“How Conservatives Are Destroying Capitalism”: The GOP Is Working Nonstop To Exacerbate The System’s Worst Excesses
I’ve written before about how Thomas Piketty’s great new book Capital in the Twenty-First Century has made free-market conservatives distinctly uneasy. Perhaps for the first time in the post-war era, a genuine American socialist movement might be on the horizon, thanks to growing awareness both of rising income inequality and of a system that is flagrantly rigged in favor of the financial elite.
Paradoxically, conservatives are more responsible for this socialist resurgence than anyone. By fanatically opposing the kind of mild — and yes, socialist-tinged — reforms that would make capitalism more tolerable for the most vulnerable in society, conservatives are stoking a leftist bonfire.
Some conservatives, like the reformist Michael Strain, seem to grasp the problem. But most appear to exist in a kind of time warp in which the Soviet Union still exists and leftist ideas are obviously self-discrediting. Jim Pethokoukis gave us an example of this at National Review:
Thanks to Piketty, the Left is now having a Galaxy Quest moment. All that stuff their Marxist economics professors taught them about the “inherent contradictions” of capitalism and about history’s being on the side of the planners — all the theories that the apparent victory of market capitalism in the last decades of the 20th century seemed to invalidate — well, it’s all true after all. In their progressive hearts, they always knew it, knew it, knew it! The era of big government is back! Let the redistribution commence! [National Review]
Sorry, Jim, jeering just isn’t going to cut it anymore.
Take it from someone who had no stake in the intellectual arguments that dominated the postwar era. When I graduated from college in 2008, the American economy was hemorrhaging 600,000 jobs per month. The country was undergoing a crash course in subprime mortgage-backed securities, collateralized debt obligations, and credit default swaps. Aggregate demand was collapsing, and liquidity was freezing up. The appropriate response would have been to spend like a drunken sailor until unemployment was restored, then cut back slowly and start paying down accrued debt. Thank God we were about to elect this Obama fellow, because he knew what he was doing, right?
Wrong. We did pass the (badly underrated) stimulus, but the likes of Paul Krugman were howling themselves hoarse that it wouldn’t be enough to restore full employment. He was, of course, completely right.
Unemployment rose steadily, peaking at over 10 percent before coming down with agonizing slowness. Meanwhile, the vast bulk of newly created wealth went straight to the rich. If all of this isn’t indicative of an enormous failure of capitalism, then I don’t know what is.
Then the Left watched with increasing horror as the entire United States political mainstream turned from stimulus to austerity, abandoning a job that was not even half-done.
Then the Republican Party — which not even two years before had proposed its own $713 billion stimulus — won a sweeping victory in the 2010 midterms, and with a crazed messianic fervor dedicated itself to making everything worse as fast as possible. They demanded Herbert Hoover–style austerity and repeatedly held the government’s credit rating hostage to get it, which they succeeded in doing (abetted by Democratic “moderates,” to be fair). As a result, we’re well past the halfway point of our first lost decade with no end in sight.
Current political debates, while not quite so mind-blowingly bizarre as those in 2010–11, are still striking in that even political moderates are willing to toss millions of the most vulnerable people overboard for very poorly defined reasons. Unemployment isn’t even close to low, and yet repeatedly discredited inflation paranoiacs are, again, cooking up highly suspect new reasons to crush wage growth.
In short, political elites have been doing all they can to convince lefties that Marx was pretty close to the mark on that whole rich-exploiting-the-poor thing. Republicans in power are against even the mildest moderating structures to keep the middle class and poor from being left behind by galloping inequality; instead, they are for obliterating what inadequate protection we do have and for savage austerity that would increase the population of desperate jobless.
Every new Paul Ryan budget — all of which openly gut safety net programs — is another bundle of kindling on a potential leftist bonfire.
By: Ryan Cooper, The Week, April 10, 2014
“Inequality Perpetuates Inequality”: Conservatives Defend Inequality Out Of Self-Interest, Nothing More
Conservatives have justified inequality for decades, arguing that it is an inevitable byproduct of capitalism and broadly beneficial. This intellectual edifice has begun to collapse.
Supply-side economics rest on the assumption that the wealthy drive economic growth, and that by reducing taxes on them, we can unleash latent economic potential. In fact, however, investment is driven by demand, not supply (a point acknowledged by the relatively conservative Martin Feldstein). If there are viable investments, they will be made regardless of tax rates, and if there are no investments, cutting taxes is merely pushing on a string. Thomas Piketty and Emmanuel Saez, two top economists on inequality, find no correlation between marginal tax rates and economic growth.
Recently, two IMF papers confirmed what Keynesians like Joseph Stiglitz have long argued: Inequality reduces the incomes of the middle class, and therefore demand. This stunted demand means fewer opportunities for investment, stunting growth.
Add to this growing body of research the fact that a robust defense of inequality is increasingly difficult to muster when every other OECD country has far lower levels of inequality than the United States. Greg Mankiw’s defense of the 1 percent was widely decried, because a large swath of research shows that the rise of the 1 percent did not come from natural economic forces, but rather rent-seeking.
The evidence is clear: The economic benefits of inequality have been massively oversold. Inequality is, in fact, a detriment to growth. So why has the right not conceded the argument?
The answer is class interest.
“Class interest” does not mean that the wealthy are nefarious schemers. Instead, it means there are various cognitive biases that lead them to justify and perpetuate inequality. For instance, Kris-Stella Trump conducted experiments in which participants were asked to solve anagrams in a high inequality scenario (the winner received $9 and the loser $1) and a low inequality scenario (the winner got $6 and the loser $4). When asked what a fair distribution would look like, the high inequality group preferred an inequality of $5.54 ($7.77-$2.23) while the low inequality group preferred inequality of $2.30 ($6.15-$3.85). She concludes: “Public ideas of what constitutes fair income inequality are influenced by actual inequality.” Inequality perpetuates inequality.
Paul Piff finds that the wealthy feel more entitled to their earnings and are more likely to show personality traits typically associated with narcissism. Recent research by Andrew J. Oswald and Natavudh Powdthavee finds that lottery winners in the UK are more likely to switch their political affiliation to the right, and also more likely to believe that current distributions of wealth are fair. As people get richer, they think that tax policies favoring the rich are fair — not because of the macro-economic benefits, but because of how they benefit me.
These cognitive biases, rooted in class distinctions, have deep implications. As a young economist argued in 1846, “The ruling ideas are nothing more than the ideal expression of the dominant material relationships.” Benjamin I. Page, Larry M. Bartels, and Jason Seawright examined the policy preferences of the very wealthy and found that they generally fall in line with their class interests. The wealthy were far less likely than the general public to believe that “government must see that no one is without food, clothing, or shelter,” or that minimum wage must be “high enough so that no family with a full-time worker falls below official poverty line,” or that “the government in Washington ought to see to it that everyone who wants to work can find a job.”
This is not meant to demean the policy preferences of the wealthy — only to examine the motives. For too long, the wealthy have couched their economic ideas as being broadly good for the country, but in fact, de-unionization, capital market liberalization, and austerity benefit them while leaving the rest of us far worse off. It’s time that we were all honest about why we support the policies we support.
Now of course, not everyone who supports conservative economic policy is wealthy. Indeed, there is a large literature devoted to the question why the working class supports policies against their own interests. Engles calls this phenomenon “false consciousness,” writing to Franz Mehring, “the real motive forces impelling him remain unknown to him; otherwise it simply would not be an ideological process.” Thomas Frank proposes that working-class conservatives are swayed by social issues. Ian Haney Lopez argues that racial animus still plays a role. Rick Perlstein notes the power of identity politics. The American ethos of upward mobility certainly plays a role; truck drivers in Tallahassee vote for tax breaks on Wall Street believing that they may someday posses enough wealth that an estate tax might affect them. John Steinbeck noted the power of aspiration, writing, “Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.”
But when it comes to wealthy conservatives who favor economic policies that hurt many Americans: Bartels’ previous investigation of economic and political power finds, unsurprisingly, that those with a higher socioeconomic status have more influence on legislative outcomes. Martin Gilens, Dorian Warren, Jacob Hacker, Paul Pierson, and Kay Lehman Schlozman have all recorded similar findings. It seems obvious, but it is important to connect these dots: Not only do the wealthy have interests divorced from the broader interests of society, but they also have the political heft to turn those interests into policy.
It is considered rather gauche to discuss class today, and the inequality debate is therefore situated in a purely theoretical realm. Liberals are constantly confused and aggravated about why the preponderance of evidence that austerity doesn’t work (while stimulus does) and that inequality harms society is lost on a large portion of conservatives.
Well, let’s face it: Those who support austerity and inequality are not really about “trickle-down” economics or “efficiency and equity.” They are protecting the interests of the upper class.
As Jonathan Swift warned, “It is useless to attempt to reason a man out of a thing he was never reasoned into.”
By: Sean McElwee, The Week, March 18, 2014
“They Never Really Cared In The First Place”: Why Republicans Don’t Want To Acknowledge The Falling Deficit
An important budget memo was issued this week celebrating just how far the deficit had fallen over the last five years. But in one of the incongruities that define the political moment, the memo was issued by a Democrat, Senator Patty Murray of Washington, chairwoman of the Budget Committee, not a Republican.
The steep decline of the deficit is not something Republicans really want to talk about, even though their austerity policies were largely responsible for it. If the public really understood how much the deficit has fallen, it would undermine the party’s excuse for opposing every single spending program, exposing the “cost to future generations” as a hyped-up hoax. In fact, it would lead to exactly the conclusion that Ms. Murray reached in her memo to Senate Democrats: that the country can now afford to spend money to boost employment, stay competitive with the rest of the globe in education and research, and finally deal with the long-deferred repairs to public works.
In 2009, the deficit was more than $1.4 trillion, which was nearly 10 percent of the nation’s gross domestic product. This year, the deficit will be a little more than a third that size: $520 billion, or 3 percent of G.D.P. The Treasury Department said on Thursday that the deficit fell more sharply in the last fiscal year than in any year since the end of World War II.
Some of the deficit reduction — about 23 percent — is due to tax revenue increases, mostly from the deal to raise income tax rates to Clinton-era levels on households making $450,000 or more. And some is due to lower interest costs, and the slowing growth of health care costs, which is partly attributable to the health care reform law.
But about half of the reduction, the biggest part, is the result of $1.6 trillion in cuts over several years to discretionary spending demanded by Republicans in several rounds of budget negotiations. As a recent Times editorial noted, this has become the tragedy of the Obama administration, undoing the positive effects of the 2009 stimulus, keeping the economic recovery sluggish, and hurting millions of vulnerable people who depended on that spending for shelter, food and education.
Having prevailed over all of those liberal programs, why can’t Republicans acknowledge that the deficit has been vanquished? Just yesterday, they blocked a bill to provide expanded medical and education benefits for veterans, citing the looming deficit. “This bill would spend more than we agreed to spend,” said Senator Jeff Sessions of Alabama. “The ink is hardly dry and here we have another bill to raise that spending again.”
The answer, of course, is that Republicans never really cared about the deficit, having raised it to enormous proportions during the administration of George W. Bush. Their real goals were to stop government spending at any cost, and to deny President Obama even a hint of political victory or economic success.
And so Republicans will resist any attempt to use their budget triumphs for Democratic purposes. As Ms. Murray writes, that will create different kinds of deficits: a deficit of people working, of students studying, of roads and bridges and research projects that can lead to prosperity instead of the gloom of austerity.
By: David Firestone, Editor’s Blog, The New York Times, February 28, 2014
“Republicans Lying To Themselves”: Washington Austerity At Its Most Self-Defeating
This morning, the Post has a nice report about methane leaks. A team of researchers toured DC and documented nearly 6,000 natural gas leaks in the city’s decrepit pipe system, including 12 spots where concentrations had built to potentially explosive levels.
What does this have to do with the current obsession with austerity in Washington? Quite a lot, it turns out.
You see, Republicans have been arguing that America needs savage fiscal austerity because we can’t afford to do otherwise. “Let’s be honest…we’re broke,” says John Boehner. This was and is preposterous then and now markets continue to snap up American debt, which is still at historically low interest rates. But this methane study shows the Republican budget-cutting fever at its worst and most self-contradictory. Not granting the money to repair this aging pipe system isn’t just dangerous, it costs us more money. Let me explain why.
The case is obvious when you think about it: shelling out for maintenance now is dramatically cheaper that it is to wait until after the system breaks (and blows the street apart, as the case may be). Put in beloved Republican household accounting terms: suppose a central support beam in your home has cracked, threatening the collapse of the roof. Does it make more sense to nip down to the bank for a quick loan to replace the beam now, or procrastinate and have to build a new house?
It’s even worse when we take the slack economy into account. Borrowing rates are super-low. Construction and raw material costs are cheaper than they will be later if and when the economy picks up. Every wasted day not investing in repairs and upgrades just means more expensive, catastrophic failures.
Make no mistake, this is a terrible problem. Aside from leaky methane in DC, there’s the fact that the average water pipe in this city was installed in 1935, leading to an average of about 450 water main breaks yearly. Here are sinkholes caused by blown water mains in Philly and New York City. Nationwide, for water systems alone there’s an unmet repair bill totaling in the hundreds of billions that is going up steadily, year after year, as our capital stock continues to decay.
What we should be doing is increasing federal infrastructure investments and increasing aid to states and cities, which would allow the country as a whole to start tackling its massive backlog of deferred maintenance needs. If we did this, we’d avoid the expensive emergency repairs that are now the norm for keeping American cities functioning.
That doesn’t even begin to address the need for new investments, like hugely expanded broadband networks, or new higher-speed rail lines, by the way.
In a way, this negligence on infrastructure is just dodgy accounting that would get you thrown out of any halfway decently-run business. A budget process that allows you to claim you’re “saving money” while your critical infrastructure is falling to pieces is just allowing you to lie to yourself.
By: Ryan Cooper, The Plum Line, The Washington Post, January 16, 2014
“Pushing Bad Politics And Bad Economics”: Washington ‘Centrists’ Don’t Want President Obama To Target Inequality
Last week, President Obama delivered an impassioned address about growing income inequality and declining mobility, correctly identifying the trend as both a problem long in the making and the seminal economic challenge of our time. Inequality in the U.S. has not just meant a growing divide between the rich and the poor, but a weakening middle class, with median wages declining to $51,404 a year, down from $56,000 a year in 2000, all while productivity increased. As President Obama put it, “We know from our history that our economy grows best from the middle out, when growth is more widely shared.” But this belief that a strong and growing middle class is key to economic growth and that inequality actually harms the economy is not an argument Obama pulled out of thin air. Rather it is a theory at the core of the Democratic Party, adhered to by both recent and long past Presidents. Indeed, Bill Clinton who titled his campaign book “Putting People First,” made the same argument when he accepted his party’s nomination for the middle class, stating he was doing so “in the name of all those who do the work, pay the taxes, raise the kids and play by the rules.” And of course, FDR was the father of middle-out economics, adopting demand-side Keynesian economics in the face of the Great Depression.
That’s why it was so surprising that the day before Obama’s speech hosted by the Center for American Progress, Third Way’s Jon Cowan and Jim Kessler declared economic populism “a dead end for Democrats.” They argue that messages about income inequality are overly idealistic and claim that the progressive economic agenda doesn’t excite voters outside of midnight blue districts. Of course, they ignore that it was a populist message about reducing inequality that won Obama reelection just over a year ago.
However, the push from leading progressives for Democrats to embrace a policy agenda that says the promise of America should be for all wasn’t born from a political playbook, but from the economic reality of the last decade. Wages have been unacceptably stagnant: in 2000 the median American worker earned $768 per week, in 2012 that worker still makes $768 per week even as productivity increased over the same time period by 23 percent. Inequality is on the rise. Between 2009 and 2012, 95% of the country’s income gains went to the top 1% of earners. An overwhelming majority of Americans—85 percent—feel that it’s more difficult for middle-class families to maintain their standard of living now than a decade ago. It is in response to this economic hardship and widening income inequality that Americans have embraced a policy vision that rejects failed austerity measures in favor of smart investments in the middle class.
This vision is far from “fantasy-based blue-state populism.” In fact, it’s budget-hawks whose arguments for austerity find support in fictional evidence. The deficit is falling fast—in 2013 it decreased by 37 percent. Where in 2010, the Congressional Budget Office projected deficits would exceed 8 percent of gross domestic product by 2023, today deficits are projected to average around 3 percent of GDP; the unemployment rate, on the other hand is higher today, averaging 7.5% this year, than the CBO predicted it would be by this year , 6.7%. But unemployment isn’t following the same trend. While debt projections are no longer threatening to spiral out of control, budget hawks continue their relentless focus on deficit reduction. And Washington’s obsession with fiscal “solutions” that are in search of a problem has made it harder, not easier, to create good jobs, to increase wages, and to boost overall economic growth.
This is the reality not only in true-blue districts and states, but across the country. That’s why a focus on inequality and requiring the wealthy to pay their fair share has not just been a successful political strategy for Bill de Blasio and Elizabeth Warren, but for leaders in Ohio, California, Maryland, and across the country.
In Ronald Reagan’s home state of California, Gov. Jerry Brown fought for a proposition to raise taxes on those making $250,000 or more a year and to increase the state’s sales tax by a quarter-cent directly to Californians in 2012. The establishment of a “millionaire tax” didn’t drive away innovators, but allowed the state’s leaders to say no to painful budget cuts and turned California into a global model for how to make an economy that works for everybody. Brown turned a $27 billion deficit into a surplus, brought down California’s unemployment rate, and improved the state’s credit rating. As Brown’s progressive, middle-out economic agenda paid dividends, his approval ratings soared.
Kessler and Cowan disingenuously term the serious policy ideas put forward by progressives as a “‘we can have it all’ fantasy.” But what’s lofty about a proposal to enable every child the opportunity to attend preschool when the plan would dramatically expand opportunity by boosting children’s lifetime earnings, reducing teen pregnancy rates, and lowering the chances of future arrest and incarceration? Making smart investments in early childhood education could not only generate more than $7 of economic benefits over a child’s lifetime for every dollar spent up front, but would also benefit our economy in the immediate term by providing parents with increased workplace flexibility. In pursuit of pragmatic, big ideas like universal pre-k, progressives are more than willing to talk about entitlement reforms that don’t hurt beneficiaries. In fact, the idea that every child should have access to high quality pre-k in return for enormous economic dividends is simply smart economics, not fantasy.
The most confounding piece of Kessler and Cowan’s argument is that they don’t distinguish between tax increases that affect everyone and tax increases that impact the wealthy. They argue that Democrats should learn a lesson from Colorado’s recent decision to turn down an across the board tax. While raising taxes on the wealthy has proven to be both good policy and good politics, there’s no doubt that raising taxes on everyone, as Colorado attempted, may be difficult to do—especially when wages are down. But, Bill de Blasio and Elizabeth Warren aren’t arguing that everyone should pay more in taxes, but only that the wealthy should pay their fair share. President Obama is advocating for the idea that when the top 10 percent of earners take home 50 percent of the country’s wealth, it’s reasonable to ask that the wealthiest Americans pay their fair share to ensure that all Americans have a shot at economic success. There’s another politician who raised taxes on the wealthy by raising the top marginal rate who was handily reelected President: Bill Clinton.
By: Neera Tanden, President of the Center for American Progress; The New Republic, December 15, 2013
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