Economic Narrative Finally Changing for the Better?
Updated: Dec 30, 2020
…shifted the way both parties talk about trade, immigration, and deficits
Image: An overlook of the South Side (former steel industry related) neighborhood in Bethlehem, Pa. Credit...Ruth Fremson/The New York Times
The image shows the destruction to the steel industry, one of many manufacturing industries destroyed over the last 3-4 decades by Extreme Right choices. The Economic Narrative over that time did it: What was it? And, have we moved away from it, as Cohen (2020) suggests, in the sub-title here about “both parties” having shifted the talk, perhaps stirred by the POTUS Trump?
The Narrative that has brought the destruction starts in the late-1960s to early-1970s, as represented in Friedman (1970; a popular version of it, an article that went viral like a Pandemic virus). Friedman, as a Chicago School of Economics styled Libertarian economist, claimed that Corporations have no responsibility except to the shareholders. It went viral, with said perverse incentives still driving most CEOs and the Boards of Directors to this day. So, on things like US steel, it made complete sense to increase shareholder value by moving manufacturing to low-wage countries like China, which caused profits to increase, and stock prices to rise: Booming stock market, anyone?
The Narrative from Reagan, which started in the early-1980s, complemented the Friedman ideology, and, it spread throughout the Spaceship, again like a bad virus in Pandemic proportions, helped by Thatcher in the UK. The Reagan-Thatcher claim was that the Market can do no bad and the Government can do no good, which resulted in a huge imbalance in Market&Government. In effect, it helped in creating conditions for a free-for-all, no holds barred, extreme greed driven Market, as though it was essential for the Market to work.
The move to dismantle the Government proceeded rapidly, especially any aspect of the Government that historically worked to temper and otherwise bound the excessive greed, such as the Glass-Steagall Act put in place in the 1930s. An especially visible action, the IRS fraud detection and investigative capacity has been purposively underfunded and reduced in effectiveness for decades, to the point where trillions of dollars in tax fraud is the new norm. The Extreme Right --- as Andersen, 2020, says it, the “Evil Geniuses” --- has been engaged in a 3-4 decade move to reduce the effectiveness of Government, and to turn the Market into a kind of Libertarian jungle, with the result a near collapse of both capitalism&democracy.
In more formal terms, it is well-documented in economic and other social science research that the Friedman-Reagan Narrative has had a devastating impact on the US Economy and US Democracy (for great overviews, see Stiglitz, 2019; MacLean, 2017; Andersen, 2020). The resulting extreme inequality in income and wealth, with most of the US wealth now concentrated in less than 1% of the population, has become not only a public health problem (see Payne, 2018), driving instability, even chaos, in both the economy&democracy. The result (counting Thatcher in on the deal) was the rise to political power of Tweeterdum Trump in the US and Twaddledee Johnson in the UK, characterizations on the front cover of The Economist, a picture worth thousands of words:
So, where are we? Cohen (2020) tries to make the case that the POTUS, Donald Trump, has in some sense helped nudge the Narrative onto a better path, especially with respect to US manufacturing. The POTUS has also been extremely willing to spend Federal money, both borrowed and printed money, with abandon, which also makes the economy look like it is actually doing something: But, then, anyone can go borrow a lot of money and spend it rapidly, while the neighbors are in awe of ones’ sudden wealth! And, immigration, well, lots of sword rattling and wall-building. Yet, it may be more accurate to point out that (from Cohen, 2020):
“… I don’t think he really has pushed the boundaries of any of those policy issues beyond where they already were,” said Mr. Strain of the American Enterprise Institute… Jason Furman, a chairman of the Council of Economic Advisers during the Obama administration, argues that Mr. Trump was pushed along by the same trends and forces that spurred his supporters… it may turn out that the president’s most significant impact on economic policy is not one that he intended: overturning the conventional wisdom about the impact of government deficits… Furman is one of a growing circle of economists and bankers who have called for Washington to let go of its debt obsession. Investing in infrastructure, health care, education and job creation are worth borrowing for, they argue, particularly in an era of low interest rates.”
So, what is really going on? I consider each Narrative, one at a time.
On the Friedman Narrative: Well, the Business Roundtable --- discovered it on their own --- is finally starting to acknowledge that Friedman got it wrong. Business needs to recognize the wide-range of shared other-interest(s) at work. It is not only about the shareholders, and the incestual CEO (lots of former CEOs on Boards of Directors) compensation packages. As Metaeconomics makes clear, with a variety of other-interests at stake, many stakeholders, it is also about the input suppliers; customers; ensuring stable and viable communities within which the business operates; maintaining a viable Spaceship system within which business is embedded (put on greenhouse gas/carbon caps, please); and, especially working to help employees be paid (need to put labor unions and cooperatives back into places of offsetting power) a reasonable part of that which the capitalism based system is producing.
Regarding the latter, moving industrial manufacturing to lower-wage countries served the shareholders and the CEOs, and that was it. It served no one else (except the Walmart shoppers, buying lots of low priced goods --- and some of them, not so good --- from China, who had to shop in Walmart now, as the pay they were receiving was so low. And, the Walmart family made 100s of millions, while paying extremely low wages and benefits to the employees buying the goods: Walmart did great. Not so much anyone else). So, reframing the Narrative about what is to drive CEO management will eventually work to stem the destruction of US manufacturing capacity, and perhaps return enough of it to the US to actually result in paying high enough wages to labor such that a decent middle-class life style can actually be maintained. And, in general, working to temper the arrogance of self-love in the US meritocracy, as often represented in upper level management and owners of US business, will make US capitalism work once again, for everyone.
In fact, main driver in shipping manufacturing overseas is to lower labor costs, as part of the overall increase shareholder value framing from the Friedman Doctrine. As Bromley (2019, p. 53) says it, the "… central imperative is to reduce labor costs in the service of greater net returns to owners of capital." The result: Devastation at the level of the household, were even two jobs is often now enough. The lowering of labor costs --- not paying people enough to maintain a decent standard of living --- also means less time for the family, with predictable destruction in family ties.
On the Reagan Narrative: Some claim the move to accepting deficit spending, even by the Extreme Right, is a sign that things have changed, that government is once again seen as having a role in doing good things. Well, maybe, in that in order to fill their own pockets with government checks --- Capitalists when the economy is strong, and Socialists when it is weak --- the Scroogists have been going along with not destroying Social Security and Medicare (the indicator, according to some), both long a target of the Extreme Right. Yet, it is not at all clear that the Narrative has changed from that touted by Reagan, which is to get government out of everything, and especially the New Deal styled programs like Social Security, Medicare, and anything that is an empathy based other-interest that requires a bit of sacrifice in the self-interest.
The Culture of Meritocracy for the wealthy and accomplished and the Culture of Cruelty (see Andersen, 2020) for everyone else is still dominant. And, only those who are rewarded by the Market are to be allowed to avoid the Cruelty, and, sure, government checks are great to fill-in when the Market (regularly) fails to feed to the greed, as long as one does not have to pay any taxes to get one!
And, on immigration: Well, I am not an economic expert on immigration, but I do have some personal experiences going back to my University of Florida days. The University used rental cars, so when one was out and about on University efforts, one rented a car. Doing surveys was my thing, to collect real data on what real people were really doing. I recall a survey involving tomato growers, and another for strawberry growers, regarding how the process for obtaining a water use permit was going. Intriguingly, if the rental car agency happened to give us a grey or white car --- apparently the same color cars used by immigration and border agents --- whenever we drove into the working area of a Florida “farm” business, the labor would run and hide! Why? Well, they were apparently illegal immigrants, working for slave labor wages without benefits, for wealthy, right wing “farmers.” So, Right Wing “farmers” (and most in Florida had this persuasion, in my experience) really liked illegal immigrant labor, as it increased the profit margins. Intriguing how the current Administration blames such things as sanctuary cities and liberal state governments for the illegal immigration “problem” when in fact the illegals would not be coming unless they could find work, often provided by Right Wing conservatives. Perhaps that is what immigration laws could never get revised through bi-partisan means?
And, on immigrants in general: Hybrid corn works better than corn that is not hybrid. So, some diversity is actually a very good thing, not a bad thing. So, what am I missing here?
On debt: Well, the Left has known for decades that debt can do good things, buying the public goods (yes, goods: Reagan got it wrong). It was part of the New Deal, a time during which the American Dream was actually possible. It is when the US started to work at balancing the budget by cutting government spending on the public goods (except when the Scroogists --- Capitalists turned Socialists to get the government bailout, and right back to being Scroogists and resisting any government tempering of the industry as soon as the checks were cashed --- needed bailing out, like in the financial crisis in 2008), in effect dismantling government, that the economy&democracy crumbled, a kind of Potemkin Village economy installed to make look like things are getting better.
Overall, while Cohen (2020) is trying to give some credence to the economic “legacy” of the current Administration, and especially POTUS Trump, it is essentially impossible to do so. The only positive side of the economic policy being touted is the slight recognition that Friedman got it very wrong, but, that is coming from business itself, not from the current Admin. In fact, the current Admin is in the main carrying on the Zombie Ideas put forward by the Friedman&Reagan Narrative, which is doomed to failure. Hopefully the business community will see the need to change the path --- as business has all the money and power --- in that the government has been destroyed by it, and, even if a viable government can be rebuilt, it will take decades to do so.
Andersen, Kurt. Evil Geniuses: The Unmaking of America, a Recent History. New York: Random House, Kindle Ed., 2020.
Bromley, D. W. Possessive Individualism: A Crisis of Capitalism. New York: Oxford University Press, Kindle ed., 2019.
Cohen, P. Trump’s Biggest Economic Legacy Isn’t About the Numbers. New York Times, Digital Edition, October 24, 2020 https://www.nytimes.com/2020/10/24/business/economy/trump-economy-manufacturing.html?action=click&module=Top%20Stories&pgtype=Homepage
Friedman, M. (1970). The Social Responsibility of Business is to Increase its Profits. The New York Magazine. New York, VOX Media.
MacLean, Nancy. Democracy in Chains: The Deep History of the Radical Right's Stealth Plan for America. Penguin Books, 2017.
Payne, Keith. The Broken Ladder: How Inequality Affects the Way We Think, Live, and Die. New York: Penguin Books, 2018.
Stiglitz, Joseph E. People, Power and Profits: Progressive Capitalism for an Age of Discontent. New York: W. W. Norton and Company, 2019.