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The Reaganites Self-Inflicted Recession

us-metro-rate.thumbnail.gifIt should say something that when unemployment has taken off, it has swamped Slate’s interactive unemployment map, rendering it a haze of unreadable red. However, when you look at the metro and county data, some very interesting trends become obvious. The Reaganite revolt against taxes began in California and is most closely associated with it. As the graphic from the Department of Labor shows, the epicenters of that "Reagan Democrat" revolt are now the areas that are hardest hit by the present depression: California, the Upper Midwest, and the Sunbelt South. This is not an accident.

The reality is that the Reagan Democrats revolted against the very system that had protected and fostered them, and in two directions. The metro map here shows one direction: the raw slagging of unemployment in the Upper Mid-West, Coastal areas, and the Atlantic Coast south is clear. The other direction is seen, ironically, in a long belt of low unemployment that runs along the Great Plains. How is low unemployment a problem? In itself, it is not. However, these are areas where it is virtually impossible to be unemployed; and so rather than stay and remain unemployed (there being no government programs to keep them there) young people pour out of these empty stretches, which include parts of the North-East such as rural Maine. This youth drain is a deep political and social issue in these areas.

The only places that are doing well in the Republican universe are those strongly associated with mining, plus Republican metro centers such as Phoenix and Salt Lake City, which are the recipients of the labor draining from the rest of the Republican heartland. Resource extraction is the only bright spot in the Republican world. If one wants to know what was The Matter With Kansas, the answer is that they were voting to kneecap the people they thought were their peer competitors. They were not getting ahead because they were busy getting even.

The force of this becomes even more obvious when looking at the split between male and female unemployment: the unemployment rate for men is a percentage point higher among men than among women. This is true even of white men versus white women. The Reagan Democrat, that disorganized or manual unionized, working class male of socially conservative leanings, is the individual who, statistically speaking, is the target of the downturn. The evidence for this is so obvious that even Andrew Sullivan can see it.

This cuts in two directions. Looking backward, it shows the failure of two mega-trends in the last generation of American society: both the Reaganite Revolt, and the New Democrat attempt to make Reaganism work — while looking forward, it shows why the Republican core is becoming more radicalized along economic, rather than social, lines. It is not that social conservatism is waning in their base; because, remember "Christianist Pseudo-Capitalism" is a unified ideology in that Republicans believe in rent, not capital — but instead they are being focused by message on the second part of that ideology. Teabagging in taxes has replaced the now ubiquitous sexual reference in marriage as the driving rhetorical device of the Republicans; because, it is essential that they get the economically hammered base to blame Pelosi, rather than to blame conservatism.

Looking backward first, it is important to understand a key part of the liberal architecture: tax inflation, particularly land inflation. Cities concentrate higher land prices which come out of the economies of scale a city produces. A city, in general, has about a 30% economy of scale; doubling the number of people means that the commercial infrastructure grows by about 70%. Some of this economy of scale has to be spent on infrastructure to support greater density, and the rest becomes increased land prices. Basically, it is rent that people are charged to get in on the increased opportunities that cities offer. This is true because of the reverse of the economy of scale. Moving to a place where each individual store gets 30% more customers, means 30% more business. The cost of the land comes to reflect this. 

The liberal architecture taxes this increase in land prices through progressive income taxes. It then spends this money in two directions: some is spent on the infrastructure to support the city itself; and the rest is spent as subsidies, both down the economic scale to keep labor at a living wage in the city, and then out to the countryside to produce buying power in areas where there is less economic power. The buying power this creates among the poor and the ex-urban produces economies of scale in manufacturing, and raises the general standard of living. So in short, concentration of people leads to land inflation. Tax that land inflation, spend the money on making the city a better economic engine, and also on creating more buyers for the products of cities.

The Reaganite revolt was based on lowering taxes on land, and on upper income brackets. They also wanted to cut subsidies for the urban poor, but maintain subsidies for the exurbanites and suburbanites. Land inflation was seen as a good, because the people backing the revolt were in land, directly or indirectly. Suburbanization, and Manhattanization, followed from this. However, since revenues were dramatically cut while expenses were only partially cut — in particular since prisons became the way of dealing with the social effects of not having social programs, eating up virtually all of the savings, while creating more exurban subsidies to run the prisons — the result was a series of ever increasing budget deficits.

To say it simply: the Republicans cut the taxes that paid for their own subsidies, and kept urbanites from racing ahead of them in wages. Without taxing land inflation, urban wages increased against exurban wages. The exurbanites could afford less of the products that were priced at national prices. A computer is roughly the same price in Omaha as it is in New York City, with the difference in sales taxes not being close to making up for the differences in average wages. The more this happened, the more the exurbanites wanted to be subsidized; and the less money there was to pay for it. 

The Reagan architecture was, then, always on a collision course with itself; because the very people who voted for it, and hoped to profit by it, were cutting the very money that was to pay for their existence. The return they got was that there were some very big winners in real estate. 

The Bush boom produced a moment where it seemed like the producers of Residential Real Estate, the back bone of the Republican donating and agitating base, were finally at their pinnacle. Truck Dealers, Home Builders, Real Estate Agents, and the Small Business class that catered to the people who lived in the "boomburgs" saw rapid increases in employment, wages, and social power. They had the money and the confidence to try to press their social agenda on the rest of the country. It was, of course, doomed to failure; since none of these people made anything that could be exported; or if they did, it came at the costs of increased imports that counter-balanced them. Think of oil. Texas makes oil, but the result is that we import even more from abroad. 

The second failure was the failure of New Democratic Neo-Liberalism to prevent this internal contradiction from imploding. The neo-liberal theory was that the cities would manage the finances of the world; and that as manufacturing jobs were lost, financial services productivity would rise and provide new jobs. For approximately 5 years under Bill Clinton this seemed to work. This Clinton boom spread a prosperity across the country; but produced a rapid increase in the trade deficit, not because of a strong dollar, but because of strong demand for physical imported goods.

While I can talk about abstract results, two very tangible results can be seen in terrorism. The first is the Oklahoma City Bombing, where America’s exurbanite radicals attacked the very social services that were there to keep them alive. It was not some core of liberalism that was bombed that day, it was in one of the most conservative cities in America. The second is 9/11. The people who were hated by the people abroad, who had the tempting target, were not the exurbanites who hate Islam and were ready, willing, and able to wage war in the Middle East; but were the cosmopolitan people in the world’s financial center. As devastating as that attack was, and it caused approximately a trillion dollars of damage, the underlying financial contradiction of Reaganism has caused much more, wiping out trillions of dollars of wealth, and losing a trillion dollars of lost GDP so far. And the bill is growing. The banking crisis has done as much damage to the American economy  as several 9/11 attacks.

In other words, while the Republicans attacked cities, the poor, and government; it was, in fact, their own ideology which was destined to cause more damage to their way of life.

Now to the present, and looking forward. Many long posts, books, and treatises have been written about the Republican political successes attributing it to their ideology and to their personnel. My theory has almost always been different: it was about money. Money to buy the right people, money to push the ideology, and money to buy the channels by which message and media could be made dominant. It was money that papered over the internal fissures of the coalition, bought the loyalty, and turned polyester-suited grifters into the messengers of the "Republican Revolution."

That money is now gone, and for two reasons. The banks are no longer able to fund the Republican Party, though they will find specific objectives such as stopping the Employee Free Choice Act. The small Republican donors; for instance, car dealers, who funded right wing AM radio, do not have the money. Nor do contractors. The entire Republican infrastructure of suburban sprawl, other than doctors, is broke.

This is why they do not have the money to use social issues. It is not that Americans were ever that motivated by thwarting equal marriage laws, it is that was the issue that allowed elite money to pour into local religious organizations and mobilize them. Money was the root of the Republican Revolution. Money to fly rent-a-riots to Florida, for example.

This is why the Republicans have now switched to "Socialism" and not "Sodomy and Saddam" as their great evils. Because it is absolutely essential that the liberal system of exurban supports not be re-established under Obama. Republican governors seek to turn back the money that would do so. They seek to stop the reforms that would bring health care; and most of all, they seek to stop a tax regime that would create jobs for the very people now being riled up into a frenzy against Obama’s supposed Marxist leanings. 

It is also why the Republican Party, ex-the South and the Rockie/Great Plains area, is in full metal meltdown; because the converse of the Reagan contradiction has hit home in virtually the rest of the country. For a long time, allowing real estate inflation benefited these areas disproportionately. This is why the "Democratic" party of the Reagan era was a liberal Reagan party. Democrats could not break the real estate inflation game and keep even their base. With this broken, there is a conflicted but concerted opposition to Reaganism run by Reaganites; but it is divided between those who hope for a return to suburban sprawlconomy, if only enough subsidies are applied to the inflation in education, credit, and health care that pinches them; and a progressive call for a New Liberal architecture which nationalizes transportation, financial, and medical infrastructure. 

We should then expect to see the right wing attempt to find moral and pseudo-realistic defenses to the areas where their subsidies come from: corn for example, and torture porn for another. The war to prevent accountability on torture goes to the heart of the right wing economic coalition; because the prison-industrial complex is, disproportionately, the source of jobs for many parts of the Republican universe. We should also understand that the Republic ideological unity is driven precisely by an attempt to move back to anti-communism; however benighted this is, rather than anti-humanism and anti-cosmopolitanism, at least in the short term. However, as even Republican strategists note, this exposes the real division in the Republican coalition, not between social and economic conservatives, but between exurbanites, and suburbanites. It is very easy to persuade exurbanites that they aren’t socialists, even as they work on military bases, land leased at concessionary rates for mining, subsidized agriculture, waste facilities, and prisons. It is far harder to convince suburbanites of the evils of government, when they live in a place that is made safe by government, and whose value comes from subsidized education and transportation. 

The internal contradiction of Reaganism, then, has produced a vast self-inflicted wound on the very people who mobilized for it. The paradoxical beneficiaries, the suburbs, have not felt employment down turn; but they are now locked in their homes that they cannot sell. The first group of people are being persuaded to revolt against Reaganism, in the form of favoring land inflation, in favor of Reaganism. The second group of people are being convinced to revolt in favor of Reaganism, that of low taxes and high deficits, against Reaganism. If this sounds confused, it is because that the Reaganite architecture is the only one the country has known for almost a generation.

Like all zealots, the right believes that it cannot fail, only be failed; however, the present economic crisis shows that both sides of the great Reaganite movement, both those that made land inflation and those who owned it, has failed; and failed for reasons well known to Adam Smith: one must tax natural monopolies because they produce no good for the country. While the reactionary movement thumps Smith like a bible, they do not read him, because he is a liberal, and a Liberal. To get out of the present economic crisis, we must again tax land inflation as an output, and distribute that gain as production. How this is going to be done, in a future post.

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