The fear of peasants

I get the Wall Street Journal delivered to my doorstep, a perk of teaching economics at UC Berkeley. And there is always something to grab me on the front page. This morning was no exception.


Like most people, CEOs dislike uncertainty. Uncertainty makes it hard to plan for the future. I am not speaking of the controlled or even planned uncertainty, where investors take advantage of an earthquake, a flood, a war. Rather do I have in mind those macroeconomic shifts that leave the future uncertain. Will factors be more or less costly? Will prices rise or fall? Will there be greater or less demand?

When all is said and done, it was questions like these that proved decisive for winning support for Franklin Delano Roosevelt’s New Deal. Or, as I have on occasion put it, “how do we get and keep the peasants off the streets?” For the real problem with the anger expressed in Bernie Sanders’ and Donald Trump’s candidacies is how it places politics (and “the political” in Carl Schmitt’s sense) front and center. Politicians can be bought. Not so “the political.” Thus the problem.

How terrified are the rentier? Terrified enough to support Hillary Clinton, which, notwithstanding her liberal bona fides, has at the very least shown that she is not beyond being purchased by Wall Street.

“It’s pos­si­ble … It’s pos­si­ble,” Mr. Koch said on ABC’s “This Week” Sun­day in re­sponse to a ques­tion about whether Mrs. Clin­ton would make a bet­ter leader in the White House than the three re­main­ing Re­pub­li­cans. (WSJ 2016-04-24 “Could Charles Koch Rally Behind Hillary Clinton?”)

Now that’s terrified! Now, of course, Chuck would make sure that once in office there will be enough obstructionists in the House and Senate to prevent any genuine change. Not to worry. Still, that he would publicly entertain the thought says worlds both about Ms. Clinton (who quickly rebuffed Chuck’s overtures) and just how desperate America’s rentier truly are.

We almost always forget that the genius of John Maynard Keynes’ General Theory and, more importantly, the macroeconomic mechanisms that validated that theory, was not, as some have supposed, its big heart. Rather was its genius in what economists call the “propensity to consume” and the “propensity to invest.” Lord Keynes only had the respect for peasants that one would expect from English gentry. Far more important was his recognition that warm, filled, and sufficiently distracted peasants are much easier to manage than cold, hungry, and focused crowds. The marginal propensity to consume characterizes how I will spend my next dollar. Up to the margin — which differs for each income strata — I am going to spend that dollar on consumer goods; that is, goods that need to be manufactured by someone; that is, goods that promise employment of factors and so economic growth. Beyond a specific margin, however, I am going to save for future spending. Yet, even if I do save, investors will not purchase and invest my savings — they will not borrow and invest in factors of production, no matter how low the interest rate — unless they are convinced that the returns on this investment are marginally greater than not spending it? How much marginally greater? Again, it depends upon the investor. But, what we do know is that once the Federal government committed itself to what eventually was its $350B investment in World War II, this investment both cleared the peasants off the streets and opened the gates for present investments on future anticipated returns.

No hearts required. Simply a grasp of basic economic mechanisms.

Is this what Chuck has in mind? No. Of course not. Charles Koch long ago drank the Kool Aid of von Mises, von Hayek, and Ms Rand. No one has contributed more to the current volatile political climate that Charles Koch. By driving down wages and benefits and eliminating the constraints on finance capital; by paying above market rates for legislators and legislation; by essentially purchasing the current litter of Republican legislators, Charles and his brother have single-handedly reinvented the American political landscape.

One could, of course, imagine other ways to remove the peasants from the streets. We could, for example, criminalize poverty and lock them all up. Obviously, this too is costly, but not for those who benefit from their removal. In California, for example, where we spend almost $1 billion a year on our prisons, the tax structure is such that middle and low income individuals end up footing bill. But that’s not all. Since California’s public schools have for the most part been defunded, tax-payers largely lack the tools to grasp why ever larger amounts spent on police and prisons fails to reduce crime. Go figure.

The problem here is that the peasants emptying onto the streets are as likely as not to be far right conservatives whose only crime (not insignificant) is that they support Donald Trump. To clear the streets of Trump supporters, the Kochs would have to eliminate their own base.

Yet, were the rentier to adopt a demand-side approach closer to that recommended by Lord Keynes himself, this could leave the impression that the public actually deserves or, in any case, needs the kinds of public institutions that the rentier have spent the better part of a half-century fighting against. Nor need we wonder how an educated, healthy, and wealthy public might use their newfound entitlements. Remember the 1960s? No, we don’t want that again.

Finally, however, the rentier could decide that peasants in the streets is simply too high a price to pay for their high rates of return on investment. In which case the only question is what is the marginal cost they must bear to clear the streets?

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