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| The study of business cycles emerged in the early twentieth century, addressing abiding concerns that serious depressions were part of the natural course of events under a capitalist system. By the 1930s economists still had no answers, rather discouragingly claiming that such depressions would self-correct and any intervention would only prolong the misery. | The study of business cycles emerged in the early twentieth century, addressing abiding concerns that serious depressions were part of the natural course of events under a capitalist system. By the 1930s economists still had no answers, rather discouragingly claiming that such depressions would self-correct and any intervention would only prolong the misery. | ||
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| ====== The American Mood ====== | ====== The American Mood ====== | ||
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| Thorstein Veblen anticipated an increasing conflict between industry and business --- industry had a deplorable instinct to overproduce, undercutting business' attempts to make money. Business always wins. Monopoly triumphs; output is constrained but all wealth flows to the mighty few. So it goes. Yet depressions are a normal part of the system, they cannot be avoided. Inequality would be enormous and would continue to rise. Yet he held the rich more in contempt than responsible. | Thorstein Veblen anticipated an increasing conflict between industry and business --- industry had a deplorable instinct to overproduce, undercutting business' attempts to make money. Business always wins. Monopoly triumphs; output is constrained but all wealth flows to the mighty few. So it goes. Yet depressions are a normal part of the system, they cannot be avoided. Inequality would be enormous and would continue to rise. Yet he held the rich more in contempt than responsible. | ||
| - | However, he believed the cultural consequences of the changes which society were undergoing were far more severe than the inevitable impoverishment of almost everybody. Factory labour undermined the family and church. By brining workers into close contact with one another, through unions it lead to the breakdown of law and order --- socialism being next to anarchy. | + | However, he believed the cultural consequences of the changes which society were undergoing were far more severe than the inevitable impoverishment of almost everybody. Factory labour undermined the family and church. By bringing workers into close contact with one another, through unions it lead to the breakdown of law and order --- socialism being next to anarchy. |
| The American tradition also adopted the Social Darwinism of Herbert Spencer (an Englishman), through the work of William Graham Sumner. Spencer, not Darwin, coined the phrase 'survival of the fittest' and provided one of the most politically useful ideologies in history: the destitution, starvation and inability to reproduce of the genetically inferior was a benign force necessary to the improvement of the species. Moreover, any attempt to alleviate this process through charity or government action was not only expensive, but immoral. The doctrine provided previously lacking justification for the inheritance of wealth: if the father was biologically superior, genetics dictated that so would be the son. | The American tradition also adopted the Social Darwinism of Herbert Spencer (an Englishman), through the work of William Graham Sumner. Spencer, not Darwin, coined the phrase 'survival of the fittest' and provided one of the most politically useful ideologies in history: the destitution, starvation and inability to reproduce of the genetically inferior was a benign force necessary to the improvement of the species. Moreover, any attempt to alleviate this process through charity or government action was not only expensive, but immoral. The doctrine provided previously lacking justification for the inheritance of wealth: if the father was biologically superior, genetics dictated that so would be the son. | ||
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| Inequality has been justified on many grounds, "principally noted for the absence of the most important reason, which is the simple unwillingness to give up what [the rich] have." Equality has been argued to lead to uniformity and monotony (the rich sponsor the arts and education), redistribution has a musty association with godless communism, and the original Ricardian defence was that the present system was ultimately inevitable, and any attempt to change it would only lead to short-run inefficiency which would make everybody worse off. The most common justification is that inequality provides an incentive to be richer, an important driver of individual effort and overall economic growth. | Inequality has been justified on many grounds, "principally noted for the absence of the most important reason, which is the simple unwillingness to give up what [the rich] have." Equality has been argued to lead to uniformity and monotony (the rich sponsor the arts and education), redistribution has a musty association with godless communism, and the original Ricardian defence was that the present system was ultimately inevitable, and any attempt to change it would only lead to short-run inefficiency which would make everybody worse off. The most common justification is that inequality provides an incentive to be richer, an important driver of individual effort and overall economic growth. | ||
| - | Inequality has fallen off the political landscape in the US in recent years. Some measure of increased redistribution has been achieved through the progressive income tax implemented at the end of the Second World War. However, inequality remains acute, and a newfound equity can hardly explain the current détente between the rich and poor. Partly the real power of the rich has diminished --- they no longer directly run their own corporate empires, there is no longer a large servile class to staff their households and their ostentation diminished as wealth became more common and vulgar. Partly too, it has been accepted by liberals that the major part of the gains that have been made by the majority of the working class have come through economic growth rather than redistribution --- that is not to say that growth is a more important route to working class wealth than redistribution, but it is far less resisted. Although a large part of the working class has become more affluent, it is often not appreciated the extent to which an underclass has remained poor in the midst of these broader gains. | + | Inequality has fallen off the political landscape in the US in recent years. Some measure of increased redistribution has been achieved through the progressive income tax implemented at the end of the Second World War. However, inequality remains acute, and a newfound equity can hardly explain the current détente between the rich and poor. Partly the real power of the rich has diminished --- they no longer directly run their own corporate empires, there is no longer a large servile class to staff their households and their ostentation diminished as wealth became more common and vulgar. Partly too, it has been accepted by liberals that the major part of the gains that have been made by the majority of the working class have come through economic growth rather than redistribution --- that is not to say that growth is a more important route to working class wealth than redistribution, but it is far less resisted. Although a large part of the working class has become more affluent, it is often not appreciated the extent to which an underclass has remained poor in the midst of these broader gains. |
| ====== Economic Security ====== | ====== Economic Security ====== | ||
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| So, as the lot of workers and farmers improved, so did their concern not to lose jobs and stable commodity prices. The 1930s was the key decade in this process, with new swathes of government intervention to provide social security, pensions and to regulate farm prices to prevent foreclosure. However, accompanying these microeconomic measures, for the first time in the 1930s the case for macroeconomic measures to improve stability became accepted. Unemployment compensation may mitigate unemployment, but far better to eliminate involuntary unemployment by preventing depression; guaranteeing minimum commodity prices never went as far as a healthy economy to maintain farmers' income. Moreover, the consequences of macroeconomic stabilisation far outweigh, in quantitative terms, microeconomic stabilisation, and it is for this reason that the conventional wisdom that instability improves production is plain wrong. Job losses and bankruptcies --- the instability that supposedly keep the system running efficiently, in fact cause depression and quantitatively far greater reductions in output than could possibly be attributed to the loss of incentives (the associated phenomenon being unpunished idleness --- something which those in higher stations in society have been turning into an artform for a very long time, no less, perhaps, than in universities in which the word "idleness" has now been replaced by "scholarship"). Unfortunately for the conventional wisdom, the recent decades of increased security for all economic agents have also been the most economically successful in history --- a fact that is empirically undeniable, but so heretical as to be essentially unspeakable in conservative circles. | So, as the lot of workers and farmers improved, so did their concern not to lose jobs and stable commodity prices. The 1930s was the key decade in this process, with new swathes of government intervention to provide social security, pensions and to regulate farm prices to prevent foreclosure. However, accompanying these microeconomic measures, for the first time in the 1930s the case for macroeconomic measures to improve stability became accepted. Unemployment compensation may mitigate unemployment, but far better to eliminate involuntary unemployment by preventing depression; guaranteeing minimum commodity prices never went as far as a healthy economy to maintain farmers' income. Moreover, the consequences of macroeconomic stabilisation far outweigh, in quantitative terms, microeconomic stabilisation, and it is for this reason that the conventional wisdom that instability improves production is plain wrong. Job losses and bankruptcies --- the instability that supposedly keep the system running efficiently, in fact cause depression and quantitatively far greater reductions in output than could possibly be attributed to the loss of incentives (the associated phenomenon being unpunished idleness --- something which those in higher stations in society have been turning into an artform for a very long time, no less, perhaps, than in universities in which the word "idleness" has now been replaced by "scholarship"). Unfortunately for the conventional wisdom, the recent decades of increased security for all economic agents have also been the most economically successful in history --- a fact that is empirically undeniable, but so heretical as to be essentially unspeakable in conservative circles. | ||
| - | The emerging explanation for this increased focus on stability was that the modern industrial economy was becoming increasingly unstable as it evolved. Not so. The Great Depression is often cited as support for this argument --- no similar phenomenon existed in the early nineteenth century. This is true, but insignificant --- more importantly, in the early nineteenth century workers did not have well-paid jobs to lose as they did in 1930: employment was so barely better than unemployment that unemployment could not inspire the terror or a twentieth century depression. The important development is of something valuable to lose, not of instability. A similar misconception was that the evolution of concentrated markets was an attempt on the part of big business to maximise profits --- although this was certainly a component, the desire to increase security for large corporations plays a much large role in controlling markets than is widely accepted. | + | The emerging explanation for this increased focus on stability was that the modern industrial economy was becoming increasingly unstable as it evolved. Not so. The Great Depression is often cited as support for this argument --- no similar phenomenon existed in the early nineteenth century. This is true, but insignificant --- more importantly, in the early nineteenth century workers did not have well-paid jobs to lose as they did in 1930: employment was so barely better than unemployment that unemployment could not inspire the terror or a twentieth century depression. The important development is of something valuable to lose, not of instability. A similar misconception was that the evolution of concentrated markets was an attempt on the part of big business to maximise profits --- although this was certainly a component, the desire to increase security for large corporations plays a much larger role in controlling markets than is widely accepted. |
| Economic stability, unlike economic desires more generally, can be sated. Once a worker has protection against unemployment, old age and sickness, the value of further protections diminishes sharply. Protection from instability can be adequately achieved, and to a large extent has been in the United States (an exception being the lack of health insurance). The only truly significant threat to stability that remains is the threat of depression. As has been mentioned, recessions account for far larger falls in production than could possibly be imagined to result from any loss of incentives. | Economic stability, unlike economic desires more generally, can be sated. Once a worker has protection against unemployment, old age and sickness, the value of further protections diminishes sharply. Protection from instability can be adequately achieved, and to a large extent has been in the United States (an exception being the lack of health insurance). The only truly significant threat to stability that remains is the threat of depression. As has been mentioned, recessions account for far larger falls in production than could possibly be imagined to result from any loss of incentives. | ||