What’s Wrong with the World

"The unheralded lesson of the economic crisis is that the concentration of the economic gains in one sector, at the top of the income pyramid, practically an entailment of globalization and its corollaries, is unsustainable in economic terms, let alone productive of numerous ethical quandaries."

The idea that the income distribution brought on by conservative policies is unsustainable and destructive has been quite common on the left and center left. Marginal tax rates on incomes over a certain amount ($1,000,000?) need to be steeply progressive (start at 70%?) and estate taxes need to be preserved.

I see from a new poll that a majority of Republicans want a more Palin-like party. This is most encouraging to those of us who see the party as having far out lived its usefulness.

Until conservatives acknowledge that political decentralization is impossible without economic decentralization, they will blindly support a pale and ineffective alternative to the white-collar criminals ushering in an anti-human dystopia. The GOP is content to criticize Obama's Cabinet of tax-cheats, shake-down artists and access-peddlers on legal grounds. They fail to see, perhaps willfully, that the caliber of men now returning to enrich themselves at public expense are the kind drawn to plutocracies. Time to dismantle all aspects of Leviathan's empire and that means chucking all the canards that prop up unfree enterprise.

With regard to income distributions and tax policies, what must be recognized is that the postwar economic settlement, in which high marginal rates of taxation on income and capital gains figured, did not fail precisely on account of those policies, was not undermined by the contradictions or inefficiencies, real or alleged, of those policies. Rather, the postwar settlement, which succeeded in allocating the benefits of economic growth equitably, failed largely because it was subverted by a combination of factors, ranging from the reserve-currency status of the dollar, which necessitates certain trading patterns, the fiscal profligacy of the Johnson administration (Vietnam and the Great Society) - both of which applied pressure to the value of the dollar and encouraged foreign creditors to avail themselves of the gold window - to the peak of American oil production in the late Sixties and the later oil shocks of the Seventies. The advantages of the postwar settlement in its time came to be perceived as impediments, and thus, the era of neoliberalism was born. This is not to state that the postwar settlement could have continued indefinitely, for no economic regime can so continue; it is to state that different policies are suited to different times and configurations of political and economic power, and that conservatives ought to more rigorously distinguish between their judgments of the efficacy of policy regimes and their normative critiques of policy regimes.

That said, those high marginal rates did serve a particular function within the postwar settlement, regardless of the public justifications advanced for them: They more or less mandated, through strong incentives, that the wealthiest segment of the population eschew short-term and speculative employments of capital, depositing the bulk of their holdings in actual productive enterprises, expanding production, facilitating innovation, etc. I don't imagine that this architecture of policy can be recreated, nor do I advocate the attempt. Progressive taxation is a structural component of a political economy characterized by enormous concentrations of wealth and power, both as a counterbalancing factor, and, ultimately, as a preservative of such concentrations, as seen in the postwar settlement itself. I'd prefer to break up those concentrations, starting with the banks which precipitated the financial crisis, and working from there. Another lesson of the crisis is that "too big to fail" really means "too big to justly exist".

That is a pretty durned cynical analysis, Jeff. And categorical, too. "It is this [politically-interested] calculus, and this calculus alone, which has led the GOP to oppose the stimulus." [my emphasis]

It seems to me that a good portion of the GOP would be quite content to make some noises of opposition and then quietly capitulate to the Democratic version of the stimulus; and more broadly, capitulate to the role of permanent loyal opposition. It aint a bad job, really, being a congressman, even in a permanent minority, when your country is in a depression.

The problem is that the base of the GOP does not like bailouts or stimulus bills at all: not this one, and not any one. Recall that a majority of the GOP opposed last year's TARP bill, for instance. Recall that most grassroots conservatives, generally speaking, may be classified as liquidationists: they cheered the bankruptcy of Lehman Brothers, muttering darkly that "finally the bailouts end"; they mistrust Paulson, Geithner, Bernanke, the Federal Reserve, the bankers, Fannie and Freddie, and indeed the entire class of financiers and statesman. Most of the GOP clings to the view that a bank that overextends itself in speculation and reckless lending ought to be allowed to crash and burn, in other words, that part of the liberty of the free enterprise system must be a liberty to fail on your merits.

It's a quaint view in these sophisticated times, perhaps, but there is a obvious logic to it.

Further, considering that the GOP is still in most respects a Reaganite party, I cannot see the need for such an intricate analysis of interest and cynicism and maneuvering. The situation is much more simple: the Republican Party's economic doctrine was constructed in opposition to Keynesianism; there is little mystery in the fact that it is opposing the biggest piece of Keynesianism ever.

I have it on good authority that there is plenty of tension between the GOP leadership and the grassroots activists. The latter just won't let the former be.

So there is a plain point of principle here: it's just that GOP politicians only occasionally, and only then under severe pressure, find the nerve to express it. That's democracy in a commercial republic for you.

On taxes, I confess that I'm a bit of a reactionary. For instance, I do not think that progressive income taxation (a Marxian idea, after all) can be justified philosophically. Nor do I perceive obviously defensible grounds for taxing the same earnings over and over again, half a dozen times.

And frankly, if we really and truly want to stimulate the economy, we might as well just go ahead "spend" a trillion dollars slashing tax rates across the board: business taxes, corporate taxes, cap gains, payroll, income -- we'll get everyone in on the act. Let there be a complete tax holiday through 2010, say. That will encourage business (not merely high-finance, but actual productive enterprises) to operate in America. That may even mitigate the harsher aspects of globalization by reducing the incentives to out-source or move operations overseas.

I do agree, Jeff, that our problems are far deeper than merely a mess of a tax code. In fact, I believe that our problems are deep enough to be basically beyond the reach of government policy as such. All policy can do now is (a) mitigate the damage inflicted by the necessary correction in the structure of our economy, and (b) avoid disastrous misapplication of increasingly-precious capital.

But one need not be a cynic or an obscurantist to doubt the utility of an extraordinary expenditure of deficit-financed pork which will simply aggravate the global imbalances of savings and consumption that lie at the heart of our problems. We can borrow from the cash surpluses of China, Germany, and corporate accounts in order to stimulate the consumer sector of our economy to . . . buy Chinese, Germany and other products; or we can give businesses a fighting chance to allocate that capital to productive uses in America.

Maybe neither is actually the right policy; maybe the right policy, strictly speaking, is to do nothing and leave the recession to its grim work. But doing nothing aint on the table right now; and frankly I am still of the opinion, as I was back in September, that prudential considerations, from the perspective of the policymaker or statesman, preclude this option.

It seems to me, too, that this post more or less ignores the well-documented fact that this bill is mis-named. Even from a more or less Keynesian point of view, much of it is not about "stimulus" at all but rather just about plain old expansion of big government for its own sake, opportunistically attached to the notion of an "economic stimulus." One person has called it eight years of pent-up big-government frustration. What does the complete reversal of earlier welfare reform have to do with stimulating the economy, for example? There is just a patent absurdity and a kind of insult to the voters in calling this monster a "stimulus bill," and if the economy recovers at all, it will certainly be in spite of rather than because of measures that, as far as I can see, no one could defend with a straight face as having anything to do with economic recovery.

I'll have to concede that I am much, much more cynical than Paul when it comes to both the GOP as a national party and the electoral base of Republicanism. The national party and its elected officials fulsomely embraced their own forms of deficit spending during their time in the majority, forms of spending that could now, with equal plausibility, be termed "stimulative" under the cheapened sense of that concept. Many of them defended the enterprise as integral to building a new Republican majority, as instances of putting government to work for "conservative ends". This was always bunkum; the GOP's capitulation on that account originated in the political calculus fixed during the 1995 budget controversy, when the American people turned on the GOP Congressional majority for its threats to cut popular government spending and assistance programmes. From that time forward, at least, the GOP strategy was to give the small-government base the rhetoric, and the broad, independent/moderate middle of the electorate the government they wanted - at least as the GOP interpreted this.

In light of the history of the past decade, therefore, I find it difficult to assent to the proposition that the GOP is now rediscovering principle, or acting on the basis of the residues of anti-Keynesianism latent in the party, and the conservative movement. They governed as de facto Keynesians, and now oppose Keynesian governance because they are out of power, and the ostensible electoral benefits of that mode of governance are no longer available to them. It is also worth observing that it was not GOP apostasy from the righteous canon of small-government conservatism that precipitated the party's decline. It was the war, above all, and all of the exaggerated protestations of fiscal rectitude function as a strategy of avoidance or deferral, to the end that a ruinous foreign policy might not be acknowledged as such.

A temporary tax holiday, it seems to me, will not address the structural defects of the American and global economies; it will merely defer them until such time as it is necessary to reinstate the taxes, at which point we can anticipate that the old patterns will reassert themselves. Hell, one of the proposals the GOP floated as a stimulus measure was a reduction in the rate of taxation applied to profits repatriated by multinationals to the US to 5%, a stupefyingly cynical measure which, when utilized in the past, served to facilitated increased offshoring. In fine, while I cannot trust the Democrats to act in the public interest, neither can I trust the GOP, latterly the catamite of corporate interests remorselessly destructive of American communities, to serve the common good, as opposed to the good of multinationals and other economic predators.

I might offer a grudging expression of admiration for the GOP rank and file, but this must be tempered by remembrance of the incoherence of that rank and file last autumn and, not least, the failure of the rank and file to assimilate the reality that the existing global trading and financial architecture more or less entails structural deficits in America. Our room for maneuver is incredibly small, and it is for that reason that I cannot muster much enthusiasm for tax reductions; we need to address those structural deficiencies, and, as an element of that strategy, to discuss any necessary tax reforms. For my part, I do not find the taxation of capital invidious, nor even an instance of double-taxation; if anything, it is the implicit economic ideology of some on the right, which holds that capital should be exempt from taxation, that is invidious and regressive.

I'm perfectly aware that the stimulus proposal is, in reality, a melange of spending programmes the left has coveted for many years. Economists can always be found to argue that such measures will have a stimulative effect on the economy. In fact, I've read so many arguments to that effect over the past several months that my eyes bleed at the thought of reading another one. But, to my, mind, this is neither here nor there, as what partisans on either side claim for their policy proposals stands in no real relation to the architectonic causes of the crisis. Dust and shadow.

On the question of whether the GOP is opposing the stimulus out of self-interest or because they've rediscovered their principles, I am inclined toward the former although it is a possibility that a few GOP politicians have, truly, rediscovered their principles because of the GOP losses in these past elections. I don't believe that's necessarily a contradiction, for sometimes what it takes is a traumatic experience to bring us back to principles once abandoned. But, it's just a possibility for a few, and I'm inclined to think that for most GOP politicians the greater part is expediency and the lesser a rediscovery of principle, with some sort of dialectic between those parts that reinforces each other.

But I certainly disagree with the idea that the Iraq war was more important to the GOP's decline than the fiscal apostasy which is more concretely tied to the single, unrivaled cause for the GOP's decline: the economy. Yes, the GOP lost the 2006 elections because of the war; but it was only because of the perception over a long time that the U. S. wasn't winning. Once the U. S. began succeeding and the newspapers became silent, the war really wasn't that big of a deal anymore to most Americans except for the Left who invoked the war for the residual emotional memory and that only infrequently because of the risk of reminding Americans we're doing a lot better, militarily speaking, on that front.

The problem with blaming the GOP rank and file for not understanding where our structural deficits are coming from is that they don't really need to do so to understand that a smaller federal bureaucracy (entailed in tax and spending cuts) is desirable. In so far as the federal government (along with corporations) helps sustain the global trading/financial architecture of which Maximos writes, tax reforms--as along as they are accompanied by entitlement reforms and other spending cuts--are appropriately pursued now and as long as the government's reach is too great. Apart from government reform, corporations will excuse themselves for their own share in sustaining the global trading/financial architecture by blaming it on problematic government tax policies, like high corporate taxes, that don't _really_ justify them but certainly make the people sympathetic to their excuses. Take the fog of plausible "blame the govt" excuses away, and then the Americans will be better able to hold companies accountable for their practices.

As a side note, no one believes tax cuts are some sort of categorical imperative; they just happen to be appropriate when taxes are too high, which happens to be the case most of the time, though it's certainly debatable. What isn't debatable in my opinion is the economic and moral problem of the divorce of tax cuts and spending cuts.

One more note:

the encouragement of additional investment, and therewith the creation of employment - seems not to take into account the evidence of the past decade (or more), during which these invitations to investment, under the conditions of globalization (and financialization, though this seems to be in at least temporary abeyance, thank God) and the vast structural imbalances of the global financial and trading system, generated mainly overseas investment and speculation in the fantasy world of derivatives.

This is unfortunately an accurate observation, although with respect to derivatives I think it is better that the government not prohibit investment in derivatives since I don't believe they are intrinsically destructive (although on second thought the de-localizing/aggregating quality of derivatives makes me open to the possibility they are intrinsically destructive) and instead simply let the investors suffer the consequences and learn from their mistakes/imprudence that way (such is the price of human agency).

With respect to capital being invested overseas, again I don't see why forbidding/disincentivising it is a proper responsibility of the government. Rather, it ought to be up to the business, unions, and other non-political communities to make those calls and to shame/boycott companies that invest outside of the U. S. if they believe that to be right.

Albert,

If the GOP's fiscal apostasy were the sufficient cause of the party's precipitous decline, then we should expect to see a groundswell of massive popular support for the small-government political programme, which, in point of fact, we simply do not see, agitations among the Republican rank and file notwithstanding. The American people in their vast majorities are desirous of big government for themselves, and to the extent that they oppose big government, they do so out of opposition to programmes and constituencies they regard as undeserving of the largesse. Big government for me, but not for thee, is the operative philosophy, to the extent that it can be so dignified. Frankly, were there any mass support for small government among the American people, they would not have elected Barack Obama, whom they assuredly did not elect merely because they wanted to punish Republicans, or were weary of Bush, or any such thing.

It is eminently rational to chastise the GOP base for its failure to grasp the logic of international trade and finance, precisely because they do not perceive what earlier generations of Americans did perceive, namely, that all of the bureacracy, big government, and detested progressive taxation exist as systemic balancing measures intended to counteract the deleterious, desolating effects of international, concentrated capitalism upon communities and families. There is no excuse for ignorance of some of the most fundamental political and economic processes of the past 150 years of Western history, and it is no solution to the problem of the obliteration of the 'little platoons' to counsel the abolition of the one thing which, in however a tyrannical and tutelary manner, might provide (intermittent) shelter from the relentless buffeting of "creative destruction". Modern capitalism razed the little platoons and called it paradise; modern individuals, shorn of the protecting institutions of community, disagreed, and called upon Leviathan. But what conservatives must grasp is that while Leviathan's lash may be harsh, Gordon Gekko's burden is not light.

With respect to capital being invested overseas, again I don't see why forbidding/disincentivising it is a proper responsibility of the government. Rather, it ought to be up to the business, unions, and other non-political communities to make those calls and to shame/boycott companies that invest outside of the U. S. if they believe that to be right.

If their activities are destructive of the communities and families which it is the duty of the government to safeguard, then we are not obliged to extend them toleration, merely signaling disapproval with a few ineffectual scoldings, as I discussed last winter.

Lydia's point - that this isn't even a Keynsian stimulus - seems spot on to me. But even if it were I'd be against it. Which brings us full-circle to Steve Burton's lament, to wit, what the heck do we do when one in ten thousand can't tell the difference between a minute-by-minute critical-to-survival-right-now bank rescue and an unprecedentedly large slab of leftist pork? Because if we (the corporate 'we', that is, the American people) could tell the difference we'd have gotten in lock step behind Paulson in the fall and we'd be laughing the Democrats' "stimulus" off Capitol Hill now.

I was going to say that if the Republicans had gotten behind the Secretary of the Treasury immediately in the Fall during the emergency, they'd have a lot more credibility in opposing this disaster. I guess I'll say that that should be the case ideally; but the cynic in me expects the Republicans to be the fall guys in this whatever happens (see Steve Burton's lament, again). This really will be a postmodern recession - nobody will know what really happened, and there will be a war to attach narratives to it which reflect little more than naked political posing. It is kind of deliciously ironic if you can see past the tragedy of it all.

Maximos, great post. I really do think that America has been somewhat behind much of the 20th/21st century world in not having a one party state, or as close to it as a dying corpse can bring you.
Posh on these petty little $400 billion deficits, I think there were two, when we can go for the big one, $ one trillion and God bless us, as far as the eye can see. Now why would anybody want to question that except out of narrow self interest, a moral blemish found only, where exactly ?

No, we need those who act out of altruism and dedication to public service.
Although;
Much depends on the managerial skills and dedication of the new team coming in, assuming that Obama can flesh out his staff with people who actually pay their taxes, so far no easy thing.
Anyway, let's get back to bashing those Republicans & see if we can't keep it up for at least four years.

John, we already have a one-party state, showing merely the semblance of animated political discourse between opposed factions - a plutocratic state in which the interests of the globalists, the utopian utilitarians, are represented assiduously by both parties. Perhaps the denizens of the right should devote more energy to devising means of countering this configuration of power, instead of assailing those who will not recite the catechism. Apply starve-the-beast to the plutocracy, and not just to the government.

Zippy, I appreciate your comment very much and am happy entirely to waive the references to Paulson. I'm glad you agree on the "what a joke to say this is a stimulus package" point.

we'd be laughing the Democrats' "stimulus" off Capitol Hill now.

It's going to take more than laughing, I'm afraid. But somewhat contra to Maximos's point in the main post, I think people _do_ see the transparent trick the Democrats are trying to play. I think many in the Republican base sees it. It's therefore not too far-fetched to think that their representatives, however cynical they may be, are willing to admit it and to vote accordingly.

Lydia's last paragraph expressed my view more concisely than I could.

I'm still not persuaded as to the sagacious judgment of the Republican base, which only recognized the transparent trick of Bush's profligacy after his popularity had plunged abyss-ward on account of the war. Too many on the right are mistaking hindsight for prescience.

http://www.epi.org/economic_snapshots/entry/webfeatures_snapshots_20081022/

The problem is that the GOP has its own ideas about what the stimulus should be, and those ideas almost exclusively involve tax cuts (and the least effective tax cuts to boot) and would have a total cost three times higher than the current bill. If you are against the Dems stimulus bill for having pork that is one thing, but to be for the GOP plan is absurd.

maximos,courtesy demands courtesy in response. and so I do appreciate your reasoned, if erroneous reply.

You will forgive me if I "bullet point" your post, time being an element.

A] as the human brain is designed, oops, has evolved, to make distinctions, that is to categorize & identify, among other things, it is incumbent upon both of us, you might throw in the rest of the world,to search for if so required the differences between say both traffic lights and political parties. I will spare you such differences as do exist but you may refer back to my comparison on deficits as a lead in.

B] A plutocratic state may also be; 1]politically egalitarian, note politically, 2] centralized and authoritarian, 3]morally perverse as in without conscience or tradition, in happier less modern and post modern times an ordered State wherein status was both understood and flexible and the Self something to be disciplined, if you'll forgive an expression with different connotations now days.
Put shortly, plutocracy CAN be a problem but interrelated to the sour dynamics of current America, and how many of those bloated plutocrats are Democrats or donors to our ugly, sham paternalistic State? A short list is available.

C]Oh yes the "denizens of the right". You do mean people don't you? Gotta watch yourself there Max.
But of course Max we "denizens" do have a model, and no, it doesn't go back to that mysterious period of transition between Neanderthal, Cro-Magnon and Homo Sapiens
You know full well what it is, and if in this case I don't speak for the entire Republican Party certainly there are sufficient numbers both inside and out that you have heard it often enough. Only in the interest of time may I ask that you not get me started on that one.

D] Lest you haven't heard, Rip Von W that you are, but in the main the plutocracy and the federal gov. are the same. That's where the real action is. As above, a short list of the Real players is available but Max, and I must grant you a fair amount of sophistication, you cannot separate power, money, and the State. As they used to say at IBM, "Thimk" !

Again, thanks for your response. You will pardon me if I don't post again tonight.

Zippy writes: "This really will be a postmodern recession - nobody will know what really happened, and there will be a war to attach narratives to it which reflect little more than naked political posing. It is kind of deliciously ironic if you can see past the tragedy of it all."

*Yes* - and well said.

And is there any doubt that, in a war over narratives, the left will win?

Maximos, so yeah, so the guy on the street who usually votes Republican finds it easier, and to some extent is led to find it easier, to criticize new big government programs when they are put in place by an all-Democrat group (Pres. and legislature controlled by Dems) than by the party he usually supports (as with Bush's Medicare drug program and No Child Left Behind, e.g.). But I heard plenty of criticism for that program of Bush's even so. And in any event, so what? So we sit around and make cynical noises and refuse to appreciate the fact that finally people on the right of the aisle are opposing some things they should be opposing? No, I won't do that. I'm glad to hear all the talk about pork and expansion of government. It's about time.

Perhaps the denizens of the right should devote more energy to devising means of countering this configuration of power, instead of assailing those who will not recite the catechism. Apply starve-the-beast to the plutocracy, and not just to the government.

Perhaps they can look to their cousins in the U.K. for guidance. After years of playing the foil to Blair's New Labour, the Tories may be ready to ditch Thatcherism and pose a genuine alternative to the crippling dogmas of state authoritarianism and atomised individualism. If Phillip Blond is any indication, the spirit of Chesterton has been wakened and Conservatives may be getting ready to return to their roots. May it happen here before Obama's 4th term.

The Tories must take on the unrecognised private sector monopolies that hide on every British high street. According to figures from IGD research in May 2008, the British grocery market was worth £134.8bn. Of this, the big four supermarkets took £98.6bn, a 73 per cent market share. In the name of competition we have happily handed over our high streets to Tesco, strangling local commerce. The more that price is our only measure of competition, the bigger the economies of scale required to compete, and the higher the barriers to entry for small local competitors.

http://www.guardian.co.uk/profile/phillipb

John, you're quite correct in your contention that government is where the action is, inasmuch as the markets in which the plutocracy flourishes are artifactual, and not natural. All the more reason to cease regarding them as sacrosanct.

Lydia, I would take seriously the contention that the Republican rank and file complained about Bushist profligacy had that rank and file proved willing to break with the Bush-era GOP over those defections. But they weren't willing to break with Bush, leaving one to conclude that when Republicans spend like the proverbial drunken sailors in the whorehouse, that's merely a little intramural kerfluffle, but when Democrats propose to spend like the proverbial Sailors, that represents a threat to the Republic. I'm not much moved by the spectacle of the GOP opposing the stimulus, since the entire affair is, as I've already suggested, the shadow-play on the wall of the cave; moreover the transparent cynicism of the political moment is illustrative of everything that is wrong with the GOP, and much of conservatism: in all cases, principle is either subordinated to the interests of the Party, or elevated to the status of ideology, such that actual circumstances are irrelevant to the political discourse.

I'm glad to hear all the talk about pork and expansion of government.

All I hear is selective outrage and tired tropes from the 80's. We'll know they're serious when the GOP is ready to trim a Pentagon budget that accounts for 50% of the entire planet's expenditures on "defense". Until then, I won't get fooled again.

Wonder if those "progressive" Christians who bought into Change You Can Believe In, don't deep down feel like they've been had;

WASHINGTON (Reuters) - President Barack Obama's Defense Department plans to create 20,000 new jobs to manage a series of changes aimed at improving the way the United States buys billions of dollars of weapons each year, the Pentagon's No. 2 official told Congress.

In addition, the Pentagon plans to tie more contract fee structures to performance and will make sure that multiyear contracts are awarded only when "real, substantial" savings result to taxpayers, Deputy Defense Secretary William Lynn told the House of Representatives Armed Services Committee on Wednesday.