Austerity Hawks Want a Return to 1920's Capitalism
by TRNN
The American elite once went to war with itself about how to
exploit American labor, and that, of course, was the civil war, one of
the main issues being whether or not slavery or wage slavery would form
the dominant means of exploiting American labor. The forces backing wage
slavery won. That fight in another form emerged again, and that was in
the beginning and during the Great Depression of the 1930s, where one
section of the American elite said, we need to make a deal with the
American workers. And it, of course, called the New Deal, and it was a
form of compromise between those who owned most things and those who
worked. That battle continues to today.
James Crotty
is a Post-Keynesian macroeconomist whose research in theory and policy
attempts to integrate the complementary analytical strengths of the
Marxian and Keynesian traditions. He received his Ph.D. from Carnegie
Mellon University in 1973, and after teaching at the University at
Buffalo and The State University of New York, he joined the Economics
Department of the University of Massachusetts Amherst, Amherst. He has
made contributions to the social structure of accumulation (SSA) theory;
the implications of radical uncertainty for macro theory and theories
of financial markets.
PAUL JAY, SENIOR
EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in
Washington. Now joining us to talk about
this history is Professor James Crotty. Professor Crotty is at the PERI
institute in Amherst, Massachusetts. He also is a professor emeritus and
Sheridan Scholar at the economics department at UMass Amherst. Thanks
for joining us, James. JAMES CROTTY, ECONOMICS PROFESSOR, PERI, UMASS: It's a pleasure.
JAY:
Talk a bit about the battle within the elite on how to deal with the
crisis as from the '20s entering the '30s, and then tell us the story
going forward.
CROTTY: There's two stories. One is about a
battle between or within elites, which is important in the 1930s. But
there's a more serious battle, which is between the elites together and
the middle class and the working people in the United States. And it's
all relevant to this whole idea about the battles over austerity and the
deficit. So maybe the place to start would be to go back to the 1920s.
In the 1920s, we had a boom in the second half of the decade, and it was
a pretty rigorous boom, and it represented kind of an ideal situation
as far as the elite were concerned. We had very little government
regulation, we had extremely weak unions, we had very low taxes on the
rich and on corporations, we had unrestrained financial markets, and we
had immense inequality. In the growth or the boom in the second half of
the decade, the top 1 percent got about 70 percent of the income gains,
and the bottom 90 percent got about 15 percent.
This is kind of the
ideal elite model, or the ideal conservative elite model. But it all
crashed with the stock market crash, the financial market crash, and the
Great Depression. And as you mentioned, then there was some split in
the elite about what should happen, and parts of the elite supported
Franklin Delano Roosevelt and the growth of the New Deal, and parts of
the elite didn't. And the parts of the elite that didn't tried to
undermine the New Deal, beginning already in the 1930s. They weren't
successful. So we got our first--everyone thought from the financial
collapse and the Great Depression that the idea of unregulated
capitalism and free markets was insane, it was destructive. And so we
had this move towards social democracy or democratic capitalism
[incompr.] mixed economy or whatever you want to call it.
The New Deal
was the beginning of all that. It regulated finance, created Social
Security, created public work jobs, and so on. After the war, this kind
of New Deal or social democracy grew and became bigger and bigger. We
finally got Medicare, we got the War on Poverty, and bigger government,
more taxes, and we had the most prosperous period that we've ever had in
American economic history, sometimes referred to as the Golden Age. But
the people who hated the New Deal and wanted the 1920s back continued
to struggle against this enlarged New Deal. But they weren't successful,
because this new arrangement, this new social democracy, was in fact
immensely successful.
We had tremendous growth. We had growth with
relatively low inequality. We had a reduction in poverty. We had growth
in security. We had the highest profits ever. And so it was difficult
for the people who wanted to undermine this system and go back to the
'20s, that is, some rich people, some corporate people, and what we
might call the moderate conservatives. This kind of right-wing coalition
was not successful, because things were prosperous. The movements
continued right into the '70s. Richard Nixon in fact did a lot to
enlarge this New Deal activities. But by the end of the 1970s, things
began--the economy didn't--it began to work not as well as it had
before. We had some inflation. We had higher unemployment. We had
cultural conflicts and the rise of the religious right. And this was
kind of the beginning of a period in which corporate ideas, free-market
ideas, corporate money in politics, rich people's money in politics
began to be quite impressive.
So we had large corporations putting lots
of money in PACs, political action committees, that they could put into
the political process, and we had lots of rich right-wing families
putting money into the political process, people like the /pjuz/ and the /"oU.lInz/
and the Coors and the Mellon Scaifes and so on. And we reached a point
where big money began to dominate the political process, just as the
economy was going through struggles. And even the Democrats began to see
that they needed this money in order to run and stay in office. And so
the Republicans started shifting to the right, and the Democrats started
following them in the shift to the right.J
JAY: Is part of
what's driving this that America's share of global wealth starts to
decline as it starts to get more real competitors? Both sort of Europe
comes back much more into play, the rise of China, even places like
Brazil. Chomsky gave a figure recently, in the immediate post-World War
II environment, America's sort of share of global wealth was something
close to 50 percent, and now it's down to something like under 25
percent, so that this kind of New Deal, the compromise with American
workers to some extent getting a share of this wealth that America had
accumulated after World War II, to kind of maintain the levels of
profits that the American elite had, they needed to start going after
their own workers--you couldn't just get it out of the rest of the
world. Is that a factor in all this?
CROTTY: Well, I think
it is a factor, although I think it's not the only factor. There were
many paths we could have followed after the problems of the '70s.
There's never any such thing as you have one single path to follow.
There are many kinds of--many capitalisms, many kind of paths to follow.
And there were, I suppose, competitive pressures that were impinging
here. But there was also a serious political debate about what kind of
economy and society that the right wing and the money people wanted to
see, and I think they're both germane. But in either case, what we got
is Ronald Reagan. So in 1980, Ronald Reagan comes in, and this signifies
a kind of radical shift away from this social democracy, which is now
kind of tottering to some degree, and its replacement with--at least
philosophically and in terms of--and also in terms of policy, with a
kind of right-wing dream world. So Ronald Reagan does the following
things. He creates a new economic model for the United States which is
really the opposite of the New Deal model.
JAY: James,
before you get into that, let me ask you--just back up a few words. The
social democracy model was kind of "tottering". What do you mean?
CROTTY:
It had delivered the goods in the '50s and the '60s, and even into the
'70s, and now it wasn't so clear it was--in the form that it existed,
without being adjusted, that it was going to deliver the goods as well
as it had before. It wasn't, after the mid 1970s. There were problems in
that model. That's what I mean. So there was--something probably had to
be done. The question then is: what? And Reagan's answer is: let's move
back towards the philosophy of the 1920s; at least, let's begin that
movement.
AY: And what wasn't working about that model? What were the signs of that?
CROTTY:
A burst of inflation in the early and late 1970s, associated primarily
with tripling of the oil prices through OPEC, which created inflationary
pressures. The inflationary pressures then presented the government
policymakers with a decision: should they use monetary and fiscal policy
to sustain unemployment and keep it from going too high, or should they
use it to fight inflation, in which case unemployment was going to go
high? And they chose it to fight inflation. And unemployment rose
substantially. It went up to 8.5 percent in '75, which was a rate which
economists said we'd never see again. So there were difficulties that
had to be addressed. There were also problems in the banking system. So
there were problems that had to be addressed. I would argue that there
are ways to address these problems which didn't require this shift
towards the right-wing model.
JAY: In the next segment of
our interview with Professor Crotty, we'll pick up the story with Reagan
and the austerity debate. Please join us for that, part two, on The
Real News Network.
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