The New American Caste System

I think Michael Grunwald basically gets this right. The White House is generally pretty pleased with what they’ve done, they don’t think they’re likely to get anything additional from Congress – which they’re right about, but that assumes that the executive branch has no authority of its own – and they’re going to just engage in happy, sunny, Reagan-esque optimistic talk and hope the economy comes back on its own. There are some things – like a new budget – that must be done, and there we shall see where talk meets action. But basically, the White House is done, and they’re quite happy with their efforts. If you want to be real charitable, they think it’s the best they can do.

As Mike Konczal argues, we remain in an employment crisis, we haven’t even hit peak foreclosures yet, and wage inequality is nearing record heights. But I’m being a downer. We’re in Future Presidency 2.0, and the niggling problems of the present don’t bear much of a need for response.

The speech was well delivered. Although vague, it pointed to a kind of liberal supply-side theory that I think is important to highlight. Indeed, in a non-crisis time it would have been a great vision of the role of government in the economy. But right now we need the government to do different things […]

It’s interesting to see how quickly forces are turning this into the new normal, pulling our attention away from the economic crisis. It feels like we are turning Japanese.

Indeed, you have a President responding to a Congressional majority that thinks deficit reduction on its own will somehow spur “confidence” and create growth. That’s the twisted world of Washington these days. So I don’t want to paint the White House’s apparent belief that they’re at the end of the road on job-creating legislative options as wrong. No, it’s right, and they bear at least some responsibility for that, given 2009-10 governmental performance. But their reaction to this crisis is to pretend it no longer exists.

And with that, I think we can close the curtain on liberal – or even centrist, really – governance, and take a long intermission. Government has now abandoned the idea of promoting full employment. If people can walk to work in Washington without wanting to endlessly apologize for the failure of 15 million unemployed citizens, then that part of New Deal liberalism has ended. Government no longer tries to level the playing field between labor and management, not through regulation or through working to tighten the labor market.

As a result you have essentially a corporate-driven state. They hold all the power in Washington, and basically, it’s purchasing power. And their conception of what works for economic growth dovetails with extreme income inequality, the kind that causes financial crises. New Gilded Age might be too mild a term for what we’re experiencing.

The big rise in economic inequality over the past four decades is partly the result of impersonal economic forces — technological change, mostly — but political decisions have played a crucial role as well. Financial market deregulation, tax-code changes, and all manner of other policy choices in the have promoted inequality in the U.S., as Jacob S. Hacker and Paul Pierson demonstrated pretty convincingly in their 2010 book Winner-Take-All Politics. And similar moves were made in much of the rest of the world.

Who pushed for these changes? Well, businesspeople, of course. Often for very good reason: to spur economic growth, to increase a particular country’s economic competitiveness, even to promote personal freedom in the face of a stifling government. But pendulums always swing too far […]

Assuming we’re near or have passed that growth-maximizing level of inequality, in the U.S. at least, the business community as a whole would be better off if the trend toward inequality slowed or reversed. But business people are accustomed to pushing for policies that tend to increase inequality, and are loathe to reverse their stances on tax rates, free trade, and free financial markets. As a result, businesspeople who worry about inequality have over the years tended to focus on improving educational opportunities. But you can’t say those efforts have made a noticeable dent in the inequality trend.

Education is a dodge, and anyway the businesspeople who promote it are frequently pushing privatization and profit-maximizing for their friends or themselves.

Business will continue to act in their own self-interest, and their decisions necessarily increase inequality. And inequality just accelerates the power imbalance we see, which leads to… more inequality. Japanification would be a nice outcome, relatively speaking – at least they had a workforce that could maintain their status. We don’t have that, and as the middle class slips away, so does their accumulated power, which trickles up to elites. Konczal calls what we have “pity-charity liberal capitalism,” where the welfare state for the less fortunate only survives through bribes to the wealthy class. But this deeply distorts the economy as a whole, and creates what amounts to a caste system.

Unlike Glenn Beck, I can spell oligarchy.

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