The Slow Death of the American Middle Class
From Yves Smith, quoting Martin Wolf quoting Raghuram Rajan, a number that should surprise even those who have never doubted capitalism’s tendency to take money from the hands of the many and put it in the pockets of the few:
If you have any doubts about how easy it is for someone who works hard in the US to get ahead, consider this factoid from Martin Wolf’s latest comment in the Financial Times, on Raghuram Rajan’s new book (see Satyajit Das’ review here:
Thus, Prof Rajan notes that “of every dollar of real income growth that was generated between 1976 and 2007, 58 cents went to the top 1 per cent of households”.
Once again I find occasion to drag out the hearsay results of an unsourceable poll that found that 20% of Americans believed that their income put them in the top 1% of earners, with another 20% believing they would make it to the top 1% in their lifetimes. The reason I cling so desperately to this secondhand statistic is that it’s the only way I can explain to myself why we don’t have a credible political movement that would seek to reclaim even half of what the top 1% makes for the other 99% of Americans.
Yves cites plausible explanations for Rajan’s statistic from Thomas Palley and Steve Waldman, who argue that a dwindling commitment to full employment by policymakers led to the substitution of personal credit for wages as the fuel of the American consumption machine. It’s a story we’ve heard before—see also Ben Kunkel in the lastest n+1, etc. etc.—but it’s a good one, and worth repeating:
We noted that Thomas Palley (along with others) was writing about the change in economic policy and the drivers of growth in 2007. He argued that policy-makers retreated from full employment as a goal, since it allows workers to demand higher wages, which in turn causes inflation. Reducing worker bargaining power led to disinflation, lower interest rates led to rising asset prices, which in combination with financial innovation, created an until-recently reinforcing cycle whereby rising asset prices funded consumption. Palley further contended that this was inherently a self-limiting paradigm, and we had reached the end of the road. A host of others, such as Steve Waldman in 2008, described the dangers:
Credit was the means by which we reconciled the social ideals of America with an economic reality that increasingly resembles a “banana republic”. We are making a choice, in how we respond to this crisis, and so far I’d say we are making the wrong choice. We are bailing out creditors and going all personal-responsibility on debtors. We are coddling large institutions of prestige and power, despite their having made allocative errors that would put a Soviet 5-year plan to shame. We applaud the fact that “wage pressures are contained”, protecting the macroeconomy of the wealthy from the microeconomy of the middle class.
I’ve got to wonder, too, what role taxation has in this massive inequality. Can it really be an accident that the start of Rajan’s periodization coincides nearly exactly with the ascendancy of the conservative taxes-are-evil political program?
The taxes-are-evil plot and the I’m-from-the-government-and-I’m-here-to-help gambit — is one merely in service to the other, or is this an actual unified theological movement.
Meanwhile, I was a little surprised by the pull quote the PoFdn took from this Tony Judt piece — for my money the Rae-Armantrout-title line was this:
“Above all, the thrall in which an ideology holds a people is best measured by their collective inability to imagine alternatives.”
Everyone’s a fan of independent thinking until it’s time to think independently.
(Put that in your Rae Armantrout and smoke it.)
Quick thoughts, BB, please pardon the haste: The question about—and the recommitment to and redefinition of—full employment etc. is complicated (though the story about credit as substitution for personal wages is obviously more than plausible) but I don’t see how full employment re: Kunkel is a way out, even if people were convinced to accept inflation. I tend to lean toward what Harvey says in The Limits to Capital :
“At times of savage devaluation, interregional rivalries typically degenerate into struggles over who is to bear the burden of devaluation. The export of unemployment, of inflation, of idle productive capacity become the stakes in the game. Trade wars, dumping, interest rate wars, restrictions on capital flow and foreign exchange, immigration policies, colonial conquest, the subjugation and domination of tributary economies, the forced reorganization of the division of labour within economic empires, and, finally, the physical destruction and forced devaluation of a rival’s capital through war are some of the methods at hand. Each entails the aggressive manipulation of some aspect of economic, financial or state power. The politics of imperialism, the sense that the contradictions of capitalism can be cured through world domination by some omnipotent power, surges to the forefront. The ills of capitalism cannot be so easily contained” (438).
Anyway.
Re: the unsourcable poll that showed “20% of Americans believed that their income put them in the top 1% of earners, with another 20% believing they would make it to the top 1% in their lifetimes.” Even if this poll is true, do we really need to appeal it—or to any poll that produces the fiction that there is “a/the people” out there letting this happen (and who, presumably, just need to be informed more about what is really going on in order to rise up against it)—to account for the structural shifts and the contemporary absence of a credible political movement of opposition? I know lots of people who are perfectly aware the system is screwing them and everyone they know and who still fervently—if cynically—support it anyway. That, friends, is ideology in action.
Agree about the taxes-are-evil line. No accident.
BN, I’ve been on my own mad dash today, so can’t respond as I’d like. But read the end of Yves’s piece–it’s not so different from the outcome that Harvey suggests, is it?
Still, that only tells us a possible/plausible story about how things will shake out, not a necessary one. It may be too late for full employment to work as Kunkel and others hope, but the idea is that it’s a way to avoid (either in the future or in an alternate version of the recent past) the savage devaluation that Harvey’s talking about.
We’re seeing all of this devaluation now because everyone–from the banks to the corporations to individual households–is deleveraging. Households are deleveraging because (if they’re rich) they have no trustworthy place to invest the money they have and because (if they’re poor) banks won’t lend like they used to. Anyone who has money is hoarding it, and anyone who doesn’t have it is walking away from their mortgages, selling their children, etc. The pitch for greater employment is that it will lead to real wage growth among people who are actually going to spend the money (i.e. not the very rich), and so people can start spending money again that actually belongs to them.
And I confess I don’t see why it’s a fiction that people are letting this happen. The US is by no means a perfect democracy, and the powers that be are, as they tend to be, pretty powerful, but if a great many people started acting in their own self-interest they could get something done.
In my haste, BB, which must now be exactly redoubled (what’s that Ashbery line about making the same mistake twice?), I neglected to clarify that I was talking only about Kunkel. You’re right, the Yves isn’t far off, though I think Harvey is more precise and insightful. Harvey’s point is that devaluation just ends up getting shifted (through things like trade wars, interest rate wars or actual wars etc.) At best the U.S. would put the burden of unemployment onto someone else. Kunkel’s fantasy—and I’m not being unfair—of “[f]ull employment on an international scale” achieved through a turn away “from profitability as the index of social health” simply isn’t going to “revive and confirm the profit squeeze thesis, and enforce the conclusion that full employment is as ruinous to capitalism as common opinion has supposed.” If we’re really going to try it out in practice, it’s not going to work, at least not in the way Kunkel hopes. And if we’re just going through a thought problem where we have to decide whether international full employment is going to spell the end of capitalism, whether that is, “capitalism can adjust itself to full employment…[or whether] it will show itself an outmoded system which must be scrapped,” then I say let’s save ourselves some trouble and skip the first part altogether.
As for people acting in their own self-interest and so on, I am in full agreement, and my comments were not meant to suggest that structural change is not possible through collective resistance. They were only meant to suggest that we don’t need to appeal to the idea that people don’t understand the system is fucking them over in order to explain the absence of a credible social movement of opposition.
The risks of haste: the above should be amended to read “At best the U.S. would put the burden of devaluation onto someone else.” Unemployment, as everyone here knows, is not interchangeable with devaluation; it is often the very means of acquiring relative surplus value etc.
Dunno, Boyd. I don’t agree that “at best the U.S. would put the burden of unemployment onto someone else.” That’s only true if we decide that the best way to achieve full employment is to close our borders to trade. Then you leave half of China unemployed, etc.
What Smith and Kunkel and Waldman and others are suggesting is something different and–to these ears at least–better. Basically they want to reverse the process of the paradox of thrift. The paradox says that people in uncertain times people and businesses start saving, which means they stop consuming. This causes aggregate demand to fall, and that causes businesses to lay off workers, and that causes aggregate demand to fall even more. The full-employment people are saying, well, let’s put people to work, which will give them (their own, not borrowed) money to spend, which will boost demand, which will justify more hiring, etc.
If that happens, you’re not going to put Chinese workers out of work, because aggregate demand will rise. (Though they will, of course, have a smaller share of total production.) And besides, China has its own version of the virtuous cycle to deal with: a growing middle class that wants (and can pay for) its share of whatever China’s factories are producing.
And, whoops, obvs skimmed my eyes right over your correction. But if you want “devaluation” in there then the case is a fortiori true.
[I was just about to post what follows before I saw your latest Bobby. Yeah, I know what you mean about the paradox of thrift, and it’s exactly true, as I see it. That’s also why the stimulus package was not only too small but was also misdirected only at those who weren’t going to spend it as needed, etc. But the point is that Kunkel has it backwards: you don’t end up scrapping capitalism by committing to full employment. You have to do it, if you do it at all, the other way around, and the revolution involved is going to be a lot more profound and catastrophic than Kunkel implies.]
Double p.s. My comments aren’t mean to count as an argument against the idea that greater employment is a plausible means of avoiding or even, it may be, counteracting credit-deprived thrift within the U.S. They merely suggest that there are plenty of reasons to believe that, as long as capitalism stays capitalism, a recommitment to full employment isn’t just going to lead to what Kunkel implies.
and whoops, posted before I saw your latest note too…
Well, there is a political movement that is seeking to reclaim this wealth. It is seeking it from the wrong parties for the wrong reasons. But the tea party party is credible. This is ideology in action, too: eventually people will get riled up when they are screwed long enough. And eventually they will attack their own interests not just because this is how things have been represented to them but because this is how things are. There is no way for them to represent their interests except by retaliating against capital, & that is unthinkable. Thinking outside capitalism is like thinking outside the universe. There’s no “outside.” We’re all inside. What’s required, I’m afraid, is a big bang.
Whether or not the tea party is a credible claimant, I don’t agree that “there is no way for them to represent their interests except by retaliating against capital.” They could represent their interests by asking for a return to a 70% top marginal tax bracket, or a non-fucked-up estate tax that doesn’t let Steinbrenner’s heirs get away with paying nothing, or even, though they will never believe it, by asking for an extension of unemployment benefits, which happen to be one of the more efficient stimulus measures around. None of that is a recipe for nirvana, but any of it is better than what we’ve got now.
And didn’t we just have the big bang? Credit froze, banks failed, the power-money nexus laid itself nakedly bare, and yet here we are.
In what world would these measures not constitute a retaliation against capital? Or to put it in a way that answers that question: why would capital stand for such measures? The answer to that question is the answer to why no one is representing their interests in that way.
And the big bang you postulate seems to me the latest in a series of little bangs. Credit froze, as you say, the banks failed, etc., but there was almost no tear in the ideological fabric. Not capitalism was seen as the enemy—far from it—but greed & unrestrained markets. The lesson? Capitalism works wonderfully, but like everything else, it needs some moderation & maybe regulation isn’t the worst thing in the world after all. Big bang? In 1933 more than 1/3 of workers in the Weimar Republic were unemployed.
why would capital stand for such measures?
Because capital has stood for those measures in the past. Meaning that a 70% tax rate or extended unemployment benefits are not at all incompatible with capitalism. Meaning in turn that there are steps short of a big bang that could help people who are getting screwed.
And no ideological rift? I thought it was pretty remarkable—for the sayer, not the saying—to hear Richard Posner argue that ““An interrelated system of financial intermediaries is inherently unstable” and that “we need a more active and intelligent government to keep our model of a capitalist economy from running off the rails.” That has to at least count as a dent in the armor, doesn’t it?
Yes. But there’s no such thing as “capitalism,” only particular capitalist regimes. And the historical conditions we face now are in part the result of ideological reactions to the sorts of amelioration you mention.
Regarding both those measures & Posner’s remarks, it’s worth reading Trotsky’s analysis of the New Deal & fascism, or considering John Keracher’s comments on William Jennings Bryan:
His famous “cross of gold” speech was not an attack upon capitalism as such, but only upon a section of the capitalists, namely, the big bankers, the financial capitalists, who were then beginning to wield power in proportion to the loss of power by the industrialists and the petty businessmen and small farmers whom Bryan really represented. He never was a representative of the working class. He did not understand the process whereby labour is exploited. While he talked of a “crown of thorns” on labour’s brow he did not understand how it came to be there, nor did he understand the forces that were pressing it down.
I’m all for a 70% tax rate, don’t get me wrong. But in the past such measures have been the means of staving off worker discontent in order to shore up capitalism. It’s possible to regard the New Deal (say) as Nietzsche regarded the Reformation: by making objective conditions better, it ensured the survival of the thing he hated. Which is not to say I wouldn’t like to see a New-Deal-style reformation. It’s complicated, like Facebook says.
MR, might this account of the Tea Party undermine its credibility in your eyes — in the sense that its members may not in fact be getting as screwed as one might think?
http://www.nytimes.com/2010/04/15/us/politics/15poll.html
I read this on April 15. But this report has been discredited. Or, rather, what it says is that the tea party’s BACKERS tend to be wealthier & more educated. The tea party itself is almost entirely composed of people who are getting screwed. There’s been good debunking of this myth in, if I recall, The Atlantic & The New Yorker. Can look it up when I get a moment.
& the wealth of its backers might have more than a little to do w/ the tea party’s failure to identify the causes of their immiseration.
People generally on the left (as in this post) wonder at the seeming disjunct between American quietism & the impoverishment of the middle class of recent decades. But there is a basic conservativism in American experience which has to do with the desire for individuals & families to manage & distribute their own wealth, the prosperity & well-being they have labored at themselves. This is at the root of the idea that “the best government is that which governs least.” Now those on the left may mock this position, as deluded-sucker false consciousness; but there it is – the basis of the disjunct.
Somebody will figure out a convincing centrist vision – something like Populism or TR Progressivism. Because the solution is not in some economist’s mathematical projections or statistics; the solution is in American society as a whole, making a commitment, with confidence, to a new sense of a shared common good. It’s not down with capitalism; it’s up with fairness & good governance (TR’s trust-busting as one example).
Part of the problem is that Tocqueville’s republic began with township democracy. Village self-governance is hard to translate to the scale of contemporary nation-states. But this is the experiment we must take ahold of, with… gusto… !
No one on the left would characterize it is as “deluded sucker false consciousness” except someone who doesn’t understand how ideology works. I don’t know anyone on the left, except maybe Thomas Frank, to whom it would be news that the ideology of individualism is deeply entrenched in America.
Call it what you like, Michael – “ideology of individualism” or a dimension of free society… but my point was that this is the factor in American political attitudes which explains, in part, the social quietism about which Bobby was seemingly mystified.
I see, Slate did an analysis of the data here. You are correct, the emphasis on backers skews the account of the party as a whole:
http://www.slate.com/id/2252281
I can’t tell if you want a Big Bang or not.
Neither can I!