more pig, anyone?

Everybody knows that the deal is rotten
Old black Joe’s still picking cotton
For your ribbons and bows…
Everybody knows.



I just finished reviewing Robert Kuttner’s new book, The Squandering of America. The book is obviously catnip for a liberal like me, but there was something deep in the book that bothered me. I don’t think I quite expressed that bother in the review. Let’s see if I can spell it out here.

Kuttner’s history is a two panel deal. One panel shows the thirty glorious years from 1945 to about 1975. What do we see? The sun shines on managed capitalism. Union strength rises to almost thirty percent of the work force. Social security is joined by medicare and Medicaid – and even, although this has now been buried, a welfare system for the poor. Public investment is made in building interstates, sending jocks to the moon, combating malaria, and the like. Indirectly, the state takes the risk for an enormous expansion of mortgages, and it loans money to middle class kids so that they can go to college.

Now onto the second panel. In the second panel, we see the thirty dirty years of neo-liberalism. There’s a cloud over the moon, and the wolf howls in the ruins of the middle class subdivision. Union membership falls. Labor’s bargaining power gets weaker and weaker. The one earner household becomes as rare as the Eskimo curlew. Even as the husband and wife both work, their disposable income actually stagnates. The cost of institutional goods – education and health care – soars, and the government massages its statistics about inflation to end run around this fact. A coalition of speculators, big business owners, and the honchos of the political elite agree to essentially de-industrialize the American economy, and this is done by throwing down barriers to free trade – which is an open invitation to American manufacturers to seek out global sites that offer cheaper labor – and by deregulating the financial markets. The benefits of the economy go increasingly to the wealthy, even as productivity goes up.

Now, I do think there is a lot of truth to this two panel picture – I wouldn’t be a liberal if I didn’t! But I wouldn’t be an ex philosophy student if I didn’t notice that juxtaposition is not cause (or perhaps I should say, I’d have to have a lot more faith in Hume than I have). What is missing here is a trend line that found its breaking point in the seventies – I’m talking about you, Mr. Declining-Rate-of-Profit.

Marx would say that the structure of capitalism is such that the Keynesian policy approaches of the thirty glorious years operated like Spanish fly to an old libertine – yes, it helped him get it up at first, but you had to apply more and more of it for less and less result. Less bang for the buck, so to speak. John Kenneth Galbraith, my favorite economist, observed those thirty glorious years from the inside. He contended that American capitalism had entered a mature phase in which the classical model of competition between producers was no longer the major dynamic. In its place, he substituted a model that diversified the levels of competition – long before the Walmart Effect, for instance, Galbraith had traced the A and P effect, that is, the effect on the price system of a entrenched, hegemonic buyer in the marketplace. What Galbraith was saying from the left was actually being put into mathematical lingo by the neo-classical economists from the right – as Mirowski pointed out in Machine Dreams, the shift from the simple, Smithian model of competition to the cyborg model of efficiency was what the fifties were all about.

All of which gets us to the heart of my darkness about Kuttner’s book. The two panel history simply can’t be right. Kuttner’s historical thesis is that the forces of darkness, for some reason, decided in the seventies to counter-attack the forces of light – strong unions, an interventionist state, the structures of managed capitalism – and thus brought about the years of night through sheer politics. But in reality, the economy was in crisis in the seventies. Kuttner would have a better argument if he acknowledged this. He’d have a better argument if he argued that liberalism can’t simply tie itself to GDP growth, because that is going to imperceptibly edge liberalism into a position where policy decisions shift from concern with a just society to policy decisions concerned economic stoking that inevitably promotes more and more unequal outcomes.

Ah, but I am being unclear. It has occurred to me that the solution ‘self-organized’ in the seventies to the stagnation of the American economy was to shift the level of competition to the financial sector. That is, instead of companies competing with each other in an increasingly stagnant marketplace, investors would compete to own those companies. Ownership would be redefined in startling ways, as would the responsibilities of ownership. X company making y and competing with Z would be taken over, stripped of its y making capability, which would be spun off to another company, X1, or it would be merged with Z, or it would be merged with somebody else in a whirl of what you might call epiphenomenal economic activities. And low and behold, new efficiencies would be found – that is, new streams of profit from the ways in which the American firm had been constituted over the decades. A car company, say, would be found to have quietly produced its profit making sector in the loan business – which would then be stripped out, or be used as the investment target for, say, the company’s pension fund, etc., etc. It turned out that firms were, from the financial perspective, rubric cubes.

Now, we all know the down side to this. The upside, however, was that in taking apart and putting together American firms, the investment sector made the U.S. a very attractive spot for foreign investment just as the U.S. lost its hegemony over the global economy. I’m not sure how a liberal economic policy would have accomplished the same result. I am sure that this contributed significantly to the American recovery from the seventies. At the moment, it looks like we have reached the end time for this particular economic regime – a regime that builds in socialism for the rich, as Galbraith once called it. For the more the financial sector was de-regulated, the supposedly ‘smaller’ the government got, the larger became the government’s potential obligations. This is a familiar dilemma – it is the dilemma of third world economies. American exceptionalism is all about the fact that America quietly conformed to a model of state-corporate interaction that resembled, say, Brazil in the sixties. And as the economy became more tiers-mondian, the politics became more coup like.

Which is why the comparison of the American empire to the British empire or the Romans strikes me as so wrong. What America resembles more and more is the Philippines under Marcos. As per my last post, the ethos of looting has spread from the economic models of the late seventies into the very fiber, the blood and ouns, of the sector that has the most control of the American economy – the financial sector. And the government has become an annex to that vast pump and dump shop – hence, the rational irrationality of a stock market that goes wildly up and down on announcements of trivial interest rate action by the Fed. This is the volatility of what is, underneath, an increasingly stagnant market – a market that has reached the logical limit of its possibilities. You can’t slice and dice the pig anymore – even the squeal has been amortized, hedged against, optioned, securitized, pooled and stripped. But there is only so much pig to go around, fellas.