Two months before I walked into a job at Teddy's 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
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
vs
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.
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