Deregulation and Privatization: Two Incredibly Bad Ideas (But There Is No Alternative - Koch Botched Corps.)

And not just "bad ideas." Civilization wrecking ideas.

But not for the 1%.

The 1 Percent’s Solution

By Paul Krugman

April 25, 2013

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Economic debates rarely end with a T.K.O. But the great policy debate of recent years between Keynesians, who advocate sustaining and, indeed, increasing government spending in a depression, and austerians, who demand immediate spending cuts, comes close — at least in the world of ideas. At this point, the austerian position has imploded; not only have its predictions about the real world failed completely, but the academic research invoked to support that position has turned out to be riddled with errors, omissions and dubious statistics.

Yet two big questions remain. First, how did austerity doctrine become so influential in the first place? Second, will policy change at all now that crucial austerian claims have become fodder for late-night comics?

On the first question: the dominance of austerians in influential circles should disturb anyone who likes to believe that policy is based on, or even strongly influenced by, actual evidence. After all, the two main studies providing the alleged intellectual justification for austerity — Alberto Alesina and Silvia Ardagna on “expansionary austerity” and Carmen Reinhart and Kenneth Rogoff on the dangerous debt “threshold” at 90 percent of G.D.P. — faced withering criticism almost as soon as they came out.

And the studies did not hold up under scrutiny. By late 2010, the International Monetary Fund had reworked Alesina-Ardagna with better data and reversed their findings, while many economists raised fundamental questions about Reinhart-Rogoff long before we knew about the famous Excel error.

Meanwhile, real-world events — stagnation in Ireland, the original poster child for austerity, falling interest rates in the United States, which was supposed to be facing an imminent fiscal crisis — quickly made nonsense of austerian predictions.

Yet austerity maintained and even strengthened its grip on elite opinion. Why?
Part of the answer surely lies in the widespread desire to see economics as a morality play, to make it a tale of excess and its consequences. We lived beyond our means, the story goes, and now we’re paying the inevitable price.

Economists can explain ad nauseam that this is wrong, that the reason we have mass unemployment isn’t that we spent too much in the past but that we’re spending too little now, and that this problem can and should be solved. No matter; many people have a visceral sense that we sinned and must seek redemption through suffering — and neither economic argument nor the observation that the people now suffering aren’t at all the same people who sinned during the bubble years makes much of a dent.

But it’s not just a matter of emotion versus logic. You can’t understand the influence of austerity doctrine without talking about class and inequality.

What, after all, do people want from economic policy? The answer, it turns out, is that it depends on which people you ask — a point documented in a recent research paper by the political scientists Benjamin Page, Larry Bartels and Jason Seawright. The paper compares the policy preferences of ordinary Americans with those of the very wealthy, and the results are eye-opening.

Thus, the average American is somewhat worried about budget deficits, which is no surprise given the constant barrage of deficit scare stories in the news media, but the wealthy, by a large majority, regard deficits as the most important problem we face. And how should the budget deficit be brought down? The wealthy favor cutting federal spending on health care and Social Security — that is, “entitlements” — while the public at large actually wants to see spending on those programs rise.

You get the idea: The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top 1 percent wants becomes what economic science says we must do.

Does a continuing depression actually serve the interests of the wealthy? That’s doubtful, since a booming economy is generally good for almost everyone.

What is true, however, is that the years since we turned to austerity have been dismal for workers but not at all bad for the wealthy, who have benefited from surging profits and stock prices even as long-term unemployment festers. The 1 percent may not actually want a weak economy, but they’re doing well enough to indulge their prejudices.

And this makes one wonder how much difference the intellectual collapse of the austerian position will actually make. To the extent that we have policy of the 1 percent, by the 1 percent, for the 1 percent, won’t we just see new justifications for the same old policies?

I hope not; I’d like to believe that ideas and evidence matter, at least a bit. Otherwise, what am I doing with my life? But I guess we’ll see just how much cynicism is justified.

If you've wondered whether historians (and political science profs) were asleep worldwide the last 30 years (or just basking in the corporate cash like all the rest of those in charge), you'd be surprised to find out that some were awake and writing some very revealing books.

There are even a few blueprints available showing a way out of this downworld maze, but as there are no easy choices left, it won't be a cake walk (Thanks, Comeback Dumbya!).

Not even an interesting play on words.

Post-Democracy: Where States Answer Only To Business

April 25, 2013

Henry Farrell, who was asked to speak at the summer school for Il Partito Democratico, the Italian Democratic Party, in Cortona last year, writes:

This isn’t what was supposed to happen. In the 1990s and the 2000s, right-wing parties were the enthusiasts of the market, pushing for the deregulation of banks, the privatisation of core state functions and the whittling away of social protections. All of these now look to have been very bad ideas. The economic crisis should really have discredited the right, not the left. So why is it the left that is paralysed?

Colin Crouch’s disquieting little book, Post-Democracy (2005), provides one plausible answer. Crouch is a British academic who spent several years teaching at the European University Institute in Florence, where he was my academic supervisor. His book has been well read in the UK, but in continental Europe its impact has been much more remarkable. Though he was not at the Cortona summer school in person, his ideas were omnipresent. Speaker after speaker grappled with the challenge that his book threw down. The fear that he was right, that there was no palatable exit from our situation, hung over the conference like a dusty pall.

Crouch sees the history of democracy as an arc. In the beginning, ordinary people were excluded from decision-making. During the 20th century, they became increasingly able to determine their collective fate through the electoral process, building mass parties that could represent their interests in government. Prosperity and the contentment of working people went hand in hand. Business recognised limits to its power and answered to democratically legitimated government. Markets were subordinate to politics, not the other way around.

At some point shortly after the end of the Second World War, democracy reached its apex in countries such as Britain and the US. According to Crouch, it has been declining ever since. Places such as Italy had more ambiguous histories of rise and decline, while others still, including Spain, Portugal and Greece, began the ascent much later, having only emerged from dictatorship in the 1970s. Nevertheless, all of these countries have reached the downward slope of the arc.

The formal structures of democracy remain intact. People still vote. Political parties vie with each other in elections, and circulate in and out of government. Yet these acts of apparent choice have had their meaning hollowed out. The real decisions are taken elsewhere. We have become squatters in the ruins of the great democratic societies of the past.

Crouch lays some blame for this at the feet of the usual suspects. As markets globalise, businesses grow more powerful (they can relocate their activities, or threaten to relocate) and governments are weakened. Yet the real lessons of his book are about more particular forms of disconnection.

Neo-liberalism, which was supposed to replace grubby politics with efficient, market-based competition, has led not to the triumph of the free market but to the birth of new and horrid chimeras. The traditional firm, based on stable relations between employer, workers and customers, has spun itself out into a complicated and ever-shifting network of supply relationships and contractual forms. The owners remain the same but their relationship to their employees and customers is very different. For one thing, they cannot easily be held to account.

As the American labour lawyer Thomas Geoghegan and others have shown, US firms have systematically divested themselves of inconvenient pension obligations to their employees, by farming them out to subsidiaries and spin-offs.

Walmart has used hands-off subcontracting relationships to take advantage of unsafe working conditions in the developing world, while actively blocking efforts to improve industry safety standards until 112 garment workers died in a Bangladesh factory fire in November last year. Amazon uses subcontractors to employ warehouse employees in what can be unsafe and miserable working conditions, while minimising damage to its own brand.

Instead of clamping down on such abuses, the state has actually tried to ape these more flexible and apparently more efficient arrangements, either by putting many of its core activities out to private tender through complex contracting arrangements or by requiring its internal units to behave as if they were competing firms.

As one looks from business to state and from state to business again, it is increasingly difficult to say which is which. The result is a complex web of relationships that are subject neither to market discipline nor democratic control. Businesses become entangled with the state as both customer and as regulator. States grow increasingly reliant on business, to the point where they no longer know what to do without its advice.

Responsibility and accountability evanesce into an endlessly proliferating maze of contracts and subcontracts. As Crouch describes it, government is no more responsible for the delivery of services than Nike is for making the shoes that it brands. The realm of real democracy — political choices that are responsive to voters’ needs — shrinks ever further.

Politicians, meanwhile, have floated away, drifting beyond the reach of the parties that nominally chose them and the voters who elected them. They simply don’t need us as much as they used to. These days, it is far easier to ask business for money and expertise in exchange for political favours than to figure out the needs of a voting public that is increasingly fragmented and difficult to understand anyway. 

Both the traditional right, which always had strong connections to business, and the new left, which has woven new ties in a hurry, now rely on the private sector more than on voters or party activists. As left and right grow ever more disconnected from the public and ever closer to one another, elections become exercises in branding rather than substantive choice.

Crouch was writing Post-Democracy 10 years ago, when most people thought that things were going quite well. As long as the economy kept delivering jobs and growth, voters didn’t seem to mind about the hollowing out of democracy. Left-of-centre parties weren’t worried either: they responded to the new incentives by trying to articulate a ‘Third Way’ of market-like initiatives that could deliver broad social benefits. Crouch's lessons have only really come home in the wake of the economic crisis.

The problem that the centre-left now faces is not that it wants to make difficult or unpopular choices. It is that no real choices remain. It is lost in the maze, able neither to reach out to its traditional bases of support (which are largely dying or alienated from it anyway) nor to propose any grand new initiatives, the state no longer having the tools to implement them. When the important decisions are all made outside of democratic politics, the centre-left can only keep going through the ritualistic motions of democracy, all the while praying for intercession.

Most left-wing parties face some version of these dilemmas. Cronyism is less a problem than an institution in the US, where decision-makers relentlessly circulate between Wall Street, K Street, and the Senate and Congress. Yet Europe has some particular bugbears of its own. Even if national political systems were by some miracle to regain their old responsiveness, the power of decision has moved to the European Union, which is dominated by a toxic combination of economic realpolitik and bureaucratic self-interest. Rich northern states are unwilling to help their southern neighbours more than is absolutely necessary; instead they press for greater austerity. The European Central Bank, which was deliberately designed to be free of democratic oversight, is becoming ever more important, and ever more political. Social democrats once looked to the EU as a bulwark against globalisation — perhaps even a model for how the international economy might be subjected to democratic control. Instead, it is turning out to be a vector of corrosion, demanding that weaker member states implement drastic economic reforms without even a pretence of consultation.

Let’s return to Italy, the laboratory of post-democracy’s most grotesque manifestations. Forza Italia, Silvio Berlusconi’s elaborate simulacrum of a political party, is a perfect exemplar of Crouch’s thesis: a thin shell of branding and mass mobilisation, with a dense core of business and political elites floating free in the vacuum within.

After the Cortona summer school, Bersani won his fight with Renzi in November last year and led his party into the general election. His coalition lost 3.5 million votes but still won the lower house in February, because the Italian electoral system gives a massive bonus to the biggest winner. It fell far short of a majority in the upper house and is doing its hapless best to form a government. Grillo’s Five Star Movement, on the other hand, did far better than anyone expected, winning a quarter of the votes. Grillo has made it clear that his party will not support the Democratic Party. Renzi has tried to advance himself again as a compromise leader who might be more acceptable to Grillo, so far without success. In all likelihood there will be a second general election in a few months.

The Italian Democratic Party is caught on one tine of the post-democratic dilemma. It is trying to work within the system as it is, in the implausible hope that it can produce real change within a framework that almost seems designed to prevent such a thing. As the party has courted Grillo, it has started making noises about refusing to accept austerity politics and introducing major institutional reforms. It is unclear whether senior Democratic figures believe their new rhetoric; certainly no one else does. If the party does somehow come to power, the most it will do is tinker with the system.

The Five Star Movement has impaled itself on the other tine, as have the Indignados in Spain, Occupy in the US and UK, and the tent movement in Israel. All have gained mass support because of the problems of post-democracy. The divide between ordinary people and politicians has grown ever wider, and Italian politicians are often corrupt as well as remote.

The Five Star Movement wants to reform Italy’s institutions to make them truly democratic. Yet it, too, is trapped by the system. As Grillo told the Financial Times in October: ‘We die if a movement becomes a party. Our problem is to remain a movement in parliament, which is a structure for parties. We have to keep a foot outside.’

The truth is, if the Five Star Movement wants to get its proposals for radical change through the complex Italian political system, it will need to compromise, just as other parties do. Grillo’s unwillingness even to entertain discussions with other parties that share his agenda is creating fissures within his movement. Grillo is holding out for a more radical transformation, in which Italian politics would be replaced by new forms of internet-based ‘collective intelligence’, allowing people to come together to solve problems without ugly partisan bargaining. In order to save democracy, the Five Star Movement would like to leave politics behind. It won’t work.

The problems of the Italian left are mirrored in other countries. The British Labour Party finds itself in difficulty, wavering between a Blairite Third Wayism that offers no clear alternative to the present government, and a more full-blooded social democracy that it cannot readily define. The French left has mired itself in scandal and confusion. The Greek left is divided between a social democratic party that is more profoundly compromised than its Italian equivalent and a loose coalition of radicals that wants to do anything and everything except find itself in power and be forced to take decisions.

All are embroiled, in different ways, in the perplexities of post-democracy. None has any very good way out. Ever since France’s president François Mitterrand tried to pursue an expansive social democratic agenda in the early 1980s and was brutally punished by international markets, it has been clear that social democracy will require either a partial withdrawal from the international economy, with all the costs that this entails, or a radical transformation of how the international economy works.

It is striking that the right is not hampered to nearly the same extent. Many mainstream conservatives are committed to democracy for pragmatic rather than idealistic reasons. They are quite content to see it watered down so long as markets work and social stability is maintained. Those on the further reaches of the right, such as Greece’s Golden Dawn, find it much easier than the Five Star Movement or Syriza, the Greek radical-left coalition, to think about alternatives.

After all, they aren’t particularly interested in reforming moribund democratic institutions to make them better and more responsive; they just want to replace them with some version of militaristic fascism. Even if these factions are unlikely to succeed, they can still pull their countries in less democratic directions, by excluding weaker groups from political protection. The next 10 years are unlikely to be comfortable for immigrants in southern Europe.

Post-democracy is strangling the old parties of the left. They have run out of options. Perhaps all that traditional social democracy can do, to adapt a grim joke made by Crouch in a different context, is to serve as a pall-bearer at its own funeral.

In contrast, a new group of actors — the Five Star Movement and other confederations of the angry, young and dispossessed — have seized a chance to win mass support. The problem is, they seem unable to turn mass frustration into the power to change things, to create a path for escape.

Perhaps, over time, they will figure out how to engage with the mundane task of slow drilling through hard boards that is everyday politics. Perhaps, too, the systems of unrule governing the world economy, gravely weakened as they are, will fail and collapse of their own accord, opening the space for a new and very different dispensation. Great changes seem unlikely until they happen; only in retrospect do they look inevitable. Yet if some reversal in the order of things is waiting to unfold, it is not apparent to us now. Post-democracy has trapped the left between two worlds, one dead, the other powerless to be born. We may be here for some time.

(Henry Farrell is an associate professor of political science and international affairs at George Washington University. His latest book is The Political Economy of Trust (2009).)