Wednesday, July 16, 2008

Social Mythology and Public Dismay

In his 1972 article "Myth of the New Deal"* "New Left" historian Ronald Radosh writes:

"The New Deal reforms were not mere 'incremental gestures'. They were solidly based, carefully worked out pieces of legislation. They were of such a character that they would be able to create a long-lasting mythology about the existence of a pluralistic American democracy, in which big labor supposedly exerts its countering influence to the domination that would be otherwise undertaken by big industry.

"One cannot explain the success of the New Deal by pointing to its rhetoric. The populace responded to FDR's radical rhetoric only because it mirrored their own deeply held illusions. They could not comprehend how the reforms that changed their lives only worked to bolster the existing political economy, and they did not realize that many sponsors of the reforms came from the corporation community themselves. The integration of seemingly disparate elements into the system was successful. Labor did not get its share and it did benefit from the development of a permanent war economy and the military-industrial complex. Many of those who lived through and benefited from the New Deal most likely view its accomplishments in much the same way as Schlesinger or Carl Degler. One can never be sure whether they reflect the explanations offered by the 'vital center' historians or whether these historians merely reflect the false consciousness of their own epoch."

Radosh wrote this in the early 1970s, just as Richard Nixon changed the monetary regime by abolishing the international gold standard and just as employers were about to shift their supportive stance toward labor unions, which Radosh documents in his article, to a more anti-labor stance. I have previously blogged that there was a major shift in the pattern of stock returns as related to real wages around 1971. Between 1932 and 1971, net of cumulative inflation, stock returns were about 5.9% compounded, and between 1971 and 2008 they were also around 5.9% compounded. However, from 1932 to 1971 real wages increased 2.6% compounded, while from 1971 to 2008 real wages declined -1.1% compounded. The 1971-2008 period was characterized by high inflation (the highest 40-year period of inflation in America's history) but real stock returns were held constant at 5.9% net of inflation. As well, the post-1971 period was characterized by manufacturing's exiting the country, a decline in the quality of education, and declining unionization. The one variable that the Progressive and New Deal policies have ultimately held constant is corporate stock returns net of inflation. Real wages, unemployment, inflation rates and public welfare gyrate, but in the end real stock returns find their way back to the baseline real 5.9% level.

At the time Ronald Radosh wrote his article in New History of Leviathan it could still be argued that the statist Progressive and New Deal ideologies integrated social justice concerns. This is no longer the case. Rather, it is apparent from my earlier blog that Radosh's argument is actually understated. The New Deal labor union edifice was easily overturned because of declining manufacturing presence, globalization, declining scale in post-modern American industry and employer resistance to unions. Hence, unions' ability to represent workers has diminished just as inflation escalated. Unions lack the resources to organize small shops, and it is more profitable for them to concentrate on government workers who enjoy monopolistic privileges and can impose costs on taxpayers. The one variable that has been fairly steady since Franklin D. Roosevelt's election in 1932 has been returns on the Dow Jones Industrial Average, net of inflation. Since 1971 workers' real wages have declined, but returns on the Dow have remained strong even in spite the past eight years' stagnation, a period characterized by relentlessly increasing inflation as the mismanagement and incompetence characterized by the Progressive and New Deal regimes has become evident in corporate scandals, inept real estate investment and taxpayer-financed subsidies to millionaire investment bankers through the Fed's low interest rate regime and through direct subsidies to incompetently run firms like Bear Stearns.

*Ronald Radosh, "Myth of the New Deal" in Ronald Radosh and Murray N. Rothbard, editors, A New History of Leviathan: Essays on the Rise of the American Corporate State, New York: EP Dutton, 1972, p. 186

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