Toward a 21st century economics
by David Atkins
Paul Krugman's latest column is a tremendous look at the failed economics of the late 20th and early 21st centuries, yet again pounding on a theme Digby and I have been hitting for years now:
The American economy is still, by most measures, deeply depressed. But corporate profits are at a record high. How is that possible? It’s simple: profits have surged as a share of national income, while wages and other labor compensation are down. The pie isn’t growing the way it should — but capital is doing fine by grabbing an ever-larger slice, at labor’s expense...Krugman is right about all of this. But unlike many more protectionist progressives who advocate a return to a 20th century economics, I don't think these phenomena can or should be stopped.
More specifically, while it’s true that the finance guys are still making out like bandits — in part because, as we now know, some of them actually are bandits — the wage gap between workers with a college education and those without, which grew a lot in the 1980s and early 1990s, hasn’t changed much since then. Indeed, recent college graduates had stagnant incomes even before the financial crisis struck. Increasingly, profits have been rising at the expense of workers in general, including workers with the skills that were supposed to lead to success in today’s economy.
Why is this happening? As best as I can tell, there are two plausible explanations, both of which could be true to some extent. One is that technology has taken a turn that places labor at a disadvantage; the other is that we’re looking at the effects of a sharp increase in monopoly power. Think of these two stories as emphasizing robots on one side, robber barons on the other...
I don’t know how much of the devaluation of labor either technology or monopoly explains, in part because there has been so little discussion of what’s going on. I think it’s fair to say that the shift of income from labor to capital has not yet made it into our national discourse.
Yet that shift is happening — and it has major implications. For example, there is a big, lavishly financed push to reduce corporate tax rates; is this really what we want to be doing at a time when profits are surging at workers’ expense? Or what about the push to reduce or eliminate inheritance taxes; if we’re moving back to a world in which financial capital, not skill or education, determines income, do we really want to make it even easier to inherit wealth?
As I said, this is a discussion that has barely begun — but it’s time to get started, before the robots and the robber barons turn our society into something unrecognizable.
Yes, technology is severely impacting jobs. The jobs being lost or demoted due to technology vastly outweigh the comparatively fewer jobs technology is creating. But does that mean we should stop developing technologies that produce greater efficiencies? Of course not. That would be stupid and deeply conservative.
Yes, globalization is impacting jobs by creating a dirt-cheap global labor pool that disadvantages workers in developed nations. Does that mean we should eliminate the global supply chain, then? Should we go back to the tariff and trade wars of the early 20th century? Or deny people in developing countries a chance at a better life in order to prop up the labor markets of the developed world? That's not only undesirable, it's not even very morally defensible.
And yes, monopolization and financialization are consolidating extraordinary wealth into just a few hands. But while it's true that government decisions play some role in that, the fact that the same consolidation is happening to one degree or another nearly everywhere in the world suggests that the wealth disparities are a symptom rather than a cause of the economic malaise. Progressive taxation can help claw back some of these ill-gotten gains, of course, but it doesn't solve the original problem of how the disparities grew so large in the first place. Moreover, counting on the government to redistribute ever larger chunks of wealth appropriated from the increasingly detached economic elite carries its own dangers: it's not as if certain conservative arguments about corruption and lack of innovation arising from too much centralized control of an economy are entirely without merit. A two-class system mitigated solely by government redistribution is not only inherently unstable and doomed to fail, it also has a disastrous and murderous historical track record. Far better to make sure that there is a better balance of wages against capital in the first place.
But none of this means we must give in to the conservatives or to the technocratic neoliberals. It means that we must reassess the rules that govern markets and society themselves. It means that rather than attempting to recover a 20th century economy, we must look forward to what a vibrant economy can and should mean in the 21st century.
The first thing we would need to acknowledge is that there simply won't be enough jobs available for the existing and qualified labor force under current free market rules. That in turn means either the elimination of the middle class as conservatives would prefer, or increasing burdens on the social welfare state. It will be incumbent on governments to provide actual work for their citizens where the free market cannot provide it, and to set strict rules on the degree of exploitation that corporations can inflict on the labor they do utilize.
The second thing we would need to acknowledge is that financial institutions must be brought to bear in the service of making this possible on a global scale, rather than in the service of providing ever greater returns to the already incredibly wealthy. This can be accomplished either through regulation or direct takeover, but financial institutions cannot continue to operate as lawless bounty hunters in a 21st century economics.
Third, women's rights and access to contraception must become a top priority worldwide. Population growth is a major driver of much of the world's economic and environmental imbalance; women's inability to control their own family planning decisions is the top driver of high birth rates in developing countries. In addition to being a global moral issue, it's also an issue of global economics and global survival. The petty and anachronistic conventions of Westphalian nation-state politics cannot be allowed to continue being an impediment to the enforcement of women's rights in developing nations.
Fourth, it should be noted that climate change threatens the entire world's economy and survivability. Rather than being seen as a problem, this should be embraced as a solution: moving to a post-carbon economy should be the catalyst that provides the impetus for large-scale planned job creation giving labor an equal footing with the power of capital. Nations that fail to cooperate with a global anti-carbon program should be subject to serious economic pressure.
There are many other ideas that could work for a 21st century economy as well. The sooner people start thinking about what can be rather than pining for what has been or accepting a plutocratic dystopia, the better off we all will be.