Neoliberalism – the ideology at the root of all our problems

Financial meltdown, environmental disaster and even the rise of Donald Trump – neoliberalism has played its part in them all. Why has the left failed to come up with an alternative?

Ronald Reagan and Margaret Thatcher at the White House.
‘No alternative’ … Ronald Reagan and Margaret Thatcher at the White House. Photograph: Rex Features

Imagine if the people of the Soviet Union had never heard of communism. The ideology that dominates our lives has, for most of us, no name. Mention it in conversation and you’ll be rewarded with a shrug. Even if your listeners have heard the term before, they will struggle to define it. Neoliberalism: do you know what it is?

Its anonymity is both a symptom and cause of its power. It has played a major role in a remarkable variety of crises: the financial meltdown of 2007‑8, the offshoring of wealth and power, of which the Panama Papers offer us merely a glimpse, the slow collapse of public health and education, resurgent child poverty, the epidemic of loneliness, the collapse of ecosystems, the rise of Donald Trump. But we respond to these crises as if they emerge in isolation, apparently unaware that they have all been either catalysed or exacerbated by the same coherent philosophy; a philosophy that has – or had – a name. What greater power can there be than to operate namelessly?

So pervasive has neoliberalism become that we seldom even recognise it as an ideology. We appear to accept the proposition that this utopian, millenarian faith describes a neutral force; a kind of biological law, like Darwin’s theory of evolution. But the philosophy arose as a conscious attempt to reshape human life and shift the locus of power.

Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that “the market” delivers benefits that could never be achieved by planning.

Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve.

We internalise and reproduce its creeds. The rich persuade themselves that they acquired their wealth through merit, ignoring the advantages – such as education, inheritance and class – that may have helped to secure it. The poor begin to blame themselves for their failures, even when they can do little to change their circumstances.

Never mind structural unemployment: if you don’t have a job it’s because you are unenterprising. Never mind the impossible costs of housing: if your credit card is maxed out, you’re feckless and improvident. Never mind that your children no longer have a school playing field: if they get fat, it’s your fault. In a world governed by competition, those who fall behind become defined and self-defined as losers.

Among the results, as Paul Verhaeghe documents in his book What About Me? are epidemics of self-harm, eating disorders, depression, loneliness, performance anxiety and social phobia. Perhaps it’s unsurprising that Britain, in which neoliberal ideology has been most rigorously applied, is the loneliness capital of Europe. We are all neoliberals now.

***

The term neoliberalism was coined at a meeting in Paris in 1938. Among the delegates were two men who came to define the ideology, Ludwig von Mises and Friedrich Hayek. Both exiles from Austria, they saw social democracy, exemplified by Franklin Roosevelt’s New Deal and the gradual development of Britain’s welfare state, as manifestations of a collectivism that occupied the same spectrum as nazism and communism.

In The Road to Serfdom, published in 1944, Hayek argued that government planning, by crushing individualism, would lead inexorably to totalitarian control. Like Mises’s book Bureaucracy, The Road to Serfdom was widely read. It came to the attention of some very wealthy people, who saw in the philosophy an opportunity to free themselves from regulation and tax. When, in 1947, Hayek founded the first organisation that would spread the doctrine of neoliberalism – the Mont Pelerin Society – it was supported financially by millionaires and their foundations.

With their help, he began to create what Daniel Stedman Jones describes in Masters of the Universe as “a kind of neoliberal international”: a transatlantic network of academics, businessmen, journalists and activists. The movement’s rich backers funded a series of thinktanks which would refine and promote the ideology. Among them were the American Enterprise Institute, the Heritage Foundation, the Cato Institute, the Institute of Economic Affairs, the Centre for Policy Studies and the Adam Smith Institute. They also financed academic positions and departments, particularly at the universities of Chicago and Virginia.

As it evolved, neoliberalism became more strident. Hayek’s view that governments should regulate competition to prevent monopolies from forming gave way – among American apostles such as Milton Friedman– to the belief that monopoly power could be seen as a reward for efficiency.

Something else happened during this transition: the movement lost its name. In 1951, Friedman was happy to describe himself as a neoliberal. But soon after that, the term began to disappear. Stranger still, even as the ideology became crisper and the movement more coherent, the lost name was not replaced by any common alternative.

At first, despite its lavish funding, neoliberalism remained at the margins. The postwar consensus was almost universal: John Maynard Keynes’s economic prescriptions were widely applied, full employment and the relief of poverty were common goals in the US and much of western Europe, top rates of tax were high and governments sought social outcomes without embarrassment, developing new public services and safety nets.

But in the 1970s, when Keynesian policies began to fall apart and economic crises struck on both sides of the Atlantic, neoliberal ideas began to enter the mainstream. As Friedman remarked, “when the time came that you had to change … there was an alternative ready there to be picked up”. With the help of sympathetic journalists and political advisers, elements of neoliberalism, especially its prescriptions for monetary policy, were adopted by Jimmy Carter’s administration in the US and Jim Callaghan’s government in Britain.

After Margaret Thatcher and Ronald Reagan took power, the rest of the package soon followed: massive tax cuts for the rich, the crushing of trade unions, deregulation, privatisation, outsourcing and competition in public services. Through the IMF, the World Bank, the Maastricht treaty and the World Trade Organisation, neoliberal policies were imposed – often without democratic consent – on much of the world. Most remarkable was its adoption among parties that once belonged to the left: Labour and the Democrats, for example. As Stedman Jones notes, “it is hard to think of another utopia to have been as fully realised.”

***

It may seem strange that a doctrine promising choice and freedom should have been promoted with the slogan “there is no alternative”. But, as Hayek remarkedon a visit to Pinochet’s Chile – one of the first nations in which the programme was comprehensively applied – “my personal preference leans toward a liberal dictatorship rather than toward a democratic government devoid of liberalism”. The freedom that neoliberalism offers, which sounds so beguiling when expressed in general terms, turns out to mean freedom for the pike, not for the minnows.

Freedom from trade unions and collective bargaining means the freedom to suppress wages. Freedom from regulation means the freedom to poison rivers, endanger workers, charge iniquitous rates of interest and design exotic financial instruments. Freedom from tax means freedom from the distribution of wealth that lifts people out of poverty.

Naomi Klein documented that neoliberals advocated the use of crises to impose unpopular policies while people were distracted. 

As Naomi Klein documents in The Shock Doctrine, neoliberal theorists advocated the use of crises to impose unpopular policies while people were distracted: for example, in the aftermath of Pinochet’s coup, the Iraq war and Hurricane Katrina, which Friedman described as “an opportunity to radically reform the educational system” in New Orleans.

Where neoliberal policies cannot be imposed domestically, they are imposed internationally, through trade treaties incorporating “investor-state dispute settlement”: offshore tribunals in which corporations can press for the removal of social and environmental protections. When parliaments have voted to restrict sales of cigarettes, protect water supplies from mining companies, freeze energy bills or prevent pharmaceutical firms from ripping off the state, corporations have sued, often successfully. Democracy is reduced to theatre.

Another paradox of neoliberalism is that universal competition relies upon universal quantification and comparison. The result is that workers, job-seekers and public services of every kind are subject to a pettifogging, stifling regime of assessment and monitoring, designed to identify the winners and punish the losers. The doctrine that Von Mises proposed would free us from the bureaucratic nightmare of central planning has instead created one.

Neoliberalism was not conceived as a self-serving racket, but it rapidly became one. Economic growth has been markedly slower in the neoliberal era (since 1980 in Britain and the US) than it was in the preceding decades; but not for the very rich. Inequality in the distribution of both income and wealth, after 60 years of decline, rose rapidly in this era, due to the smashing of trade unions, tax reductions, rising rents, privatisation and deregulation.

The privatisation or marketisation of public services such as energy, water, trains, health, education, roads and prisons has enabled corporations to set up tollbooths in front of essential assets and charge rent, either to citizens or to government, for their use. Rent is another term for unearned income. When you pay an inflated price for a train ticket, only part of the fare compensates the operators for the money they spend on fuel, wages, rolling stock and other outlays. The rest reflects the fact that they have you over a barrel.

In Mexico, Carlos Slim was granted control of almost all phone services and soon became the world’s richest man. 

Those who own and run the UK’s privatised or semi-privatised services make stupendous fortunes by investing little and charging much. In Russia and India, oligarchs acquired state assets through firesales. In Mexico, Carlos Slim was granted control of almost all landline and mobile phone services and soon became the world’s richest man.

Financialisation, as Andrew Sayer notes in Why We Can’t Afford the Rich, has had a similar impact. “Like rent,” he argues, “interest is … unearned income that accrues without any effort”. As the poor become poorer and the rich become richer, the rich acquire increasing control over another crucial asset: money. Interest payments, overwhelmingly, are a transfer of money from the poor to the rich. As property prices and the withdrawal of state funding load people with debt (think of the switch from student grants to student loans), the banks and their executives clean up.

Sayer argues that the past four decades have been characterised by a transfer of wealth not only from the poor to the rich, but within the ranks of the wealthy: from those who make their money by producing new goods or services to those who make their money by controlling existing assets and harvesting rent, interest or capital gains. Earned income has been supplanted by unearned income.

Neoliberal policies are everywhere beset by market failures. Not only are the banks too big to fail, but so are the corporations now charged with delivering public services. As Tony Judt pointed out in Ill Fares the Land, Hayek forgot that vital national services cannot be allowed to collapse, which means that competition cannot run its course. Business takes the profits, the state keeps the risk.

The greater the failure, the more extreme the ideology becomes. Governments use neoliberal crises as both excuse and opportunity to cut taxes, privatise remaining public services, rip holes in the social safety net, deregulate corporations and re-regulate citizens. The self-hating state now sinks its teeth into every organ of the public sector.

Perhaps the most dangerous impact of neoliberalism is not the economic crises it has caused, but the political crisis. As the domain of the state is reduced, our ability to change the course of our lives through voting also contracts. Instead, neoliberal theory asserts, people can exercise choice through spending. But some have more to spend than others: in the great consumer or shareholder democracy, votes are not equally distributed. The result is a disempowerment of the poor and middle. As parties of the right and former left adopt similar neoliberal policies, disempowerment turns to disenfranchisement. Large numbers of people have been shed from politics.

Chris Hedges remarks that “fascist movements build their base not from the politically active but the politically inactive, the ‘losers’ who feel, often correctly, they have no voice or role to play in the political establishment”. When political debate no longer speaks to us, people become responsive instead to slogans, symbols and sensation. To the admirers of Trump, for example, facts and arguments appear irrelevant.

Judt explained that when the thick mesh of interactions between people and the state has been reduced to nothing but authority and obedience, the only remaining force that binds us is state power. The totalitarianism Hayek feared is more likely to emerge when governments, having lost the moral authority that arises from the delivery of public services, are reduced to “cajoling, threatening and ultimately coercing people to obey them”.

***

Like communism, neoliberalism is the God that failed. But the zombie doctrine staggers on, and one of the reasons is its anonymity. Or rather, a cluster of anonymities.

The invisible doctrine of the invisible hand is promoted by invisible backers. Slowly, very slowly, we have begun to discover the names of a few of them. We find that the Institute of Economic Affairs, which has argued forcefully in the media against the further regulation of the tobacco industry, has been secretly funded by British American Tobacco since 1963. We discover that Charles and David Koch, two of the richest men in the world, founded the institute that set up the Tea Party movement. We find that Charles Koch, in establishing one of his thinktanks, noted that “in order to avoid undesirable criticism, how the organisation is controlled and directed should not be widely advertised”.

The words used by neoliberalism often conceal more than they elucidate. “The market” sounds like a natural system that might bear upon us equally, like gravity or atmospheric pressure. But it is fraught with power relations. What “the market wants” tends to mean what corporations and their bosses want. “Investment”, as Sayer notes, means two quite different things. One is the funding of productive and socially useful activities, the other is the purchase of existing assets to milk them for rent, interest, dividends and capital gains. Using the same word for different activities “camouflages the sources of wealth”, leading us to confuse wealth extraction with wealth creation.

A century ago, the nouveau riche were disparaged by those who had inherited their money. Entrepreneurs sought social acceptance by passing themselves off as rentiers. Today, the relationship has been reversed: the rentiers and inheritors style themselves entre preneurs. They claim to have earned their unearned income.

These anonymities and confusions mesh with the namelessness and placelessness of modern capitalism: the franchise model which ensures that workers do not know for whom they toil; the companies registered through a network of offshore secrecy regimes so complex that even the police cannot discover the beneficial owners; the tax arrangements that bamboozle governments; the financial products no one understands.

The anonymity of neoliberalism is fiercely guarded. Those who are influenced by Hayek, Mises and Friedman tend to reject the term, maintaining – with some justice – that it is used today only pejoratively. But they offer us no substitute. Some describe themselves as classical liberals or libertarians, but these descriptions are both misleading and curiously self-effacing, as they suggest that there is nothing novel about The Road to Serfdom, Bureaucracy or Friedman’s classic work, Capitalism and Freedom.

***

For all that, there is something admirable about the neoliberal project, at least in its early stages. It was a distinctive, innovative philosophy promoted by a coherent network of thinkers and activists with a clear plan of action. It was patient and persistent. The Road to Serfdom became the path to power.

Neoliberalism’s triumph also reflects the failure of the left. When laissez-faire economics led to catastrophe in 1929, Keynes devised a comprehensive economic theory to replace it. When Keynesian demand management hit the buffers in the 70s, there was an alternative ready. But when neoliberalism fell apart in 2008 there was … nothing. This is why the zombie walks. The left and centre have produced no new general framework of economic thought for 80 years.

Every invocation of Lord Keynes is an admission of failure. To propose Keynesian solutions to the crises of the 21st century is to ignore three obvious problems. It is hard to mobilise people around old ideas; the flaws exposed in the 70s have not gone away; and, most importantly, they have nothing to say about our gravest predicament: the environmental crisis. Keynesianism works by stimulating consumer demand to promote economic growth. Consumer demand and economic growth are the motors of environmental destruction.

What the history of both Keynesianism and neoliberalism show is that it’s not enough to oppose a broken system. A coherent alternative has to be proposed. For Labour, the Democrats and the wider left, the central task should be to develop an economic Apollo programme, a conscious attempt to design a new system, tailored to the demands of the 21st century.

https://www.theguardian.com/books/2016/apr/15/neoliberalism-ideology-problem-george-monbiot

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Democratic Primaries in the Shadow of Neoliberalism

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(Photo: Mike Segar/Reuters)

There is an understandable tendency, when in the thick of a long set of presidential primaries, to treat all of them simply as exercises in the choice between individual candidates, and to make them as much about character as about policy. There is also an understandable tendency to assume that what is at stake in these primaries is purely an American matter with entirely domestic roots.

It is much more difficult to place the competing candidates and their differing policy packages on a bigger and a longer map that takes in previous candidates and previous policies. It is also very hard to break out of a purely American focus, and to see what is happening in the United States as part of a more general story.

But it is worth the effort: because by going out to the bigger picture, and then back to the detail of the campaigns, the issues that are actually at stake in those campaigns becomes just a little bit clearer.

I

One way of generating that greater clarity is to place the Democratic Party primary battle between Hillary Clinton and Bernie Sanders in the shadow of something normally labeled “neoliberalism“ — place it in the shadow, that is, of the economic policies and general economic philosophy successfully espoused by Ronald Reagan in the United States and by Margaret Thatcher in the United Kingdom. Neoliberalism is that economic philosophy that prefers markets to governments as allocators of resources, and prefers individual and private — rather than collective and public — solutions to social problems. For the last three decades, it has been the ruling orthodoxy on both sides of the Atlantic, but when neoliberalism was first advocated — in the second half of the 1970s — it was not. It marked then a revolutionary break with an earlier orthodoxy: one linked to the writings of John Maynard Keynes and to the politics of the New Deal; one that had markets managed by governments, and had social problems solved by public spending and policy.

The Reagan/Thatcher neoliberal revolution kept Democrats out of the White House, and kept the Labour Party out of power in London, for three whole electoral cycles; and by the end of the third of those, leading politicians in both parties had come to the same view. They had decided that their only way back to power was to meet Reagan- and Thatcher-shaped electorates on neoliberal terms. Under Bill Clinton’s leadership in the United States, and that of Tony Blair in the United Kingdom, each center-left party abandoned their earlier and more progressive sets of policies in favor of an explicit acceptance of, and accommodation with, the major tenets of the new conservative orthodox. They gave up their role as “tax and spend” progressives in favor of “new” positions. They pulled back from active industrial policies that regulated business. They “ended welfare as we know it;” and they even began to call themselves “New/Centrist Democrats” and “New Labour” to make that accommodation to neoliberal principles clear to those who would vote for them.

For Bill Clinton and Tony Blair, being a progressive in the 1990s meant being a more civilized and kind-hearted Reaganite/Thatcherite. It meant taking for granted, and never challenging, very central neoliberal principles and practices that included:

LIST A

• Lower corporate and personal taxation to encourage innovation, enterprise and job creation
• A thinning of the welfare net to avoid welfare dependency and increase the incentive to work
• The deregulation of labor markets by the weakening of trade unions
• The parallel deregulation of the business community, and the celebration of income inequality
• The privatization of publicly-owned industries and companies, and the exposure of public bodies to market forces.

That ‘third way’ acceptance of Reaganite/Thatcherite policies worked for a while. There was great job growth in the United States in the 1990s, and New Labour actually grew the UK economy without a recession from 1997-2007. But then the wheels really came off the neoliberal bus. Lightly regulated financial institutions triggered first a major credit crisis, and then the deepest recession either economy had known since the 1930s. In late 2008 and early 2009, no one was a passionate neoliberal anymore. Keynesian demand management, big injections of public spending, and the tight direction of the banking system — all three were briefly back in vogue. But only briefly. For quite quickly, conservatives in both countries found other explanations for the crisis, and told their electorates that it was the government spending that caused the crisis (and not, as in reality was the case, the other way round). Even moderate Democrats like Barack Obama then found themselves unable to govern across the aisle, because the Republican wing of the political class was in full retreat to even more extreme neoliberal positions again.

II

Two things then happened that frame the choices before us now. On the Democratic side of the aisle here in the United States, both a moderate and a more radical challenge to the earlier neoliberal orthodoxy began to crystalize. Hillary Clinton and Bernie Sanders may now personify those different challenges, but they are not their sole architects. On the contrary, across the Democratic coalition as a whole, the last seven years have witnessed the increasing presence in the progressive policy debate of two linked but competing lists of policy preferences. The moderate list includes

LIST B

• The maintenance of demand through public spending and the toleration of public debt
• The avoidance of further financial crisis by tighter financial oversight
• The infrastructure route to growth (public spending to modernize roads, bridges, rail & internet)
• Progressive taxation to reduce excessive inequality and to spread the cost of welfare provision to those best able to bear it
• Greater rights for women and minorities at work, more childcare & paid parental leave
• Moves towards a carbon-free energy policy

The more radical list includes the moderate agenda, but adds some/all of the following

LIST C

• Greater rights for trade unions, and a major hike in both the minimum wage & Social Security
• Systemic attack on the sources of poverty, with affirmative action while poverty persists
• The deconstruction of the system of mass incarceration and the ending of the war on drugs
• New trade policy to reverse the outsourcing of well-paying jobs
• The breaking up of banks that are too big to fail
• Less spending on the military & on foreign wars: more nation-building at home, less abroad

Those lists contain very specific American dimensions (not least the ending of mass incarceration and the winding down of foreign wars). But they are not, in all their essentials, American lists alone. Parallel changes in understanding and policy are in debate and dispute in many western European center-left parties right now. They certainly are in the British Labour Party, where leadership has recently switched to Jeremy Corbyn, in many ways the UK’s Bernie Sanders equivalent. For the post-2008 struggle, in all advanced capitalist economies, to return to generalized prosperity and job security is obliging the center-left everywhere to re-examine the wisdom of its earlier enthusiastic accommodation to neoliberalism. It is that re-examination that lies at the heart of the current clash, in the on-going series of Democratic Party presidential primaries, between Hillary Clinton and Bernie Sanders.

III

The three policy lists now in play are not the same. Their centers of gravity are different because the analyses underpinning them also differ. And because they are different, and because of the history in which they sit, Hillary Clinton in particular has a double problem with her potential electoral base.

Her first problem is this. When she was the politically active first lady to her husband’s presidency, economic policy under that presidency operated on List A. So one question that Hillary Clinton has to answer now is whether economic policy under a second Clinton presidency (namely hers) will be similar, or will it be different? Her Republican opponents will attempt to tar her with the Bill Clinton brush, pointing to sexual infidelity and possibly financial corruption or worse. Her progressive critics should worry more about the extent to which the current global activities of the Clinton Foundation point to her husband’s on-going commitment to neoliberal principles. Because if he hasn’t made the break, and he remains among her counsellors, how much of a break has she really made, or how much of a break will she be able to sustain?

Then there is the second problem, the really big one: if the answer to the first question is that yes, next time policy will be very different, will it be different by operating on List B (which is basically the blocked economic policy of the Obama presidency), or will it stretch out to encompass some dimensions (or the totality, indeed) of List C, as so many radical supporters of Bernie Sanders now believe to be essential? Just how radicalized has Hillary Clinton become? How much is show, and how much is real?

The great fear, on the left of the Democratic coalition, is that the rupture with the original Clinton list (List A) is still paper thin: and that Hillary Clinton will say radical things (from the other two lists, including List C) simply to win office. Then, when in office, she will go back to List A, triangulating with neoliberal Republicans in the manner of the first Clinton presidency. Reassuring her progressive supporters that she will not do any of this is therefore a vital task for her between now and November, because only if that reassurance is forthcoming — only if the depth of her rupture with her own past is unambiguously clear — will the vast majority of those mobilized by Bernie Sanders act as willing foot-soldiers in the electoral battle to save America from a Trump presidency. And she will need those foot-soldiers.

David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010. 

 

The US Economy Has Not Recovered and Will Not Recover

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The US economy died when middle class jobs were offshored and when the financial system was deregulated.

Jobs offshoring benefitted Wall Street, corporate executives, and shareholders, because lower labor and compliance costs resulted in higher profits. These profits flowed through to shareholders in the form of capital gains and to executives in the form of “performance bonuses.” Wall Street benefitted from the bull market generated by higher profits.

However, jobs offshoring also offshored US GDP and consumer purchasing power. Despite promises of a “New Economy” and better jobs, the replacement jobs have been increasingly part-time, lowly-paid jobs in domestic services, such as retail clerks, waitresses and bartenders.

The offshoring of US manufacturing and professional service jobs to Asia stopped the growth of consumer demand in the US, decimated the middle class, and left insufficient employment for college graduates to be able to service their student loans. The ladders of upward mobility that had made the United States an “opportunity society” were taken down in the interest of higher short-term profits.

Without growth in consumer incomes to drive the economy, the Federal Reserve under Alan Greenspan substituted the growth in consumer debt to take the place of the missing growth in consumer income.  Under the Greenspan regime, Americans’ stagnant and declining incomes were augmented with the ability to spend on credit. One source of this credit was the rise in housing prices that the Federal Reserves low inerest rate policy made possible.  Consumers could refinance their now higher-valued home at lower interest rates and take out the “equity” and spend it.

The debt expansion, tied heavily to housing mortgages, came to a halt when the fraud perpetrated by a deregulated financial system crashed the real estate and stock markets. The bailout of the guilty imposed further costs on the very people that the guilty had victimized.

Under Fed chairman Bernanke the economy was kept going with Quantitative Easing, a massive increase in the money supply in order to bail out the “banks too big to fail.”  Liquidity supplied by the Federal Reserve found its way into stock and bond prices and made those invested in these financial instruments richer. Corporate executives helped to boost the stock market by using the companies’ profits and by taking out loans in order to buy back the companies’ stocks, thus further expanding debt.

Those few benefitting from inflated financial asset prices produced by Quantitative Easing and buy-backs are a much smaller percentage of the population than was affected by the Greenspan consumer credit expansion. A relatively few rich people are an insufficient number to drive the economy.

The Federal Reserve’s zero interest rate policy was designed to support the balance sheets of the mega-banks and denied Americans interest income on their savings.  This policy decreased the incomes of retirees and forced the elderly to reduce their consumption and/or draw down their savings more rapidly, leaving no safety net for heirs.

Using the smoke and mirrors of under-reported inflation and unemployment, the US government kept alive the appearance of economic recovery.  Foreigners fooled by the deception continue to support the US dollar by holding US financial instruments.

The official inflation measures were “reformed” during the Clinton era in order to dramatically understate inflation.  The measures do this in two ways.  One way is to discard from the weighted basket of goods that comprises the inflation index those goods whose price rises.  In their place, inferior lower-priced goods are substituted.

For example, if the price of New York strip steak rises, round steak is substituted in its place.  The former official inflation index measured the cost of a constant standard of living.  The “reformed” index measures the cost of a falling standard of living.

The other way the “reformed” measure of inflation understates the cost of living is to discard price rises as “quality improvements.”  It is true that quality improvements can result in higher prices.  However, it is still a price rise for the consumer as the former product is no longer available.  Moreover, not all price rises are quality improvements; yet many prices rises that are not can be misinterpreted as “quality improvements.”

These two “reforms” resulted in no reported inflation and a halt to cost-of-living adjustments for Social Security recipients.  The fall in Social Security real incomes also negatively impacted aggregate consumer demand.

The rigged understatement of inflation deceived people into believing that the US economy was in recovery. The lower the measure of inflation, the higher is real GDP when nominal GDP is deflated by the inflation measure.  By understating inflation, the US government has overstated GDP growth.

What I have written is easily ascertained and proven; yet the financial press does not question the propaganda that sustains the psychology that the US economy is sound.  This carefully cultivated psychology keeps the rest of the world invested in dollars, thus sustaining the House of Cards.

John Maynard Keynes understood that the Great Depression was the product of an insufficiency of consumer demand to take off the shelves the goods produced by industry.  The post-WW II macroeconomic policy focused on maintaining the adequacy of aggregate demand in order to avoid high unemployment.  The supply-side policy of President Reagan successfully corrected a defect in Keynesian macroeconomic policy and kept the US economy functioning without the “stagflation” from worsening “Philips Curve” trade-offs between inflation and employent.  In the 21st century, jobs offshoring has depleted consumer demand’s ability to maintain US full employment.

The unemployment measure that the presstitute press reports is meaningless as it counts no discouraged workers, and discouraged workers are a huge part of American unemployment.  The reported unemployment rate is about 5%, which is the U-3 measure that does not count as unemployed workers who are too discouraged to continue searching for jobs.

The US government has a second official unemployment measure, U-6, that counts workers discouraged for less than one-year.  This official rate of unemployment is 10%.

When long term (more than one year) discouraged workers are included in the measure of unemployment, as once was done, the US unemployment rate is 23%. (See John Williams, shadowstats.com)

Fiscal and monetary stimulus can pull the unemployed back to work if jobs for them still exist domestically.  But if the jobs have been sent offshore, monetary and fiscal policy cannot work.

What jobs offshoring does is to give away US GDP to the countries to which US corporations move the jobs.  In other words, with the jobs go American careers,  consumer purchasing power and the tax base of state, local, and federal governments.  There are only a few American winners, and they are the shareholders of the companies that offshored the jobs and the executives of the companies who receive multi-million dollar “performance bonuses” for raising profits by lowering labor costs. And, of course, the economists, who get grants, speaking engagements, and corporate board memberships for shilling for the offshoring policy that worsens the distribution of income and wealth. An economy run for a few only benefits the few, and the few, no matter how large their incomes, cannot consume enough to keep the economy growing.

In the 21st century US economic policy has destroyed the ability of real aggregate demand in the US to increase.  Economists will deny this, because they are shills for globalism and jobs offshoring. They misrepresent jobs offshoring as free trade and, as in their ideology free trade benefits everyone, claim that America is benefitting from jobs offshoring.  Yet, they cannot show any evidence whatsoever of these alleged benefits. (See my book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West.)  

As an economist, it is a mystery to me how any economist can think that a population that does not produce the larger part of the goods that it consumes can afford to purchase the goods that it consumes. Where does the income come from to pay for imports when imports are swollen by the products of offshored production?

We were told that the income would come from better-paid replacement jobs provided by the “New Economy,” but neither the payroll jobs reports nor the US Labor Departments’s projections of future jobs show any sign of this mythical “New Economy.”

There is no “New Economy.”  The “New Economy” is like the neoconservatives promise that the Iraq war would be a six-week “cake walk” paid for by Iraqi oil revenues, not a $3 trillion dollar expense to American taxpayers (according to Joseph Stiglitz and Linda Bilmes) and a war that has lasted the entirely of the 21st century to date, and is getting more dangerous.

The American “New Economy” is the American Third World economy in which the only jobs created are low productivity, low paid nontradable domestic service jobs incapable of producing export earnings with which to pay for the goods and services produced offshore for US consumption.

The massive debt arising from Washington’s endless wars for neoconservative hegemony now threaten Social Security and the entirety of the social safety net. The presstitute media are blaming not the policy that has devasted Americans, but, instead, the Americans who have been devasted by the policy.

Earlier this month I posted readers’ reports on the dismal job situation in Ohio, Southern Illinois, and Texas. In the March issue ofChronicles, Wayne Allensworth describes America’s declining rural towns and once great industrial cities as consequences of “globalizing capitalism.”  A thin layer of very rich people rule over those “who have been left behind”—a shrinking middle class and a growing underclass.  According to a poll last autumn, 53 percent of Americans say that they feel like a stranger in their own country.

Most certainly these Americans have no political representation. As Republicans and Democrats work to raise the retirement age in order to reduce Social Security outlays, Princeton University experts report that the mortality rates for the white working class are rising.  The US government will not be happy until no one lives long enough to collect Social Security.

The United States government has abandoned everyone except the rich.

In the opening sentence of this article, I said that the two murderers of the American economy were jobs offshoring and financial deregulation.  Deregulation greatly enhanced the ability of the large banks to financialize the economy. Financialization is the diversion of income streams into debt service. When debt service absorbs a large amount of the available income, the economy experiences debt deflation.  The service of debt leaves too little income for purchases of goods and services and prices fall.

Michael Hudson, who I recently wrote about, is the expert on finanialization.  His book, Killing the Host, which I recommended to you, tells the complete story.  Briefly, financialization is the process by which creditors capitalize an economy’s economic surplus into interest payments to themselves. Perhaps an example would be a corporation that goes into debt in order to buy back its shares. The corporation achieves a temporary boost in its share prices at the cost of years of interest payments that drain the corporation of profits and deflate its share price.

Michael Hudson stresses the conversion of the rental value of real estate into mortgage payments.  He emphasizes that classical economists wanted to base taxation not on production, but on economic rent.  Economic rent is value due to location or to a monopoly position. For example, beachfront property has a higher price because of location.  The difference in value between beachfront and nonbeachfront property is economic rent, not a produced value.  An unregulated monopoly can charge a price for a service that is higher than the price that would bring that service unto the market.

The proposal to tax economic rent does not mean taxing you on the rent that you pay your landlord or taxing your landlord on the rent that you pay him such that he ceases to provide the housing.  By economic rent Hudson means, for example, the rise in land values due to public infrastructure projects such as roads and subway systems.  The rise in the value of land opened by a new road and in housing and commercial space along a new subway line is not due to any action of the property owners.  This rise in value could be taxed in order to pay for the project instead of taxing the income of the population in general.  Instead, the rise in land values raises appraisals and the amount that creditors are willing to lend on the property.  New purchasers and existing owners can borrow more on the property, and the larger mortgages divert the increased land valuation into interest payments to creditors. Lenders end up as the major beneficiaries of public projects that raise real estate prices.

Similarly, unless the economy is financialized to such an extent that mortgage debt can no longer be serviced, when central banks lower interest rates property values rise, and this rise can be capitalized into a larger mortgage.

Another example would be property tax reductions and legislation such as California’s Proposition 13 that freeze in whole or part the property tax base.  The rise in real estate values that escape taxation are capitalized into larger mortgages.  New buyers do not benefit. The beneficiaries are the lenders who capture the rise in real estate prices in interest payments.

Taxing economic rent would prevent the financial system from capitalizing the rent into debt instruments that pay interest to the financial sector.  Considering the amount of rents available to be taxed, taxing rents would free production from income and sales taxation, thus lowering consumer prices and freeing labor and productive capital from taxation.

With so much of land rent already capitalized into debt instruments shifting the tax burden to economic rent would be challenging.  Nevertheless, Hudson’s analysis shows that financialization, not wage suppression, is the main instrument of exploitation and takes place via the financial system’s conversion of income streams into interest payments on debt.

I remember when mortgage service was restricted to one-quarter of household income. Today mortgage service can eat up half of household income.  This extraordinary growth crowds out the production of goods and services as less of household income is available for other purchases.

Michael Hudson and I bring a total indictment of the neoliberal economics profession, “junk economists” as Hudson calls them.

Paul Craig Roberts is a former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal. Roberts’ How the Economy Was Lost is now available from CounterPunch in electronic format. His latest book is The Neoconservative Threat to World Order.

http://www.counterpunch.org/2016/02/19/the-us-economy-has-not-recovered-and-will-not-recover/

The Punishment Cure

Op-Ed Columnist

Six years have passed since the United States economy entered the Great Recession, four and a half since it officially began to recover, but long-term unemployment remains disastrously high. And Republicans have a theory about why this is happening. Their theory is, as it happens, completely wrong. But they’re sticking to it — and as a result, 1.3 million American workers, many of them in desperate financial straits, are set to lose unemployment benefits at the end of December.

Paul Krugman

Now, the G.O.P.’s desire to punish the unemployed doesn’t arise solely from bad economics; it’s part of a general pattern of afflicting the afflicted while comforting the comfortable (no to food stamps, yes to farm subsidies). But ideas do matter — as John Maynard Keynes famously wrote, they are “dangerous for good or evil.” And the case of unemployment benefits is an especially clear example of superficially plausible but wrong economic ideas being dangerous for evil.

Here’s the world as many Republicans see it: Unemployment insurance, which generally pays eligible workers between 40 and 50 percent of their previous pay, reduces the incentive to search for a new job. As a result, the story goes, workers stay unemployed longer. In particular, it’s claimed that the Emergency Unemployment Compensation program, which lets workers collect benefits beyond the usual limit of 26 weeks, explains why there are four million long-term unemployed workers in America today, up from just one million in 2007.

Correspondingly, the G.O.P. answer to the problem of long-term unemployment is to increase the pain of the long-term unemployed: Cut off their benefits, and they’ll go out and find jobs. How, exactly, will they find jobs when there are three times as many job-seekers as job vacancies? Details, details.

Proponents of this story like to cite academic research — some of it from Democratic-leaning economists — that seemingly confirms the idea that unemployment insurance causes unemployment. They’re not equally fond of pointing out that this research is two or more decades old, has not stood the test of time, and is irrelevant in any case given our current economic situation.

The view of most labor economists now is that unemployment benefits have only a modest negative effect on job search — and in today’s economy have no negative effect at all on overall employment. On the contrary, unemployment benefits help create jobs, and cutting those benefits would depress the economy as a whole.

Ask yourself how, exactly, ending unemployment benefits would create more jobs. It’s true that some of the currently unemployed, finding themselves even more desperate than before, might manage to snatch jobs away from those who currently have them. But what would give businesses a reason to employ more workers as opposed to replacing existing workers?

You might be tempted to argue that more intense competition among workers would lead to lower wages, and that cheap labor would encourage hiring. But that argument involves a fallacy of composition. Cut the wages of some workers relative to those of other workers, and those accepting the wage cuts may gain a competitive edge. Cut everyone’s wages, however, and nobody gains an edge. All that happens is a general fall in income — which, among other things, increases the burden of household debt, and is therefore a net negative for overall employment.

The point is that employment in today’s American economy is limited by demand, not supply. Businesses aren’t failing to hire because they can’t find willing workers; they’re failing to hire because they can’t find enough customers. And slashing unemployment benefits — which would have the side effect of reducing incomes and hence consumer spending — would just make the situation worse.

Still, don’t expect prominent Republicans to change their views, except maybe to come up with additional reasons to punish the unemployed. For example, Senator Rand Paul recently cited research suggesting that the long-term unemployed have a hard time re-entering the work force as a reason to, you guessed it, cut off long-term unemployment benefits. You see, those benefits are actually a “disservice” to the unemployed.

The good news, such as it is, is that the White House and Senate Democrats are trying to make an issue of expiring unemployment benefits. The bad news is that they don’t sound willing to make extending benefits a precondition for a budget deal, which means that they aren’t really willing to make a stand.

So the odds, I’m sorry to say, are that the long-term unemployed will be cut off, thanks to a perfect marriage of callousness — a complete lack of empathy for the unfortunate — with bad economics. But then, hasn’t that been the story of just about everything lately?

Hyperemployment, or the Exhausting Work of the Technology User

In 1930, the economist John Maynard Keynes famously argued that by the time a century had passed, developed societies would be able to replace work with leisure thanks to widespread wealth and surplus. “We shall do more things for ourselves than is usual with the rich to-day,” he wrote, “only too glad to have small duties and tasks and routines.” Eighty years hence, it’s hard to find a moment in the day not filled with a duty or task or routine. If anything, it would seem that work has overtaken leisure almost entirely. We work increasingly hard for increasingly little, only to come home to catch up on the work we can’t manage to work on at work.

Take email. A friend recently posed a question on Facebook: “Remember when email was fun?” It’s hard to think back that far. On Prodigy, maybe, or with UNIX mail or elm or pine via telnet. Email was silly then, a trifle. A leisure activity out of Keynes’s macroeconomics tomorrowland. It was full of excess, a thing done because it could be rather than because it had to be. The worst part of email was forwarded jokes, and even those seem charming in retrospect. Even junk mail is endearing when it’s novel.

Now, email is a pot constantly boiling over. Like King Sisyphus pushing his boulder, we read, respond, delete, delete, delete, only to find that even more messages have arrived whilst we were pruning. A whole time management industry has erupted around email, urging us to check only once or twice a day, to avoid checking email first thing in the morning, and so forth. Even if such techniques work, the idea that managing the communication for a job now requires its own self-help literature reeks of a foul new anguish.

If you’re like many people, you’ve started using your smartphone as an alarm clock. Now it’s the first thing you see and hear in the morning. And touch, before your spouse or your crusty eyes. Then the ritual begins. Overnight, twenty or forty new emails: spam, solicitations, invitations or requests from those whose days pass during your nights, mailing list reminders, bill pay notices. A quick triage, only to be undone while you shower and breakfast.

Email and online services have provided a way for employees to outsource work to one another. Whether you’re planning a meeting with an online poll, requesting an expense report submission to an ERP system, asking that a colleague contribute to a shared Google Doc, or just forwarding on a notice that “might be of interest,” jobs that previously would have been handled by specialized roles have now been distributed to everyone in an organization.

No matter what job you have, you probably have countless other jobs as well. Marketing and public communications were once centralized, now every division needs a social media presence, and maybe even a website to develop and manage. Thanks to Oracle and SAP, everyone is a part-time accountant and procurement specialist. Thanks to Oracle and Google Analytics, everyone is a part-time analyst.

And email has become the circulatory system along which internal outsourcing flows. Sending an email is easy and cheap, and emails create obligation on the part of a recipient without any prior agreement. In some cases, that obligation is bureaucratic, meant to drive productivity and reduce costs. “Self-service” software automation systems like these are nothing new—SAP’s enterprise resource planning (ERP) software has been around since the 1970s. But since the 2000s, such systems can notify and enforce compliance via email requests and  nags. In other cases, email acts as a giant human shield, a kind of white collar Strategic Defense Initiative. The worker who emails enjoys both assignment and excuse all at once. “Didn’t you get my email?”

The despair of email has long left the workplace. Not just by infecting our evenings and weekends via Outlook web access and BlackBerry and iPhone, although it has certainly done that. Now we also run the email gauntlet with everyone. The ballet school’s schedule updates (always received too late, but, “didn’t you get the email?”); the Scout troop announcements; the daily deals website notices; the PR distribution list you somehow got on after attending that conference; the insurance notification, informing you that your new coverage cards are available for self-service printing (you went paperless, yes?); and the email password reset notice that finally trickles in 12 hours later, since you forgot your insurance website password since a year ago. And so on.

It’s easy to see email as unwelcome obligations, but too rarely do we take that obligation to its logical if obvious conclusion: those obligations are increasingly akin to another job—or better, many other jobs. For those of us lucky enough to be employed, we’re reallyhyperemployed—committed to our usual jobs and many other jobs as well. It goes without saying that we’re not being paid for all these jobs, but pay is almost beside the point, because the real cost of hyperemployment is time. We are doing all those things others aren’t doing instead of all the things we are competent at doing. And if we fail to do them, whether through active resistance or simple overwhelm, we alone suffer for it:  the schedules don’t get made, the paperwork doesn’t get mailed, the proposals don’t get printed, and on and on.

But the deluge doesn’t stop with email, and hyperemployment extends even to the unemployed, thanks to our tacit agreement to work for so many Silicon Valley technology companies.

Increasingly, online life in general feels like this. The endless, constant flow of email, notifications, direct messages, favorites, invitations. After that daybreak email triage, so many other icons on your phone boast badges silently enumerating their demands. Facebook notifications. Twitter @-messages, direct messages. Tumblr followers, Instagram favorites, Vine comments. Elsewhere too: comments on your blog, on your YouTube channel. The Facebook page you manage for your neighborhood association or your animal rescue charity. New messages in the forums you frequent. Your Kickstarter campaign updates. Your Etsy shop. Your Ebay watch list. And then, of course, more email. Always more email.

Often, we cast these new obligations either as compulsions (the addictive, possibly dangerous draw of online life) or as necessities (the importance of digital contact and an “online brand” in the information economy). But what if we’re mistaken, and both tendencies are really just symptoms of hyperemployment?

When critics engage with the demands of online services via labor, they often cite exploitation as a simple explanation. It’s a sentiment that even has its own aphorism: “If you’re not paying for the product, you are the product.” The idea is that all the information you provide to Google and Facebook, all the content you create for Tumblr and Instagram enable the primary businesses of such companies, which amounts to aggregating and reselling your data or access to it. In addition to the revenues extracted from ad sales, tech companies like YouTube and Instagram also managed to leverage the speculative value of your data-and-attention into billion-dollar buyouts. Tech companies are using you, and they’re giving precious little back in return.

While often true, this phenomenon is not fundamentally new to online life. We get network television for free in exchange for the attention we devote to ads that interrupt our shows. We receive “discounts” on grocery store staples in exchange for allowing Kroger or Safeway to aggregate and sell our shopping data. Meanwhile, the companies we do pay directly as customers often treat us with disregard at best, abuse at worst (just think about your cable provider or your bank). Of course, we shouldn’t just accept online commercial exploitation just because exploitation in general has been around for ages. Rather, we should acknowledge that exploitation only partly explains today’s anxiety with online services.

Hyperemployment offers a subtly different way to characterize all the tiny effort we contribute to Facebook and Instagram and the like. It’s not just that we’ve been duped into contributing free value to technology companies (although that’s also true), but that we’ve tacitly agreed to work unpaid jobs for all these companies. And even calling them “unpaid” is slightly unfair, since we do get something back from these services, even if they often take more than they give. Rather that just being exploited or duped, we’ve been hyperemployed. We do tiny bits of work for Google, for Tumblr, for Twitter, all day and every day.

Today, everyone’s a hustler. But now we’re not even just hustling for ourselves or our bosses, but for so many other, unseen bosses. For accounts payable and for marketing; for the Girl Scouts and the Youth Choir; for Facebook and for Google; for our friends via their Kickstarters and their Etsy shops; for Twitter, which just converted years of tiny, aggregated work acts into $78 of fungible value per user.

Even if there is more than a modicum of exploitation at work in the hyperemployment economy, the despair and overwhelm of online life doesn’t derive from that exploitation—not directly anyway. Rather, it’s a type of exhaustion cut of the same sort that afflicts theunderemployed as well, like the single mother working two part-time service jobs with no benefits, or the PhD working three contingent teaching gigs at three different regional colleges to scrape together a still insufficient income. The economic impact of hyperemployment is obviously different from that of underemployment, but some of the same emotional toll imbues both: a sense of inundation, of being trounced by demands whose completion yields only their continuance, and a feeling of resignation that any other scenario is likely or even possible. The only difference between the despair of hyperemployment and that of un- or under-employment is that the latter at least acknowledges itself as an substandard condition, while the former celebrates the hyperemployed’s purported freedom to “share” and “connect,” to do business more easily and effectively by doing jobs once left for others competence and compensation, from the convenience of your car or toilet.

Staring down the barrel of Keynes’s 2030 target for the arrival of universal leisure, economists have often considered why Keynes seems to have been so wrong. The inflation of relative needs is one explanation—the arms race for better and more stuff and status. The ever-increasing wealth gap, on the rise since the anti-Keynes, supply-side  1980s is another. But what if Keynes was right, too, in a way. Even if productivity has increased mostly to the benefit of the wealthy, hasn’t everyone gained enormous leisure, but by replacing recreation with work rather than work with recreation? This new work doesn’t even require employment; the destitute and unemployed hyperemployed are just as common as the affluent and retired hyperemployed. Perversely, it is only then, at the labor equivalent of the techno-anarchist’s  singularity, that the malaise of hyperemployment can cease. Then all time will become work time, and we will not have any memory of leisure to distract us.