Time-Released Suicide: New Deal Liberalism Writes Its Obituary

Time-Released Suicide:  New Deal Liberalism Writes Its Obituary

By Prof. Alan Nasser

Since the administration of Jimmy Carter, the Democratic Party has been galloping to the right like there’s no tomorrow. Countless opportunities to mobilize constituencies against the depradations of Reaganism/neoliberalism were lost, or better, deliberately misplaced. Lyndon Johnson’s Great Society was the last rallying cry of  New Deal liberalism, and it was not Nixon who initiated the Great Reversal. It was the luminaries of  liberalism itself who got the ball rolling. It’s now on record that the mission has been accomplished. New Deal liberalism is dead as a doornail.

The gloves are off, and it is now officially open season on working people.

The Official Obituary

The legacy of the New Deal and the Great Society did not drop dead. It checked out over some time, and with the death of Ted Kennedy its official obituary became fit to print by the Newspaper of Record.

In the August 30 New York Times Week in Review, editor (of both the Week in Review and the Book Review) Sam Tanenhaus, in “A Vision of Liberalism Passes With Kennedy,” opens with Obama’s requiem for Kennedy: “An important chapter in our history has come to an end…Our country has lost a great leader.” Tanenhaus goes on to underscore the far more profound change signaled by Kennedy’s death: “What Mr. Obama didn’t say – and perhaps didn’t need to – was that the closed chapter was the vision of liberalism begun by the New Deal of Franklin D. Roosevelt, extended during the Great Society of Lyndon B. Johnson and now struggling back toward relevance.”

Nowhere in the article does Tanenhaus explain how the “closed chapter” of  what he calls “old-fashioned liberalism” is “struggling back toward relevance.” He does, however, provide a clear characterization of what has bitten the political dust:

“It holds that the forces of government should be marshaled to improve conditions for the greatest possible number of Americans, with particular emphasis on the excluded and disadvantaged. It is not government’s only obligation, in this view, but it is the paramount one.”

Wait a minute, this can’t be right   –  it sounds a lot like the socialist political agenda: the foremost  -“paramount”- priority of the state is to promote the interests of wage-earners, the majority of  Americans. No wonder liberals have been back-pedaling  -as we shall see below-  practically from the moment they mounted the Keynesian bike.

Tanenhaus provides his own historical sketch of the Democrats’ retrenchment. Liberals’ turnaround, he thinks, begins with Reagan-Thatcher neoliberalism and comes into its own in the 1980s and 1990s:

“In that period, many Democrats began to rethink the legacy of the New Deal and the Great Society. Many distanced themselves from “the L word.” And Mr. Kennedy appeared out of step. [Quoting a biographer of Kennedy:] “Even in his own party, his liberalism had seemed, at times, outmoded as the ‘third way’ of the Clintons gained ascendance in the Washington of the 1990s.” “

Pre-Reagan Liberal Democrats Get Reagan’s Ball Rolling

But on second thought, Tanenhaus concedes that the withering away of the Keynesian state was first effected from within the fold, and well before Reaganism. The older Kennedy brothers had long ago distanced themselves from New Deal politics. John F. Kennedy officially introduced post-New-Deal political cynicism, or “post-ideological pragmatism.” Tanenhaus:

“In 1962, the year Edward Kennedy was first elected to the Senate, President Kennedy asserted that while “most of us are conditioned for many years to have a political viewpoint — Republican or Democrat, liberal, conservative or moderate,” in reality the most pressing government concerns were “technical problems, administrative problems” that “do not lend themselves to the great sort of passionate movements which have stirred this country so often in the past.” “

Tanenhaus fails to note the explicitly anti-democratic nature of this restriction of what passes as politics to the decisions of  “administrative” technicians. Nix on (sic) popular participation in “passionate movements” driven by commitments to the promotion of, say, the interests of working people. The Dems proceeded to turn their backs on organized labor, and Walter Mondale became the last Democrat to even hint at the inclusion of a full-employment plank in his presidential platform. What liberals used to call the “party of the working man (sic)” turned itself into “the party of the middle class.”  And the citizenry became the “electorate,” which takes on a political identity maybe every few Novembers.

What all this meant for economic policy was neoliberalism, the return to the old-time religion of market fundamentalism. The political commentariat likes to attribute this to the “Reagan revolution,” or the “new conservative agenda.” Not so.

Ditching the New Deal Not the Result of a “New Conservative Agenda”

The foundations of neoliberalism were established in economic theory by liberal Democrats at the Brookings Institution, and in political practice by the Carter administration.

Arthur Okun and Charles Schultze had each served as chair of the Council of Economic Advisors to Democratic presidents. Okun’s 1975 book Equality and Efficiency: The Big Tradeoff argued that the interventionist goal of greater equality had inefficiency costs that injured the private economy. Schultze’s 1977 The Public Use of Private Interest claimed that politically neutral evidence proved that government policies which impact markets in the name of fairness and equality are necessarily inefficient. Schultze was quite explicit that the promotion of social goods as the direct object of government policy was bound to disadvantage the very people policymakers intended to protect, and to destabilize the private economy in the process. Schultze scolded himself for having mistakenly believed that the “mixed economy” could produce ameliorative outcomes that he had come to recognize as utopian fantasies. The big mistake, Schultze argued, was to have “denigrated markets.” Here’s how he sums up his epiphany:

“Market-like arrangements…reduce the need for compassion, patriotism, brotherly love and social solidarity as motivating forces behind social improvement… Harnessing the “base” motive of material self-interest to promote the common good is perhaps the most important social invention mankind has yet achieved…. In most cases the prerequisite of social gain is the identification, not of villains and heroes, but of the defects in the price system that drive ordinary citizens into doing things contrary to the commn good.”

Seventeen years later the neocon Charles Murray would make the same argument in Losing Ground.

New Deal Economics -the “Neoclassical Synthesis”- Was Theoretically Incoherent

Two factors played decisive roles in the liberal abandonment of Keynes: the internal theoretical contradictions of the neoclassical synthesis itself, which predispose it in a neoliberal direction, and the stagnation of the 1970s, indications of which had become evident to mainstream economists in the early years of the decade.

The original neoclassical synthesis was theoretically out of tune with its elements. At its core was microeconomics (the study of how prices are determined in disaggregated markets), whose main assumptions remained classical: perfect competition was typical and individual markets tended toward equilibrium. These assumptions were left intact with the addition of pseudo-Keynesian macroeconomics (the study of the determinants of changes in the economy as a whole, i.e. variations in aggregate prices, employment, and output), whose defining claims were not derivable from, and therefore remained un-integrated with, the propositions of microeconomics.

This theoretical discord came as no surprise. What made macroeconomic theory Keynesian was its admission that when the price mechanism was aggregated to the economy as a whole, the quantity of goods and services supplied did not necessarily equilibrate with the quantity demanded. It was entirely possible, and, in an industrially developed capitalist economy, likely, that the economy would generate a level of effective demand that fell short of the available supply of labor power and productive capacity.

The Keynesian solution to this problem was that government demand management was necessary to guarantee the employment of available labor power, to make profitable use of non-human productive capacity, and to forestall the political unrest that might result from chronic unemployment. But there was the rub. The admission that government intervention was necessary if the economy was to employ all available productive resources impeached the central microeconomic boast that the unfettered price mechanism, the free market, was sufficient to make productive and profitable use of all available inputs. Not only was there no microeconomic basis for macroeconomics, the latter plainly contradicted the classical foundation of microeconomics. Macroeconomic theory was incompatible with both received neoclassical wisdom and the emerging neo-liberal consensus.

Accordingly, the very existence of macroeconomic theory was a perpetual embarrassment to conventional economists and an obstacle to the theory and practice of neo-liberalism. It had been reluctantly added to micro-economic theory in the wake of the Great Depression, prior to which it was universally assumed among mainstream economists that there simply were no intractable macroeconomic problems. Individual markets might be out of balance at a given time, it was admitted, but the overall economy was bound to return to equilibrium. Thus, for every apparent failure of demand for a particular good, there had to be a corresponding excess of demand for some other good. Sectoral overproduction was held to be compatible with a theory that proclaimed the impossibility of general excess capacity.

The Great Depression would appear to have given the lie to this conceit, and to the micro-economic theology that underpinned it. But pre-Depression neoclassical theory was the only ideological game in town, so the consensus of both conservative and liberal economists was to tack onto the old religion a new article of faith, a macroeconomic encyclical proclaiming that fiscal and monetary tinkering by public authorities would guarantee the long-run health of the private economy.

Still, the ad hoc character of macroeconomics persisted as a thorn in the side of orthodoxy, and for good reason. From its inception, macroeconomics had borne little resemblance to microeconomics. And over the course of the twentieth century, neoclassical microeconomic theory, the hard core of neoclassical theory as a whole, had become increasingly interwoven with advanced mathematics and the latter’s requirement of a high level of formal integration. The formal disconnection of micro- and macroeconomics, i.e. the non-derivability of the latter from the former, was therefore perceived as a deficiency of the entire apparatus. Hence the enduring sense that there was something suspicious about macroeconomics, on the grounds that its assumptions were neither grounded in nor integrated with those of an increasingly mathematical and esoteric microeconomics. It has now been roughly a half-century since the birth of the neoclassical synthesis, and the worm has taken a major turn. Macroeconomics is now a virtual branch of microeconomics and no longer an intellectual impediment to the implementation of neoliberal policy. Democratic-Party liberals can now embrace neoliberal economic theory and practice unencumbered by conceptual incoherence.

Carter, Clinton and Obama’s Up-Front Neoliberalism

The economic turnaround found its implementation in the Carter administration. Carter was the first postwar Democrat to take direct aim at social programs, which he slashed even as he goosed the military budget. Reagan picked this up and ran with it, replacing the rhetoric of capitalism-with-a-human-face with the wacky conceits of the neocons.

Clinton, the most reactionary Democrat since Grover Cleveland, went on in the same vein,  withholding Aid To Families With Dependent Children, and forcing US workers to compete with Mexican and Chinese labor. As Robert Pollin explained here in 2003    (http://www.counterpunch.org/pollin10182003.html), the policies of the Clinton administration increased worker insecurity so as to entrench the median wage decline that had begun in 1973. By making workers accept lower wages and unpaid overtime, American corporations could retain an edge in the intensified global competition that began in the mid-1970s.  SHOULD THIS AND FOREGOING PARAGRAPH COME RIGHT AFTER Losing Ground ABOVE?

Obama is currently out-Clintoning Clinton, hammering superfluous nails into the New Deal’s coffin. Well before the presidential campaign, he was candid about his neoliberalism. From an interview last year with the editorial board of the Reno Gazette-Journal: “I do think that the 1980 election was different. I think that Ronald Reagan changed the trajectory of America in a way that Richard Nixon did not and in a way that Bill Clinton did not. He put us on a fundamentally different path because the country was ready for it.  I think they felt like with all the excesses of the 1960s and 1970s and government had grown and grown but there wasn’t much sense of accountability… [Reagan] just tapped into what people were already feeling, which was we want clarity, we want optimism, we want a return to that sense of dynamism and enttrepreneurship that had been missing.”

In The Audacity of Hope Obama outed himself for mass consumption, underscoring his disdain for “..those who still champion the old time religion, defending every New Deal and Great Society program from Republican encroachment, achieving ratings of 100% from the liberal interest groups. But these efforts seem exhausted… bereft of energy and new ideas needed to address the changing circumstances of globalization…”

Obama’s health care policy indicates that among those “excesses of the 1960s” were Medicare and Medicaid. This guy means Business. Working people, take cover. If current policy stays on track, Obama will have hurt more regular folks where it hurts the most and over a longer period of time, than any president in the history of the republic. Ever-declining wages, fewer good jobs, higher unemployment levels, deteriorating public and social services and increased working-class indebtedness – that’s what the future looks like from here.

Some of us who have never been tempted to cast a Democratic presidential vote have nevertheless hoped that Obama would win. Here would be confirmation that any difference between the Dems and the Republicans would not be worth talking about. Obama has indeed come through: he’s given us Bush’s third term.

Sadly, mass defection to a third party of choice is unlikely, given the current absence of a conspicuous Left alternative. In these times of permanent war there is nothing resembling an anti-war movement. The media- and education-driven propaganda system makes educating and organizing especially difficult for the Left, but will we say that the apparatus of domination is invincible? History has no final chapter. The Left could be gathering its forces to mobilize what the mainstream media tells us is mass disaffection with ongoing war and transparently elite-driven domestic policy. But the Left sits on its ass and thereby incurs some responsibility for the current catastrophe.

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