The Extreme Danger of Right Wing Economic Theory
FILED TO: Economics
By Ben Cohen: I’ve been having a series of arguments with a friend of mine about the competing economic theories in mainstream American politics. My friend takes the view that government is not the answer to America’s economic or social problems, and I take the view that in many cases it is. I’m not a fan of labels, but in the American political spectrum, my friend would be viewed as center right with libertarian leanings, whereas I would probably be classified as a socialist. In America, I’m the odd one out with no one in mainstream political circles outside of Elizabeth Warren and Bernie Sanders who really represent my views. My friend on the other hand would be right at home in the mainstream of the Republican Party.
In any other industrialized western nation however, I would be considered well within the mainstream. In the UK I’d be fairly mainstream left, in France, the center left, and in Sweden or Norway probably around the center. My friend would be considered far out of the mainstream of political discourse with his views on the role of government in society.
While I don’t want to denigrate my friends views, I think there is a huge misconception in America about where the political center really is, and I believe this makes modern Republican economic theory extremely dangerous. Moderate Republicans today would not only be considered far Right in Europe, but in relation to other Republicans throughout US history. To put it in perspective, the Obama administration is further to the Right on most issues than Richard Nixon’s government was. Writes Eduardo Porter in the New York Times:
The Nixon administration not only supported the Clean Air Act and affirmative action, it also gave us the Environmental Protection Agency, one of the agencies the business community most detests, and the Occupational Safety and Health Administration to police working conditions. Herbert Stein, chief economic adviser during the administrations of Nixon and Gerald Ford, once remarked: “Probably more new regulation was imposed on the economy during the Nixon administration than in any other presidency since the New Deal.”
Nixon bolstered Social Security benefits. He introduced a minimum tax on the wealthy and championed a guaranteed minimum income for the poor. He even proposed health reform that would require employers to buy health insurance for all their employees and subsidize those who couldn’t afford it.
Just think about how that would go down with politicians like John Boehner or Paul Ryan.
The shifting of the political center is an interesting phenomenon with both Democrats and Republicans offering their competing theories. While it’s unclear why the shift happened exactly, we do know that it has happened. As Porter notes:
The rightward drift in economic thinking becomes apparent in surveys asking about specific issues. In surveys 25 years ago, 71 percent of Americans believed it was the government’s job to take care of those who couldn’t care for themselves, according the Pew Research Center. This year the share is down to 59 percent. And most of the shift reflects a decline among Republicans.
Republicans’ support for labor unions has fallen sharply since the late 1980s, according to Pew’s research, as has their support for protecting the environment. Their drift fits the position of Congressional Republicans, whose views on the economy have been shifting right for the last quarter-century while Democrats’ views have remained roughly still. And as Republicans have moved to the right, economic policy has followed.
The Right believes that its economic theories were better and beat Keynesian economics through the power of free markets and innovation. The Left believes that there has been a concerted effort from the Right to discredit government and minimize its achievements in creating and maintaining economic growth. There is however, a simple way to test the Right’s explanation, and that’s to look at the success of the economy under a neoliberal, orthodoxy and compare it to that under of a more interventionist approach. Sadly for the Right, their argument falls apart pretty quickly. As Noam Chomsky notes, the Bretton Woods system of monetary management that established the highly interventionist rules for commercial and financial relations among the world’s major industrial states from 1945 to the early 1970’s, marked a period of extraordinary economic growth:
From roughly 1950 until the early 1970s there was a period of unprecedented economic growth and egalitarian economic growth. So the lowest quintile did as well — in fact they even did a little bit better — than the highest quintile. It was also a period of some limited but real form of benefits for the population. And in fact social indicators, measurements of the health of society, they very closely tracked growth. As growth went up social indicators went up, as you’d expect. Many economists called it the golden age of modern capitalism — they should call it state capitalism because government spending was a major engine of growth and development.
And when the system fell apart in favor of deregulation and speculation, calamity ensued leaving markets prone to boom and bust, weak economic growth, and spiraling wealth inequality:
In the mid 1970s that changed. Bretton Woods restrictions on finance were dismantled, finance was freed, speculation boomed, huge amounts of capital started going into speculation against currencies and other paper manipulations, and the entire economy became financialized. The power of the economy shifted to the financial institutions, away from manufacturing. And since then, the majority of the population has had a very tough time; in fact it may be a unique period in American history. There’s no other period where real wages — wages adjusted for inflation — have more or less stagnated for so long for a majority of the population and where living standards have stagnated or declined. If you look at social indicators, they track growth pretty closely until 1975, and at that point they started to decline, so much so that now we’re pretty much back to the level of 1960.
The Left’s thesis that the Right embarked upon a sustained effort to discredit regulation, protectionism and intervention is harder to prove, but you only need look at the US corporate media system to see why it is a highly plausible theory. The US media is almost wholly owned by an increasingly small number of ultra wealthy conglomerates (Time Warner, Disney, Murdoch’s News Corporation, Bertelsmann of Germany, and Viacom control most of the US media). They are for profit entities that benefit hugely from the US tax code that favors big corporations, and lax anti trust laws that allow them to destroy or swallow smaller companies. It would be suicidal for any of their news outlets to disrupt the status quo and question the system that keeps them in business, so they don’t. Issues pertaining to poverty, unions, international trade agreements and wealth inequality are given little attention in the mainstream media, and for good reason. If the public were aware of the economic injustices foisted upon them from above, they wouldn’t accept it and the system would come crashing down. Corporate media outlets have no interest in this happening, so they don’t report on it.
The mythology that pure free markets are the key to economic success is then repeated dutifully by reporters and news programs over and over again, to the point where many Americans genuinely believe that the collapse of a highly deregulated Wall St can only be rectified with more deregulation.
This mythology is incredibly dangerous when enacted at the highest level of government. We narrowly avoided a Romney Presidency where austerity and tax cuts would have been implemented to solve the country’s problems, but there is a Republican Congress still bent on ensuring government stays out of the economy. The Republicans claim that government spending is out of control, and markets should be allowed to correct themselves naturally. The damage this would cause would be immense, and only the Democrats stand in their way to ensure minimal levels of regulation and intervention.
The truth is, the center needs to be redefined in America if it is to experience another period of sustained, equitable growth, and avoid another crippling recession.
And it can’t go any further to the Right.