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The economic crisis has spawned a resurgence of interest in Karl Marx. Worldwide sales of Das Kapital have shot up (one lone German publisher sold thousands of copies in 2008, compared with 100 the year before), a measure of a crisis so broad in scope and devastation that it has global capitalism—and its high priests—in an ideological tailspin.
Yet even as faith in neoliberal orthodoxies has imploded, why resurrect Marx? To start, Marx was far ahead of his time in predicting the successful capitalist globalization of recent decades. He accurately foresaw many of the fateful factors that would give rise to today’s global economic crisis: what he called the “contradictions” inherent in a world comprised of competitive markets, commodity production, and financial speculation.
Penning his most famous works in an era when the French and American revolutions were less than a hundred years old, Marx had premonitions of AIG and Bear Stearns trembling a century and a half later. He was singularly cognizant of what he called the “most revolutionary part” played in human history by the bourgeoisie—those forerunners of today’s Wall Street bankers and corporate executives. As Marx put it in The Communist Manifesto, “The bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and thereby relations of production, and with them the whole relations of society. . . . In one word, it creates a world after its own image.”
But Marx was no booster of capitalist globalization in his time or ours. Instead, he understood that “the need for a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe,” foreseeing that the development of capitalism would inevitably be “paving the way for more extensive and exhaustive crises.” Marx identified how disastrous speculation could trigger and exacerbate crises in the whole economy. And he saw through the political illusions of those who would argue that such crises could be permanently prevented through incremental reform.
Like every revolutionary, Marx wanted to see the old order overthrown in his lifetime. But capitalism had plenty of life left in it, and he could only glimpse, however perceptively, the mistakes and wrong turns that future generations would commit. Those of us now cracking open Marx will find he had much to say that is relevant today, at least for those looking to “recover the spirit of the revolution,” not merely to “set its ghost walking again.”
If he were observing the current downturn, Marx would certainly relish pointing out how flaws inherent in capitalism led to the current crisis. He would see how modern developments in finance, such as securitization and derivatives, have allowed markets to spread the risks of global economic integration. Without these innovations, capital accumulation over the previous decades would have been significantly lower. And so would it have been if finance had not penetrated more and more deeply into society. The result has been that consumer demand (and hence, prosperity) in recent years has depended more and more on credit cards and mortgage debt at the same time that the weakened power of trade unions and cutbacks in social welfare have made people more vulnerable to market shocks.
This leveraged, volatile global financial system contributed to overall economic growth in recent decades. But it also produced a series of inevitable financial bubbles, the most dangerous of which emerged in the U.S. housing sector. That bubble’s subsequent bursting had such a profound impact around the globe precisely because of its centrality to sustaining both U.S. consumer demand and international financial markets. Marx would no doubt point to this crisis as a perfect instance of when capitalism looks like “the sorcerer who is no longer able to control the powers of the netherworld whom he has called up by his spells.”
Despite the depth of our current predicament, Marx would have no illusions that economic catastrophe would itself bring about change. He knew very well that capitalism, by its nature, breeds and fosters social isolation. Such a system, he wrote, “leaves no other nexus between man and man than naked self-interest, than callous ‘cash payment.’” Indeed, capitalism leaves societies mired “in the icy water of egotistical calculation.” The resulting social isolation creates passivity in the face of personal crises, from factory layoffs to home foreclosures. So, too, does this isolation impede communities of active, informed citizens from coming together to take up radical alternatives to capitalism.
Marx would ask first and foremost how to overcome this all-consuming social passivity. He thought that unions and workers’ parties developing in his time were a step forward. Thus in Das Kapital he wrote that the “immediate aim” was “the organization of the proletarians into a class” whose “first task” would be “to win the battle for democracy.” Today, he would encourage the formation of new collective identities, associations, and institutions within which people could resist the capitalist status quo and begin deciding how to better fulfill their needs.
No such ambitious vision for enacting change has arisen from the crisis so far, and it is this void that Marx would find most troubling of all. In the United States, some recent attention-getting proposals have been derided as “socialist,” but only appear to be radical because they go beyond what the left of the Democratic Party is now prepared to advocate. Dean Baker, codirector of the Center for Economic and Policy Research, for example, has called for a $2 million cap on certain Wall Street salaries and the enactment of a financial transactions tax, which would impose an incremental fee on the sale or transfer of stocks, bonds, and other financial assets. Marx would view this proposal as a perfect case of thinking inside the box, because it explicitly endorses (even while limiting) the very thing that is now popularly identified as the problem: a culture of risk disassociated from consequence. Marx would be no less derisive toward those who think that bank nationalizations—such as those that took place in Sweden and Japan during their financial crises in the 1990s—would amount to real change.
Ironically, one of the most radical proposals making the rounds today has come from an economist at the London School of Economics, Willem Buiter, a former member of the Bank of England’s Monetary Policy Committee and certainly no Marxist. Buiter has proposed that the whole financial sector be turned into a public utility. Because banks in the contemporary world cannot exist without public deposit insurance and public central banks that act as lenders of last resort, there is no case, he argues, for their continuing existence as privately owned, profit-seeking institutions. Instead they should be publicly owned and run as public services. This proposal echoes the demand for “centralization of credit in the banks of the state” that Marx himself made in the Manifesto. To him, a financial-system overhaul would reinforce the importance of the working classes’ winning “the battle of democracy” to radically change the state from an organ imposed upon society to one that responds to it.
“From financialisation of the economy to the socialisation of finance,” Buiter wrote, is “a small step for the lawyers, a huge step for mankind.” Clearly, you don’t need to be a Marxist to have radical aspirations. You do, however, have to be some sort of Marxist to recognize that even at a time like the present, when the capitalist class is on its heels, demoralized and confused, radical change is not likely to start in the form of “a small step for the lawyers” (presumably after getting all the “stakeholders” to sit down together in a room to sign a document or two). Marx would tell you that, without the development of popular forces through radical new movements and parties, the socialization of finance will fall on infertile ground. Notably, during the economic crisis of the 1970s, radical forces inside many of Europe’s social democratic parties put forward similar suggestions, but they were unable to get the leaders of those parties to go along with proposals they derided as old-fashioned.
Attempts to talk seriously about the need to democratize our economies in such radical ways were largely shunted aside by parties of all stripes for the next several decades, and we are still paying the price for marginalizing those ideas. The irrationality built into the basic logic of capitalist markets—and so deftly analyzed by Marx—is once again evident. Trying just to stay afloat, each factory and firm lays off workers and tries to pay less to those kept on. Undermining job security has the effect of undercutting demand throughout the economy. As Marx knew, microrational behavior has the worst macroeconomic outcomes. We now can see where ignoring Marx while trusting in Adam Smith’s “invisible hand” gets you.
The financial crisis today also exposes irrationalities in realms beyond finance. One example is U.S. President Barack Obama’s call for trading in carbon credits as a solution to the climate crisis. In that supposedly progressive proposal, corporations that meet emissions standards sell credits to others that fail to meet their own targets. The Kyoto Protocol called for a similar system swapped across states. Fatefully however, both plans depend on the same volatile derivatives markets that are inherently open to manipulation and credit crashes. Marx would insist that, to find solutions to global problems such as climate change, we need to break with the logic of capitalist markets rather than use state institutions to reinforce them. Likewise, he would call for international economic solidarity rather than competition among states. As he put it in the Manifesto, “United action, of the leading . . . countries, at least, is the first condition for the emancipation of the proletariat.”
Yet the work of building new institutions and movements for change must begin at home. Although he made the call “Workers of the world, unite!” Marx still insisted that workers in each country “first of all settle things with their own bourgeoisie.” The measures required to transform existing economic, political, and legal institutions would “of course be different in different countries.” But in every case, Marx would insist that the way to bring about radical change is first to get people to think ambitiously again.
How likely is that to happen? Even at a moment when the financial crisis is bleeding dry a vast swath of the world’s people, when collective anxiety shakes every age, religious, and racial group, and when, as always, the deprivations and burdens are falling most heavily on ordinary working people, the prognosis is uncertain. If he were alive today, Marx would not look to pinpoint exactly when or how the current crisis would end. Rather, he would perhaps note that such crises are part and parcel of capitalism’s continued dynamic existence. Reformist politicians who think they can do away with the inherent class inequalities and recurrent crises of capitalist society are the real romantics of our day, themselves clinging to a naive utopian vision of what the world might be. If the current crisis has demonstrated one thing, it is that Marx was the greater realist.
The Politics of Prohibition
How government greed, not individual rights, ended America's ban on alcohol.
Don Boudreaux
The standard, schoolbook history of alcohol prohibition in the United States goes like this:
Americans in 1920 embarked on a noble experiment to force everyone to give up drinking. Alas, despite its nobility, this experiment was too naive to work. It soon became clear that people weren't giving up drinking. Worse, it also became clear that Prohibition fueled mobsters who grew rich supplying illegal booze. So, recognizing the futility of Prohibition, Americans repealed it in 1934.
This popular belief is completely mistaken. Here's what really happened:
National alcohol prohibition did begin on Jan. 16, 1920, following ratification of the 18th Amendment and enactment of the Volstead Act.
Speakeasies and gangster violence did become familiar during the 1920s.
And Americans did indeed keep drinking.
But contrary to popular belief, the 1920s witnessed virtually no sympathy for ending Prohibition. Neither citizens nor politicians concluded from the obvious failure of Prohibition that it should end.
As historian Norman Clark reports:
"Before 1930 few people called for outright repeal of the (18th) Amendment. No amendment had ever been repealed, and it was clear that few Americans were moved to political action yet by the partial successes or failures of the Eighteenth. ... The repeal movement, which since the early 1920s had been a sullen and hopeless expression of minority discontent, astounded even its most dedicated supporters when it suddenly gained political momentum."
What happened in 1930 that suddenly gave the repeal movement political muscle? The answer is the Great Depression and the ravages that it inflicted on federal income-tax revenues.
Prior to the creation in 1913 of the national income tax, about a third of Uncle Sam's annual revenue came from liquor taxes. (The bulk of Uncle Sam's revenues came from customs duties.) Not so after 1913. Especially after the income tax surprised politicians during World War I with its incredible ability to rake in tax revenue, the importance of liquor taxation fell precipitously.
By 1920, the income tax supplied two-thirds of Uncle Sam's revenues and nine times more revenue than was then supplied by liquor taxes and customs duties combined. In research that I did with University of Michigan law professor Adam Pritchard, we found that bulging income-tax revenues made it possible for Congress finally to give in to the decades-old movement for alcohol prohibition.
Before the income tax, Congress effectively ignored such calls because to prohibit alcohol sales then would have hit Congress hard in the place it guards most zealously: its purse. But once a new and much more intoxicating source of revenue was discovered, the cost to politicians of pandering to the puritans and other anti-liquor lobbies dramatically fell.
Prohibition was launched.
Despite pleas throughout the 1920s by journalist H.L. Mencken and a tiny handful of other sensible people to end Prohibition, Congress gave no hint that it would repeal this folly. Prohibition appeared to be here to stay -- until income-tax revenues nose-dived in the early 1930s.
From 1930 to 1931, income-tax revenues fell by 15 percent.
In 1932 they fell another 37 percent; 1932 income-tax revenues were 46 percent lower than just two years earlier. And by 1933 they were fully 60 percent lower than in 1930.
With no end of the Depression in sight, Washington got anxious for a substitute source of revenue.
That source was liquor sales.
Jouett Shouse, president of the Association Against the Prohibition Amendment, was a powerful figure in the Democratic Party that had just nominated Franklin Roosevelt as its candidate for the White House. Shouse emphasized that ending Prohibition would boost government revenue.
And a House leader of Congress' successful attempt to propose the Prohibition-ending 21st Amendment said in 1934 that "if (anti-prohibitionists) had not had the opportunity of using that argument, that repeal meant needed revenue for our government, we would not have had repeal for at least 10 years."
There's no doubt that widespread understanding of Prohibition's futility and of its ugly, unintended side-effects made it easier for Congress to repeal the 18th Amendment. But these public sentiments were insufficient, by themselves, to end the war on alcohol.
Ending it required a gargantuan revenue shock -- to the U.S. Treasury.
So, if the history of alcohol prohibition is a guide, drug prohibition will not end merely because there are many sound, sensible and humane reasons to end it. Instead, it will end only if and when Congress gets desperate for another revenue source.
That's the sorry logic of politics and Prohibition.
Don Boudreaux is chairman of the economics department at George Mason University. This article originally appeared in the Pittsburgh Tribune-Review.
The Foundation for Economic Education, or FEE, is one of the oldest libertarian organizations in the country. Founded in 1946 by Leonard Read, FEE holds seminars, publishes The Freeman, and has inspired generations of classical liberals and free-market thinkers.
Lawrence W. Reed has headed up FEE since September 2008, after two decades running the Mackinac Center for Public Policy. In this Reason.tv interview, conducted by Reason Editor in Chief Matt Welch at the FreedomFest conference in Las Vegas, Reed talks about how he first came to his politics in 1968 because of Czechoslovakia's "Prague Spring," and how the mission of teaching free-market economics remains as urgent as ever in 2009.
They Like Us. They Sort of Like Us
With Obama in the White House, America is better liked around the world. So what?
Michael C. MoynihanJust back from Tehran, New York Times columnist Roger Cohen related the sentiment of Nasser Hadian, a professor at Tehran University and, according to a previous Times article, a "childhood friend" of Iranian President Mahmoud Ahmadinejad: "What Obama has already done for the United States in the Muslim world is unbelievable."
Hadian is perhaps not the most reliable observer of popular opinion in Iran, having previously praised Ahmadinejad as a "self-confident, committed and absolutely incorruptible" leader. In 2004, New York Times columnist Nicolas Kristof seemed genuinely surprised by his visit to Tehran, confidently declaring that "Finally, I've found a pro-American country." "Everywhere in Iran," wrote Kristof, "people have been exceptionally friendly and fulsome in their praise for the United States, and often for President George W. Bush as well." And the only hostility Kristof encountered was "from a table full of young Europeans."
Relying as they do on political considerations and selection bias, both observations are of little value to those attempting to gauge the actual mood in Iran. And while Hadian's effusive verdict strains credulity (and Kristof's seems to comport with a variety of independent sources), there is a good deal of evidence that the Obama presidency has indeed shifted attitudes towards the United States throughout the world. But not so much in the Muslim world.
According to a recent Pew poll, Obama has generally pushed America's favorability rating in a positive direction, with the resultant gains largest in Western Europe. In England, France, and Germany, for instance, positive perceptions of the United States have seen double digit jumps. But in Muslim countries, only Indonesia, where Obama spent four years as a child, registered a significant increase in favorability, while Pakistan saw a small drop in goodwill towards the U.S. (from 19 to 16 percent). Despite the administration's very public grappling with Israel, positive opinions of the United States in the Palestinian territories remained at a paltry 15 percent.This much is true: It can't be a bad thing that the United States' "standing" in the world has increased, though one wonders if most respondents were aware of the Obama administration's flurry of Bush-like foreign policy decisions. But what now?
Obama's "rock star" popularity in Ghent and Schleswig-Holstein doesn't much impress America's antagonists. In a recent editorial, The Washington Post wrote excitedly that "The new administration has pushed a reset button with Russia and sent new ambassadors to Syria and Venezuela; it has offered olive branches to Cuba and Burma."
Add to that list Iran, whom the administration has offered a "new beginning" of direct engagement. In the meantime, an election was rigged, show trials of dissidents commenced, and three American tourists were arrested after "infiltrating" the country during a hike through the Kurdistan region of Iraq (American journalist Roxana Saberi was arrested in January on espionage charges). Last week, General Ray Odierno told journalists that Iranian meddling in Iraqi affairs, including the arming and training of insurgents, "is more targeted now than it has ever been." The rock star has dazzled Copenhagen, but has thus far failed to dissuade Iran from continuing its pursuit of a nuclear program.
With Cuba, the administration has undertaken a handful of sensible measures, such as allowing unlimited remittances to flow into Cuba from America-based exiles, and eliminating limits on family travel to the island. But other "reset" policies are quixotic, like the administration's plan to allow "U.S. satellite radio and satellite television service providers to engage in transactions necessary to provide services to customers in Cuba." It is nice to know that the White House believes ordinary Cubans too desire to listen to Howard Stern or play along to Cash Cab at home, but it isn't a sentiment reciprocated by their oppressors.
If concessions, no matter how necessary, constitute a "thaw" in Cuban-American relations, it seems likely that Obama is content with a unidirectional policy of change. Indeed, Raul Castro, whom many hopeful experts predicted would take a softer line than his shriveled, half-dead brother, recently told a gathering of Communist Party apparatchiks that, despite the country's deepening economic crisis, there would be no China-like moves towards a freer market. "I wasn't elected (sic) president to return capitalism to Cuba or to surrender the revolution," he wheezed.
As the Post points out, there has been a "thaw" in relations with Venezuela, too. In the spirit of these times of "resetting," the two governments restored their respective ambassadors, expelled last year during a diplomatic row. And it was doubtless a strategic move for the Obama administration to denounce the coup in Honduras, siding with the Chavez and Castro governments in calling for President Manuel Zelaya to be speedily returned to power.But if any of these entreaties were expected to change behavior in Caracas, to coax Chavez back into polite company, they have so far come to naught. Despite Obama's siding with Zelaya, Chavez, perhaps out of habit, blamed the Honduran coup on the CIA. In the past week, the Chavista government shut down 34 independent radio stations (with promises to close hundreds more), sent its thugs to attack the only remaining independent television channel, pushed a law aimed at censoring critics engaged in "media crimes," and was again caught arming the Colombian rebel group FARC.
In Afghanistan, even Obama boosters like Slate editor Jacob Weisberg warn that the administration risks "getting overcommitted" and is "putting too much faith in the United Nations, [and] accommodating dictators instead of standing up to them." While the previous administration discredited the idea of liberal internationalism, Weisberg says, "Obama has failed to stand up for the broader ideas of democracy promotion and humanitarian intervention.” Weisberg cautions that Obama cannot merely frame himself as the anti-Bush.
But for now, being the anti-Bush has kept his poll numbers high in this country, too.
During the 2008 election, when I spoke with voters in Washington D.C., New York, and Los Angeles, most expressed two desires: to "improve our image abroad" and see a precipitous withdrawal from Iraq and Afghanistan. The latter wish, of course, hasn’t happened. While the streets of Washington, D.C., were crowded with "Funk the War" and "Bailout People Not Banks" demonstrations in 2008 (both documented by Reason.tv), the protesters have fallen silent since inauguration. We might still be tallying casualties in Herat and Baghdad, but the opposition has melted away, and reemerged on issues such as health care and the relative importance of mentally unbalanced "birthers."
But no matter. Those who loathed us, now loathe us a little bit less than before.
So rather than the scorn that so often greets Americans in Western Europe (and trust me, it is ubiquitous), our interlocutors will now praise our good sense in choosing Barack Obama, while paying less attention to our supposedly debased, ignorant culture. None of the standard talking points I encountered while living in Europe—e.g., Americans are fat, undereducated, and cultureless; or, to quote filmmaker Michael Moore, simply "the dumbest people on the planet"—are countervailed by a changing of the White House guard. And neither will be the hostility from Caracas and Tehran.
So by all means rejoice that this country is more likable to bien pensant Belgians, but remember that there is a profound difference between changing attitudes and changing policy.
Michael C. Moynihan is a senior editor of Reason magazine.Can Obama be deprogrammed?
The president is a prisoner of the cult of neoliberalism
By Michael Lind
Aug. 4, 2009 | In my first foray into political life in the 1970s, I worked during college on the staff of a liberal Democrat in the Texas state Senate. Only a few years earlier, Patty Hearst had been kidnapped and brainwashed by the Symbionese Liberation Army, and a moral panic about cults seducing college kids was sweeping the nation. One result was the rise of a new, thankfully ephemeral profession: "deprogrammers" who for pay would kidnap a young person from a cult and break the spell, by means of isolation, interrogation and maybe reruns of "The Waltons."
A reactionary Republican state senator from the Houston area, who was heartily despised by my senator, introduced a bill granting parents the right to hire deprogrammers to kidnap adult children who belonged to what the parents regarded as cults and then confine them in motels for several weeks, subject to psychological coercion, without notifying the authorities. Needless to say, this deprogramming law was the greatest threat to the tradition of habeas corpus until another reactionary Texan was installed in the White House in 2001. The bill was laughed to death, when, during a hearing, the sponsor was asked if it could be used to deprogram young people who had joined a certain well-known cult. "Why, yes, Senator," the Republican replied, "it would apply to cults like the Unitarians."
Boy, do we need deprogrammers now, to liberate Barack Obama from the cult of neoliberalism.
By neoliberalism I mean the ideology that replaced New Deal liberalism as the dominant force in the Democratic Party between the Carter and Clinton presidencies. In the Clinton years, this was called the "Third Way." The term was misleading, because New Deal liberalism between 1932 and 1968 and its equivalents in social democratic Europe were considered the original "third way" between democratic socialism and libertarian capitalism, whose failure had caused the Depression. According to New Deal liberals, the United States was not a "capitalist society" or a "market democracy" but rather a democratic republic with a "mixed economy," in which the state provided both social insurance and infrastructure like electric grids, hydropower and highways, while the private sector engaged in mass production.
When it came to the private sector, the New Dealers, with some exceptions, approved of Big Business, Big Unions and Big Government, which formed the system of checks and balances that John Kenneth Galbraith called "countervailing power." But most New Dealers dreaded and distrusted bankers. They thought that finance should be strictly regulated and subordinated to the real economy of factories and home ownership. They were economic internationalists because they wanted to open foreign markets to U.S. factory products, not because they hoped that the Asian masses some day would pay high overdraft fees to U.S. multinational banks.
New Dealers approved of social insurance systems like Social Security and Medicare, which were rights (entitlements) not charity and which mostly redistributed income within the middle class, from workers to nonworkers (the retired and the temporarily unemployed). But contrary to conservative propaganda, New Deal liberals disliked means-tested antipoverty programs and despised what Franklin Roosevelt called "the dole." Roosevelt and his most important protégé, Lyndon Johnson, preferred workfare to welfare. They preferred a high-wage, low-welfare society to a low-wage, high-welfare society. To maintain the high-wage system that would minimize welfare payments to able-bodied adults, New Deal liberals did not hesitate to regulate the labor market, by means of pro-union legislation, a high minimum wage, and low levels of immigration (which were raised only at the end of the New Deal period, beginning in 1965). It was only in the 1960s that Democrats became identified with redistributionist welfarism -- and then only because of the influence of the New Left, which denounced the New Deal as "corporate liberalism."
Between the 1940s and the 1970s, the New Deal system -- large-scale public investment and R&D, regulated monopolies and oligopolies, the subordination of banking to productive industry, high wages and universal social insurance -- created the world's first mass middle class. The system was far from perfect. Southern segregationist Democrats crippled many of its progressive features and the industrial unions were afflicted by complacency and corruption. But for all its flaws, the New Deal era is still remembered as the Golden Age of the American economy.
And then America went downhill.
The "stagflation" of the 1970s had multiple sources, including the oil price shock following the Arab oil embargo in 1973 and the revival of German and Japanese industrial competition (China was still recovering from the damage done by Mao). During the previous generation, libertarian conservatives like Milton Friedman had been marginalized. But in the 1970s they gained a wider audience, blaming the New Deal model and claiming that the answer to every question (before the question was even asked) was "the market."
The free-market fundamentalists found an audience among Democrats as well as Republicans. A growing number of Democratic economists and economic policymakers were attracted to the revival of free-market economics, among them Obama's chief economic advisor Larry Summers, a professed admirer of Milton Friedman. These center-right Democrats agreed with the libertarians that the New Deal approach to the economy had been too interventionist. At the same time, they thought that government had a role in providing a safety net. The result was what came to be called "neoliberalism" in the 1980s and 1990s -- a synthesis of conservative free-market economics with "progressive" welfare-state redistribution for the losers. Its institutional base was the Democratic Leadership Council, headed by Bill Clinton and Al Gore, and the affiliated Progressive Policy Institute.
Beginning in the Carter years, the Democrats later called neoliberals supported the deregulation of infrastructure industries that the New Deal had regulated, like airlines, trucking and electricity, a sector in which deregulation resulted in California blackouts and the Enron scandal. Neoliberals teamed up with conservatives to persuade Bill Clinton to go along with the Republican Congress's dismantling of New Deal-era financial regulations, a move that contributed to the cancerous growth of Wall Street and the resulting global economic collapse. As Asian mercantilist nations like Japan and then China rigged their domestic markets while enjoying free access to the U.S. market, neoliberal Democrats either turned a blind eye to the foreign mercantilist assault on American manufacturing or claimed that it marked the beneficial transition from an industrial economy to a "knowledge economy." While Congress allowed inflation to slash the minimum wage and while corporations smashed unions, neoliberals chattered about sending everybody to college so they could work in the high-wage "knowledge jobs" of the future. Finally, many (not all) neoliberals agreed with conservatives that entitlements like Social Security were too expensive, and that it was more efficient to cut benefits for the middle class in order to expand benefits for the very poor.
The transition from New Deal liberalism to neoliberalism began with Carter, but it was not complete until the Clinton years. Clinton, like Carter, ran as a populist and was elected on the basis of his New Deal-ish "Putting People First" program, which emphasized public investment and a tough policy toward Japanese industrial mercantilism. But early in the first term, the Clinton administration was captured by neoliberals, of whom the most important was Treasury Secretary Robert Rubin. Under Rubin's influence, Clinton sacrificed public investment to the misguided goal of balancing the budget, a dubious accomplishment made possible only by the short-lived tech bubble. And Rubin helped to wreck American manufacturing, by pursuing a strong dollar policy that helped Wall Street but hurt American exporters and encouraged American companies to transfer production for the U.S. domestic market to China and other Asian countries that deliberately undervalued their currencies to help their exports.
By the time Barack Obama was inaugurated, the neoliberal capture of the presidential branch of the Democratic Party was complete. Instead of presiding over an administration with diverse economic views, Obama froze out progressives, except for Jared Bernstein in the vice-president's office, and surrounded himself with neoliberal protégés of Robert Rubin like Larry Summers and Tim Geithner. The fact that Robert Rubin's son James helped select Obama's economic team may not be irrelevant.
Instead of the updated Rooseveltonomics that America needs, Obama's team offers warmed-over Rubinomics from the 1990s. Consider the priorities of the Obama administration: the environment, healthcare and education. Why these priorities, as opposed to others, like employment, high wages and manufacturing? The answer is that these three goals co-opt the activist left while fitting neatly into a neoliberal narrative that could as easily have been told in 1999 as in 2009. The story is this: New Dealers and Keynesians are wrong to think that industrial capitalism is permanently and inherently prone to self-destruction, if left to itself. Except in hundred-year disasters, the market economy is basically sound and self-correcting. Government can, however, help the market indirectly, by providing these three public goods, which, thanks to "market failures," the private sector will not provide.
Healthcare? New Deal liberals favored a single-payer system like Social Security and Medicare. Obama, however, says that single payer is out of the question because the U.S. is not Canada. (Evidently the New Deal America of FDR and LBJ was too "Canadian.") The goal is not to provide universal healthcare, rather it is to provide universal health insurance, by means that, even if they include a shriveled "public option," don't upset the bloated American private health insurance industry.
Education? In the 1990s, the conventional wisdom of the neoliberal Democrats held that the "jobs of the future" were "knowledge jobs." America's workers would sit in offices with diplomas on the wall and design new products that would be made in third-world sweatshops. We could cede the brawn work and keep the brain work. Since then, we've learned that brain work follows brawn work overseas. R&D, finance and insurance jobs tend to follow the factories to Asia.
Education is also used by neoliberals to explain stagnant wages in the U.S. By claiming that American workers are insufficiently educated for the "knowledge economy," neoliberal Democrats divert attention from the real reasons for stagnant and declining wages -- the offshoring of manufacturing, the decline of labor unions, and, at the bottom of the labor market, a declining minimum wage and mass unskilled immigration. One study after another since the 1990s has refuted the theory that wage inequality results from skill-biased technical change. But the neoliberal cultists around Obama who write his economic speeches either don't know or don't care. Like Bill Clinton before him, Barack Obama continues to tell Americans that to get higher wages they need to go to college and improve their skills, as though there weren't a surplus of underemployed college grads already.
Environment? Here the differences between the New Deal Democrats and the Obama Democrats could not be wider. Their pro-industrial program did not prevent New Deal Democrats from being passionate about resource conservation and wilderness preservation. They did not hesitate to use regulations to shut down pollution. And their approach to energy was based on direct government R&D (the Manhattan Project) and direct public deployment (the TVA).
Contrast the straightforward New Deal approaches with the energy and environment policies of Obama and the Democratic leadership, which are at once too conservative and too radical. They are too conservative, because cap and trade relies on a system of market incentives that are not only indirect and feeble but likely to create a subprime market in carbon, enriching a few green profiteers. At the same time, they are too radical, because any serious attempt to shift the U.S. economy in a green direction by hiking the costs of non-renewable energy would accelerate the transfer of U.S. industry to Asia -- and with it not only industry-related "knowledge jobs" but also the manufacture of those overhyped icons of the "green economy," solar panels and windmills.
While we can't go back to the New Deal of the mid-20th century in its details, we need to re-create its spirit. But short of confining them in motel rooms and making them watch newsreels about the Hoover Dam, Glass-Steagall, the TVA and the Manhattan Project, is it possible to liberate President Obama and the Democratic leadership from the cult of neoliberalism?
Meet the Enemy
Half a century ago, as I was struggling to articulate a social and political philosophy with which my inner voices could find approval, I discovered one of my earliest introductions to what has since come to be known as libertarian thought. I had read – and enjoyed – classical philosophers John Locke, John Stuart Mill, the Stoics, and others who took seriously the plight of the individual at the hands of political systems.
Discovering the writings of H.L. Mencken during the early days of my inquiries introduced me to a number of contemporary critics of governmental behavior. It was at this time that I read a book, titled Our Enemy, the State and written by Albert Jay Nock, that began the real transformation of my thinking. I soon became less interested in the pursuit of abstract philosophic reasoning and increasingly focused on the realpolitik of political systems.
A major problem with political philosophies is that they involve the playing out of the abstract thoughts of their authors. Are the differing visions of a "state of nature" as seen by Hobbes, Rousseau, or Locke grounded in empirical studies of the history of stateless societies, or are they only the projection of the life experiences, intuitive speculations, indoctrinations, the collective unconscious, and other internally generated influences upon the mind of the writer? As our understanding of the world is grounded in subjectivity, the same question needs to be asked of anyone engaged in speculative philosophy: is it possible to stand outside our own minds and comment upon the world free of the content of our own thinking? Our understanding of the world is grounded in subjectivity, and we are easily seduced into confusing the reality of political systems with our expectations as to how such systems ought to work. Was Heisenberg right in telling us that the observer is an indispensable ingredient in what is being observed?
Who was this observer I had just discovered? Albert Jay Nock began his career as an Episcopal priest, later turning to journalism. At different times, he wrote for the magazines The Nation and Freeman, publications with different perspectives than their current versions. A self-described Jeffersonian and Georgist, he was an articulate spokesman for classical liberalism and an advocate of free markets and private property who had a strong distrust of power. He wrote at a time when the concept of "liberalism" was being intellectually and politically corrupted into its antithesis of the state-directed society; and he was troubled by the detrimental effect such a transformation would have on both individuals and the culture when the resulting debasement of character and behavior became accepted as the norm.
Nock had an abiding interest in the epistemological question that asks how we know what we know and how changes in our thinking generate the outward modifications that occur in our world. In his classic Memoirs of a Superfluous Man, he observed that
the most significant thing about [a man] is what he thinks; and significant also is how he came to think it, why he continued to think it, or, if he did not continue, what the influences were which caused him to change his mind.
Albert Jay Nock was what in my youth would have been described as an exponent of a "liberal arts" education. He understood not only that "ideas have consequences" – a proposition later expounded upon by Richard Weaver – but that organizations have a certain dynamic which, when mobilized, can generate unexpected consequences. He acknowledged the pursuit of individual self-interest as a principal motivating factor, but he saw how corporate and political interests can combine to promote such interests, coercively, at the expense of others.
Nock's intellectual development was greatly influenced by the works of the German economist and sociologist, Franz Oppenheimer. Nock focused much of his attention on Oppenheimer's analysis of the two principal means – expounded upon in Der Staat – by which human needs can be met. Satisfying such needs through the exercise of "one's own labor and the equivalent exchange of one's own labor for the labor of others" Oppenheimer defined as "economic means." By contrast, pursuing such interests through "the unrequited appropriation of the labor of others" he termed "political means." Nock elaborates upon Oppenheimer's thesis to describe how the state actually works. Because people tend to act with "the least possible exertion" in pursuing their ends, they will tend to prefer the political to the economic means, a trait that has produced the modern corporate-state – or what Nock referred to as the "merchant-State."
The efforts of earlier political philosophers to explain the origins of the state either as an expression of "divine will" or as the product of an alleged "social contract" begin to melt away when confronted by Nock's realism. He tells us that the state has its genesis not in some highly principled pursuit of a "common will" to resist some imagined perverse human nature, but in nothing more elevated than "conquest and confiscation." He echoes Voltaire's observation that "the art of government consists in taking as much money as possible from one class of the citizens to give to the other." The Watergate-era mantra "follow the money" reverberates this more-prosaic theme.
Those who chide critics of the state as being "idealistic" or "utopian" must, themselves, answer for their visionary faith that state power could be made to restrain itself. As Nock understood, and as more recent history confirms, it is those who believe that written constitutions can protect the individual from the exercise of state power who hold to a baseless idealism, particularly when it is the state's judicial powers of interpretation that define the range of such powers. Words are abstractions that never correlate with what they purport to describe and must, therefore, be interpreted.
Supreme Court decisions continue to affirm Nock's realistic assessment that "anything may be made to mean anything." The 20th century alone provided thinkers such as Nock with a perspective that allowed them to see how their earlier speculations about the nature of the state actually played out. The post-9/11 years have seen a wholesale retreat by the American government from the illusion of limited government, with constitutional prescriptions for and proscriptions against state power widely ignored. Anthony de Jasay has added his critique of the imaginary nature of limited government by observing that "collective choice is never independent of what significant numbers of individuals wish it to be." Has history shown that political systems and the citizenry retain the sense of mutuality that is implicit in the "contract" theory that supposedly underlies the modern state? Does the avowed purpose of political systems to protect the lives, liberty, and property interests of individuals remain intact?
The modern state increasingly manifests itself as the ill it was the purpose of centuries-old philosophies to identify, and of constitutional systems to prevent. This raises the question whether the very existence of the state, with its self-interested exercise of a monopoly on the use of force, could portend other than the continuing cycles of wars, repression, economic dislocations, and other forms of collective conflict and disorder. Will today's young minds, desirous of understanding the reality rather than just a theory of politics grounded in hope, be able to resist a shift in thinking such as is offered by Nock and others who offer explanations for statism grounded in principled pragmatism?
Such a question brings us to a consideration of Nock's purposes in writing. He had no interest in political reforms, seeing such efforts as superficial in nature. Neither was he motivated by a desire to educate mass-minded men and women, as such people lacked both the depth of character and the intellectual capacity to understand the principles underlying "the humane life."
He saw his task, rather, as being to care for those he called "the Remnant," those independent men and women whose intellectual and emotional inquisitiveness provide them a profound understanding of such principles. Unlike mass-minded persons who are easily manipulated and mobilized in service to various institutional causes, the Remnant remain skeptical of proselytizers who seek converts to ideologies, or who desire to save mankind. Trying to find members of the Remnant will be futile, Nock tells us, for it is they who will seek out like-minded spirits. Nock sees his role as providing the support and nurturing to such individuals who will, once the civilization has collapsed, be the ones to "build up a new society" on the basis of their understanding of the "august order of nature." For such people alone, Nock tells us, was this book written.
Our Enemy, the State was first published in 1935, when the economic consequences of the New Deal were beginning to be felt. In 1943, Nock spoke of writing a second edition, to elaborate on these economic effects. In the summer of 1945, however, Nock died without accomplishing this task. Nonetheless, as his friend Frank Chodorov commented in his preface to this work, "Our Enemy, the State needs no support," and stands as a sufficient indictment of political systems.
Obama and the Continuing War on the Poor
A mentor of mine, Clarence Carson, published a book in the 1970s entitled The War on the Poor. He took his title from Lyndon Johnson's so-called "war on poverty." Carson noted that actual wars are waged against real people rather than circumstances, and that if the government were engaged in a war it must be against some identifiable group of people. In his book, he identified the poor as that group by analyzing the economic impact of the various policies that Johnson pursued. In each new initiative of the Great Society, the effect of those policies was to raise prices on various products and cause the poor in America to suffer for the sake of a few special interests.
Nothing much has changed in America. The only difference between then and now is the degree to which property is being attacked. Indeed, the entire political process seems to center around such attacks in the name of alleviating our misery, which more often than not is caused by some past program. Despite the misery that past policies have inflicted on us, during each election cycle our politicians travel the country telling us how their proposals will fix all that ails us. If they are incumbents, they argue that their policies will work if given sufficient time. Moreover, they tell us that they have been hindered in the performance of their promised feats because of their political opponents. Alternatively, challengers argue that only their proposed interventions will work to produce the desired economic prosperity. And so it goes, as each pursues the needed votes to ensure election.
Fortunately for our aspiring magicians, the media takes the process very seriously and devotes a great deal of time to covering the debate — without asking any serious questions as to whether intervention of any sort is a prudent course of action. The media thus gives a credibility to the process that would not exist without their endorsement. After all, if the media believes that the government is really able to produce something from nothing, then uncritical men and women in the street may have reason to believe it as well. To date this seems to be the case, since the failures of past policies are generally not pointed to as a reason for doubting current political promises.
There is, of course, one issue that our political aspirants never wish to discuss at any length. They never wish to discuss the costs of their proposal. If they are forced to discuss this topic at all, they simply argue that the many benefits of their scheme will vastly outweigh the upfront costs. Moreover, they invariably promote a plan to impose the costs upon the so-called rich people because they can afford it. Since no one knows any of these very rich people, many feel secure that the politician's plan will ultimately prove beneficial to them.
The magician lives by his deception. If the audience is ever able to see the reality of what the political class is actually doing, then these magicians would have to practice their magic craft privately. But this kind of fraud exposes them to the danger of spending time in prison (as Bernie Madoff can attest to). If they were not willing to risk jail time, the political class would instead have to work for a living. No longer would it be possible for them to live off of the fruits of other peoples' labor. They are indeed glad that the citizens of the land seem content for the most part to remain blind to the impoverishment they have perpetrated.
Actually, the deception of the modern day politician is nothing new. It is a very old practice, and history is full of cases where governmental authorities lived off the production of others. In The Wealth of Nations, Adam Smith observed that "[t]here is no art which one government sooner learns of another, than that of draining money from the pockets of the people."[1]
The process of looting the public appears to have gained momentum with the newest administration. It has embarked on a full-scale assault on the American public, aimed not only at ravaging the poor for a few special interests, but vastly increasing the number of people consigned to poverty. Whether we look at Obama and the Democrats' cap-and-trade legislation or their health care reform or their pork barrel stimulus bill, in each case they intend to raise prices and increase taxes on us all. While a few corporate interests will benefit grandly from such nonsense, the vast majority of us will be made poorer. The saddest part of all of this is that no one seems to care that the economic results will be most heavily felt by the weakest among us. The gross immorality of this oppression and tyranny should be evident to anyone who would but casually look at the situation. However, thus far the mainstream media has given Obama a pass, and the general population has chosen to remain blindly ignorant.
I suppose this is not new. In the political game, it seems that everyone is hoping to be numbered among the few beneficiaries. Moreover, it seems that people are basically unwilling to face a rather obvious economic truth: In this world there are only a few ways for each of us to obtain the things that we desire. We can produce the things ourselves starting from scratch, produce something valued by others and use that in trade for what we want, take the things from others by force or fraud, or receive them as gifts of charity. Only the first two of these are economic. Theft and charity cannot be universalized, because each can be achieved only by the prior production of others. It is this fact that led H.L. Mencken to note in his day that elections in America were nothing more than advanced auctions on stolen property. Or, as he quipped, "A good politician is quite as unthinkable as an honest burglar."
Indeed, government redistribution of property is nothing more than systematic theft, whereby the politically well-healed steal from the masses. Whether it was the financial bailouts orchestrated by the Bush administration or the takeover of two auto makers by the Obama administration, government theft of private property is alive and well. It matters little to these people whether their actions impoverish others. Rather, they selfishly act upon their own greed and pursue political means to steal what they want from others. In truth, everyone whose hand is out begging for some government favor is participating in this immoral and unjust activity. Government is simply incapable of creating something out of nothing.
Regardless of what some newsmen evidently believe, Barack Obama is not the Almighty, capable of calling things into existence ex nihilo. It does not matter whether it is Woodrow Wilson, Herbert Hoover, Franklin Roosevelt, Lyndon Johnson, Richard Nixon, Jimmy Carter, George Bush, or Barrack Obama. A thief is a thief, and all thieves impoverish their victims.
Asia's economies
From slump to jump
The gap between growth in emerging Asia and the G7 has never been wider
EARLY this year Asia’s economies were falling shockingly fast; now they are rebounding even more strongly than expected. Year-on-year growth rates conceal this bounce; to spot the turning-point, look at quarterly changes. Comparing the second quarter with the first at an annualised rate, South Korea’s GDP grew by almost 10% (though it is still down 2.5% on a year earlier); Singapore’s soared by 20% (3.7% down on the year). China does not publish quarterly figures, but economists think its GDP jumped by an annualised 15-17%.
Other economies in the region have yet to publish their GDP numbers, but they are also likely to show a rebound. During the second quarter, Taiwan’s industrial production jumped by an annualised 89%. Even Japan may have enjoyed robust GDP growth; its industrial production rose by an annualised 38%. In contrast, America and Europe probably saw their economies contract during the quarter.
Quarterly growth rates are likely to moderate in the second half of this year. Singapore’s bounce, for example, was partly due to a big increase in pharmaceuticals production, which is notoriously volatile. Nevertheless, Asia’s recovery is on track. Peter Redward, an economist at Barclays Capital, expects average GDP growth in emerging Asia of almost 5% in 2009 as a whole. Meanwhile, the G7 economies are likely to contract by perhaps 3.5% this year. That growth gap of 8.5 percentage points would be the biggest on record.
Six months ago the Asian economies were among the hardest hit in the world, as exports to the rich world plunged. How can they be bouncing back when demand in America and Europe remains feeble? One reason is that the plunge in output in late 2008 and early this year was exacerbated by massive destocking (companies were living off their existing supplies). With stocks now lean, orders are picking up and factories have started to hum again. Even more important, domestic demand has rebounded, thanks to the biggest fiscal stimulus of any region of the world. South Korea’s real consumer spending rose at an annualised rate of 14% in the second quarter, spurred by a tax cut on car purchases and support for low-income families. Its exports also surged, by an annualised 53%, partly thanks to strong Chinese demand.
Sceptics argue that China alone cannot ignite economic recovery across the region because a large portion of Asia’s exports to China are just intermediate goods, which are processed into exports to developed economies. The Asian Development Bank calculates that 60% of the region’s exports eventually end up in the rich world. However, this ignores the huge boost that China’s rebound is giving to business and consumer confidence across the region.
If the West continues to sputter, what happens when Asia’s fiscal stimulus and restocking fade? A recent report by Frederic Neumann and Robert Prior-Wandesforde at HSBC argues that Asia’s recovery will be sustained well into next year, thanks to loose monetary policies. Unlike in America and Europe, where crippled banking systems and high debts blunt the impact of low interest rates, Asia, especially China, is awash with liquidity, which will support domestic spending (see article).
Perhaps the main risk now facing emerging Asia is not feeble demand in the West but inflation or asset-price bubbles at home. The Reserve Bank of India has raised its inflation forecast for this year to 5%, well above its target of 3%. China’s banking regulator has ordered banks to stick to the rules on mortgages and make sure lending goes into the real economy, not shares. If America’s Fed had done this and worried a bit more about bubbles, the world might not be in such a mess.
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