Liberty, Fraternity, Inequality
Veronique points to a sophisticated, fascinating reply by liberaltarian Brink Lindsey to straight-out liberal Paul Krugman’s assertion that growing inequality in the U.S. since about 1980 has been driven by changes in government policies and social norms. Brink quotes Krugman as writing:
Since the 1970s, norms and institutions in the United States have changed in ways that either encouraged or permitted sharply higher inequality. Where, however, did the change in norms and institutions come from? The answer appears to be politics.
Brink agrees that government policies and social norms have contributed to growing inequality, but makes the point at length that structural drivers beyond politics have played some role. I have argued a very similar position in National Review on several occasions, such as:
[I]nequality is partially driven by several major transitions that began to occur in the economy and society in the 1970s. First, U.S. domestic production of oil peaked in 1971, oil imports doubled between 1970 and 1975, and OPEC was able simultaneously to drive large price increases. This oil shock was directly regressive, but also tended disproportionately to hammer those industries that were the source of high-wage union jobs. Second, in 1970 “non-distributive services” (i.e., finance, professional services, health care, and so on) became for the first time a larger part of the private economy than goods-producing industries. The shift to services, especially as leveraged by the increasing technology dependence of the economy, tended to enhance the prospects of the cognitive elite at the expense of traditional industrial workers. Third, the combination of changes in cultural mores and social programs began to disassemble the traditional family. The social capital transmitted by intact families became a more and more relevant source of competitive advantage to those individuals raised in functioning homes as this family structure became less universal. Fourth, the foreign-born percentage of the U.S. population, which had reached its historical minimum in 1970, began to rise rapidly as massive immigration resumed after a multi-decade hiatus. This increased inequality by introducing a large low-income group to the population, and also by intensifying wage competition at the lower-skill end of the income scale.
Brink goes on to argue that the political and social changes that have allowed growing inequality – and have in turn been reinforced by it – are good things, not bad things. These include greater freedom for women, acceptance of diversity and non-conformism and so on. I broadly agree with this diagnosis, though I think that Krugman paints too rosy a picture of the 1950s and Brink paints too rosy a picture of the current era. The trade-offs involved in policies that allow or encourage growing inequality are not nearly as one-sided as either Brink or Krugman asserts. They are uncomfortable.
But the United States didn’t just wake up in 1980 and decide to make a set of uncomfortable trade-offs through a process of abstract reasoning, or even entirely through organic social developments, we were pushed. What I think is missing from the debate as presented in Brink’s piece is international competition. Here’s how I tried to put U.S. economic strategy in the context of international relations it in the NR article:
Post-war U.S. economic policy was made by a generation of statesmen who dealt themselves a great hand of cards, and then played it brilliantly. It is hard to exaggerate the strength of the U.S. competitive position in the world economy in June 1945: America accounted for an absolute majority of all global manufacturing output, had the most technologically advanced economy in the world with ample supplies of natural resources, and could protect this state of affairs with an invincible military that possessed a nuclear monopoly. Most of the rest of the world was either in ruins, pre-industrial, or under the control of Communist regimes that smothered economic energies.
The reaction of most great powers in this situation would have been to declare direct, long-term control over as much of the globe as possible. Instead, the U.S. established itself as the primus inter pares of a loose coalition of nations that became known as the Free World, and established a set of politico-economic institutions and programs — NATO, the Marshall Plan, the Bretton Woods system, the IMF, the World Bank, and so forth — that encouraged rapid economic development within this coalition. Combined with the containment approach vis-à-vis the Soviet Union, this worked out very well for us.
One of the problems with this strategy, of course, was that it did work. While America got much richer, those nations in the coalition that had previously had advanced economies, predominantly Western Europe and Japan, really did develop to the point that by the 1970s they started to become economic competitors to the U.S.
The global circumstances that allowed the United States to have it all — high rates of economic and wage growth along with a high degree of economic equality — changed for the worse in the 1970s as other countries started to compete more effectively and the oil shocks battered the economy. Repeated attempts to apply Keynesian band-aids failed to get the economy to perform as it had in prior decades. The feeling of crisis at that time was not illusory.
Reagan’s solution proceeded from two diagnoses: that macroeconomic pump-priming was merely creating inflation, not growth, and that the U.S. economy had large untapped growth potential that was thwarted by many of the restrictions on markets that were part of the then-current economic consensus, including everything from price controls to government support for private-sector unionization to zealous antitrust enforcement. The Reagan economic strategy was therefore sound money plus deregulation, broadly defined.
It succeeded. Conventional wisdom in 1980 was that the U.S. would not be able to compete with Europe and Japan without becoming more statist, but over the past 25 years the U.S. has reemerged as the acknowledged global economic leader. Economic output per person is 20 to 25 percent higher in the U.S. than in Japan and the major European economies, and the U.S. economy dominates in size and prestige.
Ironically, with our victory in the Cold War, international economic competition has only become more severe. The primary geostrategic fact in the current world is the economic rise of the Asian heartland. While precise long-run predictions are usually a fool’s errand, it’s a pretty safe assumption that economic and strategic competition is likely to increase yet further over the next several decades. The economic world of 1955 is gone. Even if we wanted it back, short of emerging from another global war unscathed while the rest of the world is smoking rubble, we could not have it. The alternative strategy of simply opting out of international economic competition in order to focus on quality of life is not feasible without some kind of external military protection. Sooner or later, those who oppose our values would become strong enough to take away our wealth and freedom. And to remain strong enough to protect ourselves, we must have the economic performance created by freer markets.
(Jonah makes a very similar point in another context here as well.)
Keep this in mind when considering Brink’s take on the net impacts of immigration:
Although the large influx of unskilled immigrants has made American inequality statistics look worse, it has actually reduced inequality for the people involved. After all, immigrants experience large wage gains as a result of relocating to the United States, thereby reducing the cumulative wage gap between them and top earners in this country. When Lerman recalculated trends in inequality to include, at the beginning of the period, recent immigrants and their native-country wages, he found equality had increased rather than decreased. Immigration has increased inequality at home but decreased it on a global scale.
I agree with every word in this paragraph, but don’t think that it follows that decreasing global inequality should be the primary aim of U.S. immigration policy. The focus of U.S. immigration policy ought, in my view, to be the general welfare of the citizenry of the U.S.
This strikes me as highlighting a fundamental issue that liberaltarians need to wrestle with. We don’t live in a Kantian world of eternal commercial peace. Nation-states need to command sufficient loyalty and social cohesion to defend themselves and promote their values. While the Krugmans of the world can over-emphasize the importance of solidarity, it an’t nothing.
We are, in other words, between Scylla and Charybdis. If we give up the market-based reforms that allow us to prosper, we will lose by eventually allowing international competitors to defeat us; but if we let inequality grow unchecked, we will lose by eventually hollowing out the middle class and threatening social cohesion. This, not some happy-talk about the end of history, is what “globalization” means for the U.S.
(cross-posted to The Corner)
I tend to think that in this case Scylla and Charybdis are capable of reaching into each other’s domain, and there is no safe space between them. Especially as today’s military expenditures are a drain on tomorrow’s economy, leaving us with a choice between strength today and strength tomorrow.
The solution is not to sail between them but to fly above them—to form alliances with other like-minded nations. These alliances have costs of their own, but it’s probably better to try flying between three points than sailing between two.
— Consumatopia · Jun 3, 07:10 PM · #
Consumatopia:
At this very high level of abstraction, I agree with you strongly (though suspect we’d have some disagreement about some specific cases). I think this is one of many means to partially ammeliorate the situation, however, not a panacea (though I’m sure you don’t either).
— Jim Manzi · Jun 3, 07:22 PM · #
Jim,
this is a fascinating post, and I am very sympathetic with its conclusions. However, I think you are doing a bit of a hand-wave when you say:
“The alternative strategy of simply opting out of international economic competition in order to focus on quality of life is not feasible without some kind of external military protection. Sooner or later, those who oppose our values would become strong enough to take away our wealth and freedom. And to remain strong enough to protect ourselves, we must have the economic performance created by freer markets.”
Who, exactly, is going to come and take our wealth and freedom, and how will they do it? The existence of nuclear weapons precludes nation states from trying a WWII style land grab. And Defending ourselves against terrorists does not require a huge defense establishment. It seems to me that America has enough excess security that we could opt out of international economic competition if we so desired. We might make ourselves considerably poorer by doing so, which is worth a debate in its own right, but I don’t see anything in your post specifying what it is about the international environment that requires us to make certain kinds of economic decisions at home.
— Brendan · Jun 3, 08:54 PM · #
mmmm…that was satisfying and delicious.
I think….as an example of likeminded nations…we should seek to ally ourselves with Iran.
This Iran
I know, I know, conservatives despise the Obamessiah and all his otaku and all his works….still…he is an extremely valuable resource in this slice of spacetime. Why not exploit the advantage?
;)
— matoko_chan · Jun 3, 09:04 PM · #
“The existence of nuclear weapons precludes nation states from trying a WWII style land grab.”
This seems like a complete misunderstanding of the threat faced by the U.S. in WWII. Neither Germany nor Japan (nor Italy) was remotely capable of a trans-oceanic invasion. Our enemies of tomorrow would force our submission through the usual imperialistic tools of embargo, expropriation of overseas assets, seizure of outlying provinces, etc. They would demand our co-operation in a Greater Pacific Co-Prosperity Sphere, with global economic activity rationalized so as to allow Americans to carry out only low-value activities for the benefit of others.
Now, if being a peasant whose surplus production is siphoned off for the benefit of an absentee landlord doesn’t trouble you, then no problem. You can still have peasant festivals, worship peasant gods, and regularly drink yourself into a peasant stupor. But most people don’t aspire to that life for their children.
— y81 · Jun 3, 11:18 PM · #
I just find that people don’t have a grasp of the enormity of our military advantage. What y81 describes is simply not going to happen, because of our incredible advantage in the most important areas of conventional war, air and sea. The United States could, if it felt like it, decide to use only technology ten years old or older, and defeat every other air force in the world. The United States could defeat the combined navies of the world with its navy, and our sub fleet alone could destroy the navy of any other nation on earth. Our naval air force— that is, just the air power under the direct control of the Navy, and not our separate Air Force branch— could defeat the air force of any other air force in existence. The thought experiments go on and on; that’s the degree of dominance we have, and not even beginning to mention that the size and power of our nuclear arsenal dwarfs the combined nuclear arsenals of the rest of the world.
It’s madness to continue to add to such superfluous dominance. Madness. As I’ve said before, a very modest cut— say, 5% of the actual Department of Defense budget (which, remember, doesn’t contain the budgets of the Department of Homeland Security, or the Department of Energy) could fund S-CHIP expansion for the entire country, enact an $8 billion dollar payroll tax cut, and pay down the deficit by $10 billion a year. Something for everybody. And that would come at literally no material cost to the defense of this nation. We would remain militarily dominant over not only any conceivable antagonist country but over any conceivable collection of antagonist countries.
— Freddie · Jun 4, 05:29 AM · #
That’s 0.5% of the deficit.
— Sammler · Jun 4, 10:23 AM · #
And yet, if you believe Freddie’s comrades, this massive military machine was “broken” by fighting a single insurgency in a small country.
— y81 · Jun 4, 01:16 PM · #
That’s 0.5% of the deficit.
Ah, yes— the old “that’s not enough, so let’s instead do nothing” gambit. Well played, sir.
And yet, if you believe Freddie’s comrades, this massive military machine was “broken” by fighting a single insurgency in a small country.
If you can’t see a difference between protecting the people, territorial integrity and government of this country, and pacifying people who are currently being militarily occupied and dominated, then I’m not sure there’s anything I could say to cure your misapprehension of the world.
— Freddie · Jun 4, 02:58 PM · #
y81,
there is misunderstanding about WWII here, but I do not think it is on my part. The great fear of the Nazis among American statesmen is that they would come to dominate Eurasia, at which point they would have the capability to make trouble in the Western Hemisphere. Japan is a more interesting case, since they never represented a military threat to America, but then the idea that they could force us to become the low value end of their co-prosperity sphere is equally ludicrous.
Regardless, the truth is freddie is correct about American military power. I do not, personally, find his proposed policies appealing. But he is quite correct that we could make these decisions to cut defense spending and fund the favored programs of the left, with essentially zero effect on American security. I think this cuts to the heart of Jim’s post, which asserts the opposite—that we must generate wealth as efficiently as possible in order to defend ourselves. I believe Jim’s preferred policies are best defended on other grounds.
— Brendan · Jun 4, 04:22 PM · #
Disagree.
Redirect more fundage from manufacture to R&D possibly…trim some fat, like no-bids and sole-source…. but still…the thing is, while we may be able to let other countries make America’s cars, we simply can’t let them manufacture our satellites, field-lan workstations, fighter jets, tanks and drones. And we need to be working on the next gen, supergravity and particle beam weapons, lasers, etc.
In 2003 we saw C4I systems fielded in Gulf II, in Gulf I we used C3I. The next 10year wave will be robotics, teleoperation and telepresence, where the front lines and recon will be all mecha, no carbon-based units involved.
So no, Freddie.
You stood for the union autoworkers, what about union aerospace workers?
— matoko_chan · Jun 5, 01:55 PM · #