Wednesday, February 22, 2012

What Americans Want vs. What's on the Menu

As I've been reading numerous articles on the beginning of the Presidential race I've been struck by what I see as a continuation of a basic American idea of the social contract.  What American's want is the same thing that I used to say distinguished Americans from Canadians back when I lived in Canada and was more right leaning.  This is that we accept greater risk in exchange for more growth and a better opportunity at succeeding.

While this is what the vast majority of Americans want, it doesn't seem to be what we've been getting.

This social contract and belief that America is all about accepting greater risks in return for greater rewards and more flexible, more mobile society seems to have formed the basic dividing line in American politics.  On one side are those that believe the problem is that we still haven't taken on enough risk to gain the rewards, just a little more risk, a bit higher chance of going bankrupt or getting seriously ill without sufficient treatment, will push us back onto the virtuous path of accepting more risk and getting the wealth, mobility, and creativity that comes with taking a chance.

On the other side are those that look at the extra risks we've been giving ourselves and just don't see any return.  We were told that welfare reform would mean less poverty because people would work harder, but all we see is that poverty has become more pro-cyclical, in good times we have even more in the workforce and spend less, but in bad times we have even more poverty and end up spending more through less efficient programs. Lower taxes doesn't seem to have led to more job creating investment, instead land and stock prices seem to have been bid up with little or any additional investment in machinery.*  The rich got inflation and everyone else just got priced out of the market on real, job creating capital.  This side is beginning to question the story, maybe the trade off between risk and reward just isn't there, maybe the efficiency/equality trade-off is a myth, and all the additional risk and increased incentives has done is make it more likely for us to fail and more firmly ensconced the wealthy at the top of the pyramid.

This isn't to say that anyone has abandoned the American preference for accepting more risk in the hope of greater rewards. It remains very American to lionize risk and encourage entrepreneurship.  But it just feels more and more like the flip side of this is what is getting gutted. A big part of American entrepreneurship has been our easy bankruptcy laws and a sense that we'll help pick someone back up when they fail.  But increasingly it feels like reforms have been in the direction of enhancing risk by increasing the rewards for winning and kicking those that fall down. 

To a considerable extent, this seems to me to embody the current political polarization in this country.  On the right, there is an increasing ideological conformity to assert that the basic American social contract is correct and true.  We MUST believe that accepting greater risk means greater long term rewards, if we haven't been seeing that it's because the government has somehow interfered with us actually accepting more risk and exposure to the market.  This side seems to spend a lot of time explaining why we should ignore inconvenient data rather than trying to adapt their beliefs to the doubts more and  more people are expressing.  The doubt about the validity of this story is what is influencing a lot of RINOs and moderate Democrats to become disillusioned with modern politics.  We just don't believe that the tradeoff implied in the basic American social contract describes the actual world we live in.  Previous attempts at increasing risk through market exposure just doesn't seem to have the consequences we were told it would.  Why should we believe another round of this will fair better?

What we are left with is those that favor their belief and commitment to the basic American social contract vs. those who pragmatically feel that this just doesn't describe our world anymore.**  One side is far more vocal and passionate, and the other is larger but not passionate at all, feeling more disgust than commitment.  We badly want someone to excite us, but our basic feeling is that what we want simply isn't an available option and we can't much decide between anything that's left on the menu.

*Historically, this is a well established phenomenon, high levels of wealth concentration lead to more money piling into investments seen as secure bidding price up and long term yields down.  This isn't supposed to happen in modern societies where increased wealth should theoretically flow into new investment in productive capacity.  However, I think there is mounting evidence that it does and that capitalistic growth is driven by rising incomes at the bottom and the middle rather than concentration at the top (I believe that early economic theory focused on capital because of data availability, they could see the wealthy industrialists and the masses pouring in from the countryside but they didn't yet have micro-level parish data that showed the even more rapid growth in lower and middle class incomes and small businesses; as I like to say, theory is only as good as the evidence it is based on). If this is the case then the failure of the Bush tax cuts to drive more rapid economic growth becomes completely predictable, we should expect that increased income inequality will primarily express itself through inflation in luxury goods and through the increased price of land and other fixed quantity assets, and to a lesser extent stocks, while the bidding up of these assets increasingly excludes the less wealthy from becoming entrepreneurial reducing creative destruction through competition and thus economic growth.  I'll have more to say on this when my Africa articles are done.

**I'm not saying anything here that hasn't been mainstream for decades, though it is normally presented as an evolution of older ideas rather than a break from them. While ideas like capitalism, socialism, and class are still widely used they simply don't have the same content they did 50 years ago or do in current public discourse.  For instance, over the weekend I read Esping-Anderson's Three Worlds of Welfare Capitalism.  It dates from the 1990 but even he is describing socialism as being about securing individual rights in order to decommidify labor. This is pretty far from the original Marxist concept of socialism that made class central and rested on the inherent exploitation of labor by capital.  The Marxist concept also seems closer to what we hear in modern political debates.  Further, while my understanding of European politics is not great, my understanding is that even in supposedly socialist countries there has been movement away from policies that interfered with the labor market, which is an essential piece of the decommodification idea.

My point being that social science has moved away from the idea that socialism vs. capitalism is very meaningful as a paradigm.  The tradeoffs that actually emerge from an analysis of the data are just different from the mythology we have and from the paradigm that was current in the 60s and 70s which seems to still drive our political debate.  This hasn't been replaced with a new public paradigm, debate still operates within it but with a certain cognitive dissonance that comes from talking about politics in a way that conflicts with both individual experience and the new data we are being asked to assimilate.  The reaction seems to have been either a doubling down on the mythology at the expense of the data or a certain dissociation from politics if the new data is accepted.  Sometimes this dissociation is instead displaced into a loathing of the still committed side, but I don't really see it being translated into an actual new ideological commitment.

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