Posts Tagged ‘social safety net’
“There’s class warfare all right, but it’s my class, the rich class, that’s making war, and we’re winning”*…
Trevor Jackson on Martin Wolf‘s new book, The Crisis in Democratic Capitalism, and a fundamental question it raises: if globalization has allowed elites to remove themselves from democratic accountability and regulation, is there any path toward a just economy?…
Something has gone terribly wrong. In his 2004 book Why Globalization Works, the economics journalist Martin Wolf wrote that “liberal democracy is the only political and economic system capable of generating sustained prosperity and political stability.” He was articulating the elite consensus of the time, a belief that liberal democratic capitalism was not only a coherent form of social organization but in fact the best one, as demonstrated by the West’s victory in the cold war. He went on to argue that critics who “complain that markets encourage immorality and have socially immoral consequences, not least gross inequality,” were “largely mistaken,” and he concluded that a market economy was the only means for “giving individual human beings the opportunity to seek what they desire in life.”
Wolf wrote those words midway through a four-decade global expansion of markets. Throughout the 1980s in Britain, the United States, and France, governments led by Margaret Thatcher, Ronald Reagan, and François Mitterrand set about privatizing public assets and services, cutting welfare state provisions, and deregulating markets. At the same time, a set of ten policies known as the “Washington Consensus” (because they were shared by the International Monetary Fund, the World Bank, and the US Treasury) brought privatization, liberalization, and globalization to Latin America following a series of sovereign debt crises. In the 1990s a similar set of policies, then known as “shock therapy,” suddenly converted the formerly Communist economies of Eastern Europe and the Soviet Union to free markets. Around the Global South, and especially in the rapidly industrializing countries of East Asia after the 1997 financial crisis, “structural adjustment” policies that were conditions for IMF bailouts again brought liberalization, privatization, and fiscal discipline. The same policies were enforced on the European periphery after 2009, in Portugal, Ireland, Italy, Greece, and Spain, again, either as conditions for bailouts or through EU fiscal restrictions and restrictive European Central Bank policy. Today there are far more markets in far more aspects of human life than ever before.
But the sustained prosperity and political stability that these policies were meant to create have proved elusive. The global economy since the 1980s has been riven by repeated financial crises. Latin America endured a “lost decade” of economic growth. The 1990s in Russia were worse than the Great Depression had been in Germany and the United States. The austerity and high-interest-rate policies after the 1997 East Asia crisis restored financial stability but at the cost of domestic recessions, and contributed to political instability and the repudiation of incumbent parties in Indonesia, the Philippines, and South Korea, as they did again across Europe after 2009–2010. Global economic growth rates in the era of globalization have been about half what they were in the less globalized postwar decades. Around the world, violent racist demagogues keep winning elections, and although they all seem very happy with the idea of private property, they are openly hostile to the rule of law, political liberalism, individual freedom, and other ostensible preconditions and cultural accompaniments to market economies. Both democracy and globalization seem to be in retreat in practice as well as in ideological popularity. Or, as Wolf writes in his new book, The Crisis of Democratic Capitalism:
Our economy has destabilized our politics and vice versa. We are no longer able to combine the operations of the market economy with stable liberal democracy. A big part of the reason for this is that the economy is not delivering the security and widely shared prosperity expected by large parts of our societies. One symptom of this disappointment is a widespread loss of confidence in elites.
What happened?
Martin Wolf is probably the most influential economics commentator in the English-speaking world. He has been chief editorial writer for the Financial Times since 1987 and their lead economics analyst since 1996. Before that he trained in economics at Oxford and worked at the World Bank starting in 1971, including three years as senior economist and a year spent working on the first World Development Report in 1978. This is his fifth book since moving to the Financial Times. The blurbs and acknowledgments are stuffed with central bankers, financiers, Nobel laureates, and celebrity academics. The bibliography contains ninety-six references to the author himself.
Wolf’s diagnosis is impossible to dispute: “Neither politics nor the economy will function without a substantial degree of honesty, trustworthiness, self-restraint, truthfulness, and loyalty to shared political, legal, and other institutions.” But, he observes, those values have run into crisis all over the world, and, especially since about 2008,
…people feel even more than before that the country is not being governed for them, but for a narrow segment of well-connected insiders who reap most of the gains and, when things go wrong, are not just shielded from loss but impose massive costs on everybody else…
He describes in detail the mistaken policies of austerity in the US and Europe, the rise of a wasteful and extractive financial sector, the atomization and immiseration of formerly unionized workers, the pervasiveness of tax avoidance and evasion, and the general accumulation of decades of elite failure…
Read on for Wolf’s proposed remedies and Jacksons critiques: “Never Too Much,” from @nybooks.com.
And for an interview with Jackson that elaborates on his thoughts and their historical context, see here.
* Warren Buffett
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As we assess systems, we might send provocative birthday grretings to Founding Father Thomas Paine; he was born on this date in 1736 (O.S.; on February 9, 1737 per N.S., which accrued in Britain and its colonies in 1752). He is best known for Common Sense and The American Crisis, two influential pamphlets that helped to inspire colonial era American patriots in 1776 to declare independence from Great Britain.
But relevantly to the article above, in 1797 (after witnessing the birth and early years of the U.S. and spending time in France) he wrote Agrarian Justice, in which he proposed remedies for several of the (then nascent) ills discussed by Wolf and Jackson…
In response to the private sale of royal (or common) lands, Paine proposed a detailed plan to tax land owners [the “capitalists” of their day] once per generation to pay for the needs of those who have no land. Some consider this a precursor to the modern idea of citizen’s dividend or basic income. The money would be raised by taxing all direct inheritances at 10%, and “indirect” inheritances, those not going to close relations, at a somewhat higher rate. He estimated that to raise around £5,700,000 per year.
Around two-thirds of the fund would be spent on pension payments of £10 per year to every person over the age of 50, which Paine had taken as his average adult life expectancy.
Most of the remainder would be used to make fixed payments of £15 to every man and woman on reaching the age of 21, then the age of legal majority.
The small remainder of the money raised that was still unused would be used for paying pensions to “the lame and blind.”
For context, the average weekly wage of an agricultural labourer was around 9 shillings, which would mean an annual income of about £23 for an able-bodied man working throughout the year.
Paine’s proposal presaged the social safety net of later eras and governments, proposing seven entitlements to protect the poorest citizens from the ravages of market capitalism:
- Grants to subsidize schooling of 4 pounds per annum
- One-time payments to adults on reaching maturity
- One-time payments to newly married couples and new parents
- Eliminate taxes on working poor
- Back-to-work schemes
- Pensions for seniors
- Burial benefits to surviving spouses
and also provided a scheme of how to pay for them.
– source
“A republic, if you can keep it”*…
Nathan Gardels on one of the deepest issues at play in the social and political sphere in the U.S and around the world…
It is a mark of just how deep the crisis of governance across Western democracies has become that conflict irresolvable through political competition is giving way to the reconsideration of founding constitutions and the institutions they invest with legitimacy.
At its heart, this crisis is about trust. As the political scientist Francis Fukuyama has argued, “Belief in the corruptibility of all institutions leads to the dead end of universal distrust. American democracy, all democracy, will not survive a lack of belief in the possibility of impartial institutions; instead partisan political combat will come to pervade every aspect of life.” And so it has.
The ongoing populist surge of recent years did not cause the crisis. It is a symptom of the decay of democratic institutions that, captured by the organized interests of an insider establishment, failed to address the dislocations of hyper-globalization, the disruptions of rapid technological change and the attendant creep of widening cultural cleavage. Too many were left behind and struggled while others prospered and played.
Adding danger to decay, the fevered partisans of populism are intent on throwing out the baby with the bathwater, assaulting the integrity of the very institutions which protect republics from themselves through checks and balances, or that are critical to the fair administration of complex societies. The rebellion against a moribund political class has become a revolt against governance itself and the infrastructure that goes with it.
Populists who fashion themselves as tribunes of the people have never met independent and impartial institutions they can happily abide. Believing they are the embodiment of majority will, any constraint on their power is portrayed as a contrivance by elites to keep the masses down. When cemented with cultural resentment against those at the top who look down on the unsophisticated rabble living in the sticks and outside the fashionable status sphere, anti-elitist sentiment has enough truth value to stick.
We’ve seen versions of this over recent years where the previous governments in Poland and Brazil, as well as the present government in Israel, have sought to politicize the top courts and limit their independence from the powers that be. Hungary under Viktor Orbán, an outright proponent of illiberal democracy, has done the same, seeking further to stifle independent media, think tanks and civil society organizations for good measure.
In Mexico, Claudia Sheinbaum, the president-in-waiting elected by a landslide earlier this year, has pledged to continue pursuing President Andrés Manuel Lopez Obrador’s plan for popular election of that nation’s Supreme Court, thus making its slant coincide with the interests of the ruling party. Sheinbaum, like her predecessor, is also bent on disempowering the independent electoral commission that oversees the polls and certifies voting outcomes.
With the U.S. Supreme Court already dominated by ultra-conservative judges, partisans of Donald Trump have turned their attention to slashing the powers of what it calls “the administrative state” — those agencies with the discretionary authority under legislative mandate to regulate private sector activities in realms from environmental impact to food and drug safety to publicly traded securities to the monopolistic conduct of large companies. Most of these agencies have been in place since the early 20th century as the Progressive Era’s response to the vast inequality, child labor, unsanitary industry, crony corruption and robber barons of the unregulated Gilded Age.
The aim of modern-day populists is to both diminish and politicize the regulatory technocracy to fit their agenda. The famous Project 2025 plan prepared by the Heritage Foundation in anticipation of another Trump presidency has gone so far as to propose the abolition of the National Oceanic and Atmospheric Administration — the key body monitoring climate change, which they don’t believe in. My colleague Nils Gilman aptly calls this endeavor “institutional vandalism.” [See here for a taste of Gilman’s sharp thinking on the more general issue at play.]
Though the Trump campaign has sought to distance itself from the details of Project 2025, which may scare sensible voters in the runup to the November election, few have any doubts that it provides the essential roadmap for action if Republicans come to power.
Following verdicts to overturn Roe vs. Wade on abortion, blunt the scope of regulatory agencies and codify presidential immunity, the realization of what a stacked Supreme Court means has prompted President Joe Biden to engage the battle over institutions head on.
As his last stand after bowing out of the presidential race, the president is embarking on a quixotic quest to undo the impact of recent rulings and seek a constitutional amendment to reform how the Supreme Court works. First, arguing that “no one is above the law,” he would repeal the presidential immunity recently granted and impose a “binding code of conduct” with strict ethics guidelines prohibiting political activity by justices and requiring transparent disclosure of gifts.
The core structural change of Biden’s proposal is to get rid of lifetime terms and limit them to 18 years, with staggered appointments every two years (when one of the terms expires) to avoid the enduring sway of justices chosen by one political regime and ideological persuasion. In short, a process which would perpetually unstack the highest court instead of invite and enable its stacking.
This is an uphill battle, for sure, since amending the constitution would entail a 2/3 vote of both houses of Congress and approval of ¾ of all state legislatures.
“Defend the institutions” is hardly a rallying cry that will stir the passions of the public in the same way as the instinctive appeal of demagogues who promise simple solutions to complex problems while blaming all misfortune on the world outside or perceived enemies within. But repairing and restoring the integrity of democracy’s infrastructure is the only path back to trust. That is a tall order in the short term.
Popular emotion is the Achilles heel of democracies. Institutions that temper emotion through the cool deliberation of disinterested reason are what make the system work to the benefit of all.
As Fukuyama rightly says, democracies can’t survive without at least a belief in the possibility of impartial platforms for the administration of justice and governance. That proposition will be tested as never before in the battle over institutions in the near years ahead…
A challenge to democracy’s infrastructure: “The Battle Over Institutions,” from @NoemaMag, with @FukuyamaFrancis and @nils_gilman.
* Benjamin Franklin’s response to Elizabeth Willing Powel‘s question in 1787: “Well, Doctor, what have we got, a republic or a monarchy?”
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As we rally around the rudiments, we might recall that it was on this date in 1935 that President Franklin D. Roosevelt signed the Social Security Act, part of his New Deal program that created a government pension system for the retired.
By 1930, the United States was, along with Switzerland, the only modern industrial country without any national social security system. Amid the Great Depression, the physician Francis Townsend galvanized support behind a proposal to issue direct payments to older people. Responding to that movement, Roosevelt organized a committee led by Secretary of Labor Frances Perkins to develop a major social welfare program proposal. Roosevelt presented the plan in early 1935 and signed the Social Security Act into law on August 14, 1935. The Supreme Court upheld the act in two major cases decided in 1937.
The law established the Social Security program. The old-age program is funded by payroll taxes, and over the ensuing decades, it contributed to a dramatic decline in poverty among older people, and spending on Social Security became a significant part of the federal budget. The Social Security Act also established an unemployment insurance program [only a few states had poorly-funded programs at the time] administered by the states and the Aid to Dependent Children program, which provided aid to families headed by single mothers. The law was later amended by acts such as the Social Security Amendments of 1965, which established two major healthcare programs: Medicare and Medicaid.
“The only corporate social responsibility a company has is to maximize its profits”*…
Congressman Fred Hartley and Senator Robert Taft, namesake co-sponsors of the 1947 Taft-Hartley Act (which figures in the tale referenced below)
… Happily that wasn’t always the accepted belief, and may some day recede. The redoubtable Bill Janeway explains– and laments– the passing of corporations that felt a duty to constituents other than their shareholders…
In his new book Slouching towards Utopia, the economist J. Bradford DeLong points out, correctly, that the “industrial research laboratory and the modern corporation” were the keys to unleashing a radical increase in the rate of scientific and technological innovation, and thus economic growth, from 1870 onward. DeLong also identifies the Treaty of Detroit, a landmark 1950 settlement between General Motors and the United Auto Workers, as a linchpin of American-style post-World War II social democracy. But what ever happened to the behemoth corporations that unlocked decades of growth while sponsoring health insurance and pensions for their employees?…
The rise of the neoliberal order in the 1970s and 1980s coincided with the demise of companies that served their societies and employees as well as their shareholders. Since then, the US federal government and other institutions have managed to offset the loss of only part of the broader contributions that big business once made. The fascinating, sad story at “The Rise and Fall of the Socially Beneficial Corporation,” from @billjaneway in @ProSyn.
* Milton Friedman, intellectual leader– and avatar– of the neoliberal order
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As we learn from the past, we might send inclusively-calculated birthday greetings to a Cambridge University faculty colleague of Bill’s, Sir Partha Sarathi Dasgupta; he was born on this date in 1946. An Anglo-Indian economist, Dasgupta’s contributions have been broad, covering welfare and development economics; the economics of technological change; population, environmental, and resource economics; social capital; the theory of games; ecological economics; and the economics of malnutrition. His deepest interest has been in ecological economics, more particularly in the nexus of population, consumption, and the natural environment and in the economics of biodiversity. With the late Karl-Goran Maler, he developed the concept of “inclusive wealth” as a measure of human well-being.
“Bureaucracies… are not themselves forms of stupidity so much as they are ways of organizing stupidity”*…
Jumping through hoops for the sake of the hoops…
Not long ago, a New York City data analyst who had been laid off shortly after the pandemic hit told me she had filed for unemployment-insurance payments and then spent the next six months calling, emailing, and using social media to try to figure out why the state’s Labor Department would not send her the money she was owed.
A mother in Philadelphia living below the poverty line told me about her struggle to maintain government aid. Disabled herself and caring for a disabled daughter, she had not gotten all of her stimulus checks and, because she does not regularly file taxes or use a computer, needed help from a legal-aid group to make sure she would get the newly expanded child-tax-credit payments.
A Colorado systems administrator with a chronic medical condition told me that switching jobs had caused an accidental lapse in his health coverage, which led to a cascade of paperwork over responsibility for a medical bill. He estimated that he had spent 100 hours resolving the issue…
In my decade-plus of social-policy reporting, I have mostly understood these stories as facts of life. Government programs exist. People have to navigate those programs. That is how it goes. But at some point, I started thinking about these kinds of administrative burdens as the “time tax”—a levy of paperwork, aggravation, and mental effort imposed on citizens in exchange for benefits that putatively exist to help them. This time tax is a public-policy cancer, mediating every American’s relationship with the government and wasting countless precious hours of people’s time.
The issue is not that modern life comes with paperwork hassles. The issue is that American benefit programs are, as a whole, difficult and sometimes impossible for everyday citizens to use. Our public policy is crafted from red tape, entangling millions of people who are struggling to find a job, failing to feed their kids, sliding into poverty, or managing a disabling health condition.
The United States government—whether controlled by Democrats, with their love of too-complicated-by-half, means-tested policy solutions; or Republicans, with their love of paperwork-as-punishment; or both, with their collective neglect of the implementation and maintenance of government programs—has not just given up on making benefits easy to understand and easy to receive. It has in many cases purposefully made the system difficult, shifting the burden of public administration onto individuals and discouraging millions of Americans from seeking aid. The government rations public services through perplexing, unfair bureaucratic friction. And when people do not get help designed for them, well, that is their own fault.
The time tax is worse for individuals who are struggling than for the rich; larger for Black families than for white families; harder on the sick than on the healthy. It is a regressive filter undercutting every progressive policy we have. In America, losing a job means making a hundred phone calls to a state unemployment-insurance system. Getting hit by a car means becoming your own hospital-billing expert. Having a disability means launching into a Jarndyce v. Jarndyce–type legal battle. Needing help to feed a toddler means filling out a novel-length application for aid.
The Biden administration is expanding the welfare state, through the new child tax credit and other initiatives. Congressional Democrats are crafting a new New Deal. But little attention is being paid to making things work, rather than making them exist. And very little attention is being paid to making things work for the neediest—people short on time, money, and mental bandwidth.
The time tax needs to be measured. It needs to be managed. And it needs to end…
Why is so much American bureaucracy left to average citizens? Annie Lowrey (@AnnieLowrey) explains the enormous cost and points to the remedy: “The Time Tax.”
* David Graeber, The Utopia of Rules: On Technology, Stupidity, and the Secret Joys of Bureaucracy
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As we sign on to streamlining, we might recall that this date in 1970 was “Black Tot Day,” the last day on which the British Royal Navy issued sailors with a daily rum ration (the daily tot). In the 17th century, the ration had been beer– one gallon per day– but the the switch was meade the following century to rum in order to cut down on the weight and volume necessary to carry to meet that requirement. The daily allowance was steadily reduced thereafter, until finally it was eliminated.
And so, on July 31, 1970, the last tot was poured as usual at 6 bells in the forenoon watch (11am) after the pipe of “up spirits.” Some sailors wore black armbands, tots were “buried at sea,” and in one navy training camp, HMS Collingwood, the Royal Naval Electrical College at Fareham in Hampshire, there was a mock funeral procession complete with black coffin and accompanying drummers and piper. The move was not popular with the ratings (enlisted personnel), despite an extra can of beer being added to their daily rations in compensation.
“The combination of economic inequality and economic segregation is deadly”*…
When we think of a social safety net, we tend to think about things like health care and environmental protection, social security, child care; lately here’s been lots of talk of Universal Basic Income. All of them are surely part of an answer. But if we want a social infrastructure that not only protects against personal and family challenges, but also creates personal and family opportunities, we need to look further– we need to look to something we might call Universal Basic Assets. The always-illuminating Rana Foroohar explains…
If American states are, as former US Supreme Court Justice Louis Brandeis once put it, the “laboratories of democracy,” then it’s worth watching closely what’s happening in California right now.
The threat of rising taxes and a “soak the rich” political atmosphere has led some wealthy Golden State residents, including a number of technology entrepreneurs, to leave for cheaper pastures such as Austin or Miami. This has, in turn, prompted worries of a larger migration that would have an impact not only on the state’s tax base, but on the growth and innovation that have made California the world’s fifth-largest economy.
It is an exceptionally fraught situation. While nobody these days has much sympathy for wealthy individuals or companies (witness the recent justified fury about the ProPublica leaks showing how little tax the wealthiest Americans pay), or really believes in trickle-down economics, the threat of tax and regulatory arbitrage by other states is real.
The good news is that California is applying some typically creative thinking to the problem. What if there was another way to harness company and citizen wealth for the benefit of all?
One such idea gaining popularity is what has been called “pre-distribution.” Unlike traditional methods of redistribution, in which the state taxes existing wealth and then uses it to bolster various projects and constituents, pre-distribution is all about harnessing capital the same way investors do, and then using the proceeds of the capital growth (which as we know far outpaces income growth) to fund the public sector…
It could help better align public and private incentives and rewards. The massive wealth accrued by leading companies is in part down to the strength of the public commons — good schools, decent infrastructure, basic research, and so on. As economists like Mariana Mazzucato frequently note, why should taxpayers pick up the bill for, say, laying high speed fibre without getting any of the commercial upside?
California Senate majority leader Robert Hertzberg, a Democrat… along with some very rich Californians like former Google chief executive Eric Schmidt and Snap founder Evan Spiegel, have proposed… something called “universal basic capital”. The idea is that seed contributions of equity from companies or philanthropists could be invested into a fund that would then be used by individual Californians for things like retirement security, healthcare and so on…
If pre-distribution works in the laboratory of California, I expect it will be adopted in some way at the federal level. The Obama administration actually tried to implement its own version of the CalSavers programme for the country as a whole, called myRA, but it failed in part because the funds were invested only in super safe low yielding Treasury bills at a time when the market as a whole was rising far faster. Even at this politically polarised moment, it’s an idea whose time may have come. Pre-distribution is supported by such unlikely bedfellows as hedge funder Ray Dalio and leftwing economist Joseph Stiglitz. Perhaps that’s because while it doesn’t fundamentally alter the market system, it does broaden share ownership: a mix of capitalism and socialism that is right for our time…
“Capital for the people — an idea whose time has come“: @RanaForoohar explains how California’s nascent experiments in Universal Basic Assets could be a model for the nation.
In thinking about national possibilities, your correspondent’s favorite rationale/approach is Cornell economic historian Louis Hyman‘s formulation (toward the end of) this post.
* “The combination of economic inequality and economic segregation is deadly. It reinforces the advantages of those at the top while exacerbating and perpetuating the disadvantages of those at the bottom. Taken together, they shape not just inequality of economic resources, but also a more permanent and dysfunctional inequality of opportunity.” – Richard Florida
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As we share and share alike, we might send grateful birthday greetings to the Electronic Frontier Foundation; it was founded by John Gilmore, John Perry Barlow, and Mitch Kapor on this date in 1990. Over the last 30 years, EFF has become the leading nonprofit defending digital privacy, free speech, and innovation.
Happy Birthday– and many more!
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