Will Austerity Hasten Revolution?

  Today's edition of The New York Times chronicles the turmoil and misery that has been precipitated by continuing turmoil in the market economies of the Western world and by the austerity measures that have been introduced in response to that turmoil.


                              Louis XV

     In a front page article, "Spain Recoils as its Hungry Forage Trash Bins for a Next Meal," Suzanne Daly describes the increasingly desperate efforts of the Spanish government to meet the budget targets imposed by E.U. regulators. She observes that, despite having introduced one austerity measure after another,  including cutting public sector jobs, salaries, pensions and other benefits, the economy has continued to implode.

     Ms. Daly cites a report by a Catholic charity, Caritas, that states it fed almost one million Spaniards in 2010, a figure that had doubled since 2007, and that in 2011 the number rose again by an additional 65,000 persons. Caritas also stated that 22% of Spanish households were now in poverty and that approximately 600,000 Spaniards had no income whatsoever. 

      Daly also reports that, with an unemployment rate of over 50% among young people and increasing numbers of households where the adults have no jobs, many Spaniards are now forced to forage in tash bins for their food. She quotes an official in the town of Girona, Eduardo Berloso, who complained that "It's against the dignity of these people to have to look for food in this manner." In response, Mr. Berloso sponsored an ordinance that required supermarkets in that town to padlock their trash bins.      
     Here in the United States, similarly ill-advised demands for austerity have prompted severe cutbacks at the federal, state and local levels that have prolonged and exacerbated the Great Recession, destroyed the  lives of millions of Americans and widened economic inequality. Joe Nocera, in his column today, "Romney and the Forbes 400," noted that "Thirty years ago, when Forbes published its first Forbes 400, a net worth of $75 million would get you on that list. Today, it takes $1.1 billion. In the last year alone, the cumulative net worth of the wealthiest 400 people, by Forbes calculation, rose by $200 billion. That compares with a 4 percent drop in median household income last year, according to the Census Bureau."
     Last year, Forbes magazine reported that, as of November, 2011, the four hundred richest Americans enjoyed a combined worth of $1.53 trillion, which figure had increased from $1.37 trillion over the previous year. Their combined wealth was thus approximately equivalent to the GDP of Canada.

     In October of last year, the Internal Revenue Service and the Congressional Budget Office released findings which showed that the top 1% of the American population continued to receive a disproportionate share of the country's wealth. In 2009, the 1.4 million who belong to the top 1% made an average of $1 million dollars in 2009. Further, since 1979, the share of U.S. Income enjoyed by the top 1% has increased from 9.18% to 17.9% as of 2009, or more than the entire bottom half of the U.S. population.

     The U.S. Census Bureau announced in 2011 that the real median household income in the United States had declined to $49,995, or 2.3% from 2009 , while the nation's poverty rate had increased to 43.569 million people, or 15.1 % of the total population, and the number of people without health care insurance had grown to 49.9 million.

    A study by Harvard University Medical School in 2009 attributed that the lack of medical insurance to about 45,000 deaths per year in the U.S. Further, researchers for the U.S. Department of Agriculture in 2010 reported that 17.2 million households - or 14.5 % of all households in the United States - were "food insecure" and that in one-third of those households "normal eating patterns were disrupted." In 3.9 million of those households, children went hungry.

     As the real unemployment rate climbed to approximately 20 million Americans in 2011, another 2.6 million Americans, according to the Census Bureau, descended into poverty. Almost simultaneously, the World Bank observed that the United States had a higher level of income inequality than Canada, South Korean or any country in Europe with exception Turkey.

     A study by the Central Intelligence Agency reports that the U.S. ranks 50 out of 221 countries surveyed for life expectancy. The average life expectancy of 78.37 years places the U.S. below all Western European countries and is only slightly higher than Cyprus, Panama and Costa Rica.

     Finally, research by a Boston-based consultancy group, Forrester, estimated that 400,000 service jobs had been lost to off-shoring since 2000 and that this trend had then accelerated to between 20,000 and 40,000 a month. The number of jobs lost was over and above the 2 million manufacturing jobs that were estimated to have moved offshore since 1983.  By 2015, Forrester predicted,  approximately 3.3 million service jobs will have moved offshore, including 1.7 million "back office" jobs such as payroll processing and accounting, and 473,000 jobs in the information and technology industry.

     All of the empirical evidence suggests that out-sourcing, deregulation and a commitment to the myth of "free-trade" have been major contributing factors to the loss of manufacturing, stagnating wages and the growing impoverishment of the former middle class.

     Ultimately, the entire process is self-defeating and creates a negative-sum game: As entrepreneurs seek to maximize their profits by paying the lowest possible costs for labor and materials, the middle class is hollowed out. As the income of the middle class contracts, aggregate demand is reduced. As domestic spending contracts, the purchase of goods and service contracts. Without the intervention of the government into market economies, the buyers and sellers of goods and services become locked in mutually destructive death throes.

     The model of the market economy, because of these practices, is no longer responsive to the liberal democratic political systems that were responsible for creating and nurturing capitalism and has been an unmitigated disaster for middle class families throughout the Western world.

     Left to their own devices, entrepreneurs and corporations inevitably engage in practices that have harmful consequences to the public, notwithstanding the fact that their activities are heavily subsidized by taxpayer money - e.g. roads, trains, airports, and intangible infrastructure such as employee training and R&D, favorable tax policies, legal standing, and the protection of trade secrets and intellectual property. Entrepreneurs and corporations know that if they are unable to escape the ultimate consequences of their poor decisions, if all else fails, they can always enter into bankruptcy and re-emerge as a new corporate persona. Their sole goal is to maximize profits to please their shareholders. Given a mind set that sincerely believes that the pursuit of self-interest is somehow a public good, they remain oblivious to the adverse effects of poverty, lack of health care, pollution, climate change and to basic principles of social justice.

     There are no easy solutions to the present economic malaise, but the purported "laws of economics" are not to be confused with the laws of physics. Economic systems do not operate in a vacuum and there is nothing inevitable about the operation of economic trends. Economic systems and political systems are the products of human imagination and ideology as they are shaped by historical forces.

     Economic theory itself is the step-child of political theory. Capitalism as an economic system emerged only slowly as result of the disintegration of the feudal, agrarian economic system and the development of trade and banking in the late Middle Ages and Renaissance. The development and justification for market capitalism as a model was provided by the political ideas of John Locke, David Hume, Adam Smith and David Ricardo. 

     Because there is nothing inevitable about economic trends and developments, they can be countered by intelligent and carefully crafted monetary and fiscal policies, and intelligent legislation. In extremis, even the "laws of economics" - as articulated by the proponents of classical, orthodox liberal economic theory - can be suspended by operation of law, as was required during World Wars I and II.

     The critical need is to restore the proper balance between the pursuit of wealth as a purely private activity and the public interest. In a democracy, citizens have the ability and the right to imagine and to create new political, economic and social structures and arrangements that are rooted in a shared commitment to social justice and in a recognition of the mutual obligations that we owe to one another as members of a political community. By law, policies can designed and imposed to protect the rights of workers to join unions, to create an industrial policy, to re-impose selective tariffs (as the Chinese now do), to enact a tax code that punishes out-sourcing and domestic dis-investment and to provide incentives for job-creation and domestic re-investment.

     The newly released documentary film Detropia graphically illustrates the price that this country and the children of the middle class are now paying because we have permitted, in the name of free enterprise, our manufacturing base to be dismantled, unions to be crushed, and jobs to be out-sourced in return for an unrestrained flood of cheap, often subsidized imported goods and products. As a consequence, we have allowed ourselves to become a virtual colony of China and other exported-driven countries.

     In that movie, George McGregor, an official from the United Auto Workers, desperately tries to protect his members from extreme pay cuts demanded by companies such as American Axle. Its management, before it moved all of its manufacturing jobs to Mexico, informed McGregor in negotiations that it didn't care whether or not his UAW members enjoyed a living-wage. 

     Tommy Stephens, a bar owner and former teacher who is the film's most notable person, laments the demise of the middle class Detroit in which he grew up. He ruminates about the loss of hope and opportunity as the middle class descends into poverty. At the end, he observes that the middle class has played an indispensable role in the development of capitalism: it has served as a buffer that protected the wealthy elite and their possessions from the vengeance of the poor. Without that buffer of hope and opportunity, Stephens predicts that people will be left with no other option but to revolt. 

      It has been said that Marx's predictions about the inevitability of revolution were wrong because he did not anticipate the emergence and expansion of the middle class. But Marx understood, better than many of his critics, that the model of market capitalism that he challenged - based upon Social Darwinism and laissez-faire - could not survive. Now those ugly doctrines have been recycled and become, for many of the current elite, the controlling model for how market economies should function, Marx may yet be proven right.  

    As the middle class has now been beaten down and forced into retreat by the 1%, one wonders whether that elite is now too deaf to heed the warning attributed to King Loius XV, Après moi, le déluge.   

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