The Puzzling Triumph of Right-Wing Economics

In the decades following the end of World War Two, industrialized countries' embraced left-wing socio-political concepts and embarked upon ambitious social-democratic agendas: taxes on the wealthy rose, unions grew larger and stronger, things like health care and education became universalized, and in many cases large segments of the economy - like banking, natural resources, transportation, etc. - were put under control of the state, or at least regulated fairly rigorously.

In the United States, Harry Truman's Fair Deal and Lyndon Johnson's expansion of the welfare state and Civil Rights legislation led to the longest, most sustained economic boom in the nation's history. At a time when taxes on the wealthy were the highest they'd ever been, union strength was stronger than ever, America was the most prosperous. wealthiest country in the world. This prosperity was largely shared by everyone; wages for the top and bottom rose from 1945 to 1970, and the middle class was robust.

European countries, notably Scandinavia, Germany, France, and Britain, also experienced huge economic growth. Britain's Labour Party enacted universal health care and created a large social safety net, while taking control of the coal and railroad industries for public use. Social-Democratic parties in Scandinavia were almost always in power, and they used the post-war economic boom to ensure that all of their citizens would enjoy free and universal health care, education, strong labor laws that created high-paying, stable jobs and lasting, well-endowed pensions.

At the expense of the wealthiest citizens and big businesses, and to the chagrin of economic liberals and corporations, the vast majority of society in these countries were able to enjoy some of the best years of prosperity that Europe and North America had not seen for decades.

But then in 1970s and 1980s, things changed; the public sector was deemed too large, deficits too severe to maintain such a system. These countries' governments were too large and clunky to be competitive in an international marketplace. The tax burden was too high, unions had too much power, and business was being stifled by burdensome regulation.

The answer, said conservatives and the Right, was to radically alter the economy from a socialist-inspired, leftist, closed economy to one that would promote "liberty" and "freedom".

Low taxes, low spending, privatization, deregulation, weakening of unions, free-trade, free-markets, reduced pensions and benefits: these were the solutions to the terrible problems Keynesian and left-wing economics had produced over the past 30 years.

So the shackles came off. Business was unleashed, and economic freedom was pursued so that all could enjoy the prosperity that was sure to come.

Led by neoliberals like Margaret Thatcher and Ronald Reagan, massive tax cuts were enacted, coupled with privatization of formerly-state industries and the reduction in the power of unions. Free-trade deals were signed, banks, businesses, and corporations saw their regulations shredded.

In the United States, Wall Street was treated with a "hands-off" approach, culminating in the efforts of Democratic President Bill Clinton, who repealed the New Deal-era banking regulations that had largely averted massive economic crises. Corporate taxes were lowered to foster competition. Capital gains were taxed at a lower rate so that investment could grow. President George W. Bush enacted two of the most massive tax cuts in the history of the country at a time when the U.S. had experienced its first few years of budget surpluses in decades.

The result of all these policies, with all the wishes and promises of the Right, has been a complete and utter failure. Deregulation of the financial sector directly led to the most morally indignant, self-induced, criminal economic crises since the Great Depression - to the cost of trillions upon trillions of taxpayer money and the loss of millions of jobs.

While corporate profits have soared, the average wage for middle-class Americans has barely moved. Income inequality is at the highest its been for 80 years, and millions of citizens are in poverty. Unions have become decimated, but this has not led to any kind of stability in the private sector, or a reduction in budget deficits either at the state or federal level. Thousands of Americans die every year because they cannot afford health insurance to pay for the care they need. Yet the chances of the U.S. receiving a universal health care system any time in the near future is incredibly low.

In Britain, Margaret Thatcher's anti-union, pro-free-market, neoliberal reforms massively increased inequality. Tony Blair's "Third Way" economic policies did nothing to correct this, despite being a part of a Labour government that was supposed to work in the interests of the working class.

Germany's Social Democratic Party enacted right-wing labor market reforms that were supposed to halve unemployment; while unemployment did go down, millions of people now work full-time but don't earn enough money to live out of poverty and millions more are forced to receive welfare - the exact opposite of what the SPD had said would happen.

Since the end of the colonial era, many African, Latin American, and South American countries have been desperately short of cash with which to spur their economy, build infrastructure, and develop their state. In stepped organizations like the IMF and the World Bank, who loaned millions and billions of dollars to these countries, but only on the condition that they enact neoliberal reforms. The result has been crippling, unfair, immoral debt for many Third World countries; free-trade has allowed multinational corporations to take profits from those developing countries and deprive African peoples' natural resources from them; a shocking and indefensible transfer of wealth from the poorest countries on earth to the richest ones has taken place.

Now that the utter failure of right-wing economics has been exposed - and by almost all measures, they have not worked the way they were promised to -, and with the world economy laying in ruins because of these policies, almost every single government in the industrialized world is sticking with their neoliberal economic paradigm. Even supposed Social-democratic parties have almost entirely embraced this right-wing system, becoming increasingly less of a truly viable alternative to mainstream conservative parties.

It seems as though, in the face of this failure, industrialized countries are doubling down on the veracity of this narrative. People like British Prime Minister David Cameron and conservative parties like the Republicans in the U.S. are acting as though government spending and huge budget deficits caused this financial crisis, when they are largely simply the result. In order to fix the mess that neoliberal, right-wing economic policies created, the solution is to do even more of them!

So it is that millions of people must face severe, draconian cuts in social spending - there goes health care, pension benefits, education funding, and infrastructure improvements. They are told that they must d0 more with less, because....well, because they just have to.

But why must the only answer be austerity? Why is the "natural" solution to reduce government, to reduce unions, to reduce pensions, to reduce spending? How is it, that after such an obvious and upsetting upbraid to the dogmatic mantra of economic liberalism, that right-wing economic policies are not only being implemented, but are the only types of policies even seriously being discussed?

No one is forcing David Cameron's Conservative Party to proceed on the course they are; they simply have different priorities about how to proceed with governing the country.

That is essentially it: a matter of priorities. For 35 years, European and American governments have been run by financial elites, businessmen, and members of a peculiarly fiscally conservative clique who have enacted policies that their ideology tells them will benefit everyone. It hasn't worked, and only a small percentage of society has benefited; of course, those who enacted these policies just so happen to also be the ones who have benefited the most.

This group is telling society that these cuts, these policies, will be painful but must take place and will eventually pay off. But why does the pain have to be felt by those who least deserve to feel it?

Would it be just as painful to end corporate welfare? To close tax loopholes? To strengthen labor unions? To enhance the safety net? It would be - but for different people. And that is all the difference. As long as the industrial economy's engine is the corporation and Big Business, so too will fiscal policies be neoliberal and inadequate. Growth will be slow, life will be harder for most people, but everyone will be told it is the only way.

But it doesn't have to be.

Lessons from Adam Smith and The Wealth of Nations

The effects and implications of Scottish economist Adam Smith's magnificent 1776 opus, An Inquiry into the Nature and Causes of the Wealth of Nations, dramatically influenced European thought and continue to be felt through to the current day.

The Wealth of Nations was a piece of comparative economic history; as its title suggests, Smith sought to determine the root causes of what makes any country wealthy. By wealth, he didn't just mean the upper crust, the aristocracy, the elites. Rather, he sought to discover what determined how all of society could become wealthy, and he was mainly interested in why England in particular had become wealthy.

Adam Smith was a liberal in the classical sense - he helped develop the set of beliefs that came to be known as political and economic liberalism. Though it has been several centuries since he put pen to paper to write down his thoughts, Smith's liberal ideas and the foundation they created carry on through to today, in varying forms such as neoliberalism and libertarianism.

His belief in economic liberalism - free markets, reduced regulation, free trade - helped spur a general trend in Europe that eventually spread around the world to influence the entire industrialized world. Modern libertarians' obsession with the so-called "invisible hand" stems from Smith's economic ideas, though it may surprise them to know that this term was only mentioned once in the book.

One would get a rather different view of the advantages and disadvantages of the free market if one were to actually read The Wealth of Nations or simply hear about it from people who didn't actually read it. The leading economic strain en vogue right now in many countries is neoliberalism, one of whose tenets is a belief that the market is self-regulating because of the actions of the "invisible hand" - that is, in the pursuit of self-interest (profit), businesses' decisions will benefit the rest of society.

Yes, Adam Smith believed that self-interest benefits the rest of society because humans have a unique need to cooperate with each other by bartering or trading; by pursuing self-interested goals, humans tend to specialize in those things that they are good at and thereby tend to offer up services and trades to everyone that would not have been possible without this multiplicity of talents and specialization.

But in contrast, however, to the uncritical, blind faith modern libertarians, neoliberals, and so-called free-market parties (like Germany's FDP, Canada's Conservative Party, and the Republican Party) place in the invisible hand's ability to regulate industry and the market, Smith realized the inherent weaknesses of this ideology.

He posed the question of why England had become so wealthy, while other countries such as Spain had not. England had a national government that had created the institutional frameworks, such as a rule of law and a system of canals, necessary to promote, protect, and sustain the market economy. Smithian liberalism posited that government intervention in the market economy was necessary and vital to keep competition alive, dissuade monopolies, and ensure that the benefits of trade could reach all of society. In other words, the market is not self-regulating and the government is necessary to ensure stability and prosperity for all.

For the "wealth of nations" was just that - the riches accrued by a country should benefit all citizens of that country. For, by enriching everyone, the nation as a whole is better off. In the same manner of thought, Smith believed that the wealth of other nations benefited England; if the United States wanted to trade with France and Spain and not just with England, then all parties would benefit because of it.

It was this mode of thinking that led Adam Smith to his support for the American Revolution, free trade, universal and free public education, and his arguments against imperialism, protectionism, and slavery. Smith would have hated the concept of "Buy American" or the nativist attitude of Americans toward the rising stock of China's economy.

Smith's arguments can be extrapolated in different ways. Indeed, they have been extrapolated by fundamentalist libertarians and conservative political parties to pursue policies that have benefited only a small segment of society while maintaing the status quo for millions of people; that have given multinational corporations free reign to harm the environment, infringe upon human rights, and maintain abhorrent levels of poverty around the world; de-fanged regulations that destabilized the market economy and saw an amassing of financial institutions into fewer and fewer hands; and that have generally led to the economic and social stagnation of the vast majority of society.

This is not to say that Adam Smith was some kind of proto-communist; he firmly believed in free trade, and that the free market was the most efficient and natural way of conducting a nation's economy. The point is that Adam Smith was able to see the innate deficiencies of a market economy and actively promoted ideas that would enhance the prosperity of all citizens while maintaining what he believed to be the liberty of the economic system. This is one of the lessons that Adam Smith can teach us.

The slavish devotion to the "invisible hand", "free-market principles", the belief that markets self-correct, that corporations can regulate themselves, the contradictory promotion of protectionist policies: these all are twisted extrapolations of the classical liberal economic and political doctrines that Adam Smith helped develop that, were they to be followed through to their logical conclusion, would result in devastation for the vast majority of society and the world in which we live.

Austerity is not the Answer

Since the collapse of the global economy in 2007-2008, almost every industrialized country has embarked on a series of so-called austerity measures, in an apparent attempt to either grow the economy by contraction, reduce accumulated debt, or sometimes both.

Such measures involve in most cases drastically scaling back social spending and social safety nets - pensions, welfare, unemployment benefits - while raising taxes and privatizing formerly-public institutions. These actions inevitably fall the hardest upon those who most depend upon public services: the poor, the middle-class, minorities, students, the working class. In these tough economic times, citizens are told, governments and countries must endure "shared sacrifice" and to "live within their means". This narrative has been taken up by most of Europe's governments, the majority of whom are conservative, as well as the United States - despite having a Democratic President and Senate.

Though the austerity movement is pervasive and being attempted everywhere, it is not the answer. For nowhere is austerity working the way its proponents said it would. Indeed, it appears to be causing more harm than good, and coincidentally happens to be favoring the rich, big businesses, and corporations; though calls are made for "shared sacrifice", almost nothing of substance is being asked of the rich or corporations to contribute to the effort in scaling back.

The rich don't need pensions, welfare, or social security. The rich don't care if health care is reduced, as they are already healthy and can afford quality care if they need it. Corporations are making record profits and have no desire to see things change, as firing large sections of their workforce increases their profits while not reducing efficiency. At a time when the vast majority of society needs the essential services that government social spending provides, they are being told that it can no longer be afforded, and they must make do without.

It appears that this is partly a matter of priorities, and governments everywhere have shown that their main priorities are maintaining the banking and financial systems, which have cost billions and trillions of dollars to preserve. Though it was these institutions' reckless greed and irresponsible behavior that caused this global recession, the myth persists that it was the debt that caused the crisis, rather than the other way around. Nobody seemed to care about their country's debt before the global recession - why should it matter now? It matters now because it presents a fantastic opportunity for conservatives and neoliberals to radically transform society into what they hope will be a libertarian utopia. Trillions of dollars are put aside to salvage the financial sector, but in exchange, teachers must lose their jobs, workers have to give up more for the same benefits, education budgets must be drastically cut, and millions of people must reduce their quality of life - all because of a relatively small handful of people/organizations and their insatiable appetite for making more money.

Many proponents of austerity proclaim that cutting services, cutting debt, and cutting spending is the only way to shore up business confidence, and in this way the economy will grow by contraction. Yet this business confidence is nowhere to be seen, with the cruel effects of the cutting being shown in the millions of people in the United States who are now living on food stamps, unemployment benefits, and are without jobs. It can be seen in the rioting and mass protests in the United Kingdom, Greece, and France.

It seems that, despite widespread public opposition to such cuts, conservative and even leftist parties are agreed on this course of austerity.

In the United States, the Republican Party's objectives of dismantling the New Deal and returning the country to 1900-era standards of living are nakedly obvious; they are merely using the financial crisis (a crisis they largely helped to create) as a way to savagely exterminate the feeble American safety net of unemployment insurance, Social Security, Medicare, and Medicaid. This can be seen in the vast majority of states under Republican governors and legislatures, and all with disastrous results. The undemocratic breaking of unions in Wisconsin and Ohio, the destruction of unemployment insurance in Florida - these measures were not causes of the crisis, but are nonetheless being targeted merely because of the ideological opposition of radical neo-fascist Republicans. Such drastic spending cuts are sure to harm the economy, as most economists and even financial institutions such as Goldman Sachs say. Their argument is that the U.S. is spending too much, and so-called "entitlements" need to be reformed, that is, destroyed. This argument, for cutting spending, reforming the safety net, and balancing the budget, has largely been taken up by the Democratic Obama administration, as well as most Democratic state governors - despite there being an incredibly strong case to be made for running a deficit, raising taxes on the rich, fixing the corruption inherent in Wall Street and Washington, and reversing all of the negatives the Bush administration inflicted upon the country.

Republicans say the U.S. has a spending problem, but this could not be farther from the truth. Taxes are the lowest they've been for decades, with the vast majority of the $1.4 trillion deficit coming from Bush-era policies. Though the stimulus added some to the deficit, most of the rest of that has been because of the economy's decline, as more people require unemployment insurance, food stamps, health care, and so on. Neither the U.S. deficit or national debt are serious problems at the moment, despite all the rhetoric. The U.S. debt-to-GDP ratio is about average for industrialized countries, and while the $1.4 trillion deficit sounds large, the United States still has the largest economy in the world by far, at over $15 trillion. Interest rates are low and foreign governments still are more than willing to buy U.S. Treasury bonds; the deficit is not a problem. That extremely fiscally conservative Republican ideology has been largely embraced by President Obama and many other state Democratic governors and parties despite widespread popular opposition to such policies is worrying for the future of the United States.

In Great Britain, David Cameron's Conservative Party have embarked upon a radical agenda of draconian cuts to the British social safety net, despite dressing up the process in somewhat progressive terms. These cuts come amid mass demonstrations that oppose them, as well as riots against the raising of student fees and other cuts to vital social services. The opposition Labour Party has a large faction of Blairites who largely agree and accept the principle of the Conservatives agenda, thereby failing to present an alternative for the people of the United Kingdom. This comes at a time when the Labour Party should be more relevant than ever, as inequality in Britain is higher than it has been for decades - yet the party is more unfocused, diffident, and weakened that at any point in the last 20 years.

For the European countries that are requiring bailouts due to their financial situation, one can argue about the extent to which such measures are necessary, but what should not be debated is that these countries have lost their ability to democratically determine the course of action the people of those countries want to choose. The IMF, European Central Bank, and ratings agencies are a group of unelected, unaccountable private institutions whose agenda is clear. They have demanded that countries like Ireland, Greece, and Portugal embark upon severe and drastic austerity measures before they are able to give them the loans they need to help solve their distress. By applying essentially the same measures to each of those countries, regardless of the differences in their situations, these private institutions with leaders who no one elected are dictating the course of action that sovereign nations take, thereby undermining the democratic foundation of these countries' citizens' right to self-determination. Even when, for example, Greece employed such austerity measures as dictated to it by the IMF and ECB, their economy did not recover; in fact, its credit rating has continued to be downgraded while its financial situation shows little sign of improving - despite decreases in the quality of life for most citizens while also drastically and forcibly changing the Greek social landscape.

Austerity is not working. Austerity is not the answer. The best way to grow the economy and reduce debt is by putting people back to work. At a time when private-sector growth is anemic, and can no longer be relied upon to employ the same amount of people that it had before, the government must step in and directly stimulate the economy by massively spending on the employment of its citizens.

When asked what got the U.S. out of the Great Depression, most people will respond with "World War II". What was it about the war that put the economy back on its feet? Massive government spending on the military for several years, combined with much higher taxes on the rich. The United States debt-to-GDP ratio in the middle of World War II was 143%, incredibly higher than it currently is. But after robust economic growth following the end of the war, this was significantly reduced to a point where it was no longer an issue. So why are governments not treating this global economic crisis like World War II? Why not spend massively, not on tanks, rifles, and planes, but on housing, roads, bridges, and rail?

Germany is a good example of a country that has largely pursued a Keynesian economic course; the German government spent large amounts of money keeping their workforce employed, while also giving bailouts to companies on stringent conditions dictating what they could and could not use the money for. As a result, the German economy has grown far faster than any of their neighbors and employment has rebounded. The governing conservative-neoliberal coalition is planning on introducing a tax cut for middle-incomes and a tax hike for higher-incomes, due to the budget deficit being so low.

The money that was used to save the financial sector can also be used to save the middle-class. The beneficiaries of the bailouts need to give back to society what they took through their own negligence, corruption, and criminality. This is a time when public service and government social spending should be higher than ever, when the safety net is strengthened and enhanced, not destroyed. This is a time when people need their government to provide for them because no one else can. This is a time when the excesses of right-wing economic policy should be reversed and destroyed, not the opposite.

Austerity is not the answer. Democracy, citizens, and government are the answer.