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Friday, October 29, 2010

How did we get here?

Last July 4, in what was probably the most important post I've made since Barack Obama took office, I suggested that the great crisis which I had been expecting since reading Strauss and Howe in the 1990s had not begun in 2007 or so, but rather at the time of 9/11, or perhaps, one might suggest, at the time of the stolen election of 2000--a most inauspicious beginning for one of the critical eras in American history. I had reached that conclusion because it seemed quite unlikely by last July that Barack Obama and the Democrats were going to reverse the course of American history and bring back the expanded government responsibilities, the well-regulated financial system, and the desperately needed infrastructure investments that were the hallmark of the New Deal. That sense has been more than vindicated during the past four months, as Democratic prospects for Tuesday's elections got worse and worse. While it now seems very unlikely that the Republicans will control the Senate after Tuesday, they do seem likely to emerge with 48 or 49 seats, and they have a better than four in five chance of taking control of the House of Representatives. Worse, for reasons which I am not going to try to go into today, the demonization of liberalism and all it stands for has if anything accelerated. Democratic candidates are running away from the President's achievements rather than running on them, with many incumbent Congressmen pledging not to vote for Nancy Pelosi as speaker again. Pundits galore are proclaiming that Obama has come to grief because of Democratic radicalism, even though it is not clear that he even attempted one reform of genuine significance. The only fervent New Dealers left seem to be 60-somethings like Paul Krugman, James Galbraith, Robert Reich, and myself, and it is not at all clear where a new generation of such leaders or thinkers would come from.

Where, then, does the United States stand today? What has happened to us?

In the Gilded Age, America was dominated by unregulated bankers like Jay Gould and Jim Fisk and (later) J P. Morgan; by railroad magnates like Vanderbilt and Pullman and Harriman and many more; by heavy industrialists like Andrew Carnegie and Henry Clay Frick and, a little later, Henry Ford; and by John D. Rockefeller and the emerging energy industry. My generation was apparently the last one to grow up reading textbooks who painted these men as villains and lionized the trust-busting progressives who at least put a dent into their power, laying the foundation for the New Deal. Of those four power centers, two remain. The financial industry, whose power and wealth were drastically curtailed by New Deal reforms, has now come back stronger than ever since those reforms were largely repealed in the 1990s, and it had more than enough influence in the Obama Administration to prevent even an attempt to bring those reforms back. (It was painful indeed to hear the President tell Jon Stewart that my old antagonist Larry Summers had done "a heckuva job.") The energy industry managed to prevent the Senate from voting on a very weak cap and trade bill. Neither heavy industry nor any transportation mode remains an economic and political power in the United States. Their place has been taken by the health care industry, which protected itself effectively against any drastic changes in the health care reform bill; the food industry, which does enormous damage to the nation's health and quality of life; the national security establishment, which is once again using up an increasing share of our GDP for purposes of very little use to the public; and, I would suggest, our state and local employees--including police, firefighters, prison guards, and teachers, especially--who have enormous claims on both present and future resources. One might also add the higher education establishment, which sells entry permits into several of these sectors.

These are, it seems to me, the growth sectors of our economy--and all of them are to one extent or another parasitic, if not indeed harmful, upon productive sectors. The private entities among them operate in defiance of the antitrust laws, from which health insurers are specifically exempt. The public entities face some threats to their future owing to the poor economy, but they are still holding their own. Among the many societies I have studied at one time or another, I would suggest that Old Regime France presents particularly striking similarities to our current plight. While private power operates unchecked with the help of enormous influence over the government, the average citizen is locked out of decisions, and pays a much higher than average percentage of his or her income in taxes. (Effective rates, it seems to me, are probably highest on people making between $50,000 and $150,000 a year.) Meanwhile, a great many public positions (though not civilian federal civil servants or most teachers) receive not only good salaries and benefits, but handsome pensions, often for more than half of their adult lives.

Two years of the Obama Administration have in my opinion established beyond doubt that one of this changes very much according to who is in power. Obama came in as a reform President and the Democratic Congress went through the motions on health care, for which it may have done a little good but no more, and finance reform. He spoke a new language on foreign policy but there, as in economic policy, he relied on establishment advice, and has made no real changes yet. After next Tuesday he will have no hope of advancing a domestic agenda, even if he still has one, and he may well become more of an activist in foreign affairs. He could still vindicate the Nobel Committee's premature hopes for him, but there is not much sign of it yet.

The long-term economic future of the bottom half of the country remains bleak, but it is not clear that the upper half sees itself in a crisis. With the help of the elderly--another growing and still relatively well-to-do group--the Republican Party is set to regain control of the House and certainly has a decent chance of regaining the White House next year. It is difficult to believe that Obama can win Virginia, North Carolina, Florida, Nevada and Colorado again, and meanwhile, the Republicans will gain at least 10 electoral votes thanks to a redistribution of seats. They will not, clearly, be able to help the economy very much, but neither did U.S. Grant. I suspect Karl Rove now hopes his party can regain power based simply on not being Democrats--and he may be right. The real problem, as in the 1868-1901 period, is that the alternation between the two parties does not seem to make much difference. The Citizens' United decision and the proliferation of huge fortunes will continue to ensure that.

If things take another turn for the worse economically, or if the United States sustains more serious terrorist attacks, or if we become involved in another prolonged struggle in the Muslim world, the legitimacy of the government could be seriously threatened again. But I am not sure that it will. The anti-government orthodoxy has grown along with the power of private institutions, and it once again enjoys a powerful bastion in the Supreme Court. We are not on the verge of a new outbreak of totalitarianism in advanced countries; our problem is too little authority and organization, not too much. We do seem destined to fall further behind much of the advanced world in health care and our income distribution will probably become even more unjust. Eventually a real reform impulse will arise again, but I do not see how it can revive--or, more to the point--who is likely to revive it. Like the civil war crisis, the much less costly crisis that we seem to be passing through now has not strengthened institutional authority, and does not seem likely to do so.


Wally said...

A long, slow, British-style soggy decline is most likely.

In this case, our blowhard class makes an ironically funny whoopee cushion for future students to ponder.


How does this fit your discussion of the theory of historical cycles?

Bozon said...

Great capsule summary.Many thanks.

I have been reading David Kennedy's Freedom From Fear.

What it perhaps lacks in scholarly detail and support it makes up for in vividness and thematic focus.

Shows clearly the threads of reform of the American system behind the New Deal, not just the war on poverty it was promoted as. The book lays bare some accounts of why such reforms back then, had been needed.

I found the discussion of the economic antecedents of the Crash, especially the farming collapse resulting from the First World War helpful.

Also, Kennedy's explanations of the New Deal's efforts at autarkic solutions between town and country were insightful I thought.

all the best,

George Buddy said...

David Kennedy on our current similarity with the Gilded Age. Perhaps you may have missed it. http://www.nytimes.com/2010/11/07/opinion/07kennedy.html?_r=1&partner=rssnyt&emc=rss