Paul Krugman in what may be his finest blog post articulates a fear I have had but been unable to properly express:
But watching the failure of policy over the past three years, I find myself believing, more and more, that this failure has deep roots - that we were in some sense doomed to go through this. Specifically, I now suspect that the kind of moderate economic policy regime Brad and I both support - a regime that by and large lets markets work, but in which the government is ready both to rein in excesses and fight slumps - is inherently unstable. It's something that can last for a generation or so, but not much longer.
By "unstable" I don't just mean Minsky-type financial instability, although that's part of it. Equally crucial are the regime's intellectual and political instability.
The failure here is not the policies themselves, but the 2nd and 3rd order intellectual and social structures that maintain sufficient social support for the policies of curtailed capitalism and the state enforcement of broad social mobility and equality. In this sense, I say the New Deal did fail, because it failed to sustain itself much past the generation of people who lived through the crisis that made it possible. It is getting harder to protect Social Security because with each passing year there are less people with living memory of what life was like without it. Those people were generally immune to the propaganda, but those of us left behind lack that personal connection to seeing retired people reduced to begging and literally dying in gutters and under bridges.
That's what we have to account for if and when we create the conditions to implement a New New Deal. How to make the liberal consensus not only strong enough to do it, but self sustaining?
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| Krugman's post is quite lengthy by his standards (say, like an average Glenn Greenwald piece) and he outlines what he sees as the three main grounds of instability inherent in the post WWII Keynes/Galbraith/Samuelson economic consensus: Intellectual, political and financial factors that led to the collapse of New Deal economics not from inherent economic failure of the model, but from the changing social awareness of various groups making the consensus vulnerable to counter-attack by the malefactors of great wealth.
My modest take is that he has the emphasis out of order, while his insights into the Intellectual and Political instability are profound (particularly the comparison of Central bankers to monks in monasteries who eventually fall to the barbarians if the knowledge they protect is not widely shared with the civilization around them), but the last one is the biggest cause:
Last but not least, the very success of central-bank-led stabilization, combined with financial deregulation - itself a by-product of the revival of free-market fundamentalism - set the stage for a crisis too big for the central bankers to handle. This is Minskyism: the long period of relative stability led to greater risk-taking, greater leverage, and, finally, a huge deleveraging shock. And Milton Friedman was wrong: in the face of a really big shock, which pushes the economy into a liquidity trap, the central bank can't prevent a depression.
One might compare this to the experience of a young binge drinker: The first time one gets seriously drunk, the ensuing hangover teaches a strong lesson in moderation. That lesson tends to fade over time though. And the act of drinking itself works against the moderating effects of the last hangover. Each drink goes down better than the last, and if you drink enough, you lose count (and the ability to count) and once that happens, you're can easily be way over the edge by the time you realize it's too late.
In economic terms we often discuss the problem of Disaster Capitalism, swooping in at moments of chaos and dismay to reorder society in ways that would never survive public scrutiny during ordinary times. I think we need to pay more attention to Euphoria Capitalism too though. The day Bill Clinton signed Phil Gramm's act repealing Glass-Steagall into law, November 12, 1999, the DOW had risen 20% in the past year. When Brooksley Born left the CFTC on June 1, 1999, having failed to rein in derivatives trading, the DOW had risen over 18% in the year prior. Similar things apply to the FBI's infamously ignored warning about "rampant mortgage fraud" in September 2004 and Krugman's many ignored warnings about the housing bubble through 2006-2008. Meanwhile Glassman's idiotic Dow 36,000 was a best seller in 1999. Anyone who has read Galbraith's classic "The Great Crash 1929" will see a similar litany of fools and knaves ignoring and denying the obvious impending collapse of the market until it was too late.
So yes it is difficult to stop the malefactors of wealth during crises but it has also proven hard to stop them during times of peace and prosperity. It's not enough for a few liberal activists to see the problems if they can't find ways to wake up the broader populace to the dangers.
Right now we are faced with more immediate problems like trying to actually create a liberal political moment in which to elect enough sincere liberals to actually even just sustain the old New Deal never mind implement a grand New one. But it isn't enough to build a new set of social programs and assume that their self-evident success and the widespread prosperity they bring will be enough to sustain them indefinitely.
If there is a bright side here, it is that it's hard to imagine how the neofeudal dream of the right fully realized could even survive half as long as the New Deal did. They've only been at it in a serious way since 1981 and they've already caused several serious crashes and banking crises and even nearly a new Great Depression. While they've done a lot of work to build the echo chamber for total message domination, I have to wonder how sustainable even that stuff is if they succeed in repealing the Englightenment itself. Their system is actually the giant ponzi scheme they project onto Social Security. Regular ponzi schemes succeed for a time as a small part of a growing economy. The right wing grand ponzi scheme actually shrinks the economy as it funnels wealth upward to less productive uses. It's not what I would hope would really bring down their system, because of the suffering so many would have to endure but the utter collapse of right wing economics did work once before to create that liberal moment. |
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