Can This Capitalism Be Saved?

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Here is piece of mine left on the cutting room floor elsewhere. So I might as well throw it up here.

Reviewing: Robert Reich: Saving Capitalism: For the Many, Not the Few

Robert Reich’s Saving Capitalism: For the Many, Not the Few is an excellent book. It powerfully argues that America needs once again—as it truthfully reminds us that we did four times in the past—restructure its institutions to build both private and public countervailing power against the monopolists and their political servants in order to right the distribution of income and boost the pace of economic growth.

Reich wants to remind us Americans of our strong record of “expanding the circle of prosperity when capitalism gets off track.” We have in our past no fewer than four times built up countervailing power to curb the ability of those controlling last generation’s wealth and this generation’s politics to tune institutions, property rights, and policy to their station. This repeated, deliberate construction of countervailing power kept America a high-wage economy—the world’s highest-wage economy, in fact—for ordinary (white, male) guys.

Until now.

Thus Reich wants us here in America to fix our future by recalling our past.

The first piece of our past Reich wants us to remember is Andrew Jackson’s Age: the period starting in 1828 when America removed:

accrued unwarranted privileges… [keeping] average citizens… [from] gain[ing] ground…. The Jacksonians sought to abolish property requirements for voting and allow business firms to incorporate without specific acts of the legislature, and they opposed the Second Bank of the United States, which they believed would be controlled by financial elites. They did not reject capitalism; they rejected aristocracy. They sought a capitalism that would improve the lot of ordinary people rather than merely the elites…

In what may be the only favorable citation of Roger B. Taney I will see in this decade, Reich remembers not the Supreme Court Chief Justice of the late 1850s but the Attorney General of the early 1830s. He remembers the Taney of:

It is a fixed principle of our political institutions to guard against the unnecessary accumulation of power over persons and property in any hands. And no hands are less worthy to be trusted with it than those of a moneyed corporation…

Yes, Reich says, that Taney shared the same body with the Taney who wrote the opinion in Dred Scott vs. Sanford: Jacksonians believed that no laws that endowed the Cherokee or other native Americans with any property whatsoever should be enforced, and that no African American—slave or free—had any “rights which the white man was bound to respect” at all. But in Reich’s the Jacksonian Revolution prevented America’s drift toward a more English form of political-economic organization, in which restrictions on westward migration coupled with political grants of economic monopoly rights lead to a lower-wage economy.

Of course, that drift came after the Civil War, with the coming of the Gilded Age and then of the second piece of history that Reich wants us to remember: the 1901-1916 Progressive Era of Teddy Roosevelt and Woodrow Wilson as a response to Gilded Age inequality and political corruption of the system. The response to the Great Depression took the form of Franklin Delano Roosevelt’s 1933-1939 New Deal and the partial construction of the great arch of American social democracy, which was then extended with Lyndon Johnson’s 1964-1966 three-part legislative program of the 1964 Civil Rights Act, the 1965 Voting Rights Act, and the 1965 Medicare Act.

All of these, Reich argues, show that:

We need not be victims of impersonal “market forces” over which we have no control. The market is a human creation… based on rules that human beings devise. The central question is who shapes those rules and for what purpose…. The coming challenge is not to technology or to economics. It is a challenge to democracy. The critical debate for the future is not about the size of government; it is about whom government is for. The central choice is not between the “free market” and government; it is between a market organized for broadly based prosperity and one designed to deliver almost all the gains to a few at the top… how to design the rules of the market so that the economy generates what most people would consider a fair distribution on its own, without necessitating large redistributions after the fact…

The key for Reich is the proper construction of institutions that provide, in a phrase he borrows from John Kenneth Galbraith, countervailing power to that power over political-economic arrangements provided by the oligarchic inheritance of last generation’s wealth and the oligarchic building up of political influence.

We today see a much gloomier future–at least a much gloomier economic future than the one 2006 seemed to offer us. Lower asset returns and lower profit opportunities. Greater “headwinds”. Slowed technological progress. Slower growth in living standards. More income and wealth inequality. A political economy chained by ideological propaganda in which making good win-win policies has gone out the window.

Reich sees this context, and so he writes to remind us that we have successfully dealt with the problems of creating institutions to support equitable and inclusive growth before. But his book seems more cheerleading than sober assessment. It feels to me like an optimism of the will. But when I look around me, the reality I see seems to weigh heavily on the side of a pessimism of the intellect–in economic affairs, at least.

July 28, 2016


Brad DeLong
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