Sequestration, Right America and Economic Narratives:

Lindsay_German_monster
PART I:

The American political spectrum has shifted right. Example of this abound, but the phenomena can be relativity irrefutably conveyed with two. Despite his contemporary lionization, Ronald Reagan could not run as a contemporary Republican. During his term he raised taxes eleven times, including the Tax Equity and Fiscal Responsibility Act of 1982, the largest peacetime tax increase in American history, he supported amnesty for immigrants and was the head of a labour union: the Screen Actors Guild.[1] The second example is gleaned through a comparison of ex-Vice Presidential nominee Paul Ryan’s budget proposals and a quote from a less adulated, but still staunch conservative for his time, Dwight D. Eisenhower. Eisenhower, in expressing his political views and assessment of the national sentiment in 1954, stated: ‘Should any political party attempt to abolish social security and eliminate labor laws and farm programs, you would not hear of that party again in our political history… There is a tiny splinter group that believes you can do these things… Their number is negligible and they are stupid.’[2]

The irony of particularly Reagan’s incompatibility with the contemporary Republican party is the lasting legacy of his ‘Takers and Makers’ rhetoric on Republican economic narratives. The mainstream acceptance of this concept that used to huddle in the corners of Ayn Rand Members Only Clubs, is the sea-change that has taken America Right. But the question might be: was this sea-change caused on purpose, or by accident?

The debate surrounding Sequester 2013 (the most recent manufactured across-the-board spending-cut catastrophe designed to force our apparently inept government to do something, anything, to address the dying behemoth that is the US economy) is a perfect example to examine this point. Although Republican Senator Ron Johnson’s comment two days ago that John Boehner would lose his position as Speaker of The House if he were to compromise tax increases into a budget proposal to avoid the Sequester is not necessarily true, it highlights the tenuous relationship the status quo members of the GOP have with the hard-line Tea Party insurrection. It is also worth pointing out that the stalled and inept nature of our current government is arguably the contrived policy of the ideologically anti-government new Right. Through making the government inept they fulfill their own prophesy of inherent government ineptitude. The flaw in the ‘inherent’ part of that sentiment is a perspective to which I will return in Parts II and III. But the fundamental problem for moderate politicians is that political fundamentalists are more likely to vote, and in this world of declining voter participation, and Fox News rabble rousing (and general media bubble worlds), fundamentalists are both growing in number, but more so are coming to represent a greater proportion of the electorate. Although this assertion is not backed by any study I know of, this apathy would seem to be logically fueled by the growing ridiculousness of political culture, itself fueled by the growing influence of political fundamentalists.

PART II:

So… accident? I don’t know. But what seems clear is… problem. And this is where things become frustrating. Because for all the Right does wrong, what they plainly do well is present a clear, concise and consistent narrative. This being what I propose accidentally created enough fundamentalist ground support to exaggerate a slide towards polarization and apathy. But what is less speculative is the observation that the American Left is comparably inept at presenting a similarly coherent and persuasive economic narrative, and oddly so, because they have one.

This is what brings us back to the Sequester. The Right is clear, they want to replace Sequestration with budget cuts that do not touch the military, but further slashed social service to the point that a deficit neutral budget could be reached without any increase in revenue (i.e. taxes). It should be noted that the Right’s obsessive fixation on the deficit and debt (currently around 100% of GDP) seems unwarranted. For example, the UK’s national debt broke 250% of GDP during the beginning of the 19th century, US debt breached 120% of GDP in the 1940s, both were able to recover, Japanese debt is currently above 200% of GDP, and no one has ceased to lend to them. This is not the point of this article, but in sum, the debt is a problem, however worrying about the debt at the cost of everything else is foolish, especially in times of economic recession. If the economy shrinks, even if spending decreases, the debt will still grow in proportion to GDP. The Right, in some ways, acknowledges this fact in fretting over job losses caused by military spending cuts, because, in all reality, the military is one big Keynesian project. Fundamentally, the debt should be dealt with from a stable economic platform.

But this brings us back to the Sequester and economic narratives, because the Right touts austerity not only as the only path to economic stability, but also as morality. From a cynical, slightly conspiratorial perspective, this flawed ideological position would be considered the true motivation for the ginned-up deficit obsession. However, regardless of the validity of this speculation, this ideological position  is particularly relevant to understanding the Right’s desire to cut social spending. It prevents any ‘unjustified’ taxation upon the perceived sole ‘job creators’: the rich. While invoking economic justice upon the leaches of society who suckle at the teat of big government, who caused the deficit, and who, at the same time, sap social impetus for innovation by being allowed to live without making their own way in the capitalist market; i.e. the ‘Takers and Makers.’ In short: we cannot tax the rich, for otherwise they will not create jobs, and we cannot subsidize the lives of the poor, because, in the long run, it will only make them, and society, poorer.

A good narrative, and although the Democrats criticize this narratives resulting political policies as destructive , they very rarely attack its intellectual basis in the way that it deserves. It is flawed, and in my opinion, it is only as popular as it is because the alternative is not pronounced with nearly the same volume. First, where the debt comes from is more complicated than just domestic spending, a decade of war and the Bush tax cuts come to mind, although this is something I will return to in Part III, and it is a complicated topic. Although i find it somewhat compelling that US debt is higher as a percentage of GDP than the conglomerate of ‘evil’ ‘Socialist’ countries known as the European Union (102% compared to 83% c.2012).[3] More generally, the critique of this narrative comes in the form of two questions: how do rich people become rich, and why would a rich person hire anyone? The second question is particularly pertinent because companies actually have an impetus to hire as few people as possible in order to keep down overheads.

The answer, in short, is market demand. Rich people become rich, generally, because they, or the companies they invested in, are supplying goods or services that are desired by the market, and they hire people when market demand for their product increases to the point that more staff is required to adequately service the demand.

Where does market demand come from? Most of it comes from the middle class. They have enough money to purchase things, superfluous things and necessary things, and they make up large enough gross numbers that they can purchase a sufficient number of those things. By this I mean the 1% will never buy enough cars to fuel the auto-industry, because all of them are not car fetishists. And even if they were, what purchasing base would then fuel all the other industries? They both play roles. The capitalist class invests in companies, and the middle class buys the things that allow those companies to turn a profit, which then allows for more investment.

This is the narrative that supplies the intellectual basis for the Left, and it is the narrative that the Democrats bizarrely do not vehemently use to challenge the simplistic and flawed narrative repetitively screamed by the Right. We must protect the middle class, and prevent social stratification that destroys the purchasing base on which our market economy rests. This is the rationale behind providing base line educational and living standards, paid for by society, through taxes. It gives everyone the resources needed to compete in the job market, so they can then participate in perpetuating the consumption market, which then reciprocally fuels the job market. This does not mean there is not a valid debate about how welfare should be distributed, or conditions for its distribution (two position I might air on the more conservative and ‘incentivist’ side of) but it should be noted that this is a separate conversation to whether welfare should exist at all. Furthermore, this same economic narrative is also the rationale behind a Keynesian approach to recession, and against deficit obsession in times of recession. It is more important to fight unemployment to perpetuate the consumer base than cut spending that could be dealt with more responsibly following economic recovery.

Moreover, we all benefit from living in a society. My profits are your spending and vice-versa, and the whole process is made a lot easier, and more profitable, if we collectively decide to do things like build roads (etc.) as we incidentally did last century, the century that saw America reach unprecedented historical heights in human achievement. It is also nice if those roads are built to places, such as small towns, where the population size does not exactly make it profitable. Furthermore, because costs of subsistence is the same regardless of income, it is right to tax more those who make more, in order to obtain enough revenue to supply the services required to perpetuate the society. It is also important to prevent degrees of income inequality that go beyond manufacturing social incentives for innovation and hard-work, and breed resentment while increase poverty levels. Although it is true that wealth and capitalism are not zero sum games, they are not all win-win either.

This, unfortunately, is where things become more complicated, less certain, and excessively nuanced. Perhaps the reality of this complexity is why the Left has such a harder time expressing their narrative than the simplistic alternative expressed by the Right. Nevertheless, my frustration abounds at the lack of a coherent and consistent rebuttal to the Republican claim that the rich are the sole driving force behind the economy, because this delusion is very damaging to the national discourse, and is something preventing the more speculative conversation that follows. Because, in addition, the Right has dug the Left into a hole, and to complete their narrative to the point of unquestionably necessitating a different policy approach, two highly ingrained concepts must be challenged. The Left must state that Capitalism is broken and America is, and has always been, Socialist.

PART III

Socialism is a partially meaningless term, at least when compared to Capitalism and Communism. Both Capitalism and Communism have logical extremes to which they have never been taken, but theoretically could exist. Even though our use of these terms often ignores these logical extremes, they are important because the branding nature of terminology allows for the cessation of discourse without proper argument. Things are either labeled ‘Socialist’, ‘Communist’, or ‘Capitalist’ and are rejected or accepted outright. Yet the existence of never implemented logical extremes makes clear that nuance must be accepted.

Pure Communism would entail no government, no money, and no class: i.e. really naïve Anarchism. Pure Capitalism would entail no government, or at least no democratic government, because those are Socialist (they are publically owned). Pure Capitalism could seemingly function with some Corporatist/Plutocratic governmental form (although it is hard to understand how a free market could truly exist in such a nepotistic world) but the functionally of pure Capitalism would have to be either Tyrannical or Anarchical, and the en-vogue Libertarian form airs on the Anarchical side. Socialism is a meaningless term because it is only distinguished from Communism by the implicit acknowledgment that Socialism utilizes aspects of Capitalism, i.e. some private property and limited markets. Rather than describing a pure economic system it simply describes all levels of Capitalist/Communist hybrids, thus describing every society that has had markets and governments. The differences between such societies must be considered in terms of degrees rather than diametric opposition. Making Socialism a term so vague it is hardly a term worth using, much less chastising. But I can say with even more certainty that it is not a term to be declared un-American given the United States has had, since its inception, a democratic and publicly owned (i.e. Socialist)  government that facilitated the existence of its market economy. America has always been part Socialist.

This is the problem with the Libertarian (anarcho-capitalist) vision of the world that has come to dominate the world view and policy making of the new Right. It denies reality, and therefore makes an unstable platform for reality. It does this by not acknowledging the important role government (socialism) has in regulating capitalism, while pretending that its mantra (unregulated markets will self regulate and perpetuate perfection) is not Anarchism, and is the American way.

It is worth stating that Anarchism, when dealing with humans in their current evolutionary state, is flawed because it is crazy to think we will let power vacuums go unfilled, and that when approaching reality in an ad hoc manner, we will not fall into the tragedy of the commons. I suggest these two points because I am aware of countless incidences in history where this has occurred, yet none at any point in history where a local monopoly on force has not been seized when left available, and we fall into the tragedy of the commons even when approaching reality from a central planning position.

Nevertheless, even the disingenuous position of most ‘Libertarians’, which is actually just excessively diluted socialism in denial, because of its acknowledgment of a need for a socially owned government to supply military security and contract enforcement to ensure the proper functionality of the market, is flawed and damaging to society because it fails to recognize the other flaw of capitalism: its corrosive effect on the middle class. I don’t want to use his name, because I have no desire to defend Communism, but Marx told us this over one-hundred and fifty years ago. Marx was wrong about many things, but on this point he was right, un-fettered capitalism destroys the middle class, overproduction is a threat to capitalism, and thus, capitalism sows the seeds of its own destruction.

Hopefully I previously convinced you of the importance of the middle class to a functioning market system and the threat of overproduction, but on the other point, you should not simply take Marx on his word. However, this is a concept that is, at least speculatively, backed by statistics. It is most simply highlighted in the fact that US income inequality has grown significantly since the 1970s,[4] and while it is speculative to assert the adoption of Reagan-esque Trickle Down economic policy (tax rates for the top 1% have diminished by 25% and by 52% for the top 0.001%, over the same time period)[5] is the causation of this occurrence, given there are other correlating factors such as changes in technology and globalization, this notion is supported by the fact that income inequality has not grown to the same degree in other, more socialist, European countries with more progressive tax codes.[6]  Further, wealth redistribution and evening of social resources is the aspect of the three variables over which our national government has the most control. This relationship between taxation, public investment and economic growth has also been recently backed by a report from the Institute on Taxation and Economic Policy, which sights a correlation between higher economic growth and higher levels of personal income tax (37% disparity in growth rate) between different States in America.[7] The correlation between poverty, wealth disparity, tax levels, and market regulation is even more pronounced when looking at the mid-nineteenth century and the beginning of the twentieth.[8] Again, increases in laissez-faire government policy were accompanied by technological and globalizing changes, but the move towards purer capitalism should be noted.

citation for graph [9]

Furthermore, there is an unmistakable logic to ‘trickle up’ in an economic model predicated on capital. Capital allows you to own the means of production, thus making capital the most valuable asset, allowing capital to breed more capital, leading to the conglomeration of capital. Statistically, this notion that capital breeds more capital can be seen in the the disproportional earnings (and growth rates of those earnings) between the median and the first percentile, but also in the disparity between the top 0.001% and 1%.[10] The process is then logically exaggerated on the other end through a poverty trap catching people only making subsistence earnings, who then have no excess capital to invest either in themselves (to increase their worth, and therefore probable salary) or in investments geared towards producing more capital, as done by the capitalist class. Therefore, if no intervention is made to disrupt the cycle, income inequality will logically grow disproportionately to the general increase in living standards experienced by society at large. One proposal for addressing this problem would be to provide personal investment (in the form of housing and education subsidies etc.) in the poor to increase their market value, paid for with taxation of the rich, and prevention of dynastic wealth through some degree of estate taxation. Thus preventing the capital conglomeration urge while growing the middle class through expanding the skill set of the under-classes, and preventing the destruction of the consumption base on which the entire system is predicated. Not to mention the whole other host of societal problems correlated with poverty and the general social dysfunction this unnecessarily causes. All being trends supported by correlatory evidence from historical experience.

I am not an economist and I do not assert to have the answers to the proper level and relationship between regulation, government ownership, and free-market enterprise. I am simply trying to make the case that government has a role in allowing a ‘free-as-possible market’ to exist. I am also making the case that the Libertarian notion of some primordial and perfectly free-marketplace is wrong and never existed. Markets need the stability created by a state to exist at all (because humans need the stability of a state to not predicate their lives on concepts of ‘might is right’) and regulation can help prevent monopolies and nepotism that naturally occur and actually cause less-free markets. Further, the Right’s vilification of the word Socialist, and the concept of taxation and social services, is either disingenuous or ill-thought-out. Social security, for example, despite being decried as a ‘Ponzi Scheme’ and an archetypal example of why government can do no good, should be heralded as an example of governmental triumph. In the 1950s, 35% of American seniors lived below the poverty line, today that number is 9%, and it is estimated that if Social Security were to be abandoned, that number would rise to 45% instantaneously.[11] Clearly the Libertarian-touted voluntary organizations did not fulfill the job sixty years ago, so there is no reason to expect they would succeed now. The Right never calls to privatize the Army, and it is obvious why not. It is too important. This, in my opinion, is the exact same reason the medical industry fails under privatized circumstances: when people need it, there is no consumer choice in participation, or even a choice in delaying participation, and therefore the accountability provided by market demand fails to function and the result is arbitrary price setting. The specifics of this argument are getting far beyond the scope of my point, but suffice it to say, if you think a national Army should exist, then it is disingenuous to blanket claim that the government should not directly oversee any area of the economy because it is incapable of effectively doing so. You have already admitted that it can do so, making a nuanced discussion of specifics required for intellectual honesty

It is imperative that we remember the middle class is the driving force behind the economy, and their protection should be the primary goal of any believer in market economics. How this should be done is open to further discussion, but if the Right cannot be made to even admit this, there is little hope is addressing our other economic dysfunctions.

[1] http://www.thefiscaltimes.com/Columns/2012/06/15/Why-Ronald-Reagan-Would-Not-Lead-Todays-GOP.aspx#page1

[2] http://urbanlegends.about.com/library/bl_eisenhower_quote.htm

[3] http://www.bis.org/publ/work300.pdf

[4] http://web.archive.org/web/20070208142023/http://www.census.gov/hhes/www/income/histinc/ie6.html

[5] http://www.theatlantic.com/business/archive/2012/04/how-we-pay-taxes-11-charts/255954/

[6] http://stats.oecd.org/Index.aspx?QueryId=26067&Lang=en

http://www.theatlantic.com/business/archive/2012/04/how-we-pay-taxes-11-charts/255954/

[7] http://www.huffingtonpost.com/2013/02/28/state-income-tax_n_2784028.html

[8] http://www.theatlantic.com/magazine/archive/2011/09/can-the-middle-class-be-saved/308600/

[9] http://www.cbpp.org/cms/?fa=view&id=957

[10] http://www.nytimes.com/2005/06/05/national/class/HYPER-FINAL.html?ei=5088&en=f1a744d1ce38c79e&ex=1275624000&pagewanted=print&_r=0

[11] http://www.facethefactsusa.org/facts/all-that-stands-between-many-seniors-and-poverty/

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