The Most Fatal Ailment

Part II of The Souls of the People series:

The souls of the people
The most fatal ailment
Ill fares the land

So long as you are happy
What we yearn to be
The sane and beautiful

The sum of what we have been
A little world made cunningly
Like a sinking star

The cries of the harvesters
The earth with its starkness
Written in blood

To do and die
In this fateful hour
So that we may fear less
The rags of time

Introduction

Kurt Andersen wrote a superb piece in The Atlantic on inequality (2020), especially its trajectory in the US, although much applies to the rise of neoliberalism everywhere. I highly recommend the entire article for the insight it gives into what the heck happened in the last 50 years. As I can write no better, I quote Andersen:

From my parents’ teenage years in the 1930s and ’40s through my teenage years in the 1970s, American economic life became a lot more fair and democratic and secure than it had been when my grandparents were teenagers. But then all of a sudden, around 1980, that progress slowed, stopped, and in many ways reversed…

In 40 years, the share of wealth owned by our richest 1 percent has doubled, the collective net worth of the bottom half has dropped to almost zero, the median weekly pay for a full-time worker has increased by just 0.1 percent a year, only the incomes of the top 10 percent have grown in sync with the economy, and so on. Americans’ boats stopped rising together; most of our boats stopped rising at all. Economic inequality has reverted to the levels of a century ago and earlier, and so has economic insecurity, while economic immobility is almost certainly worse than it’s ever been.

And this is no accident of history. As Andersen observes:

What’s happened since the 1970s and ’80s didn’t just happen. It looks more like arson than a purely accidental fire, more like poisoning than a completely natural illness, more like a cheating of the many by the few—and although I’ve always been predisposed to disbelieve conspiracy theories, this amounts to a long-standing and well-executed conspiracy, not especially secret, by the leaders of the capitalist class, at the expense of everyone else.

But it is not a conspiracy precisely, as Andersen notes. Although the most powerful part—the subtle, unceasing manipulation of law to favor the rich happens out of sight and thus out of mind of the average citizen. On the other hand, much of the tax part is brazen, as well as calls to stop the people from organizing—not unions (although that too), but from using their own government to organize the country’s strengths, its collective skill, productive capacity and resources, and apply these to public goods. This is discussed in a later post.

If the best way to rob a bank is to own one (Black 2005) the best way to rob a society is to be in control of its laws. Like a bank owner, this is both public and behind the scenes, and like a bank, viewed as boring and thus ignored. It doesn’t need to be a conspiracy.

These issues are yet again the problem of our age. Their seeming trajectory towards resolution post WWII, with widespread prosperity and a rising middle class, has been undone. What undid them points to the underlying problem: immediate causes include the spectacular increase in financialization and unearned rents (Fischer 2021), the lack of and lack of enforcement of progressive taxes, both in turn largely due to a shift in the public’s understanding of these issues. What caused this shift in public understanding is the age old problem—power and the lack thereof.

“We Worry Less”

In 1985 economist John Munkirs painstakingly demonstrated the interconnections of a corporate fraternity that essentially ruled the US economy, calling the shots on what does and does not happen in many spheres (The Transformation of American Capitalism: From Competitive Market Structures to Centralized Private Sector Planning, 1985). This wasn’t conspiracy but fact, with details of the firms, interconnections, places and people as researched by a staid academic, not a wild-eyed conspiracist.*

And it was ignored precisely because of that. And because of the rise of the “economics” that would serve this new order. As a fellow institutional economist writes, “Unfortunately, as the corporations became more powerful and sophisticated in the post-war era, both the hoe and the hand upon it began to lose their vitality, as we institutionalists were ushered out of government and by and large made into second class citizens in economics departments.” (Sheehan in Neale et al. 1986).

And that was 1985. How far have we gone from there? Leaps and bounds it turns out. I note how bad the ailments related to inequality (in part stemming from corporate dominance of law) are now in the last post—many are worse than 1985, and inequality undoubtedly so. The gains of the post-war decades were lost as the wealthy managed to diminish them through law and finance. Just one example, by financial means: getting rid of “old-fashioned” pensions while enriching themselves in the process. With academic cheerleading not just from Chicago School types but New Keynesians as well, the “triangulation” strategies of the ’90s New Democrats, New Labour in the UK…you know it’s bad when an icon of 60’s counterculture and rock-n-roll is publishing the best economics reporting on a real issue such as this (Greed and Debt: The True Story of Mitt Romney and Bain Capital 2012, and Looting the Pension Funds: All Across America, Wall Street is Grabbing Money Meant for Public Workers 2013). The dominance and easy acceptance of this ethos by the 2000s was made clear in the inadvertently leaked and now infamous “Plutonomy” report by Citigroup. It opens:

The World is dividing into two blocs – the Plutonomy and the rest. The U.S., UK, and Canada are the key Plutonomies – economies powered by the wealthy…In plutonomies the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers like savings rates, current account deficits, consumption levels, etc. This imbalance in inequality expresses itself in the standard scary “ global imbalances.” We worry less.

Citigroup, 2005

A year later Citigroup came out with a follow up, “Revisiting Plutonomy: The Rich Getting Richer.” Its summary:

A similar leak with much wider implications occurred in 2016 with the Panama Papers. If there was a hint at revolution at the end of the last post, I wonder why? You know it’s bad when The Economist asks “Can inequality only be fixed by war, revolution or plague?” (2018) and CNN notes “This billionaire warns that America’s massive wealth gap could lead to conflict” (2020).

The Non-Wealthy and Policy

There is a huge literature asking why the non-wealthy vote for candidates that support policies that harm them financially (against minimum wage laws, reduction in welfare programs, regressive taxes) or that do not support policies that would benefit them (public transport, healthcare, jobs programs, minimum wage laws, progressive taxes, environmental laws).

Two major factors commonly cited for the United States are:

• Race (especially salient in the US; Alesina et al. 2001, see Zeitz 2017 for a thorough overview). Overall, racial divides across countries are highly predictive of less redistributive policies.
• The Vietnam War. In the US in the late 1960s, unions and traditional Democrats became split from the anti-war and countercultural left, with significant numbers voting Republican. This split allowed for the rise of Republicans for decades, and eventually also the triangulation response of the Democrats, bringing the entire US political spectrum far to the right on core economic issues. (Frank 2004, Andersen 2020)

Other factors (note, of course, that these could all simultaneously occur with varying degrees of effect; the degree of the dilemma is enough to suggest there are multiple factors working simultaneously):

• A federal system (especially in the US), making redistributive policies at the national level more difficult.
• The Senate in the US (giving rural areas more power; rural communities may have traditional values that are against redistribution or “big government;” see Sargent 2021).
• First-past-the-post electoral systems. The natural outcome of which is two parties; this may make a progressive faction less likely to influence outcomes, although other factors would need to explain why this seems to happen more to the left than right; e.g., corporate influence, other structural or sociocultural factors. This directly relates for another reason to lower middle-class apathy and voting on “values” rather than economic issues. There is a vague sense that there is no real difference on economic issues regarding regulation, corporations, free trade, investment in infrastructure, taxation, and industrial policy between the two major parties. There is little sense in voting for a third party in a first-past-the-post system, and the two main parties genuinely haven’t offered the working class true choices on economic policies. Given Democratic corporate connections, New Keynesian and neoclassical economic dominance, New Labour in the UK etc., this vague sense was well-founded.
• The association, especially with 90s New Democrat and New Labour New Keynesian (not Postkeynesian!), pro-market, pro-privatization beliefs and the “triangulation” strategy of capitulation by the left. Relatedly, a disdain by the working class for a “liberal elite” real or imagined (see Frank 2016).
• The emphasis on “values” and social issues by the right, sometimes with a bait-and-switch: a conservative candidate runs on values and emotive issues, then if wins actually focuses policy on economic issues in favor of the wealthy and corporations. When it is noticed that change on social issues isn’t happening, the politician blames a “liberal elite” for blocking them, thus setting the stage for another electoral victory on value issues in the next election. (see Why Working-Class People Vote Conservative 2012 by Haidt for an argument that voting on “values” makes sense to the working class; I disagree but it calls attention to key issues).
• The influence of think-tanks. Directly on the public and media, and indirectly via academia on media and policy.

On a number of comment sections from articles on these issues there are comments “from the people” that should not be ignored—they are direct evidence of what people are thinking, and from my long personal experience working, living in and listening to working class America, they ring true (as representative of what the working class opine).

• Service industry and blue collar jobs are both physically and mentally demanding and do not provide financial security, all in ways that are qualitatively different than professional and white collar jobs, no matter how hard the latter work. This combines with a strong traditional work ethic that makes “freebies” distasteful. “I work by butt off everyday and they can too.” This is greatly amplified when imagined and/or real increases in (regressive) taxes are claimed to be needed for social programs and public goods (because both Republicans and Democrats believe public projects can only happen with increased taxes). Even a small rise in taxes (or insurance rates, or rent, or inflation) significantly impacts the quality of life of the working poor, again in a way that is qualitatively different than for the financially secure. The middle class and above are secure and comfortable enough that they can afford the idea of paying a little more for redistributive programs (taxes don’t work like that at the national level. However, it only matters how people think taxes work, and they do indeed work like that at the municipal and state level, especially when they are regressive). This simple dynamic is vastly underestimated. The poor in America are deeply suspicious of government programs and redistribution and often the worse-off they are and the harder, less pleasant, and more precarious their job, the more they say that “if I can work so hard and make it with no welfare, then so can they” and then vote for candidates who are against social programs.
• Successful underfunding and lack of exposure: these are somewhat similar and also reflect the success of conservative and/or libertarian long-term strategy. The right has managed to purposefully underfund public goods. In part, this directly achieves their end goal. More importantly, it greatly furthers the goal, as the right then uses poorly functioning underfunded systems as “examples” that “government does not work,” enabling an overall public sentiment that aids in their objective of reducing public goods and increasing profit-providing privatization (besides the US, this is occurring, for example, with rail transport and healthcare in the UK, and broadband in Australia [Mitchell 2017, 2019]).
  Relatedly, because of the lack of development or scaling back of public goods and services in the past, many Americans have not been exposed to quality public goods. To a degree that would scarcely be believed by a European who has not lived in the United States many Americans believe it is normal for healthcare to be incredibly expensive (with difficult paperwork involved, and tied to one’s employer), that public schools are necessarily low quality, have had little to no exposure to quality public transport (neither local nor long distance), and lack experience or perspective on other public goods such as civic architecture and an efficient bureaucracy (underfunded and unsurprisingly notoriously slow Departments of Motor Vehicles and the like; the experience with underfunded government at all levels fosters a belief that government doesn’t work, which is precisely what the right wants). Many now have low opinions of unions even in the North and coastal West; as a Southerner, I can tell you firsthand that a vast majority of Southerners literally have no idea what unions do and what they have accomplished in the past. This ties in with the dominance of neoclassical economics and the discredited belief that there is some “fair” and knowable distribution of wages and profit, when the truth is that wages and profit are always a political outcome. On two huge issues—healthcare and public infrastructure—and smaller ones as well, two generations or more of Americans literally do not know what quality public goods look like in practice. They won’t vote for what they don’t know.

The above ties in again to the deeply rooted success of think tanks, perhaps amplified by the internet. Again, through long personal experience, the amount of times one hears in conversations among the working class soundbites whose wording can only be from think tanks or think-tank-informed politicians—that minimum wage causes unemployment, that progressive taxes are unfair, that the wealthy create jobs, that welfare causes laziness, that government programs are always corrupt, that regulations stifle small businesses—is very high.

Note that explaining that the belief we must tax in order to organize public goods is a fallacy is a logical approach, as it is both true and should assuage the above fears (of the middle class on the ability to provide public goods). However, the message that social programs will lead to taxes and/or make people lazy is profoundly ingrained in the working poor and middle class in America, and may well make that approach unsuccessful despite it being true. Furthermore, taxes do raise funds for public goods at the state and municipal level. And those are especially regressive. Until those issues are fixed, the strategy to ignore taxation in order to facilitate public goods creation by separating it from the “tax the rich” slogan, will fail at those levels, and since many lump all taxes and public projects together, possibly at the national level as well.

The above attitudes and beliefs combine with the belief, whether cynically used by the right or legitimately held, that upward mobility is high, and high due to some kind of “free market” combined with a weak welfare system (maintaining “incentives”), and thus that 1) moving up is attainable and 2) progressive changes would somehow reduce upward mobility. As example, consider a primary benefit for the working poor in the US, the Earned Income Tax Credit (EITC). The power of a combined aspiration of upward mobility and disdain for “welfare” is common among the poor, e.g., “Because the EITC raises the incomes of so many, some low-income beneficiaries of the federal anti-poverty program regard themselves as middle class Americans—a struggling middle class who look down on “welfare cheats” but are confident nevertheless that upward mobility is theirs to claim.” (Why Working Poor Think They Are ‘Middle Class,’ 2015).

Note the irony that conservatives (and not infrequently, self-styled libertarians) vote in ways that increase government funding dramatically for corporations and the wealthy: subsidies, monopoly laws, corporate and patent law in ways that are interventionist and in favor of the wealthy (Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer 2016) not to mention interest on treasuries mainly held by the wealthy, laws favorable to individual asset holders and corporations (investments, real estate, anti-inheritance tax, liability laws, the 2008 bailouts and Federal Reserve/Treasury policies in general [TARP etc, “rescuing” rather than nationalizing failed companies and directly aiding individuals], or student loan bankruptcy laws).

Although the social and technological changes surrounding decades-long social change are of course vastly complex, the one thing that seems to always be just beneath the surface and that, both in their timing and mechanisms, seem causal, are economically conservative and libertarian think tanks.

The Influence of Think Tanks

These started early and highly ideological. By 1946 there was already a conservative reaction to the New Deal, The Foundation for Economic Education (FEE), whose aim “was to roll back policies of the New Deal. FEE opposed the Marshall Plan, Social Security and minimum wages, among other American social and economic policies” with corporate and industrial backing by “J. Howard Pew [President of Sunoco], Inland Steel, Quaker Oats, and Sears.” (“Foundation for Economic Education,” Wikipedia; see citations by Phillips-Fein 2009; Hamowy 2008; Schneider 2009 and Lichtman 2008).

FEE helped inspire and/or pay for the foundation of other conservative and libertarian groups, such as the Mount Pelerin Society and the Institute of Economic Affairs in the UK. There followed a long line of other think tanks, often umbrella groups which in turn funded or organized conferences, journals, youth outreach, and endless sub-groups funded or organized by an underlying foundation of think tanks, media owners, billionaires, and corporations (e.g., Koch brothers, Murdoch). Incidentally, the point that 1960s counterculture was part of what helped weaken Democrats/strengthen conservative and libertarian policies is supported by the history of the early (1953) and ultimately highly influential John M. Olin Foundation, with its effective fostering of the “law and economics” movement that would greatly increase conservative and libertarian views in law schools in the US. Although founded early, it was not very active until its founder was galvanized by the Willard Straight Hall takeover at Cornell University in 1969. It would go on to be a pillar of pro “free market” policies that law, above all else, could implement.

In total, the amount of influence via professorships, academic departments, organizations or institutes (George Mason, Mercatus Center, CATO, Mises Institute, the underestimated and extremely influential State Policy Network, the Fraser Institute), publishing and other media, programs for youth, providing an academic imprimatur to ideologically motivated economics, advising and consulting…all of these combined has cumulatively in size and over time had a massive influence, especially in the United States. Behind many politicians, talk radio and cable news hosts (and local news through the Sinclair Group) one can directly discern these earlier think tank writings and ideas, and at least indirectly, funding. Personal experience with how deeply their basic framing of issues shapes the acceptable range of discussion on economic issues suggests the impact runs deep (and shapes elections, e.g., Yglesias 2019).

Of course there are progressive and centrist think tanks (some are cited here), some of which predate the rise of conservative think tanks. Yet it seems their influence on the media and everyday people is far less. This is partly a question of funding imbalances (the wealthy and corporations can more easily fund think tanks with a wider academic and media reach than the working class can). Wealthy donors on “the left” seem to largely support what are in reality centrist think tanks; in the age of New Keynesianism this is hardly helpful. Overall the right supports what seems to many observers to be a more calculated, strategic, patient, and dogged approach, that has indeed had long term and fundamental impacts on framing and votes.

Overall, there is a sense that in the United States especially, and in many other countries as well, policies that aid the wealthy at the expense of equality—if not the poor directly—are dominating. And as the ancient Greeks already knew, “An imbalance between rich and poor is the oldest and most fatal ailment of all republics” (Plutarch). The next post looks into the distribution of this imbalance at the the national and international scale.

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Notes & Selected References

* Munkirs’ aim is not related to conspiracy, but rather to highlight the unique, and essentially non-capitalist, system that had developed in the US. It is different than the centralized public planning of the USSR, the decentralized public planning of Western Europe, and from a Galbraithian decentralized private planning system; the US had by 1985 become a centralized private sector planning economy.

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Note: I am interested in poverty and inequality everywhere. However, there is a default in this series towards the US, in part simply because I am from the United States, but also because the US, being an outlier among wealthy nations on poverty, inequality, and welfare, seems to offer useful lessons on what can go wrong even in a wealthy country with vast resources. Many countries are wealthy or becoming wealthy, and it would be a bad thing for them to fall into the traps that the US has. And the US is the third largest country in the world by population; it would be good to help the millions of poor or struggling Americans. Although inequality and poverty in developing countries is discussed some, the problem of poverty in developing countries is an entire field of study beyond the scope of this series. I hope this small series can shed some light or be useful in thinking about these problems more broadly, even with its focus on the US.

Update: Tom Hickey at mikenormaneconomics noted the relevance of the infamous 1971 Powell Memo. It powerfully demonstrates the concerted, intentional effort and outlines the succesful tactics of think tanks I discuss above. I overlooked mentioning it in the main body but its importance is difficult to overstate.

But one should not postpone more direct political action, while awaiting the gradual change in public opinion to be effected through education and information. Business must learn the lesson, long ago learned by labor and other self-interest groups. This is the lesson that political power is necessary; that such power must be assiduously cultivated; and that when necessary, it must be used aggressively and with determination — without embarrassment and without the reluctance which has been so characteristic of American business.
As unwelcome as it may be to the Chamber, it should consider assuming a broader and more vigorous role in the political arena.

Powell Memo 1971

References

Alesina, Alberto, Edward Glaeser and Bruce Sacerdote. 2001. Why Doesn’t The US Have A European-Style Welfare State? Harvard Institute of Economic Research, Discussion Paper Number 1933, Nov.

Andersen, Kurt. 2020. College-Educated Professionals Are Capitalism’s Useful Idiots. The Atlantic, Aug. 7.

Appelbaum, Binyamin. 2019. The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society. Little, Brown and Company (Hachette).

Baker, Dean. 2016. Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Center for Economic and Policy Research.

Black, William. 2005. The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry. University of Texas Press.

Fischer, Amanda. 2021. The rising financialization of the U.S. economy harms workers and their families, threatening a strong recovery. Washington Center for Equitable Growth.

Frank, Thomas. 2004. What’s the Matter with Kansas? Metropolitan/Picador.

Frank, Thomas. 2016. Listen, Liberal: Or, What Ever Happened to the Party of the People? Metropolitan/Picador.

Haidt, Jonathan. 2012. Why working-class people vote conservative. The Guardian, June 5.

Linden, Michael. 2012. The Rich and Powerful Really Are Rich and Powerful. Center for American Progress.

Madrick, Jeff. 2020. Why the Working Class Votes Against Its Economic Interests. New York Times, July 31. (Review of Reich 2020 and Teachout 2020).

McElwee, Sean, Brian Schaffner, and Jesse Rhodes. 2016. Whose Voice, Whose Choice? The Distorting Influence of the Political Donor Class in Our Big-Money Elections. Demos.

Munkirs, John. 1985. The Transformation of American Capitalism: From Competitive Market Structures to Centralized Private Sector Planning. M. E. Sharpe.

Neale, Walter C., Michael F. Sheehan, and Ronnie J. Phillips. 1986. “Three Reviews,” of The Transformation of American Capitalism: From Competitive Market Structures to Centralized Private Sector Planning by John R. Munkirs. Journal of Economic Issues, Vol. 20, No. 1, pp. 203-215.

Reich, Robert B.2020. The System: Who Rigged It, How We Fix It. Alfred A. Knopf.

Sargent, Greg. 2021. The GOP scam is getting worse — for Republican voters. A new study shows how. The Washington Post. March 8.

Segelken, H. Roger. 2015. Why working poor think they are ‘middle class.’ Cornell Chronicle; on Sarah Halpern Meekin, Kathryn Edin, Laura Tach, and Jennifer Sykes It’s Not Like I’m Poor: How Working Families Make Ends Meet in a Post-Welfare World. 2015. University of California Press.

Teachout, Zephyr. 2020. Break ‘Em Up: Recovering Our Freedom From Big Ag, Big Tech, and Big Money. All Points Books/St. Martin’s.

Yglesias, Matthew. 2019. Fox News’s propaganda isn’t just unethical — research shows it’s enormously influential. Without the “Fox effect,” neither Bush nor Trump could have won. Vox, March 4.

Zeitz, Joshua. 2017. Does the White Working Class Really Vote Against Its Own Interests? Politico Magazine.