Month: May 2018

Two rules govern economic thinking: caeteris paribus (all things being equal) and “in the long run” when (Lord Keynes reminds us) all of us are dead.

These two rules lead to a kind of “magical thinking” of the sort about which Joan Didion wrote the year she lost her daughter and her husband. Because they are inclined to think in the long run, caeteris paribus, economists often glide over the damage that can happen in the mean time.

We are now living through a “rough spot” generated by Democratic leadership ill-equipped or unprepared to face the consequences of systemic inequality. Time and again, Democrats turned to the market to solve problems that markets are ill-suited to solve. Markets solve market problems. They do not solve educational, health, welfare, or security problems.

Let’s begin with security problems. When the Defense or State Departments submit their “requests,” they do not ask for what taxpayers can afford. They demand what they believe necessary for the long-term existential maintenance of the state. They may not get everything they ask for; but when they build their budgets, this is what they request.

By contrast, health, education, and welfare have learned to low-ball their asks. What level of health do our citizens deserve? What level of health does our economy require? Or, consider education. Following World War II, the US pored billions of (2018) dollars into the economies of Europe and Asia, hoping thereby to build a firewall against Communism, Nationalism, and Fascism. Europe and Asia took these US taxpayer dollars and pored them into health, education, and welfare. Because, having experienced fascism, nationalism, and communism first-hand, they recognized that the only “cure” was a public that was highly educated, healthy, and sufficiently secure to value the ideals of freedom and democracy. The US, by contrast, is following a script written by nationalists, demagogues, and tyrants. By starving our citizens, we hope to win compliance.

As we passively mark the fall of republics all around the globe to nationalism, right-wing extremism, and xenophobia, it is important that we bear in mind that this need not end well. There is no rule that says: irrespective of what you do, things will turn out alright. Indeed, it might end very badly in the long run, caeteris paribus.

What are you doing? How are you resisting?

News Flash: “President Trump signed orders making it easier to fire government workers. The push reflects conservative’s wariness of the federal bureaucracy” (https://nyti.ms/2GNL6GA)

The executive order is troubling in its own right. Also troubling, however, is the laughable claim that conservatives are wary of government bureaucracy. Even if you knew nothing else, you should at least know that since 1984, Republicans have consistently expanded government payrolls while Democrats have either permitted no growth (Clinton) or in fact shrunk the number of government employees.

(See also Forbes)

Republicans are wary not of government bureaucracy. They love bureaucracy. They are wary of worker rights. Why? Because the stronger worker rights, the larger the portion of the marginal product that ends up in workers’ wallets (and, by inference, the less in the bank accounts of shareholders). Workers’ rights and worker protections were won in a very different climate that currently prevails. In the face of a united coalition of investors, law enforcement, and employers, workers successfully won a battery of concessions between 1918 and 1945. These concessions redistributed how the marginal product was distributed, giving rise to a giant leap in effect demand for consumer goods. We might also note that these concessions were made less controversial because worker demands were issued in a climate of steady economic growth.

When marginal returns began to fall in the late 1960s, investors needed to find a way to maintain the same returns they had enjoyed throughout the 1950s and much of the 1960s. Their solution was to chip away at the wages and benefits won by organized labor. It worked. We now have wealth inequality on par with pre-World War I levels.

It is not wariness of government bureaucracy that is driving Republican policy-makers, but wariness of worker rights.

Earlier this week, a friend (in fact a much beloved seminary professor) shared Caleb Crain’s piece in the New Yorker, “Is Capitalism a Threat to Democracy” (May 14, 2018) with me.

It is very pleasing to see Karl Polanyi back in the game. (Was he ever not in the game?) I hope that you will read it.

I really only have two, small, reactions to the piece. The first reaction is substantive. It always surprises me, perhaps it shouldn’t, when writers fail to note the obvious. If Lord Keynes was right and if a large volume of capital distributed at the bottom of the income hierarchy gives rise to a multiplier equal to the value of the consumer goods purchased by these consumers, then the $4.2T (in 2018 dollars) spent by the treasury defeating nationalism and fascism deserve much of the credit, not simply for lifting us out of the Depression, but also sustaining us through the 1950s and 1960s. To this we can add the millions, not billions or trillions, of the Marshall plan, which, by increasing the purchasing power of Europeans and Japanese, gave their own boost to the US economy. When Japan and Germany returned to full industrial capacity, some time around 1968, competition from world markets began to put a pinch on the returns US investors enjoyed from their  domestic assets.

This is important because it belies Milton Friedman’s claim that it was American know-how, ingenuity, and private investment that made the 1950s and 1960s hummm. No. It was Uncle Sam (and, in the long run, taxpayers themselves). But it is also important because, unlike Europe, which threw its Marshall funds into transportation, health, and education, the US actually believed the story it was telling itself and the world. And, as a consequence, it felt no need to invest in health, education, and welfare “beyond the margin” dictated by the market. That is, it believed that the free market was the cause for its wealth, and not the $4.2T or the destruction of its two major world competitors, Germany and Japan.

This fits with the two very different narratives about the causes for war that Europeans and U.S. policy-makers told themselves. Europeans were more inclined to embrace Polanyi’s explanation and his “double-movement.” When pressed into a corner, political actors push back. The push-back often appears as political extremism. U.S. policy-makers, by contrast, were inclined to credit fascism and nationalism to cultural and intellectual backwardness. Fascism was a throw-back to the pre-industrial era. This U.S. narrative made it possible for the U.S. to bundle economic growth and technological progress together with liberty. Since they did not grasp the economic mechanisms that had given rise to their economic expansion, U.S. policy-makers also failed to grasp why, in the late 1960s, markets began to display evidence of global competition and declining rates of profit.

My second, minor, reaction is therefore that the U.S. was at no time closer to socialism than it was at the end of the 1930s, but that from that point forward it veered hard away from this alternative. This was already clear from the anti-labor legislation (cast as anti-Communist legislation) forced through Congress in the late 1940s and throughout the 1950s. Free enterprise (or so it was argued) did not need assistance from Uncle Sam. The economy was doing great. Don’t let Big Labor ruin it all. And, so, in 1947, Congress passed the most sweeping anti-union legislation since the turn of the century, the Taft-Hartley Act (29 U.S.C. § 141-197), which effectively deprived organized labor the benefit of their numbers. The social welfare state therefore unfolded very differently in the U.S. than in Europe. In the U.S. social welfare was explicitly aimed at the elderly, the poor, children, unemployed, sick, and largely at underserved minorities. In Europe, by contrast, the social franchise was sold as an entitlement to all.

When toward the end of the 1960s international competition began to put the squeeze on, Europeans tightened their collective belts while, in the U.S., policy-makers found it relatively easy to chip away at entitlements targeting specific groups: underserved minorities, children, the poor, the homeless. Just as Europeans spread efficiencies broadly, so they also spread the cost of declining productivity broadly. Not so the U.S., where those least able to shoulder the cuts were targeted as the underlying cause for economic decline. In no case, however, did U.S. policy makers play with socialism. Since fascism arose not as a response to social and economic hardship, but out of intellectual and cultural regression, economic growth and free markets — not social engineering — seemed the natural and necessary antidote to fascism.

Crain is right. Democrats played a central role in dismantling the social welfare state. But it is a role that came naturally to them, since, with their republican allies from across the aisle, they knew that it had been free markets that had made America great again.

But this had never been true. Rather was it the $4.2T allocated by Congress beginning in 1938 that played this role. Which is why, I believe, it is absolutely essential that we place this tremendous sum of money at the center of our explanations.

Some of you may remember the scene from Pixar’s “The Incredibles” where  Helen, Dash, and Violet have been blown out of the air by the evil Syndrome (aka Buddy). Helen surveys the trajectory of the missile that downed their jet in order to determine its origination. That’s were they should swim. To which Dash responds: “You want us to go towards the people who were trying to kill us?”

The moxy is not unlike the Marines recruiting ad that shows the grunts streaming towards the people trying to kill them.

Why have I been thinking about such clips? I have been thinking about why I rush to the center of controversy, not away from it. And I actually think that this instinct, to go toward danger, is not altogether different from the instinct that drives Marines to drop from the sky or that drives Helen to swim to where the missiles were launched.

Our table, always packed, is invariably a site of conflict. Good food, good drink, good friends — but often, not always, conflict. And, like moths to light, I have to admit I am drawn in. I want to know deeply, fundamentally, at their core, how things work. And when I am thrown together with a garden of ferocious beasts I want to know which of us knows how to survive the jungle. Dash does too. He wants to be the fastest runner on his school’s track team. But, so long has he been compelled to “blend in” and not “make waves,” that he has lost his moxy. His mom has not.

It has gotten me to start thinking that one of the faults endemic to those on the left of the political spectrum may be that we have grown so sensitive to the seemingly infinite sensitivities of everyone with whom we organize that we have completely lost the capacity to argue, to fight, to fundamentally disagree. We have so cultivated the fine art of being kind and likable that we dramatically defer from disagreement. What do I stand for? I stand for what you stand for. What do you stand for? And so it goes around the block.

But I really, deeply, fundamentally want to know how the world works. And so when I hear that someone disagrees with me, that’s where I want to go, to where the chaos is, to the place where they launched the missiles.

Principles are to be fought over. They make a difference. They are important. They are worth the fight. But how do we know what our principles are unless we have tested them, not only in the lab or research journal, but around the table, in the streets.

The tragedy may be that the only fights most people find worthy of joining are fights over blood and body, oil and territory, not over the the values we have reason to hold dear. I am hoping that the left will recover its moxy, that it will run toward, not away from, the action. I am hoping. But I am not hopeful.

Tomorrow bright and early I will be heading off to San Francisco State University to participate in a discussion of how and why we need to be resisting the neoliberal university.

I hope you will be able to join me or one of the other panels that will be held throughout the day.

My take — perhaps a minority among tomorrow’s presenters — is that the neoliberal university is normal for capitalist societies. Survey higher education before 1940 if you don’t believe me. Its almost uniformly white, wealthy and male. The real anomaly in higher education for capitalism falls between 1940 and 1980, when working families and traditionally underserved families began to ship their sons and their daughters off to universities in historically unprecedented numbers; in such large numbers that their very presence began to reshape higher education in fundamental ways.

It was not simply that the educational goods market expanded. It expanded in ways that reflected its new clientele. To the traditional disciplines were added interdisciplinary studies and area studies, which, I Wallerstein’s claims notwithstanding, were not simply a response to State Department needs, but to the growing diversity of the liberal university. African and African American Studies, Latin American Studies, Gender Studies, Women’s Studies, and Queer Studies were only peripherally related to State Department interests. And, yet, they unquestionably reflected the changing demographic of the liberal university.

But, if we delve into the reasons for this shift, many of us may be disappointed. We would like to believe that we were simply growing more progressive, more liberal, more open, more accepting; which we were, but not simply.

In 1938, the US Congress began its unprecedented spending spree. By 1945 it will have allocated close to $4.2 trillion to defeat nationalism in Asia and fascism in Europe. That’s not counting the Marshall funds, which added another $14 billion to the national budget. The point is, much of this money wound up in the bank accounts of working families, including working families of color, which suddenly found it within their means to send their children off to university — a fact not lost on admissions officers. Throughout the 1950s and 1960s universities competed for this marginal dollar suddenly appearing in the bank accounts of working families. With Japan’s and Germany’s industrial sectors in ruins, these working families, nearly fifty per cent of whom enjoyed good union jobs, ruled the roost. So long as the US industrial sector was expanding, so too would the fortunes of working families; and with them the universities to which they were sending their children.

As the consumer base of the university changed, so too did the product they were offering.

The problem is: we never abandoned a university firmly grounded in private capital markets. Least of all did we abandon this university in the 1960s and 1970s, which progressives and leftists almost universally embrace as the paradigm for the diversifying, progressive, liberal institution of higher learning. To cast this university — our university — as a consumer-driven institution seems cruel and unnecessary. But it is absolutely necessary to cast it in this way. Otherwise we will not fully appreciate the steep terrain before us.

When Germany and Japan reentered the game in 1968, their productivity began placing competitive downward pressure on prices and so investor returns. To his credit, President Nixon attempted to implement (1) universal single-payer healthcare; (2) free higher education; and (3) high speed and light rail, in an attempt to restore US competitiveness. All three were shot down by a Democratic-controlled Congress. As a last resort, Nixon took the dollar off the Gold Standard and let it float on global currency markets.

A weak currency hurts creditors and (temporarily) helps debtors. Consumers in the educational goods market barely noticed a change. Tuitions increased, but so too did wages. What did not change was productivity. Or, rather, productivity declined. Nixon’s fix was just that and nothing more. It led to a decade of “stagflation.”

The present educational goods market was created in 1979 when Fed Chair Paul Volcker increased interest rates by nearly 20 per cent. Suddenly the debts accumulated in the 1970s grew prohibitively expensive. Businesses stopped borrowing money. Huge lay-offs followed. The vastly strengthened dollar helped creditors and (permanently) hurt debtors. It is therefore from 1980 forward that we date ballooning student debt, increasing tuition, and administrators preoccupied with efficiency and productivity.

And so the neoliberal university — which is to say, the old pre-1938 university — blossomed, again.

In economic language, administrators and investors became preoccupied with:

where the Marginal Product of Labor equals the change in the quantity of some good (or, rather, its value) over the change in the labor required (or the value of the labor required) to produce that quantity.

Here, education is reduced to its marginal value to investors and consumers.

But there is an alternative. If we take Q to be not a good’s monetary value or even the quantity of that good, but take it instead to be its quality, we can then ask whether we are sufficiently educating our public (given any specific quality and quantity of instruction). If our aim is a sufficiently educated public, then the marginal efficiency of instruction is achieved where and only where Q is satisfied: only where sufficient educational outcomes are achieved. Q is not a monetary amount. Nor is it a quantum of students paying tuition. It is actually an educational outcome. Short of this outcome, we are not investing enough in education.

(Obviously the same holds true for other values: health, leisure, housing, whose value is not measured in monetary units, but rather in desired outcomes.)

As we negotiate our contracts, we need to remember that we are the last defense of superior educational outcomes, as distinguished from marginal profits. We need to this point home. We will not sacrifice our students or their learning. Nor will we sacrifice the learning of communities the university feels compelled to exclude. We are not seeking greater efficiency or productivity or marginal returns. We are seeking superior educational outcomes.