Home > Uncategorized > Our age of imbalance

Our age of imbalance

from Peter Radford

Dean Baker unloads on Alan Greenspan. Correctly. After all Greenspan’s hands were at one of the tillers that steered us all relentlessly onto the rocks back in before the crisis, so he deserves all the opprobrium we can throw against him.

The problem is that the media still reveres Greenspan and treats him as a current celebrity rather than as a failure. Apparently they are too clueless or lazy not to be able to tell the difference between contrition and defiance. For Greenspan remains very much defiant.

And therein lies the rub.

Our issues are broader than Greenspan’s arrogance and desire to rehabilitate his reputation. We, as a society, need to get to grips with the much broader and deeper running errors of the past few decades if we are to reconstruct our economy so it benefits us all and not just a tiny minority. In other words we need to fight the right war. There appears to be resistance to such an effort, or at least less of a willingness to learn than I would expect.

Why?

Because the lessons are too sweeping for many to contemplate and so they retreat into small scale thinking, technical fixes, or simply into denial.

So let me repeat myself:

The reason we have ongoing stagnation, higher unemployment than we ought, and what appears to be years ahead of depressed expectations is that our entire intellectual elite – academia, business, media and so on – all and collectively let us down. This was not an imposition by a small hard core group. Nor was it just a right wing political tilt in Washington. It was a whole-hearted embrace of a package of ideas that enabled our elite to scarf up rewards without providing the rest of us with anything.

We became two nations.

One within which our elite led, and benefitted, from a steady change in doctrines extending across all sorts of domains of activity. Those doctrines led to the adoption of so-called market driven attitudes in many places that had been left untouched before, and they justified or enabled the massive shift in income disparity that now bedevils us. It wasn’t just the plutocrats who benefitted from the epidemic of market magic ideas, the professional classes did too. Anyone graduating with a law, accounting, or business degree back in the 1970′s and 1980′s has ridden the wave. And since they comprise the leadership and our elite at the moment it is no wonder they cannot comprehend the devastation that the epidemic has caused down below.

That would be in the second of our nations. The non-elite. The 95% or so who have been left out of the game over the past few decades. That group has been led a merry dance. Rather it has been let down and misled.

The epidemic, the intellectual edifice, that Greenspan represents and which is the root cause of our problems, has left the vast majority of our people adrift and fearful. Its product is the exact contradiction of that Greenspan and his ilk espouse. Far from enabling innovation and individual initiative, its stifled it under a blanket of fear and reduced expectation. By eroding the safety net and by undermining the credibility of collective action it placed greater risk on the shoulders of those least able to deal with it. It thus slowed rather than accelerated all the outpouring of energy its advocates told us would drive the economy forward once it was free of the dead hand of government.

For an elite that talks so commonly and so glibly about the great benefits of clear risk and reward trade-offs, and who presume that their great advances in wealth represent their facility with that trade-off, there seems to be somewhat of a problem when all that is translated into action down below. When, for instance, an employee’s pension plan is changed from a direct benefit into a direct contribution plan. Annuities are so old fashioned nowadays and are scoffed at by the elite, but to a person with a low income and relatively poor prospects they represent a level of security unmatched by any of the high flying flexibility that supposed control over their own money offers.

Couple that with the depression of wages by the privilege afforded returns to capital in our tax system and by the social acceptance of shareholder primacy in our corporate decision making, and the ability to offset the heightened risk being offloaded by employers onto employees is totally undermined.

In other words our elite managed to outsource not just jobs, but residual risk in the economic world too. The overt and massive shift in rewards towards profit at the expense of wages – which is what many commentators focus on – is simply a symptom, it not the cause of our malaise. That cause is the increased risk now shouldered by the vast majority of people who are ill equipped, and are certainly insufficiently rewarded, to proposer in such circumstances.

It is no wonder that our society is ever more unequal. The risks inherent in being a member of it are increasingly asymmetrically distributed. We are living in an Age of Imbalance. We have to be careful that the tilt of that imbalance doesn’t end up capsizing the boat.

Our toxic politics today is a direct outcome of this asymmetry. Our two nations are coming into conflict. They scarcely talk with each other. How else do we explain the elite’s obsession with issues that only affect them? Debt reduction, the avoidance of inflation – even when there’s none, entitlement cuts, and chatter about reduced investment prospects are all topics that the elite stands to gain from if cured. None speak to getting the other nation afloat again. Indeed they presume that the other nation stays stuck on the rocks. They presume that there is no choice other than to cut further into the risk protection afforded to that other nation.

Look at the furore whipped up around the attempt to extend health care coverage to millions of our fellow citizens. It is treated as if it were a cruelty not a help. It is seen as a vanity in the face of our supposed constrained circumstances. Likewise we are told, repeatedly, that we need to restrain entitlement spending because of those perceived constraints.

Perceived by whom?

By our elite.

Our circumstances are only constrained by the paucity of our elite’s ideas, and by its fear that its ability to garner asymmetrical rewards by further shifting risk out of its domain will be curtailed.

Risk/reward. This is a basic notion that our elite loves to talk about. Perhaps it’s time to connect the two again. Our elite certainly reaps most of the reward. It ought accept the risk that goes along with it. Right now it doesn’t

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  1. October 31, 2013 at 12:32 pm | #1

    But do we really have “shareholder primacy in our corporate decision making”? Isn’t management overriding shareholder interests in paying itself so extravagantly?

  2. William Neil
    October 31, 2013 at 3:01 pm | #2

    As I finished reading this I was thinking of past articles by Bill Greider and others(Russell Mokhiber, William Lerach) on the rise of a second legal system within the Department of Justice that treats corporate crime differently than crimes committed by citizens on the streets. It becomes an informal process, and as far as the larger corporations and Wall Street are concerned, there is no cumulative effect: no matter how many times the officers of a given bank are sanctioned by the SEC, and other regulatory arms, the bank doesn’t lose any of its commercial licenses the way a repeatedly wayward motor vehicle driver surely does. I also understand, from writers and critics of Wall Street like Pam Martens, that there is a further parallel legal universe of non-disclosures declarations and so forth, the mandatory substitution of arbitration for the normal legal challenges, and so forth….the Wall Street firms want to control the legal playing field for their employees and clients as far as possible.

    These developments within the legal realm parallel what you are talking about here, Peter and should be greatly troubling to all citizens.

    Here’s Bill Greider’s March, 2011 The Nation article which covers the history of these developments and supplies some of the professional terms of the trades:

    http://www.thenation.com/article/159433/how-wall-street-crooks-get-out-jail-free#

    Just to reassure the academic economists reading this, Greider’s article is written about ten degrees cooler in temperature than the title. But when you finish, it ought to raise your own at least a few degrees, it is that troubling. So pretty sacred notions of “equality before the law” have to be revised in the face of it.

  3. November 1, 2013 at 9:07 am | #3

    Peter, interesting presentation, but a bit too simple in its understanding of our situation. First, you present us a story essentially of a dichotomy world, the rich and the less-rich. However, the actual situation is more complex. There are certainly the super-rich, those of the top 1% or the top 0.1%. There are more of those than ever before. But we also have the top 5% and top 10%, also more than ever before. These folks don’t all see things the same way. Even among the top 1% and 0.1% there is “old” money (e.g., the Kennedy’s) and techno-billionaires (e.g., Bill Gates) and social media billionaires (e.g., Mark Zuckerberg). In that same group are financial billionaires who gained billions of dollars in elaborate and sometimes ethically questionable financial trading/hedging schemes. These folks have little in common, apart from having lots of money. In fact, many of these folks give away the money almost as quickly as they obtain it and seem to misunderstand one another on a daily basis. The top 10% made up of doctors, real estate marketers, auto dealership owners, etc. is equally diverse and not of single lineage or political ambitions. The same complexity is found if one looks at the “poor” or semi-poor. Second, since its founding the US has been a country that mixes Burkean conservatism with a never ending search for new lands, sources of wealth, and adventure. The first is seen in the many moral and cultural cleansings in US history, from Christian revivalism, to prohibition in law in several forms, to individual responsibility, to austere government and government officials, to the enforcement of “fairness” in our history of government regulation. The search for new wealth and adventure can be seen in slavery, gold rushes, gamblers/speculators, oilmen, etc. These two tendencies have never been balanced and often butted heads. Third, there is the Republican struggle. That is, the struggle between centralized and decentralized government. Of that the War Between the States (1861-1865) is one example. There are other tendencies. For example, the push toward Protestant Christianity, the Frontier, isolationism and the Monroe Doctrine, the melting pot of immigrants which sometimes was more stew than melt. I think if you look closely you’ll see several of these tendencies playing a larger role in the last 50 years or so that other tendencies. I won’t even attempt to explain how this was built up. That would need a book or may two or three. Taking on that job might shed some light on our current situations, always recognizing of course that in explaining what’s happening we add to current tendencies and may change them. Finally, let me point out that economic inequality has more often been higher than lower in the history of the US. And these same tendencies play different parts in that as well. After WWII the level of inequality began to decline and remained relatively fixed till the 1980s when it began to rise. In both the before and after of this these historical tendencies in US ways of life played varied parts. Marx, Smith, and even Greenspan are all mistaken. It’s not just about money, even if we sometimes keep score with money. As to imbalance, there has been few times of balance in US history. The period following WWII is one such and it appears that now is coming to an end.

    I mean to disrespect to economists in my comments. But I am an historian. I think it’s vital the events and decisions made in the US and by Americans are given an opportunity to be seen and heard as fully as possible.

  4. November 1, 2013 at 9:10 am | #4

    Correction: Last paragraph should read, “I mean no disrespect to economists in my comments.”

    • robert r locke
      November 1, 2013 at 9:48 pm | #5

      I think if there is a flaw in your analysis Ken, it is in your failure to see that the US has fundamentally changed in the past 50 or so years, and that this makes the continuities you draw a mistake. An America with rich and poor in 1800 and l900 is fundamentally different from today, if for no other reason than that we were an agrarian people before and are not now. The position that the US played in the world in this earlier period also was fundamentally different and the role that the new Asia plays and its challenge to American supremacy is unprecedented. There is no reason therefore, to believe in this cycle theory of history, that sometimes the gap between the rich and poor is greater and sometimes not. The gap will never return to what it was before because of the uniqueness of our times. And to say that the fight between central government and states rights, and to characterize the Civil War as just an episode in that history is to fundamentally misunderstand the civil war, and the difference between states rights then and now.

      • Ken Zimmerman
        November 1, 2013 at 10:31 pm | #6

        “Fundamentally changed.” Don’t think so. First, I my points were not about historical cycles but rather long-term tendencies in US history. You’re correct some of these have waxed and waned and some have generally disappeared. But the ones I discussed are still active and still a significant part of US life. But the fact is the gap between rich and poor has changed over time in the US, and generally since the end of WWII equality has been at a high. In fact, a record high historically speaking. Baring some fundamental changes in US social, political, cultural, and economic tendencies one should not be surprised if that high level of equality came under attack and was reduced. Also I see no reason to assume that the level of economic inequality that existed in 19th century America (estimated at about 60% of the wealth owned by the top 10% of the population) could not or will not return. As to the War Between the States (the Civil War) your view differs dramatically from most historical scholarship which explains the war as basically a fight about “States’ rights.” That should not be a surprise since that same fight is still going on today. As to the differences between “States’ rights” today and a hundred and fifty years ago you’ll have to tell me what you see as the fundamental differences, apart from the fact that at present no civil war (combat) takes place on a regular basics.

  5. robert r locke
    November 2, 2013 at 6:28 am | #7

    Ken # 6. Ken, Don’t know where you get your information about the Civil War, but a lifelong friend, a real expert on the South, I.A. Newby, has always told me that the issue of the civil war was slavery and that any attempt to say otherwise (which Southern historians have done) is misguided. If the people who live within your state are black slaves or disenfranchised nonWhites, then the issue is not state’s rights but the attempt of a oppressive majority to keep control through a claim of state’s rights. Did you every pay any attention to what Lincoln said. He used the power of the federal government to free oppressed peoples.

    As for the gap between the rich and poor. Something fundamentally changed in US capitalism about 1980, at least that is the argument I have been presenting in my work over all these years. It was no long the capitalism of the immediate postwar years, but a Investor capitalism in which the individual investor was replaced by institutional investors, who with the Information Revolution, could move big money around in the trillions at an unprecedented speed. This technologically driven change has been accompanied by director primacy capitalism, which has captured the US government. I don’t recognize this America anymore. Nor does the middle class American. He is screwed probably forever. And to think things will just swing back to more fair distribution, with these power structures in place in the US and internationally, is most wishful thinking.

    • November 2, 2013 at 7:54 am | #8

      Robert. My God, I though Newby was dead. I remember his survey of Southern history from graduate school. Since the founding of the country one or another section had on more than one occasion threatened to secede from the country. The South (what Newby would call the “old” South) was one of these, as was New England, California, and Texas. In 1861 hot-headed South Carolinians forced the South to do what it may not have otherwise done, fight for independence. Slavery was certainly one of the issues of the War. The South felt oppressed due to the persecution of an institution it felt was vital to its economic future, slavery. This was a regional struggle between the states, which centered on the rights of states to continue the economic, cultural, and religious ways each believed served it best. As had the conflicts with New England, California, Texas, etc. You may call it something else, but I think “States’ rights” sums it up well. And yes Lincoln used the War to end slavery. But you’ll notice his first objective remained to “save” the union (by putting down States’ rights claims) and that he pushed through the 13th Amendment only after the South was de facto defeated, while not yet surrendered. So you are wrong if you contend that the primary purpose of the Civil War was to free oppressed people. I don’t think you can even make the case this was Lincoln’s primary purpose, except after the South had been defeated and he could force on it just about anything he wanted. Ending slavery was in his view not only the moral thing to do but would put the US in much better stead with the other major western nations. I think he was correct.

      As to your assessment of the changes to US capitalism beginning around 1980 it seems more or less on the mark. But changing the technology of capitalism or how the money was moved or exchanged, or who got to keep most of it does not change the basics of US capitalism. I’d argue US capitalism began with the Gilded Age around 1870, when large institutional investors and banks dominated commodity and stock markets, which themselves had become wealthy and conservative. With all the new mining, petroleum, railroad, etc. companies and related investing I would argue this was as wrenching a change to the rather conservative and stogy US banks and the NYSE as anything that happened in the 1980s and there was all sorts of new technology for investing that amplified the upsets. And if anything the number of schemes and schemers to take money from ordinary Americans under false pretenses during the period up to 1929 was even greater than what we’ve seen in the last 30 years or so. As to the middle class, it was invented after WWII as at first a short-hand for the consumers and consumption of post-war America and later as a way of life depicted often as quite profane and shallow by sociologists, literary critics, and the wealthy. As was the “American Dream.” And I never said things would swing back to “a more fair distribution.” Actually based on US history the opposite is probably more likely. But history is not linear or just a summary of forces. People can force the directions history takes. In all likelihood a more equal distribution of wealth will have to be imposed. I can’t say what that imposition may require of look like, but it’s likely to involve acrimony and maybe even violent confrontations. That is the trend in the country, after all.

      As to Turner’s “Frontier Theory” let me not be too crass here, it’s crap. The frontier is not the source of American democracy, unless you mean by democracy the outlaws and outlaw bands that roamed west of Rockies living a “free” life. Most of the “West” was owned and controlled by first Eastern investors and bankers and later in part by Western (mostly California) bankers and investors. I’d suggest the roots of American popular democracy developed from labor unions and other local/splinter political parties like the Socialists, Populists, Grange, etc. More Eastern and Midwestern than Frontier. But interesting thing about many of these they also include views that incline them to support “grass roots” decision making that denies a role for national government and national taxation. Sound familiar?

  6. robert r locke
    November 2, 2013 at 6:37 am | #9

    One more thing, Ken. Why do you think the inequalities of late 19th century America are like those of today’s. In 1900 most Americans were farmers — you cannot assemble a realistic basis for wealth comparisons. That’s what Turner’s frontier thesis was all about. In the 19th century my ancestors always headed West for land and opportunities. Where do they head now?

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