In particular, I've been paying some thought to how some ideas that have no empirical backing have been impacting our society in ways that seem to me to lead inevitably to decline and decadence. Specifically, I have in mind a notion that's been floating around for awhile but was rather articulately put by Paul Ryan. This is the idea that there is an "expanding culture of dependency" linked to increases in government spending and that receiving assistance from government somehow leads to a trend that "drains individual initiative and personal responsibility. It creates an aversion to risk, sapping the entrepreneurial spirit necessary for growth, innovation, and prosperity. In turn, it subtly and gradually suffocates the creative potential for prosperity."
There are huge problems with this contention, most notably that the data points in the opposite direction. To give crude examples, entrepreneurship rates bottomed out in the 1950s before the advent of the progressive Great Society programs, they have been rising since the 1970s across ethnic groups. While there is a lot more argument than agreement over the complete explanation for these changes, the most basic and widely agreed upon cause is that the shift towards more capital intensive industry in the 1950s and 1960s discouraged entrepreneurship and the shift back towards labor and skill intensive industries that has been occurring since the 1970s has promoted entrepreneurship. No reason to bring government or personal character into it.
A second piece of crude evidence is the employment rates among gender and ethnic groups. Most assistance in the US is targeted towards single parents with children, very little is available to single persons of either gender. Yet, we have seen employment rise quite sharply among black women, from 60% in 1972 to a peek of 79.4% in 1999. I singled out the ethnic factor due to popular perception,* but if there were some kind of cultural change associated with government assistance why is the group most strongly associated with assistance in popular perception working more and not less over more than a generation as government spending has risen? Also, total labor force participation peaked in the 1990s, and men, who receive far less in government assistance have seen their labor force participation rate decline.** Where is this culture of dependency?
Now, I say this false belief leads to progressive decline as a result of how I understand markets and society to work. As I've written in other posts, and will doubtlessly expand on in future posts, I see markets and society as intrinsically linked and symbiotic. I don't think that markets can function in the absence of a robust society that takes care of its members. Historically, it's also notable that both Britain and the Dutch Republic had the first systems of generalized social insurance.
To put this in more formal terms, to the extent that I see the term capitalism as a useful term at all (I think I have to address my problems with the term fully sooner or later in a series of posts) I see it as the replacement of economic relations based upon individualized reciprocal bonds with generalized ones. Primitive economies are dominated by economic relations that can be described as some form of clientelism that mixes social and economic obligations. This takes many specific forms, from Roman clientage, to European feudal relations, to Chinese lineage based relations, to Southeast Asian forms of clientelism, etc. All pre-modern societies have some form of this. Alongside this there are market relations among specific groups that are able to generalize these relationships. These are often ethnic groups, Syriac Christians/Armenians in the Mid-East and in India, Jews in Europe and parts of the Near East, Chinese throughout Southeast Asia, etc. They can also be less formal, such as the merchants interacting on a regular basis at fairs in medieval Europe. What distinguishes the market relations from more primitive economic relations is that social obligations have become distinct from the economic obligations. Parties can contract with each other freely without the broader obligations of clientage relations. Social insurance functions are fulfilled by the broader group rather than by specific formal alliances within that group. I see this as being the distinctive feature of capitalism, economic relations have been separated from social obligations with the social obligations being fulfilled by the society as a whole (not necessarily territorial based and in insecure times/regions often tied to some kind of ascriptive identity) with the social obligations falling on the group. This allows for economic specialization which in other forms of organizations is short-circuited by the need to take social functions into account alongside economic concerns.
That was a long digression, but it is necessary to explain why I think market fundamentalism is so dangerous. Something I find myself sharing with social conservatives is a concern for moral and social degradation, I think this is a real threat. I just believe its causes are different. My belief is that the market can only function when people believe they have a stake in it, they have to feel they can advance within it and that they are full members of the market society. This implies some degree of social obligation, just as in a clientage system. However, in the market system, those social obligations are no longer filled by private contract, they have become general. Obligations are fulfilled through the tax system (other systems are possible, but it is hard to see how the universal membership required by integrated markets can be achieved through these methods, Jews or Armenians had their own methods for enforcing this that didn't rely on taxes but this kind of system was necessarily exclusionary and thus limited in scope and prospects for growth and specialization) rather than by relationships between small groups and individuals.
What happens when people do not feel that this social obligation is being met is that they drop out. This is very obvious in pre-market systems, all of them had substantial populations that existed partially outside and preyed on members of the formal system. These groups begin to form their own culturally distinctive society that rewards its members separately from the formal society, though the organization draws a great deal from the parent society and membership is at least partially fluid. These same characteristics happen in our society, those that feel left out find their own ways to survive and develop a culture that seeks to valorize their distinctiveness from the larger society. The more we seek to punish those that don't do well under our system the more strongly we drive the formation of this kind of toxic counter-society and the more we'll see social breakdown, the development of grey and black markets, and the more we'll erode the labor supply that we need for a successful society. Excluding people is the surest way possible to drive the social breakdown that many fear, dependency is driven by the formation of bonds similar to clientelism in the absence of formal social institutions. Social institutions prevent this erosion and maintain the integrity and integration of markets.
And this is why I find market fundamentalism, and the specific belief in a culture of dependency, so dangerous. It's a kind of metastisized political ideology, it turns our own culture's virtues into a hypertrophic growth that consumes our ability to grow and adapt to a changing world. It makes our own population a threat to us by believing the market system is a natural phenomenon distinct from our social institutions. By making this mistake, it threatens the greatest of human achievements, the market system, by eroding the social bonds and sense of obligation that is necessary for its proper functioning. This is part of the long, slow road into decadence which concerns me far more than does the threat of tail risks. But this ideology seems to be on the ascendent despite its great discrepancies from empirical and historical evidence. This shouldn't be surprising, all cases of decadence and decline involve the most active and socially connected groups seeking to validate their own continued social dominance and relative position. This can also be explained by the fundamental attribution error, people have a psychological need to explain events in human terms based on character rather than systemic or social forces despite a very large amount of evidence indicating that situational factors explain the majority of behavior, with individual traits only explaining a very small portion of variation.
I should probably note that this post is also partially due to my extended hangover from reading Schumpeter. If Schumpeter is right, and I'm wrong, about the nature and functioning of capitalism I can see why socialism might be inevitable, that form of capitalism will necessarily cannibalize itself. However, I think Schumpeter makes some critical mistakes about the historical evolution of capitalism and the functioning of its antecedents by drawing too heavily on Marx, who in turn draws too heavily from European experience and attributes too many extraneous factors to capitalism's development and misses the importance of many relationships that go further back in time than the period they are looking at. As I've said before, I am often struck by the similarities between Marxism and this form of economics, the reason being that they both share certain fundamental assumptions and it is these assumptions rather than specific analysis of either perspective, that I ultimately disagree with. Both give economics too big of a role and don't properly explore the interactions with social phenomenon, leading both astray. Of course, they both lacked good data on non-western societies as well as a lot of the archival data that we possess today on Europe. This data paints a very different picture from what they had available.
*More than half of welfare recipients are white.
** A certain portion of the decline in labor force participation among men is due to poor institutionalization of disability benefits. Even with Ticket to Work, the transition back to work for someone with a disability is rough. Also, many people trying to transition back into the workforce find that employment is uncertain and not consistent. It can take a long time to reapply for benefits so these individuals are understandably reluctant to take a chance. Add in the fact that many of these people have medical conditions which make a prolonged absence from work at some point just about inevitable, and the likelihood of losing Medicaid benefits once they are employed, and the incentives for individuals on disability to work become quite low. But remove benefits and a lot of these people would lack sufficiently good health to work. The current system is a catch-22, but this is almost solely due to cost saving and the belief that only people who really need it should receive assistance. In the long run, it is often more cost effective to provide assistance to anyone who is at high risk for dropping out of the labor force, it prevents skill erosion and means programs with less barriers for those that might want to work. This of course means more redistribution and higher taxes, but on net, we get higher labor force participation and more net wealth in the economy, benefiting everyone in the long run.
[Edited for unusual font change mid post]