Saturday, December 26, 2009

THE GOP’S FOUR TRUTHS AND THE ECONOMICS OF REALITY

For longer than my lifetime, the Republican Party has advocated Four Truths: small government, balanced budgets, low taxes, and free markets. Ironically, if it had made its wishes come true while it had one-party rule from 2001 to 2007, the federal government would have had neither power nor pelf to save a collapsing economy largely shaped by GOP desires to reduce regulatory oversight and enforcement. Whether any of these Four Truths hold true today is problematic.

The signal development of recent economic history has been economic globalization and the concomitant obsolescence of economic systems depending on insularity or protection. Post-war hubris blinded many Americans to these changing circumstances; they presumed that our economic growth throughout the century and especially after our victory over Germany and Japan forever vindicated the American nexus of laissez-faire government and free-market capitalism. They failed to grasp that reconstruction enabled those countries to modernize their industries, make them more efficient, and offer less expensive products. They did not realize that our industrial technologies had become conventional over time and adapted and improved in other countries, especially those on the western Pacific Rim. They did not recognize that advanced technologies like computers and telecommunications revolutionized the distribution of technological competence, and industrial and post-industrial capabilities.

Slowly, reluctantly, and contrary to the century-old orthodoxy of the Four Truths, the American business community has come to recognize and accept that the growth of competitive, foreign corporations has made government involvement in foreign as well as domestic economies necessary. Until then, business regarded government as the benefactor of first resort, which gave them land, water rights, subsidies, and tax breaks. Such involvement, traditionally and theoretically undesirable, remains politically useful to this community as a way of arguing for continued economic advantage. Thus, the GOP continues to advocate the Four Truths long after they require adaptation to the worldwide economic order. Worse, it continues to commend them to those who have little understanding of the complexities of this new economy or who live in ideological denial or socio-political nostalgia and want, according to their dreams and desires, a restoration of an economic and political regime no longer possible.

Unfortunately, politicians—lawyers, mainly—are usually temperamentally cautious, poorly schooled in economics and science, and thus tardy and reluctant to appreciate the fact of change and the need for reform. Even Obama, who knows much more than most politicians and promised transformational government, has proven to be a one-man inertial guidance system resistant to aggressive and effective actions which might alter the course of this country into the right direction.

Indeed, Obama’s economic policies are incoherent, not to say, unintelligible—which makes the charge of reckless spending an entirely plausible one to many. A trillion to the banks, a trillion for a stimulus—big bucks for all and very little show for it. The reforms of the financial system necessary to prevent another economic meltdown like the one which we are still living through have been precluded by the unconditioned distribution of funds to the banks, and by tolerance of the too-big-to-fail financial institutions now fewer in number but larger in size. The result is an increased risk to the nation from those who now know that they can indulge in high-risk gambles in reliance on a government—read: taxpayer—bailout. Some free market. Meanwhile, bureaucratic inertia and red tape have tied up funds for the stimulus and thus released them too slowly to do much good after much harm had occurred. The weak economy continues to threaten new or continued unemployment and housing foreclosures.

In such circumstances, the political differences captured in the facile and foolish dichotomy of capitalism and socialism are not only unproductive, but also counter-productive. America has a mixed economy. What it requires is not an “unmixing,” a retreat to, or advance toward, a “pure” economy, but a framework for appropriate relationships between government and business. Overbearing control or hostile opposition must be replaced by cooperative and constructive efforts to establish beneficial arrangements for both government and business. The government’s obligation is not to pick favorites, but to make a guided market serve buyers and sellers fairly. Business’s obligation is to accept that regulatory guidance serves its larger and longer-term interests. Taking sides, as both Democrats and Republicans are doing, does not serve the country’s long-term interests.

I confess that the preceding paragraph is all pieties and platitudes, too general to suggest specific devices for implementation in the present political climate. It hardly matters. For, instead of a breakout from the destructive dynamics of the recent past, we are likely to have a total political breakdown. No matter how the politics of the next midterm elections play out—who wins, who loses, and how many wins and losses occur—I have no reason to believe that anything in Washington will change. Republican gains, likely in any event and large if Obama’s approval rating continues below 50 percent, will make Republicans no less, and probably more (if more is possible), truculent than they have been. In such a setting of political hostilities, political dialogue to address the country’s economic and political needs is unlikely. More bipartisan demagoguery will simply leave the country adrift, its people angry or demoralized, and its political and economic systems endangered at a time when it needs clear direction and resolute efforts to address its deteriorating condition and determined competition.

I hardly dare to wish you a Happy New Year or to hope for one. Still, all the best to you in 2010.

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