Category Archives: Political Economy

This Ain’t No Disco: Remembering the Crises of the 1970’s

These were the years of Watergate and Studio 54, the OPEC oil embargo, double digit inflation and soaring interest rates, urban blight and the emergence of the rustbelt, punk rock music and the explosion of graffiti. The decade began with days of rage about the Vietnam War and ended with a national humiliation over embassy hostages in Iran.  When it was all over, voters spoke with great force to repudiate “turn on, tune in, drop out” to usher in the Reagan “revolution”.  

The 1960’s spawned the anti-war, civil rights and nascent feminist movements to challenge political authority and cultural norms.  The 1980’s featured the demise of New Deal politics, the collapse of the Berlin Wall and the implosion of the Soviet Union and its satellite republics to mark the end of the cold war.

But what about those intervening years?  For some, the seventies represented a cynical retreat from the idealism of the previous decade, for others it signaled the rise of hedonism run amuck.  But make no mistake, these were turbulent times.  If the sixties generation questioned the authority of governments across the globe, from Washington to Paris to Prague, a dire economic crisis during the 1970’s posed an existential threat to liberal democracies that set the stage for the conservative tilt of the 1980’s. 

Does anyone recall America’s palpable fear of the Japanese during the seventies?  They were going to do to us in the global economic marketplace what they could not achieve on the battlefield a few decades earlier.  The American economy was going to be owned lock, stock and barrel by Japan, Inc., as these disciplined Asian capitalists gobbled up prime real estate and rendered wide swaths of corporate America as economic road kill.  Michael Crichton’s Rising Sun, a manifestation of American xenophobia, expressed the defensive zeitgeist.  But why did we imagine ourselves vulnerable to the Japanese?

During the 1960’s, the Johnson administration engaged in an ambitious “war on poverty” while pursuing a ruinous and tragic war in Vietnam.  Now on the heels of this massive deficit spending and the establishment of the OPEC oil embargo and the subsequent extraordinary rise in oil prices, macroeconomic growth came to a screeching halt.  Moreover, wages and worker productivity began to stagnate during these years.  It seemed that the American century begun with a decisive military victory in World War II was ending after twenty-five years.  And these unprecedented economic developments had important political consequences.  

There is an intimate relationship between stable and effective government and robust levels of macroeconomic growth.  Diminished growth threatens the ability of government to function.  Without growth, wages and employment levels stagnate that, in turn, result in less tax revenue.  When there is less money to collect, there is less to spend on vital government programs.  And when there is less to spend, budgets are either frozen or cut.  And diminished public spending threatens the livelihood of working and non-working poor and middle-class individuals, families and communities across the country.  In the 1970’s, Americans experienced, as a celebrated Marxist account framed it, a “fiscal crisis of the state”, generating the notorious bankruptcy of New York City and the infamous tabloid headline describing Gerald Ford’s political response: “Ford to City:  Drop Dead.” 

But let us remember that spending on social programs, built up over a period of several decades to establish what we used to call the “welfare state”, was not a function of noblesse oblige, but represented a way of lashing together the interests of the economic elite, what we currently refer to as the 1%, to those at the bottom and the middle, or the 99%.  In effect, the establishment of the welfare state in capitalist societies enabled those at the bottom to feel that their economic interests were served by the existing political order.  And this diminished the threat of more extreme challenges to the “system”.  On the other hand, if public sector budgets were frozen or cut, then government’s ability to lash the interests of rich and poor together would be threatened.  In effect, the fiscal crisis of the state represented a clear danger to the political stability of Western democracies.  And this grim prognosis was offered by leading thinkers both left and right in the 1970’s. 

On the left, one of the most influential academic books of the decade, “Legitimation Crisis”, authored by a renowned German philosopher, Jurgen Habermas, argued that the state’s ability to finance its “legitimation” function, the state’s capacity to inspire loyalty from all strata of society, was imperiled because of the emerging fiscal crisis.  And prominent neo-conservative academics, notably Samuel Huntington, a Harvard political scientist, and Daniel Bell, a Harvard sociologist, came to similar conclusions, although couched in very different language.  Huntington wrote an influential essay about America’s “Democratic Distemper”.  He observed that political demands on the state increased, due to what he referred to as a “welfare shift”, while confidence in government and other institutions declined.  He concluded darkly that democracy was not “optimized” when it was “maximized”, conjuring ideas expressed by political theorists of the early 20thcentury associated with Italy’s fascism.  Bell wrote an essay on the “Public Household” that became the final chapter of his seminal work entitled “The Cultural Contradictions of Capitalism”. He warned that a “revolution of rising entitlements” greatly increased political demands on the state that threatened both economic and political stability.  In effect, a remarkable intellectual consensus about the diminished governability of Western democracies emerged that transcended political ideology. 

The menacing economic developments during the seventies also produced an intellectual and policy crisis in the field of economics. The reigning paradigm was established by John Maynard Keynes. He provided a rationale for the public sector to stimulate aggregate demand when the private sector collapsed during the Great Depression.  If an economy was in recession, prices and wages faced downward pressure, which required government to prime the pump and engage in deficit spending to ignite demand.  Putting more money in the hands of more people by running large government deficits was a way to get the economy moving again.  He believed that balancing budgets during a recession or depression would be counterproductive and dangerous.  Keynes offered his prescriptions as a way to save capitalism from itself.  And they worked like a charm.  Even Richard Nixon announced that he was a Keynesian.  However, most fail to remember that Keynes also believed it was wise to curtail government spending when the economy recovered to alleviate any inflationary pressure.  The basic idea was this:  recessionary and inflationary pressures were mutually exclusive.  Keynes believed you could not have high rates of inflation during a recession.

However, developments during the 1970’s baffled Keynesian economists.  While the economy entered into a recession and interest rates soared to almost 20% at its height, it also suffered from double digit inflation. Things cost much more at a time when more people had less to spend.  It was the worst of all possible economic outcomes and mainstream economists were unable to alleviate the crisis.  Enter the Reagan revolution and its widely touted supply side ideas that featured the infamous Laffer curve.  Economist Arthur Laffer proposed that significant tax cuts would generate more, not less, government revenue by spurring higher rates of macroeconomic growth.  In Laffer’s world, tax cuts would reduce and not increase government deficits and benefits would accrue to everyone.  Of course, this would prove to be little more than conservative fantasy.  But Reagan’s rhetoric, spinning a marvelous story about a shining city on the hill, claiming America’s best moments were still to come, enabled many to believe help was on the way.  

Reagan provided a stark contrast to his rival Jimmy Carter, who tried to level with the public by asking them to sacrifice, to turn down thermostats in the winter for instance. Carter insinuated, but never stated, there was a cultural malaise sweeping the country, as Christopher Lasch suggested in his popular book on the “Culture of Narcissism”.  Voters rejected Carter’s narrative as many wanted to believe that shuttered factories and rising unemployment, soaring gas prices and interest rates and stagnant economic growth, coupled with the ineffectiveness of traditional Keynesian solutions, could be swept away by a conservative pipe dream.  Never mind that deficits would actually increase during Reagan’s presidency or that supply- side ideas contributed to greater inequality, leading many to derisively refer to the doctrine as a “trickle-down” theory, or what Bush the elder later referred to as “voodoo economics”.  

While Reagan appeared to offer an end to the financial and political crisis, his presidency established a new Gilded Age.  Those at the very top became extraordinarily rich while wages and income for those in the middle and at the bottom stagnated.  Meanwhile, none of the problems brought to national attention in the 1970’s was seriously addressed.  

Accordingly, significant portions of the country still wrestle with the same issues:  declining manufacturing jobs, endangered economic growth, stagnant wages and productivity.  At the end of the 1970’s, considerable fear, panic and hardship established a receptive audience for Reagan’s audacious conservative message.  More recently, it provided fertile soil for Trump’s repugnant populism.  But what happens when people realize Trump offers no solutions to vexing economic problems, that the emperor has no clothes?  If the two major political parties continue to ignore the suffering and anger of so many in the 2020 election, what new unsettling political response will emerge and could it threaten the fragile texture of our democracy? 

Neal Aponte, Ph.D.                                                                                          

Editor of Delano

Capitalism and Its Discontents

Contemporary pundits discuss globalization as if it were a recent phenomenon. In reality, it is an old story. Moreover, the term globalization is a misnomer. Globalization refers to the global reach of the capitalist marketplace. When analysts examine the devastating effects of globalization, they are describing the impact of capitalism itself. In a thoroughly ruthless manner, private markets for goods and services, the hallmark of the capitalist system, produce winners and losers. In the early 19th century, English manufacturers used cutting edge technology and economies of scale to make cheaper textiles that ruined Indian producers. The Indian textile industry was a big loser in the capitalist marketplace, an early victim of globalization. While England remained the world’s preeminent industrial power throughout most of the 19th century, the economic center of gravity gradually shifted away to other nations like the U.S. and Germany.

By the middle of the 20th century, the U.S. became the world’s preeminent economic and financial power. But America’s dominance was challenged in the 1970’s. Many pundits feared “Japan, Inc.” would enact in the global marketplace what the Japanese failed to accomplish on the battlefield a few decades earlier. However, during the last few decades, another economic behemoth emerged in the east. As China became a central player in the global capitalist economy due to its very rapid and extensive industrialization, the economic center of gravity shifted once again. And the seismic transformation wrought by China’s industrial might generated new winners and losers in markets around the world.

In mid-century America, businesses expected to be decisive winners wherever and whenever they competed. And for a few decades this was largely true. The marketplace losers lived elsewhere, often in far-flung places. But the recent eastward shift in the economic center of gravity meant that key American businesses, like steel and auto producers, experienced what Indian manufacturers did in the early 19th century. The economic and social consequences of defeat in the global marketplace, characterized by declining industrial profits and, in turn, the threat of bankruptcy, shuttered factories, swollen rates of unemployment and the devastation of communities even whole regions of the country, came home to roost in our backyard. For some, the current gravitational shift in the world economy implied the American economy was in secular decline. But perhaps it remained more accurate to say that important sectors of American business became glaring casualties in the ceaseless struggle for competitiveness and profitability in the capitalist marketplace.

One of the important contemporary political consequences of this latest gravitational shift has been the emergence of nationalist populist movements across Europe and the U.S.. The Trump election and the emergence of the French National Front as a mainstream political power are the most important examples of this phenomenon. Fueled by rage expressed by those who feel ignored and dismissed by elites, a broad coalition including industrial workers, young people and those living in rural areas, these movements represent, in Michael Moore’s words about Trump, a “political Molotov cocktail” designed to blow up the existing political system.

Put another way, the Trump phenomenon, the surging popularity of the National Front, and the narrow defeat of populist demagogues in Austria and Holland, express the boiling frustration and anger of those who feel left behind, pushed aside or just crushed by the global capitalist marketplace. Le Pen expressed this quite well when she said French voters would choose between being globalists or patriots. The message was clear: a vote for the National Front represented an act of patriotic duty to protect France from the adverse affects of globalization. Le Pen promised to push for France’s withdrawal from the EU and the euro and to close national borders to immigrants. Her political opponent, Emmanuel Macron, ridiculed her by telling voters France could not withdraw from the global economy. Rather, he promised to render France more competitive.

While it remains important to link the emergence of nationalist populist movements with the economic and social devastation caused by a distribution of winners and losers in the world’s capitalist economy, we must raise some other critical questions: Why do workers in the US and to a lesser extent in Europe, where national unemployment has been stubbornly high for decades in countries like France and youth unemployment represents a ticking time bomb, choose to vent their political anger and frustration towards government and not private enterprises? Why are plant closings, resulting in job loss and declining incomes, understood to be the result of government policies, e.g., unwise trade deals, suffocating economic regulation and “excessive” taxation, rather than the result of corporate decision making? How do corporate decisions to relocate production abroad because of a ceaseless drive to maximize profits, or the fact that companies lose market share because of poor managerial decisions, for example, the refusal to invest in cutting edge plant and equipment in the steel industry or to meet changing consumer demand in the auto industry, remain outside our political debate?

Moreover, why haven’t progressive politicians channeled the palpable anger and frustration of those inhabiting the lowest rungs of the economic ladder? Given ever-expanding income inequality, why can’t progressives persuade the vast majority of the 99% that policies offered by Republicans deepen a profoundly unequal distribution of wealth and remain inimical to their interests? Why hasn’t a progressive analogue to the Tea Party emerged in the US? And here’s a final sobering question: what if Trump or Macron fail to address the concerns of those at the bottom? Will those brimming with passionate intensity choose a more potent Molotov cocktail, one designed to ensure the political center no longer holds?

Neal Aponte, Ph.D.
Editor of Delano