transformed work and economic structures. But that is not replacing ‘opportunities’ with ‘outcomes,’ it is an argument for the creation of different kinds of opportunities.

The vagueness in the contrast between ‘outcomes’ and ‘opportunity’ is not a product of lazy thinking, it is purposeful. Its rhetorical purpose is to associate any attempt to intervene in or manage an economy, especially redistribute property, with ‘outcomes’, and thus with unjust, authoritarian coercion. The thought is that all attempts to give people at work a say in the conditions of their own employment means the repudiation of “excellence” and “innovation” by the talented few. Such a view implies that equal opportunity is about individual “free choice” – where those that succeed were the “innovators” – even if the range of individual free choices is nominal, radically unequal, and indifferent to the resulting distribution of social and political power. It is a conservative talking point whose function is to redirect a serious discussion even of the minimal ideal the United States claims to uphold.

Lincoln v. Jefferson

Other critics were unhappy with our use of Lincoln and Jefferson, but mainly Jefferson. Let it first be said that our purpose was not to give an exhaustive interpretation of Jefferson, Lincoln and the differences between them. It was heuristic, to present two different ideals, one which saw the economy organized to reward those deemed fit to rule, and another whose purpose was to create conditions in which everyone could enjoy economic independence. We called one inegalitarian and the other egalitarian, but are well aware that the specific individuals can be found making other kinds of statements. Lincoln himself, even in the very speech we quote, pairs his egalitarian vision of an economy that makes equal independence for all possible, with the idea that people will fail because of their own lack of virtue. Some post-Civil War liberals used this idea to blame the working class for its poverty. These liberals made the deeply troubling jump of blaming individuals for outcomes that were the product of economic structure – a structure that, anyhow, in agrarian Wisconsinin 1859 (where Lincoln gave his speech), was not nearly as vivid as it would later become.

Perhaps there is a further problem. As one of our critics argued, Lincoln appears to assume the existence of a working class – “the prudent penniless beggar” – who rises through hard work. This is a vision of interclass social mobility, but there is no social mobility among classes unless we first assume class. So Lincoln is spouting mere class ideology. Here again, the criticism too quickly reads the vagaries of industrial society backwards. In fact, it is a reproduction of an ideological victory. That ideological victory is the one that wipes out alternatives that existed in the past, but were defeated. Permanent wage-labor and industrialization had developed in parts of the US northeast, but it was post-bellum America that saw explosive industrialization. In those social conditions, a particular assumption about the necessity and permanence of a working class became widespread, and was dressed up in the language of the nominal freedom of each ‘free laborer’ in contrast to the unfreedom of former slaves. In the minds of newly mobilized industrial workers, their nominal freedom paled in comparison to the old Lincolnian ideal of economic independence.  It also meant that such independence could not be achieved through a self-regulating commercial society or on laissez-faire grounds; independence would require a dramatic rethinking of economic relations.  This is why so-called “labor republicans” called for the creation of a cooperative commonwealth as the key instrument for fulfilling long-standing goals of equal freedom.  Importantly, for Lincoln, although it may have been a tenuous position even on the eve of the Civil War, he still assumed that economic independence was perfectly compatible with small-scale capitalism (of homesteading, shop owning, and even petty manufacturing).  Unlike later post-war liberals he was not forced to confront as fully the incompatibility between the goal of independence and the limitations of free market relations.

Still, for our purposes, the important point is that regardless of his conclusions about the market, Lincoln nonetheless was still working with a vision of economic independence as the goal of an economy, a vision very different that the meritocratic one today. Indeed, this ideal of independence entailed truly radical possibilities – possibilities which became central to the labor movement – precisely because it had not been stamped by the later Gilded Age view that freedom only consisted in the legal self-ownership of the penniless worker. Even for Lincoln, whatever his profound limitations, freedom carried with it the belief that an economy ought to make possible the equal independence of all workers.  That is freedom for all, not power and prestige for some, and it is worth recovering and adapting to our present conditions.

All that is solid…

7 Feb

As sometime fans of Slavoj Zizek it was with real disappointment that we read his latest contribution to the London Review of Books, ‘Revolt of the Salaried Bourgeoisie.’ At his best, Zizek is a piercing and hilarious critic of contemporary ideology. This time, however, he seems to have been taken in. The piece contains more than one howler, a number of which were dissected over at Lenin’s Tomb. Zizek’s main point seems to be that current economic problems are not susceptible to orthodox Marxist analysis because the economy no longer functions by extracting ‘surplus-value’ from wage-laborers, but via the “privatisation of the general intellect.” This privatisation is represented by figures like Bill Gates, whose intellectual property rights give him “rent(s) appropriate through the privatisation of knowledge.” (Tell that to the Chinese workers at Foxconn…)

Zizek’s main piece of evidence in favor his his “post-industrial” analysis of this ‘information economy’ is that “any attempt now to link the rise and fall in the price of oil to the rise or fall in production costs or the price of exploited labour would be meaningless: production costs are negligible as a proportion of the price we pay for oil, a price which is really the rent the resource’s owners can command thanks to its limited supply.” But this is a silly argument. For one, it is Marxist economics 101 that value and price diverge. Moreover, all Zizek is really talking about is monopoly rents, which just about any economic theory can grasp, and which disproves none. Finally, any anti-sweatshop campaign can tell us that labor costs “are  negligible as a proportion of” the final price of, say, a $30 Nike cap. There is little monopoly rent there.

More problematic, Zizek’s further point is that we can understand recent protests as the political activity of the “salaried bourgeoisie,” a strata of professionals and managers, whose salaries are paid by the rent-receiver, but who now feel the austerity squeeze. These are not a ‘revolutionary subject’ because they are indifferent to the plight of the real 99%, the globally jobless, the post-proletarians, who don’t even have the right to work.

In his rush to join the time-servers and declare a new era of informational capitalism, based on information and creativity on the one hand, and mass joblessness on the other, Zizek has missed the chance to make a potentially valid point in a more serious way. It is certainly true that the Occupy/Indignado phenomenon has a touch of the petty bourgeois element to it. In fact, as others like Jodi Dean have argued quite powerfully, this class element seems to be inscribed into the politics of Occupy itself: “The refusal to be represented by demands is actually the refusal or inability to make an honest assessment of the social composition of the movement so as to develop a politics in which different forces and perspectives do not simply neutralize each other.” This political analysis is available to us without having to trot out trite nostrums about the new economy.

Moreover, if there really is something new under the sun in the realm of surplus extraction, it probably has more to do with the development of debt and finance over the past thirty or forty years, not the (fake) disappearance of industrial production. The piles of debt under which so many workers sit represent yet another claim on their labor time. It is not just lower wages, but that a substantial amount of what they get paid is not theirs to control. They are paid less than what they produce, and then a further chunk of their means of subsistence is siphoned off. To be sure, debt burdens are a long-standing feature of the capitalist economy, and one should not overstate the novelty of the situation. Capitalism is an extremely dynamic economic system, and it is easy to get caught up in the dynamism and believe that everything has changed. But if we are looking for the distinctive features of surplus extraction in the present, it won’t be found in the heady, but superficial, claims that we have entered an informational age in which surplus is extracted through ‘rents.’ More promising is the attempt to grasp the role of debt and finance, not as replacing, but overlapping with the regular old wage-contract.

Europe’s populist technocracies

6 Feb

A new post by Current Moment co-editor, Chris J. Bickerton, is published by the European Council on Foreign Relations. As part of a “Reinvention of Europe” project, Bickerton writes about the rise of populism and technocracy in contemporary European politics.

 

The Occupy Effect

25 Jan

In an earlier post, we commented on the difficulty movements such as Occupy Wall Street or Indignados were having in influencing the course of electoral politics. In Spain, in spite of all the protests in Madrid and other parts of the country, elections late last year saw the return of the Right to power after a campaign where its leader, Mariano Rajoy, pointedly avoided setting out anything like a detailed economic plan. In Italy and Greece, protests coincided with the replacement of elected governments by technocratic administrations rather than with any lurch to the left or any real change in austerity-based politics.

This may now be changing. Recent campaign speeches suggest that these popular mobilisations have begun to shift the terrain of representative politics. In France last weekend the Socialist Party candidate, François Hollande, in a keynote speech, made a point of targeting the world of finance. Two moments of his speech took on a confessional, intimate tone. I shall let you into a secret of mine, he said, clearly trying to differentiate himself from the current incumbent of the Elysée palace: “it is people that interest me, not money”. And a little later, with the same confessional tone: “let me share with you who my real enemy is… It is an enemy without a face or a name; it governs without being elected… It is the world of finance”. Hollande’s proposed policies to disable this “enemy” were in line with what has been suggested elsewhere: to isolate the speculative activities of banks from their commercial lending; to introduce a comprehensive financial transaction tax, not just a tax on the trading of stocks; to set up a public ratings agency at the European level and to renegotiate the EU fiscal pact so as to make explicit its growth model. Hollande called this a pact for responsibility, governance and growth.

In Obama’s 2012 State of the Union address, given yesterday to Congress, the same themes were apparent. Invoking much of the Occupy rhetoric about the 99% versus 1%, Obama argued for a fairer, less unequal US society. He endorsed the Warren Buffet idea of raising taxes on the most wealthy and dismissed any claims that he was engaging in class warfare, calling these policies common sensical rather than partisan (see here for the Guardian’s write-up). The Republican primaries have similarly been taken up with the same themes. One of the problems faced by Mitt Romney is that he not an industrial magnate or oil man but gained his wealth through finance, making him the target of people’s anger at Wall Street and at bankers. The battle with Gingrich has been focused on tax with Romney forced to disclose his tax returns. Romney’s fight-back after his defeat in the South Carolina primary has been to highlight, under the banner ‘Newt Gingrich cashed in’, the payments received by Gingrich from the mortgage brokerage company, Freddie Mac.

If recent political mobilisations have indeed given this current economic crisis its political narrative, it is worth asking what this narrative is. So far, it is mainly an ethical critique of contemporary capitalism. Critics of finance take issue with the unscrupulous actions of bankers and hedge fund managers, their conspicuous wealth, the brazenness of new inequalities. In its place, Obama, Hollande and others call for a return to more traditional values where money matters less than people and the common good. There are obvious limits to such a critique. A defining feature of capitalism is its systemic nature: it is based upon a set of social relations that are more than merely the accumulation of individual intentions. Without uncovering the specific set of social relations that are the basis of today’s financialized capitalism, invocations towards a better, fairer society will only breed disappointment as changes fail to appear.

Towards a European Tobin tax?

23 Jan

Reports in the press this week suggested that German Chancellor, Angela Merkel, had been won over to the idea of introducing a tax on financial transactions at the European level.  This has been primarily a French idea so far, with Nicolas Sarkozy a convert to a policy he had previously dismissed as ridiculous. The Tobin tax idea had been taken up by the French anti-globalization movement at the end of the 1990s and early 2000s and was virulently opposed by most of France’s political class. Today, in a very different political climate, the idea has been given a new lease of life.

Whether or not a financial transaction tax is finally introduced remains uncertain. This week’s press also reported that Sarkozy – who faces an election in the coming months and has committed himself to this tax as a demonstration of his activism in regulating financial markets – might settle for a tax on share trading as a first step. This already exists in the UK in the form of stamp duty on stock exchange transactions. Keeping the UK on board with any new European regulations would be welcomed by other European leaders as lasting rifts and real isolation are anathema to the EU. Bringing Cameron back in from the cold would be attractive to all involved in last year’s falling-out between the UK and the EU. Such a tax would, however, leave unregulated all other kinds of financial trading like derivatives and high-frequency trades. These have been identified as the real targets but an initial tax on share trading might solve Sarkozy’s problem of having committed to introducing a financial transaction tax before the election.

Is a financial transaction tax really the solution to the current crisis? The main rationale for it today is that it would serve as an alternative source of revenue for bail-outs and other expensive public actions that have up until now been funded by the taxpayer. That such a tax could improve government balance sheets to the point of reducing the need for austerity seems rather fanciful. What it would challenge, however, is the idea that governments defer unconditionally to their financial sectors. Whilst governments routinely stand by and watch as industries relocate to the Far East and shed thousands of jobs, they seem unable to accept that any such “creative destruction” should operate in finance. To many, this smacks of double standards and a tax on financial transactions would demonstrate – at the very least – the exercise of some political muscle vis-a-vis banks and financial services.

This argument about the symbolic nature of such a tax is not a bad one. But it tends to miss the bigger picture. The reason why a Tobin-style tax has become a popular idea amongst European governments is that it is like the famous phrase of Tomasi di Lampudesa’s The Leopard: things must change so that they remain the same. There is nothing in a financial transaction tax that really challenges the relationships and interests that together have given us this debt-finance growth model of the last 40 years. Nor would the tax really reverse the striking rise in inequality that has come to characterise our societies. The theory of the present crisis of capitalism contained within the Tobin Tax idea is that responsibility lies in the financial sector and that whilst the economy is generally sound, a few bad financial apples are bringing us all down. By taxing them and redistributing the revenue according to priorities set by elected representatives, we can return to the status quo ante.

One argument we’ve been pushing at The Current Moment is that financialisation is as much about a change in the real economy as it is about the financial sector itself. Isolating finance from its place in the wider economy, as the idea of a financial transaction tax does, misses the nature of the problem. This idea is also naive in that it imagines that relationships between real people can be transformed via a state-levied tax. Societies, today as in the past, are based around relationships that can only be changed by real political struggle. There is no short-cut or easy way around the problem of either redistribution or of making European societies more productive. The financial transaction tax is a coward’s way out of tackling today’s economic and social crisis and will only entrench, rather than transform, existing inequalities.

Expropriating the expropriated (1983-2009), or, Why It’s the Top 20 not Top 1% That Matter

19 Jan

Recently, the Economic Policy Institute published “11 Telling Charts from 2011,” including the following one showing the share that different segments of the US Population took of the wealth gain from 1983-2009.

When we first looked at this chart, we started reading from the left and adding the numbers but did a double take by the time we added the Top 1%, Next 4%, Next 5%, and Next 10% – or the top 20%. Add their shares together and you get 101.7%. At first that just didn’t seem right, since our assumption was that when you add up all the shares one would get 100%. Naively, we had assumed that, while radically unequal, the gain in wealth for all quintiles would positive. A piece of folk philosophy in the United States is that the rich can gain huge gobs of money and power, so long as the poorest can also have some piece; and that those who rise do so on their own merits, but not by making the worst off even worse off. That, as it turns out, is also a premise of the most influential theory of justice in contemporary political philosophy, which states that the only permissible inequalities are those that make the worst off better off than they otherwise would be under pure equality.

The past twenty-five years have followed a different path from mainstream, common sense theories of justice. The worst have been made worse off. Meanwhile, the massive gains of the top 20% were only as large as they were because wealth was redistributed from the poor to the rich (with very moderate gains for the top 20-40%). The expropriated were expropriated some more.

These figures are even more important than the income inequality statistics with which everyone is now familiar, because those income statistics alone give the impression that, at the very least, nobody is being made worse off. In addition, wealth is a much better indicator of social and economic power than income, as it shapes individual bargaining power, determines who controls investment, and establishes the distinction between those who are economically secure enough not to have to work, and those who aren’t. Looking at the graph again, a key political point emerges, which we have made before: the problem is not with the 1% alone. The expropriators area larger class than that. After all, the next 4% took just as large a share of the total wealth increase, and overall, the top 20% are doing quite well. To reuse a chart we have used before, the top 20% control 85% of the total wealth in the United States, and if residential wealth were removed (at least, value of primary homes), that would undoubtedly rise much higher.

So the current political obsession with the 1% introduces a very problematic distortion into the actual dynamics of class, and the real distribution of wealth and power, in the current political economy. We are the 99% has a wonderful, quasi-universalist ring, but actually real distinctions under the rug, and implicitly dodges hard conversations about the real class composition of the United States. A real critique would have to reach beyond mere populism.

The Unholy Alliance of Monetary Expansion and Fiscal Austerity: More for those who have, less for those who don’t

16 Jan

Anyone observing the course of macro-economic policy in industrial countries over the past few years cannot help but notice an over-riding pattern: monetary expansion, fiscal austerity. This is an unholly alliance, in which the most regressive form of stimulus tacitly underwrites a fiscal contraction that punishes the least well off for the financial crisis and subsequent economic stagnation. (Skip the next two paragraphs if you already know the basic facts.)

Consider first some well-known facts. In the United States, the Federal Reserve has pushed interest rates about as low as they will go, and says it will keep them at the lower bound until 2013. It has also engaged in two rounds of quantitative easing, first buying in 2008-2009 over $1 trillion worth of MBS (Mortgage Backed Securities) and agency securities, then in 2010 it bought $600 billion worth of Treasury bonds, as well as the less significant Operation Twist. These measures have, in a narrow sense, been somewhat successful, with the Fed making profits on its original asset purchases, recently returning $77 billion to the Fed. The easing of the 2008-2009 credit constraints has acted as a kind of stimulus to the US economy by increasing the money supply, though strong doubts persist as to any further marginal improvements the Fed can make (e.g. Here and here). Meanwhile, while the Fed has pumped like crazy, state spending has come under serious attack. To be sure, there was the initial roughly $800 billion stimulus in late 2008, but this was almost entirely offset by contractions at the state and local level. The contractionary trend continued in 2011 such that government employment was “down by 280,000 over the year. Job losses in 2011 occurred in local government; state government, excluding education; and the U.S. Postal Service.” And then there is the whole super-committee, trillions of dollars in savings issue waiting in the wings.

We find a similar story in Europe. There have been in some cases multiple rounds of austerity in Greece, Portugal, Spain, Italy, Ireland, United Kingdom, France, Germany, and so on, despite record level Eurozone unemployment and economic economic stagnation, verging on recession. Meanwhile, despite initial recalcitrance, the ECB not only has pushed interest rates low, it has begun quietly expanding its balance sheet, offering nearly $500 billion in cheap 3-year loans, and after the recent success of Italian and Spanish bond auctions, has suggested it will loan more money in February. Fiscal austerity, monetary expansion.

Now one perfectly reasonable response to this relationship between central banks expanding the money supply and central governments contracting demand is to say “thank God for the Fed/ECB! At least there is one sane institution left intervening in the economy.” And as a response to those banging the drums of austerity, who believe in ‘expansionary austerity’, or to those who think the Fed is the root of all evil, this is a perfectly reasonable response. Austerity makes things worse, and displaces the costs of the crisis onto the worst off; the Fed, though it is not a progressive institution, is not the root of all evil. However, there is more going on here than that.

For one, in the European case, the tradeoff has been explicit. Draghi held out for as long as he could, on the grounds that Europe had to get its fiscal house in order before the ECB would become more adventurous. Moreover, as Henry Farrell has pointed out, while the raison d’etre of central banks to be insulated from political pressure, what this really means is that they are insulated from the kinds of political pressure felt by elected representatives, i.e. democratic political pressure. They are not from political pressure tout court. Instead, they are influenced by those like them, who speak their language of expertise and money. This makes it much easier for them to propose ‘solutions’ that hurt the majority – who do not so easily understand financial matters, nor tend to produce expert knowledge about it. Which is why it is easy for them to be so nonchalant about fiscal austerity, and why one hears very little about how regressive stimulus through loose monetary policy is relative to fiscal policy.

Just a refresher on that last point because it is relevant. Those best able to take advantage of low interest rates are those with positive net worth, not to mention financial savvy, which is for the most part the wealthy. And it does so without forcing them to invest in any particular way (one of the reasons why it can be of limited use as stimulus – borrowers can just park their money in T-bills, Swiss francs, or some other safe asset, rather than invest in job-creating enterprises). Additionally, it indirectly helps the wealthies by boosting the stock market, and thus those who gain most from increases in stock values (regardless of the underlying employment situation.) Moreover, as Doug Henwood has pointed out, monetary stimulus does the least to disrupt the existing class structure. It increases the ability of private borrowers to spend without actually altering the ability of average workers to earn or increasing their bargaining power with employers. Fiscal policy, on the other hand, especially something like jobs programs, puts a floor under wages, increases demand for labor, and thus changes labor-capital relations. On top of which, it challenges employers’ claims that they should possess exclusive control over investment.

The unholy alliance between monetary expansion and fiscal austerity is more intricate yet. A further response to those who want to present central banks right now as the only sane actors is that their expansionary activity deadens the impact of the insanity. That is to say, even when central bankers argue there should be more fiscal expansion, as Bernanke is reputed to want, their expansionary monetary policy conceals the full damage of the fiscal policy. It gives even greater room for fiscal irrationality. In all, the unholy alliance amounts in practice to a kind of policy combination that serves to redistribute upwards: fewer social services and public benefits for majority, alongside a monetary policy that directly or indirectly benefits the wealthy. And this combination does little to address the underlying sources of the crisis and continued lack of employment/stagnating wages.

Finally, and this is the most difficult part of the unholy alliance to tease out, there is a deep-seated, tacit ideological dimension here. The willingness of central banks to engage in massive pump-priming seems to us to be conditional in certain ways on a certain balance of class forces. The balance is one in which working class demands are weak, expressed not just in more passive unions with lower membership, but in the wider ideological defeat of the idea that public power could be used to meet the basic needs of all and even to socialize investment. Central bankers, once called in to lower the American standard of living by raising interest rates, have been freely keeping interest rates low now that weak labor bargaining power practically eliminates fears about inflation (a reality to which German bankers have yet fully to adjust.) It is harder to imagine an expansionary monetary policy, at least of the magnitude that we have seen, in the midst of a more robust fiscal response by the state to protect the bargaining power and living standards of workers, not to mention in the midst of significant labor militancy. Insofar as the absence of strong political support for expansionary fiscal policy registers the wider political weakness of the Left, the unholy alliance speaks to the ideological hegemony of conservative economic views (despite the hand-wringing of certain Austrians and ‘end-the-Fed’ Randians.) While the credit crunch was supposed to have discredited economic orthodoxy, in fact it seems to have created the conditions for its consolidation. The result: easier money for those who have, less for those who don’t.

Interview with Wolfgang Streeck

3 Jan

Continuing our series of interviews, today we publish an interview with Wolfgang Streeck. A guest contributor to The Current Moment, Professor Streeck is Director of the Max Planck Institue for the Study of Societies (MPIfG), based in Cologne, Germany. The author of many books and articles on comparative political economy, he recently published ‘The Crises of Democratic Capitalism‘ in the New Left Review.

 

What are the stories right now that you think people either aren’t paying enough attention to, or about which we have the wrong view?

Generally the historical and political-economic continuities between the global inflation crisis of the 1970s, the widespread public debt crisis of the 1980s, the internationally agreed consolidation and financial deregulation policies of the 1990s, and the worldwide private debt crisis of the 2000s, with its commutation into another public debt crisis.

Turning to the Eurozone debt problem, a dominant view is that Greeks and Italians are corrupt, inefficient and lazy, and that is why they find themselves in this mess. What is your view of what is going on?

The Mediterranean version of the debt problem reflects a specific relationship between modern states and societies on the periphery of Europe that have become stuck, partly or wholly, in pre-modern social structures and lifeways. In Italy and Spain in particular, this relationship is furthermore complicated by deep divisions between advanced regions such as Lombardy and Catalonia, and backward regions like the Mezzogiorno and the Spanish South. In quasi-feudal areas, or in an entire country such as Greece, huge concentrations of old wealth coexist with widespread rural poverty and stagnation. Vacationers from the North romanticize this as an easy-going way of life and tend to be envious about it. They also notice that there is corruption, and clearly a lot more than, say, in Sweden or Finland. What they don’t see is that there is also a lot of oppression by local elites with more or less close connections to the legal and illegal markets offered by modern capitalism, not to mention the political parties of the modern state. To be able to catch up with capitalist modernity, these societies would in the past have needed social revolutions to expropriate the old money and clear the way for the new money of middle-class industrial entrepreneurs. But this happened in Italy only in parts of the country, and in the post-fascist democracies of Portugal, Spain and Greece in the 1970s a revolutionary response to backwardness was prevented not least by the containment policies of Northern Europe and the United States. One of the tools of that policy was admission of Greece, Portugal and Spain, first into the European Union, and then into Monetary Union.

The standard recipe for the recovery from the Eurozone crisis is austerity and structural reforms in the peripheries, plus some recapitalization of banks. Do you think this is the right way to go?

I really don’t know what the solution is. Perhaps austerity is politically sustainable for the two decades that are claimed to be required for fiscal “consolidation” in debtor countries, perhaps not. In any case it will have to be accompanied by some form of, very likely hidden, transfer payments from the North, which also may or may not be politically sustainable, in this case with Northern electorates. “Structural reforms”, in the language of ruling economists, are not much more than union-breaking and the creation of tax-free economic development zones. But nobody tells us what the sectors are where growth is to take place, in countries squeezed between high-technology competition like Germany and low-wage competition like Thailand. Structural development policies that go beyond supply-siderism are not only expensive but are likely not to work when imposed from above or from the outside on a traditional social structure; see Southern Italy where fifty years of Cassa di Mezzogiorno were by and large an unqualified disaster. There is no reason to believe that Brussels or Berlin will in a decade be more successful in Greece than Rome was in Sicily for half a century.

What do you think would address the trade and debt imbalances between Northern and Southern Europe? Do you think it can be done within the European monetary union or does it require a fundamental change or dismantling of that union?

The problem is: there will be no such dismantling. The middle classes in the Mediterranean consider EMU as the lesser evil compared to a return to national currencies, because their savings are denominated in Euros and full membership in the European Union harbors vague promises of individual mobility and collective support, however meager. In the North, the common currency ensures export industries against competitive devaluation and guarantees a favorable external exchange rate. This is why German industry, including industrial trade unions, are strongly in favor of “European solidarity,” meaning that Mediterranean countries must by all means be prevented from getting out of the monetary trap in which they have moved themselves when joining the common currency. Some sort of competitiveness tax to be paid out of public budgets or in the form of some sort of “Eurobonds” is accepted as the price for unlimited access to Southern markets, especially if it is paid by taxpayers at large and not by industry itself. Here I see an unholy alliance between Southern middle classes and state elites on the one hand, and Northern export industries on the other. It will, however, be an unhappy alliance as Southern countries will inevitably be disappointed by the benefits they will receive from the North, while Northern electorates will resent such benefits regardless how small they may be, at a time when they themselves have to accept spending cuts of all sorts. Like in Italy, the South will hate the North and vice versa. Northern clichés of lazy Southerners will be complemented by Southern clichés of Northern, in particular German, imperialism. Europe will grow together at the price of rising nationalist resentment.

The hegemony of the demand for austerity is striking. It is offered as the solution to the Eurozone crisis, as well as to the American situation – the US Congress even created a supercommittee to find savings. It seems odd to have such agreement around austerity in the midst of a potential double dip recession. Why is there such agreement on this point and what do you think of the demand for austerity?

There seems to be no way to close the gap between public expenditures and public revenue by higher taxes, in no country. This being so, what remains to reassure creditors are spending cuts. Financial liberalization has made it easy for owners of significant wealth to move abroad; right now the London real estate market, in places like Chelsea, Kensington, Hampstead and Belgravia, is booming from rich Greek families putting their money in new homes. Tax increases are resented even by the middle classes who would more than the rich benefit from a functioning welfare state; one reason seems to be that for a long time higher public revenues will have to pay for goods already consumed. Those who would have to pay increased taxes because they cannot move their money or themselves out of their country may even prefer continuing public deficits to fiscal consolidation as long as austerity is firmly institutionalized and creditors can as a result be sure to get their money back. This is because, rather than having their savings confiscated, they could keep them and lend them to the state, drawing interest on them and eventually passing them on to their children. As I said, this presupposes a “credible commitment” of public policy to giving priority to servicing the public debt over keeping the political promises inherent in social citizenship. In practice this means a suspension of democracy to the extent that it is linked to social citizenship.

How optimistic/pessimistic are you about the ability of national democratic procedures to provide solutions to the current economic crises in Europe and in the US? What do you think of the recent proliferation of technocratic governments in Greece and Italy? Does the current crisis expose some basic tensions between capitalism and democracy? If so, how exactly?

I have written about these tensions, caused by ultimately incompatible demands for “market justice” and “social justice” having to be balanced against each other. Democracy is more than democratic procedures; it also expresses itself through social movements and general strikes. Even so, in present circumstances it lacks power and the capacity for collective action on the relevant battlefield, which has become the international monetary system. Today, states and their governments are facing two sovereigns at the same time: their peoples, organized nationally, and “the markets,” organized on a global scale. The latter clearly prevail over the former: see the replacement “from above” of the elected political leaders of Greece and Italy by representatives of the “economic reason” vested in the international money industry, shifting the political economy from social to market justice as the latter is deprived of its democratic empowerment.

What has perhaps not been said clearly enough is how the postwar settlement between the two kinds of justice came to be revised after the end of the “Golden Age.” When postwar growth ended in the late 1960s, the functional needs of capital accumulation began gradually to push aside the social needs whose institutionalized recognition had been the condition for workers being prepared to live with capitalism. More and more “capital controls,” in a broad sense, were removed while one promise after the other that had been made to buy labor in after 1945 was withdrawn. Such promises included a steady increase in living standards, progressive de-commodification of labor through an expanding welfare state, politically guaranteed full employment, “industrial democracy,” an encompassing regime of collective bargaining and trade union rights, a broad public sector providing citizens with social services as well as with stable employment, equal access to education and social advancement, a moderate and certainly not growing level of social and economic inequality, and the like. All of these disappeared or were “reformed,” often beyond recognition. The almost four decades since the end of postwar prosperity were a long series of defeats for labor, and of successful attempts on the part of capital gradually to re-establish its hegemony, with market justice pushing social justice to the sidelines of the political economy. It was not the logic of democratic claim-making or social citizenship or even democratic political opportunism that undercut the postwar social compact, but the historical reassertion of the logic of capital accumulation that had for a limited period been contained and overruled by democratic politics – just as the fiscal crisis of today was not caused by ordinary people demanding more than they were entitled to, but by the winners of the market first refusing to pay for their social license to enrich themselves, and later blackmailing governments to save them from the fallout of their own recklessness.

Right now it is democracy itself that is about to be rescinded – at the national level, which is where it came to be located under democratic capitalism, without replacement at the supranational level, where it should today move but nobody knows how. Increasingly democracy is turning into an empty shell, a formal ritual, not just in the United States but also in Europe. In the camp of the Indignados at the Puerta del Sol in July 2011, I saw a hand-painted sign saying: Como se puede hablar de democracia si no se puede cambiar el sistema económico en las urnas? (How can one speak of democracy if one cannot change the economic system at the ballot box?)

What are your views of the nascent protests (Occupy Wall Street, Indignados) developing in response to the introduction of austerity packages in Europe and the US? Are these movements a continuation of or a break with the anti-globalization movements of the past? Are they likely to fundamentally change public perceptions and government policy or will they have only a small lasting impact?

I know too little about such movements. I am looking for signs of an impending cultural break with possessive individualism, competitive greed, hedonistic consumerism. This is a tall order indeed, but I feel nothing less would do. Beyond “protest” or calls for “reform,” what would be interesting to see are actual changes in people’s ways of life, some kind of separatism and recapturing of local autonomy, with people cutting themselves loose from the capitalist mainstream and becoming less dependent on it, materially and mentally: a way of life where time matters more than money, ideal goods more than material ones, and social bonds more than individual property. That may not be available without a measure of neo-romanticism or even insurrectionism. What one might hope for is a sort of cultural change that, unlike 1968 and its aftermath, would not lend itself to being transformed into a “new spirit of capitalism,” as described by Chiapello and Boltanski. At the intellectual level, I find the growing literature on low-growth, no-growth and de-growth capitalism (or perhaps post-capitalism?) intriguing and I wish one could find good reasons for believing that working for this politically would not necessarily be futile.

What, finally, do you think the appropriate political response is to both these crises and their aftermath?

What is “appropriate,” and in what sense? What I see coming in Europe seems far from “appropriate” to me but it will probably come anyway. Clearly, the United States and the UK will continue to depend economically on an overblown international financial system that happens to reside mainly on their territories, and that they regulate in their national interest rather than the interest of all. The question is: is there anything on the horizon that could break the trend of the past three decades toward an ever more unstable, unpredictable, uncontrollable – in other words, ever more capitalist – global capitalism, with an ever more unequal distribution in the historically rich countries of wealth and risks and opportunities and life chances? I see nothing.

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