By Joe Costello
I was 19 in October 1979, when I first stepped into a campaign office. It was the Draft Kennedy (Teddy) for President office, located directly east across the Daley Plaza from Chicago’s City Hall. I would work on that campaign across the country for ten months, and it would instill in me an interest in politics, more accurately an interest in the politics of self-government that has lasted 30 years. It was a time when economics dominated political discourse from the nightly news to the kitchen table. Unfortunately, little did I understand, two months before I walked into that campaign office in 1979, President Jimmy Carter had appointed Paul Volcker head of the Federal Reserve, an event that would change American politics for the next three decades. Almost everything I learned on the Kennedy campaign about how American politics worked collapsed over the course of the next ten years. A new political regime, people, institutions, thinking, and culture replaced what had been the dominance of New Deal politics. Monetarism, Reaganomics or Neoliberlism, call it what you may, would totally dominate the American political landscape until today.
This new political regime’s greatest accomplishment was actually something quite extraordinary, they basically removed economics, or at least any meaningful discussion of it, from politics. Various terms like "free markets" and "free trade" became mantras repeated without end and thus believed by most adherents to have a meaning negating any need for further debate. Economics became removed from political discussion to an extent unprecedented in American history. Yet today, the Reagan Revolution seems similar to its New Deal predecessor in 1979, a cultural, ideological and political spent force, not up to meeting the challenges being asked of it in the first decade of the 21st century. Looking a little deeper, it would seem this quaking of Neoliberal politics portends not simply the passing of another regime of our two-centuries-old industrial economics, to which the New Deal also belonged, but a more fundamental revaluation of political economy. A necessary revaluation of economics that will move us beyond the "dismal science."
Looking back at the politics of 1979, what in hindsight can be seen as the end of the New Deal, it is an era seemingly belonging to a different world. The late 1970s and early 1980s were the greatest economic troubles the United States experienced since the Depression and there has been nothing as significant since. Unemployment was high, inflation was high, and the economy was barely growing, a configuration of symptoms economists up to that time didn’t think possible, thus a new name was born, stagflation, and of course in that peculiarly human trait, the naming of something gave the wrongful notion that it was also understood.
Fundamental forces were moving the American economy in the late 1970s, including debt from the Vietnam War, the acceleration of deindustrialization, the slow but continuing deterioration of American post-war global economic dominance, and finally a spike in the price of oil brought about by the U.S. domestic oil production peak in 1973. New Deal politics, which owed a great deal to the thinking of John Maynard Keynes seemed powerless in meeting these challenges. Much of Keynes economic thinking was developed in the Depression and dealt with falling prices, creating demand, and putting to use underutilized capital, while the problems of the 1970s seemed exactly the opposite, rising prices and too much demand. This created an open public dialogue, and thus the 1980 campaigns were all centered around economic ideas. The Kennedy campaign, unbeknown to all involved, became the last stand for New Deal economics, though its corpse would be dragged around by Walter Mondale four years later.
Yet the 1980 campaigns’ economic discussions were for the most part a moot debate. The real discussion and decisions were taking place inside the Federal Reserve. Jimmy Carter had handed over the country and his political career to Paul Volcker. Hitting one of the main pillars of stagflation and carrying out the greatest charge of the then seven-decades-old Federal Reserve, Volcker would raise interest rates to over 20 percent. The economy contracted, Carter lost the election, and the new, or maybe a newly resurrected economic era was birthed.
When one looks at the political economy of the New Deal, one principle stands out -- an active role for government in the economy to bring about a more equitable distribution of wealth. It would be wrong to simply state an active role of the government in the economy, for every government that has ever existed in the history of humankind has played an active role in economic affairs. The greatest shift in this new political economy of Neoliberalism was the abandonment of any notion that the government had a role to play in more equitably distributing wealth. This was done in various ways from removing government oversight of labor relations, drastically dropping upper level income and corporate taxes, and year after year removing government oversight of corporate behavior. Where Keynesian demand-side economics worked to give the middle and lower incomes direct government support, the Neoliberal supply-side doctrine in many ways resurrected the ideas of 19th century Frenchman John Baptiste Say, who claimed supply generated its own demand.
However, it is important to understand New Deal and Reagan Revolution economics; while their means differ, both claim identical ends, to generate goods and the demand to purchase them -- to create a continuum of growth. The greatest difference is New Deal economics claims some responsibility for equitable distribution, while Neoliberalism claims none. This is an important cultural difference.
The Reagan Revolution proved adept in its prime goal of redistribution of wealth from 1980 until today. The Center on Budget and Policy Priorities shows in a 2007 study:
The top 1 percent of the population received 14 percent of the national after-tax income in 2004, nearly double its 7.5 percent share in 1979. (Each percentage point of after-tax income is equivalent to $71 billion in 2004 dollars.) In contrast, the middle fifth of the population, which has 20 times more people in it, received 15 percent of the national after-tax income in 2004, down from 16.5 percent in 1979. The bottom fifth received 4.9 percent of the income in 2004, down from 6.8 percent in 1979.
Yet, the most important cultural impact of the Reagan Revolution was the unleashing of the power of megacorporations. It can be said in the year 2008, in the entire history of the United States, the power of large corporations is as unfettered as any time in American history, and that is saying something. The modern industrial corporation and the American republic were birthed contemporaneously. The basically centralized authoritarian structure of the corporation and the comparatively distributed democratic structure of the republic led to rather a fitful existence between the two from the beginning. Thomas Jefferson was the first to warn of the concentrated power of the new corporate entities. Fifty years later, at the dawn of the first Gilded Age, the great grandsons of America’s second president John Adams, Henry and Charles Adams would warn in their "Chapters of Erie":
And yet already our great corporations are fast emancipating themselves from the State, or rather subjecting the State to their own control, while individual capitalists, who long ago abandoned the attempt to compete with them, will next seek to control them. In this dangerous path of centralization Vanderbilt has taken the latest step in advance. He has combined the natural power of the individual with the factitious power of the corporation. The famous "L’Etat, c’est moi" of Louis XIV represents Vanderbilt’s position in regard to his railroads. Unconsciously he has introduced Caesarism into corporate life. He has, however, but pointed out the way which others will tread. The individual will hereafter be engrafted on the corporation, democracy running its course and resulting in imperialism; and Vanderbilt is but the precursor of a class of men who will wield within the State a power created by the State, but too great for its control. He is the founder of a dynasty.
It would be a warning continually sounded by others across the last decades of the 19th century. Eventually, the Populist Movement would emerge, a uniquely American movement that was a reaction from a dominant but declining agriculture economy to a growing and increasingly powerful industrial economy. The question of concentrated corporate power became a popular concern.
The Populist Movement and the following Progressive era sought democratic republican solutions to the concentration of corporate power, most importantly, to break them up. Understanding Jefferson’s political imperative that any democratic system, any system of self-government, required power to be decentralized or horizontal, while the power of the industrial corporation was as centralized and vertical as any institutions in human history, reformers turned to attempting to break up their power, which became known as antitrust. Unfortunately, corporate power had grown too strong at this point and the antitrust effort was for the most part stillborn.
Instead of turning to the more American notion of decentralized power, American reformers began looking to Europe and particularly Bismark’s Germany. Not only was industrial society creating new vast private entities of power, it was also growing government bureaucracies. The American system gradually began to use government as a counterbalance to the power of corporations, in doing so it needed to keep growing government bureaucracies as corporate power grew, until finally with the New Deal, an agreement was reached. Antitrust basically was abandoned, and a regime of regulation, bureaucratically controlled, was instituted to quell corporate power.
Unfortunately for advocates of the New Deal, the acceptance of concentrated power in the form of corporations was a recipe for democratic failure. The idea that government could regulate such entities proved short lived, as corporations gradually gained control over the government. In the three decades of the Reagan Revolution, corporate power became pervasive across American life, unchallenged by the political class and begrudged but not opposed by the populous. In exchange for an obscene cornucopia of material goods, Americans basically abdicated most of their political power.
Now however, just as in the late 1970s when New Deal economics seemed incapable of solving contemporary problems, Neoliberal solutions seem bankrupt against a rising number of economic concerns, some interestingly enough increasingly resembling the stagflation problem of inflation and slow growth of the 1970s. The greatest of these concerns is a slowing economy brought about by several things, but what might prove most critical in the short run, is a global financial system teetering on the brink of chaos. After three decades of dismantling the financial regulations of the New Deal and simultaneously expanding exponentially, the financial system seems to have become dangerously detached from the hard economy. With first the tech bubble and now the real estate bubble, the financial system resembles something not seen for decades -- a systemic bust -- a situation many of the New Deal regulations sought to not again allow. The damage these bubbles cause are once again being revealed. The answer of the Neoliberals to this point, simply, more of the same.
We have to remember, a robust financial system is one of the key components of Neoliberalism and its blind faith in monetary policy. The bubbles of the past decade are a direct result of monetary policy conducted by the Federal Reserve under the leadership of Alan Greenspan combined with a regulatory laissez-faire attitude toward the private financial system. As the financial system worsens and Fed action increasingly seems ineffective, the words of Fed chief Eccles from the 1930s are bought to mind, "One cannot push on a string."
Two other problems have returned from the 1970s, the first is historic high oil prices coupled with growing inflationary pressures on many basic commodities. These are two trends that have completely reversed in the last several years from what was occurring in the previous two decades, and begin to reestablish trends that were common for most of the 20th century. The Financial Times reports on Barclay’s Equities annual report on stocks and bonds, "Over history, the great enemy of investors has been inflation. Equities have done little more than offer a hedge against it. From 1899 to 1985, U.K. equities’ real return, compared with U.K. retail prices, was negative. Stocks often failed to keep up with inflation. By 2007, the real return on U.K. equities since 1899 was 109 per cent, all of which had in effect been achieved in the past two decades."
And the report adds, "Now, Barclays says, this is coming to an end. Taking a four-year rolling average, inflation on both sides of the Atlantic has risen by more than 1 per cent during the current expansion -- the first time this has happened since inflation was tamed in the early 1980s."
This is quite a quandary for the adherents of Neoliberalism. One great difference between Keynesian and Neoliberal economics was in the rewards system. Keynesian economics with an emphasis on more equitable distribution of wealth concentrated on benefits in the real economy, such as higher wages, benefits and public infrastructure. While Neoliberals, unconcerned for the most part with any notions of wealth equality, concentrated almost entirely on financial rewards, thus the constant need for financial growth and the removing of taxes from gains on capital. This has had a tremendous impact on the American economy as the New York Times reported recently, "Profits from the financial sector now account for 31 percent of total United States corporate earnings -- up from 20 percent in 1990 and 8 percent back in 1950."
Now, the No. 1 enemy of finance is inflation, so as inflation begins to rear its ugly head, the ability for Neoliberalism to provide its benefits, which are at best inequitable, becomes increasingly problematic. For in the school of Neoliberalism, low interest rates are imperative to financial benefits, but low interest rates are impossible in inflationary times. It seems Neoliberalism has run into intrinsic problems just as the New Deal economics did in 1970s.
However, we may very well be at a point of fundamental questions neither the New Deal or Neoliberalism care to ask. For in the end, New Deal and Neoliberal political economy are simply two sides of the same coin. They are a political and cultural school of thought that seeks one end, economic growth. Both ultimately depend on growth in the creation of jobs, growth in the production of goods and growth in consumption each year. They are a school of thought that depends on infinite resources from what every year becomes increasingly clear to the collective mind of humanity is a very finite planet. It is this fundamental contradiction that will increasingly move into the center of all debate on political economy and a question for which neither New Deal or Neoliberal economics has any answers.
This contradiction has appeared most recently in the rise in the price of oil, which is the life’s blood of any economy we have deemed modern for the past century. Global production of crude oil has basically plateaued, while demand has continued to rise. At the same time, the rising standard of living across the globe has given pressure to prices in other commodities. Bloomberg reports:
Farmers aren’t keeping pace with the diets of a burgeoning middle class in India and China. The Department of Agriculture predicted Feb. 8 that U.S. stockpiles for the 12 months through May will drop 40 percent to the lowest since 1948 as global production lags behind consumption for the seventh year in eight.
There’s been unprecedented demand globally for grains,’’ said Gordon Davis, managing director of Melbourne-based AWB Ltd., the largest wheat exporter in Australia. "`It’s being driven by demand for protein in Asia, which reflects rising incomes.’’
Global wheat production for the marketing year through May will probably reach 603 million tons as consumption rises to 619 million tons, according to the USDA. Demand in India, the most-populous nation after China, is up 16 percent since 2001."
The Financial Times adds,
"The broad story is of depletion. Most of the easily obtainable resource deposits have already been exploited, and most usable agricultural land is already in production. Natural resource discoveries, where they continue to occur, tend to be of a lower quality and are more costly to extract. Meanwhile, the dwindling supply of unutilized land faces competing demands from biodiversity, biofuels and food production.
The question becomes, is the world entering a new era, one where the doctrine of unlimited growth has met its limits? The questioning of unlimited growth is not new to political economy; it has been around since almost the inception, beginning most famously, or as most of economic proselytizers of unlimited growth would say most infamously with the thinking of Thomas Malthus. An Englishman born 10 years before the 1776 publication of Scotsman Adam Smith’s seminal The Wealth of Nations, Malthus uncovered a fundamental rule of biological science that became essential to Darwin’s thinking but has been disowned by our unlimited growth scientists of economics.
Outlined in his 1798 "Essay on the Principle of Population," Malthus’ thinking is quite simple. In any limited biological environment, any species population growth rises to the limits of available food production, and once it hits that limit, it will tail-off, much of the time extraordinarily. For example, a population of rabbits in a clover field will grow until it exhausts the supply of clover. The population will then decline to match the lesser availability of clover. Since Malthus, biologists have proven this to be an iron-clad law of the natural world.
However, Malthus theory was held aghast by much of the theological and philosophical world. Humanity’s theological and philosophical history has been one long attempt to hold itself exceptional from the rest of nature. Thus Thomas Carlyle, mid-19th century British historian and wag coined the phrase "the dismal science" to disparage both Malthus and much else of early economic thinking. Yet, Malthus became held in ill-repute nowhere more so than among the economic community. His idea of humanity as part of nature flew in the face of both burgeoning growth economics, the new industrial ethos which seemingly proved man’s control over nature, and of course the much older philosophical and theological conceits of humanity’s natural exceptionalism.
For the next century and half, industrialization swept Western Europe, the United States and some other small parts of the globe. By 1950, the economics of unlimited growth seemed to have vanquished Malthus. World population growth went from less then a billion to over 3 billion, seemingly a direct refutation of Malthus population theory and an even more direct confirmation of the notion of human exceptionalism. However, in the early 1970s, as inflation amongst commodities picked-up, oil supplies tightened and industrial economies slowed, Malthus suddenly made a re-emergence. Organizations such as the Club of Rome in their report "Limits to Growth," thinkers such as E.F. Schumacher in his "Small is Beautiful," and hundreds of thousands of adherents to the growing global environmental movement, all began questioning the industrial economics concept of infinite growth on a finite planet.
Malthus resurgence was short-lived in popular culture. Neoliberalism once again vanquished him and his ideas, and in fact over the last several decades few economic thinkers have taken as much vitriol as old Mr. Malthus. The last 25 years saw the retriumph of the economy of infinite growth, a great virtuous chain of production rewarded by consumption expanded across the globe. Industrialization spread across the planet. Nations such as Korea, Taiwan, and Singapore joined and were followed in the last decade by China, India and Brazil. A grand vision was shaped, a world of over 6 billion people could live like the United States, despite the one simple hard fact -- the United States with 300 million people, 5 percent of the world’s population, was using over 25 percent of the world’s resources. If in fact the planet’s 6 billion people were to live like the United States, several other planets would need to be available, and despite all efforts to date, we are still very much Earthlings. In the last few years, as a billion or so new people have embraced the philosophy of infinite economic growth, it is increasingly clear Malthus must once again be reckoned with. It is increasingly clear, the model of infinite growth on a finite planet is facing serious obstacles; one might say it’s endangering survival for much of the human species. It is time we move beyond the dismal science.
If we are to alter and reform the two centuries old patterns of industrial society, we must also completely re-evaluate our understanding of economics. We can begin to do this quite easily by first rejecting the notion of economics as a science and understand that economics is at its foundation a cultural system. In order to change our industrial society, we will need to change our culture, and we can begin by putting the political back into the economy.
There are several fundamental pillars in reforming political economy:
1. Ending the idea of infinite linear production and consumption in the closed system that is the earth. 2. Moving away from a fossil fuel based energy system. 3. Corporate and government reform. Concentrating on these three interlinking subjects will allow a comprehensive, though in no way exhaustive, look at evolving political economy.
The first thing that must be changed is the linear production and consumption model. We must accept the fact that we live on a finite planet, which means the doctrine of infinite growth is an eventual doctrine of disaster. The first rule we must adopt is to bend the current linear production and consumption process into a circle, which means most importantly, we must realize on a closed system like the earth there is no such thing as waste or garbage. We must look at everything we produce as recyclable, and if it presently isn’t, it must become so.
Secondly, we have to move people off the production-and-consumption hamster wheel. This is the wheel that requires people to work to produce ever more things so they can be rewarded with ever more consumption. An ethic must be developed of not wanting more, but simply wanting enough -- the system as whole must embrace this ethic. People must be enabled to work less and have more time to do other things than just consume.
For breaking out of the linear production and consumption model, the robust evolution of information technologies is going to play a critical role. To this point, information technologies have simply been used to enhance the linear production and consumption model, that is to simply produce more stuff. However, the real value of information technology lies in design, that is, eventually creating more livable societies that use less stuff. Most of our economic institutions will need to be retooled so their most important element is not production, but design. We need to figure out how to design our economy to not produce the most stuff, but more elegantly produce enough. Design is measured not by quantity, but by quality.
The most important element of the modern economy that will need to be redesigned is energy. If there is one thing that can be said that separates the industrial age from all preceding it, it is the exponential rise in energy consumption. Fossil fuels -- oil, coal and natural gas -- have provided industrial society with incredibly cheap and portable sources of energy. Modern society is founded on this simple fact. Yet, we are fast reaching the limits of oil availability and the environmental problems of burning fossil fuels in a closed system like the earth are growing, including the increasing inevitability of altering millenia-old weather patterns.
The interesting thing about industrial society and energy is that energy has been so relatively cheap and plentiful, little thought and even less practice has been given to using it efficiently and conservatively. For example, the automobile, thousands of pounds of steel powered by the internal combustion engine can also be looked at as one of the most energy inefficient methods to move around a 150-pound person. Yet, it has been the automobile that has defined development for the last century. The automobile is the ultimate symbol of infinite growth economics.
On a planet with 6 billion people, the use of energy can be looked at better than any other thing in defining what cultural economist Thorstein Veblen called "conspicuous consumption," which is simply extravagance to publicly display wealth. Now, most Americans look at the use of automobiles or electricity as utilitarian, but looked at from a global perspective, American energy use is an extravagance of historical magnitude. The average Japanese uses 60 percent less energy than the average American. While, the nation of Tanzania has the same population of California’s 35 million people, but an economy 2 percent the size. The annual generation of electricity in Tanzania is less than .1 percent of California.
While over the course of industrial society, the cost of labor has been scrutinized extensively, in most processes, the cost of energy has been paid too little attention. The United States needs to redesign its energy economy, looking to how all its processes can become much more efficient. This includes food production, where Richard Manning in an article in Harpers Magazine writes, "In 1940 the average farm in the United States produced 2.3 calories of food energy for every calorie of fossil energy it used. By 1974 (the last year in which anyone looked closely at this issue), that ratio was 1:1." It also includes redesigning our conspicuous consumption transportation systems, and the redesign of all our buildings and communities. It means redesigning every aspect of American economic life.
It is with the redesign of American energy economy where the conflict between the value system of industrial capitalism -- infinite quantitative growth and the value system of an information intensive society -- qualitative design, becomes readily apparent. The American economy must be redesigned not to use the most energy possible but the least, and for this, industrial society has no value. In large part, it requires information to be released from the constraints of market valuation and to develop a cultural value more similar to the political value of the First Amendment and the Jefferson and Madison imperative of the distribution of information through education being the life-blood of self-government, so it will be too for a society that values design.
Next, a revaluation of political economy will require a reformation of its institutions of power -- corporations and the government. Taking people out of the production and consumption cycle, giving them more extensive education, greater roles processing information, and greater design controls requires the flattening of decision making. Corporations are very centralized in decision making or as the Adams brothers stated in 1870, corporations had introduced Caesarism into the republic. It must be noted with little irony that in recent years, the term Czar, which is Russian for Caesar, has become ever more prevalent as a government solution. Decision making in the institutions of the republic itself has over the last century gone from flat to a very centralized hierarchy in D.C.
In getting real value out of information, design must become an integral component to all aspects of society, and that means decision making must become a larger and more meaningful aspect of everyone’s life, whether it is individual decisions or those taken with association. This means our corporate and government institutions, which have symbioticly grown more centralized and powerful over the course of the 20th century, must be most simply broken up and restructured. This means more power to locality, not as independent entities, but as nodes in a distributed network.
The Internet has provided the model for a workable horizontally distributed network. Opposed to millenia-old traditional hierarchies, the Internet has shown that order can be gained not just from centralized control, but through distributed simultaneous actions. To this point, the Internet has been used most effectively as means to consolidate corporate power, which is a little ironic. It should be a warning that we have long way to go in understanding how to make this work. Yet the simple answer to begin corporate reform is to break them up, all corporations should face a limit on their size.
Luckily for Americans, the American system was founded as a mixed horizontal-vertical system. It’s hard for Americans to understand, given both their atrocious history educations and the centralist propaganda that all who are alive today have been fed their entire lives, that at the beginning of the republic and for most of the first century, any American’s interaction with government power was overwhelmingly at the local level. Today, however, after two centuries, government has both centralized and atrophied in Washington D.C. Power needs to devolve from D.C, not to the states, but to cities and counties, then connections must be made between the cities and counties. There’s no need for intercity policy having to be made in state capitals or D.C; the cities can interact amongst themselves and develop appropriate actions.
Most importantly, the reformation of corporations and government will call for a revitalization and a necessary evolution of the role of citizen. It will call for people to take time previously given to the production and consumption cycle and devote it to what might best be defined as an expanded role of the citizen. Considering today most Americans have at best a most limited role as citizen -- making a joke of the very notion of modern self-government -- expanding the role of the citizen will not be hard. But it means much more than people re-engaging in the traditional citizen affairs they have abandoned; it means creating new roles in information processing, valuing design and distributed decision making.
Some will immediately attack the notion of a revived citizen as naive or romantic, but it is nothing of the sort. Culturally we must value these roles to as great a degree as we today value work in the production cycle, or as a responsibility as important as parenting. Citizenship must be stripped of the notion that is voluntary and must be understood to be necessary. It must be looked at not as shining and exemplary, but more like work, much of the time simply an unavoidable drudgery, with the inescapable sad but nonetheless enlightening conclusion that the nirvana of democracy is meetings.
Thus we stand at an amazingly necessary cultural turning point in history. We must put the political back into the economy, and in so doing we must evolve both. Some who have read this short essay will gripe it is too short on specific answers, but this is by design. In bringing about this change, a crucial insight of democratic historian Lawrence Goodwyn must be kept in mind. Any movement for democratic change inherently relies on experience. The institutions and new roles of the citizen will come out of actual actions and implementation. We must regain the courage and wisdom of this republic’s founders who looked at their work as an experiment in self-government. We must do the same.
So much of the change we face is cultural, a revaluation of value, and history shows this is never easy. In many ways, the era we live in is most analogous to Europe right before the Reformation, where one doctrine held almost complete sway over life and was reinforced by centralized institutions speaking a vocabulary the vast majority couldn’t understand. Yet the rot and insufficiencies became so great, the old doctrine proved untenable for a new era. If we are to provide change that is now so obviously necessary, we’ll have to have the fortitude of that little Augustinian monk and state, "Here I stand, I can do no other."
Joe Costello is a communication and energy consultant. He served as communications director for Jerry Brown’s 1992 presidential campaign and senior advisor on Howard Dean’s 2004 campaign.
No comments:
Post a Comment