Archive for March 29th, 2012
The last thirty plus years have been an experiment in lowering taxes, cutting regulations, and weakening both unions and the social welfare system. The result is graphically clear above – a massive shift of relative wealth and income from the poor and middle class to the very wealthiest of society.
The experiment proves that the illusion that markets are magic and, if left to their own devices, will give the best possible result is wrong. This deregulation and market fetish has led to the biggest economic catastrophe since the Great Depression (which was also proceeded by a belief in markets and inactive government) and a country that risks become a shadow of its former self — weaker, more divided, and in risk of long term economic decline.
It’s time to be forceful and clear about the lessons of the last thirty years, and reject the free market fetish that many on the right engage in. They get seduced by ideology, a overly simplified economic theory that makes it sound as if all would be great if only the government was less active, taxes were minimal, and social welfare programs were cut.
Numerous fallacies support such ideological delusions. One is the notion that the poor are simply leaches. It’s a self serving and incorrect belief, but one that can be used to justify a lack of concern for the many people struggling in our economy. If, instead of seeing them as humans trying to make it in rough times they can be dismissed as lazy parasites who simply live of taxpayer money, then there is no need to be concerned about them. That kind of dehumanization of others has been the tool of many ideologies — the Communists about the kulacks, the Nazis about the Jews, the Hutus about the Tutsis, etc. This case may be more benign — a “let them eat cake” response rather than a desire to eliminate them — but it’s still a false, dangerous propagandistic trend.
The problem is power. The free market myth has a hidden assumption. There is a belief that everyone is an equal player in the game, everyone is a free agent, able to make choices and act. If that were true, then the result of these interactions would be due to the choices made. Moreover, there is an assumption that people have good information upon which to act. However, if information is false, imperfect or manipulated, and if there are power differentials, then the market easily gets warped to serve the needs and desires of those with power (wealth) and more information.
A classic class is the housing bubble and resulting derivatives market that led to the crisis in 2008. Some on the right wrongly claim the crisis came from trying to get poor people into homes (it didn’t — that is a clearly and obviously false argument), but it’s clear to anyone who looks at the evidence that the crisis was caused by big banks turning mortgage debt into bonds that they sold (and then repackaged and resold) on the market. Dervivatives begot dervivatives and soon the market was awash in what the banks knew were dangerous junk bonds – albeit with a AAA rating.
Here’s a classic example of market fail. The banks knew what was in the bonds. But their money and clout got the ratings agencies to rate these AAA. Then the banks sold bonds and credit default swaps to investors even though they knew the investments were dangerous — e-mails and phone logs prove that. Hence wealth gets increasingly transferred to the already wealthy — a redistribution of wealth which has no ethical rationale.
Even before that, back in early 2000 I was part of an e-mail correspondance group that included a very wealthy connected individual. In January he wrote that we should all dump our stock, especially tech and dot com stocks. The insiders are all abandoning the market, he said — something’s about to go south. The insiders know.
This shouldn’t be controversial. The evidence is overwhelming that markets left to their own devices simply create a very powerful, wealthy class that dominates and rigs the game. That’s why the graph looks like it did — less regulation, less taxation and more emphasis on the market alone warped the US economy. Moreover, it made it easy for high debt to grow (private debt grew faster than governmental) and banks to avoid controls that used to limit such behavior.
From a comparative perspective, the evidence is equally strong. The states faring best in this crisis are those who kept more regulation on the market and maintained social protections. The best performing economies are from Scandinavia and Germany. They seemed to growing more slowly during the bubble years (leading some Americans to claim that their regulatory approach harmed growth), but it was more that they avoided the worst aspects of the bubble and emerged more in tact. Yes, due to globalization they aren’t immune to the crisis, and deregulation and bad policies in Ireland, Greece and Italy impact all of Europe, but Germany and Scandinavia prove that regulation, a strong social welfare system, strong unions and more equality does not weaken capitalism or hurt the economy — quite the contrary!
Yet in this country class war from the right continues. Paul Ryan’s budget shifting even more money to the wealthy while cutting assistance to the poor is a stark and to me comically absurd example of not learning from history. It doubles down on the mistakes of the last thirty years, closing eyes to reality in order to smoke the drug of ideology.
The evidence is powerful. 2012 needs to be a year where President Obama, and responsible Republicans and Democrats halt this flight of ideological fancy and take a pragmatic approach that recognizes that the country is strongest when government policy is used to try to combat the impact of power and information on the market. The goal isn’t to equalize outcomes, but to create true opportunity for everyone, and counter the advantages power, wealth and inside information provide to a small elite.
Occupy Wall Street was a start. It changed the conversation and got a lot of this information out there, even to people who don’t like protest movements. The impact of OWS could be profound, especially if they reignite their efforts this summer to get the word out about how warped our economy is, and how this is a result of a false belief in market magic. Deregulation, tax cuts, and cuts in social welfare programs have led us to where we are today – on the brink of collapse.
I think this message is starting to get out, and it has to be a theme of the 2012 campaign. The country seems ready to turn around and reject the grand thirty year experiment in deregulation, tax cuts and free market ideological fantasy. It’s time to change course.