How did we get here?
By here, I mean at the precipice of national self-immolation.
By we, I mean America.
Admittedly, it is the case that knuckle-dragging, nativist personalist-authoritarianism is on the march in many quarters of the world. But the embrace of, and blind loyalty regarding, a would-be strongman is the antithesis of everything our great and once revolutionary experiment in self-governance (a nation of laws, not leaders) is supposed to stand for. And although one is always properly and profoundly reluctant to label fellow citizens “un-American,” I will note the bitter irony that, nowadays, those who wave old glory most vigorously are among the most likely to disregard the noble values it represents. Indeed, so many who wrap themselves in the flag are using it as a diaper.
As for the answer to my query: how do we find ourselves in this through-the-looking-glass, dystopian episode of the Twilight Zone? Capitalism, man. Who knew this could happen? Keynes.
John Maynard Keynes, a much-misconstrued figure (especially by those who have read not a word of his voluminous writings), understood that some form of market capitalism was the only plausible way of organizing a society. No other system could deliver the economic goods, nor safeguard individual liberty. But Keynes also recognized – and this was the challenge that dominated the final decades of his life – that unfettered capitalism doesn’t work. As he put it: “The World is not so governed from above that private and social interest always coincide.” Laissez-faire capitalism “is not intelligent, it is not beautiful, it is not just, it is not virtuous - and it doesn't deliver the goods.”
Worse still, the failures of free-range capitalism would lead to exactly the sort of authoritarian backlash we are experiencing today. As Keynes wrote to Friedrich von Hayek, regarding his libertarian treatise The Road to Serfdom, he was “morally and philosophically” in “deeply moved agreement” with “virtually the whole of it.” Nevertheless, Keynes warned, “Your greatest danger ahead is the probable practical failure of the application of your philosophy in the U.S. in a fairly extreme form.” Fortunately, for thirty spectacularly successful years after the Second World War, the western world followed a different path, one more consistent with Keynes’ articulation of a “middle way” between failed, free market orthodoxy and (to him abhorrent) varieties of authoritarian collectivism. That vision saw the ideal society as one best able “to combine three things: economic efficiency, social justice, and individual liberty.” From the 1980s, however, the Keynesian compromise (what John Ruggie dubbed “the compromise of embedded liberalism”) was gradually abandoned, in favor of a different, Dickensian culture of capitalism, one characterized by the worship of “shareholder value.” And so here we are.
the failures of free-range capitalism would lead to exactly the sort of authoritarian backlash we are experiencing today
What’s the problem with Capitalism? I won’t unpack the entire Keynesian Revolution here, but a few elements are especially relevant. Keynes thought that most markets worked well most of the time, especially microeconomic markets involving consumers and firms. (“A large part of the established body of economic doctrine I cannot but accept as broadly correct. I do not doubt it.”) The principal government role in such matters was to ensure market competition (the engine of capitalism), often by breaking up oligopolies and monopolies. [Sidebar – in the contemporary U.S., regulatory capture, a euphemism for businesses bribing politicians – had shielded many sectors from competition at the consumer’s expense. But that is a topic for another day.]
But although most markets work well most of the time, some markets don’t – and uninhibited capitalism will yield a panoply of pathologies. Many of these regard fairness. Keynes saw a sense of justice as crucial to the functioning of society. “No man of spirit will consent” to a system where the wealthy are perceived “to have gained their goods by lucky gambling.” Even the “pre-Keynesian” Keynes stressed this point, writing in 1923, as then a mainstream, establishment economist: “The business man is only tolerable so long as his gains can be held to bear some relation to what, roughly and in some sense, his activities have contributed to society.” Capitalism cannot be sustained if it is viewed as inherently unfair. And in an unfettered capitalist order, the already-advantaged have a leg up—and those benefits can be cumulative, as seen in the growth of inequality in America over the past four-plus decades, which has transformed the country into a plutocracy.
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Another Keynesian concern regards the need to control the financial sector. As he admonished (in a notion that was at one time self-evident), “the proper social purpose” of finance is “to direct new investment” towards productive enterprises. Writing in the 1930s, yet well describing contemporary affairs, he dryly harbored the suspicion “that the best brains of Wall Street have been in fact directed towards a different object.” And “when the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”
Indeed, much of our current misery roots to a combination of those two disfiguring aspects of uninhibited capitalism: finance and fairness. The former derived from a campaign-contribution-fueled, catastrophic public policy decision: the bipartisan drive, in the 1980s and 1990s, to deregulate finance. This led directly to the ruinous Global Financial Crisis of 2007-08. But ruinous for whom? In the wake of that meltdown, as Martin Wolf of the Financial Times observed, the Wall Street titans who caused the crisis “mostly walked off with large fortunes, while tens of millions of innocent people’s lives were ruined.”
a campaign contribution-fueled, catastrophic public policy decision: the bipartisan drive, in the 1980s and 1990s, to deregulate finance
As Keynes feared, when people think – especially with good reason – that the system is stacked against them, they will often be willing to disregard the Bob Dylan doctrine (“think you’ve lost it all/there’s always more to lose”), and, in their discontent, favor burning it all down: embracing disreputable demagogues with little thought as to the consequences. The only real puzzle – and it is beyond logical comprehension, when you consider the particulars – is the vessel that has been chosen to channel this rage, a backlash so clearly anticipated by Keynes as the consequence of our practices, which immensely rewarded a gleeful and self-satisfied minority. Worshiping a plutocrat in a populist guise will likely lead, for most, to monumental buyer’s remorse—but by then it will be too late.
We’ve reached the point in this essay where I tell you how we can avoid this fate.
Good luck with that.
Hi Jonathan,
Provocative and interesting essay, as always.
Like all of us, I'm often trying to better understand the sources and fuel for the current surge in populism. You clearly pin it primarily on changes in the economy, especially the growth of inequality. I'm wondering how to distinguish that explanation (or measure its relative contribution) vs. an alternative cause: a variety of social policy changes across the West (immigration being one but not the only element). If we view the surge in populism in both Europe and the US as two expressions of a related phenomenon, the surge in immigration after the Arab Spring seems a good explanation to rival the more gradual growth in inequality in Europe. In the US, it seems like these two causes are tightly intertwined.
What are your thoughts? How do you convince yourself that the inequality explanation is the key one, rather than (or more than) immigration and social change?
Daryl