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Tuesday, March 26, 2013

Why the neoliberal consensus doesn't work

by David Atkins

There is a comfortable conventional wisdom among elites today, one that exists not only in Washington but seemingly across the developed world. The expected norm for so-called "serious thinkers" is an ecumenical social liberalism that expands to all minority groups access to the basic right to participate in the same economy, paired with an economic conservatism that elevates the market of the rational consumer above all else. Within this framework, the difference between the "serious liberal" and the "serious conservative" is just a matter of how much to soften the sharper edges of the supposedly free market to protect the most vulnerable.

At a glance it sort of makes sense. After all, capitalism has produced vast wealth in society for the last 250 years. Communism was a disastrous and horrific failure. One could argue that true communism was never really tried, but as with libertarians, the burden of proof is on the idealist to show that their system can actually work in practice with human beings and their myriad flaws. So why not? As long as few actually starve or die in front of hospitals for inability to pay, as long as minority groups have an equal shot at the golden apple, and as long everyone is free, in Milton Friedman's famous words, to pick the color of tie they prefer in the open market, what's the problem? At this point we're just nitpicking over how much social safety to provide, and who constitutes vulnerable in the system. Reasonable people can disagree, one might imagine, on what the retirement age should be, or how to calculate the rise of benefits vis-a-vis inflation. If government comes to a standstill over such questions, then clearly there must be an air of hyperpartisanship forcing otherwise reasonable people away from what should be simple compromises.

And indeed, such is the lure of the "serious mind" who swears by Tom Friedman and David Brooks, and whose preferred mold of politician is Joe Lieberman and Olympia Snowe. The system is working, these people imagine, but for a frustrating inability of the infants in Washington to hammer out the details. It is assumed that we have a political problem, not an economic one. The only economic problem on the horizon is a long-term deficit that can be handled at the margins with a few modest tax increases and cuts to the over-expanded safety net of the otherwise comfortable middle class.

The problem, of course, is that the economic system is not functional. It's broken. Something has happened over the past forty or so years that has fundamentally altered the economic landscape. While the causes of this change are long debated, the symptoms are quite clear. Productivity continues to increase overall. The gross domestic products of most nations both developed and developing continue to rise, if somewhat more slowly than desired. Yet unlike in previous decades or even centuries, the vast majority of the public is not sharing in the gains from this increase in productivity and growth. The awards are now going to a very few.

Wages for both the poor and the middle class are stagnant. Opportunities are dwindling. And even though it's still possible for a poor person who gets incredibly lucky or has a single great business idea to shoot into the stratosphere of the economic elite, those people are extremely few in number. As a general rule, social mobility is now more stratified and rigid than nearly a century. Jobs are increasingly available only to those with at least 22 if not 26 or more years of education, often at six-figure price tags that can never be fully paid off. Not everyone can attain that level of education; fewer still can afford it; and even fewer still will even have jobs available for them once they complete the gauntlet--particularly not with those who used to retire in their fifties or sixties working well past retirement age.

Corporate profits and stock markets are at record highs. The rich have never been better off. But everyone else is struggling more than ever, with no light at the end of the tunnel in sight.

But the problem is even worse than it appears. The current economy is living off of artificial advancements created a half century ago, chief among these being post-war infrastructure and the addition of women into the workplace. Americans in particular are still driving on highways and using sewer systems built 50 to 70 years ago when government used to have money and political will to invest in such things. These are now breaking down.

More importantly, it now takes two and a half incomes to support the same lifestyle one income did in the past. Women's rights have had a profoundly beneficial social change, allowing half the population of the developed world to fulfill their true potential, rather than be homemakers by default. But the introduction of women to the workforce has also served to mask the erosion of the middle class, as two parents now work to provide a comparable lifestyle to that which one parent used to provide. The situation has also created a conservative cultural backlash--much of it by patriarchalists interested in controlling women, of course. But in fairness it's also a collective social reaction to a legitimate discomfort with the lack of a parent available at home to raise children.

Simply put, without eliminating child labor laws or forcing multiple generations to work past retirement age under a single roof, there's no more room for the economy to continue to erode the middle class and poor while maintaining the disguise. The only direction to go is downward.

Combine that with the fact of decaying infrastructure as well as a desperate need to make massive economic investments to head off crises such as climate change, nuclear proliferation, water shortages, antibiotic-resistant infection, terrorism of increasingly dangerous kinds, and myriad others, and it becomes quite obvious that the economy itself is fundamentally broken.

In other words, it's not a political problem so much as an economic one. The political problem is a function of the economic problem, not the other way around. Progressives rightly blame conservative economics, and want fundamental change. Or, at the very least, a protection of the status quo when it comes to social safety nets. Conservatives, meanwhile, see many of the same problems in terms of economic decline and children without parental supervision, but blame entirely the wrong people and institutions. These people also want fundamental changes, but in a very different direction.

That is why governance by Joe Lieberman and Olympia Snowe is neither possible nor actually desirable. It's because the economic status quo can no longer be maintained. Something has to change.

Progressives can disagree over the root causes, but the biggest reason is generally only spoken in hushed tones because it's considered too radical a concept to broach in open discourse. It's the fact that the modern economy prioritizes assets over wages. It does so for a variety of reasons, the biggest by far being globalization. The ability of the wealthy to hire anyone they like across the world for nearly any job creates a huge downward pressure on wages. The ability of the wealthy to more easily move themselves, their families and even their businesses to any state or country that can allow them to loot even more of the wealth that should properly be going to their workers creates further downward pressure.

So nation-states fall over themselves to accommodate the wealthy with decreasing worker protections and increasing tax breaks, while doing their best to lower prices, extend credit, raise asset prices and otherwise mask the loss of real incomes to workers so as to avoid riots and revolutions. The need to grow assets to disguise wage losses creates an incentive for politicians to give banks and the financial sector in general full leeway to boost growth in whatever artificial ways they can. The relationship between the financial sector and government is codependent not just as a matter of corruption, but also as a matter of public policy necessitated by a hollow economy. That can only continue so long. Meanwhile, this brutal competition among nation-states just to keep the doors open prevents any sort of real cooperation on needed international ventures such as climate change mitigation.

So for now, the "serious" consensus has forced the discussion of the broken economic system into hushed corners of the political sphere. Politicians on both sides of the aisle are forced to pretend that we have a political problem harming an otherwise healthy economy.

But that discussion must perforce come out of the whispering shadows. It's time to admit that the economic system itself is fundamentally broken, and that rapid changes will be necessary to fix it. And yes, they are the very sorts of changes the proponents of conventional wisdom are most afraid of. But they shouldn't be. Without them, the world that has made them wealthy will cease to have the stability to maintain the lifestyles to which even they have become accustomed.


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