Tuesday, September 23, 2008

The Bush Administration's French-Style Socialism is Impoverishing You

A poster on this blog linked to a Time article arguing that America is becoming more like France, and the article is right. The transformation is nothing new, though. It goes back to 1901 and the assassination of President McKinley. At that point, Theodore Roosevelt, a Republican vice-president with an experience base similar to Sarah Palin's, took office. Roosevelt advocated the socialistic ideas of Walter Weyl and Herber Croly, founders of the New Republic. These ideas were largely rooted in European models that had become increasingly attractive to the American elite because a large segment of them had been educated in Europe. Weyl was a first-generation American Jew whose parents had immigrated here from Germany. Weyl was eager to emulate European models only two decades before the holocaust wiped out European Jewry.

Theodore Roosevelt and Woodrow Wilson made tentative steps toward statism. During World War I, Wilson nationalized much of the economy. This history is well documented in Murray N. Rothbard's and Ronald Radosh's New History of Leviathan. Following the war, Wilson repealed much of his central planning and industry cartel edifice. During the 1920s, Republicans Warren G. Harding and Calvin Coolidge did not oppose the statist edifice that Theodore Roosevelt and Woodrow Wilson had otherwise established such as the Hepburn Act. Most important of these was the Federal Reserve Bank, which provided a means for government's management of credit markets, to include the stock market. Later in the 1920s, one of the most aggressive progressives, Herbert Hoover, took a number of interventionist steps to attempt to manage the economy. These included aggressive public works projects such as the Hoover Dam and intervention in the labor market.

Thus, when the stock market crashed due to Fed tightening, the Fed did not take counter measures at Hoover's insistence. Moreover, Hoover had "jaw boned" major corporations into not cutting wages. In other words, the European-style interventionism caused the chief crisis in American economic history, the Great Depression.

Subsequent to the failure of Hoover's French-style socialism, Franklin D. Roosevelt was elected on a social democratic platform that aimed to somewhat intensify Hooverite Progressivism. The steps that Roosevelt took, namely adoption of social security, the Fair Labor Standards Act, a pretense of securities regulation and an attempt to socialize the American economy (the National Industrial Recovery Act) that was declared unconstitutional, had the effect of intensifying unemployment by raising wages.

The most important of the socialist reforms that FDR implemented, the abolition of the gold standard, had the effect of providing a long term subsidy to Wall Street at the expense of American wage earners. Real wages increased during the depression even though nominal wages were falling. After World War II, however, real wage gains began to flatten.

In 1971 Richard M. Nixon took another step toward French-style socialism that also furthered the aims of big business progressives. He abolished the international gold standard that had been re-established in 1944. Since 1971, with the Fed freed from any constraint as to expanding the money supply, real wages have been declining due to the Federal Reserve. Americans have been in denial, but our standard of living has begun to sink to the level of France's. This has been made less apparent through an orgy of credit expansion that made credit cards and sub-prime mortgages available to the public. This was only possible because of French-style socialism. The French are not so cynical as the Americans, so they do not use credit in this way, but without government intervention the sub-prime crisis and credit card phenomena would not have been possible.

Corporate America has been the chief beneficiary of French-style socialism brought to America, and corporate America's apologists in academia and in the media have been eager to justify the expansion of statism, the virtues of the Federal Reserve System and Keynesian economics.

The left, unable to cognize the economic effects of this system (with exceptions such as William Appleman Williams) celebrates the expansion of the American state.

One of the tragedies of the Francification of the American economy has been the decline in substantive innovation. This tracks events in England. France was never an overly important country economically. In the 19th century, in response to increasing laissez-faire, the British economy became the most innovative in the world, and England became the wealthiest country in the world. This did not, as many historians erroneously believe, occur because of imperialism. It arose because of ongoing productivity gains due to innovation.

By the late nineteenth century, America had become the most laissez-faire country in the world. During this period, real wages increased. More importantly, breakthrough technologies changed the world. These include the telephone, AC electricity, the electric light and the mass produced automobile. The increased productivity was met with hostility despite rising real wages. In response to the public anxiety concerning the creation of large companies and naive interpretations of competition as depending upon the existence of small firms (and lack of understanding of Schumpeterian creative destruction and Hayekian coordination) the Populists and advocates of the Social Gospel as well as a range of other advocates (single taxers, socialists, etc.) pressured for increased government intervention. The Progressives, who took the Populist ideas and molded them into a French and European-style format (Weyl prferred the French Republic as a model) lacked the analytical tools to address this question. In particular, the Progressives believed that the creation of large industrial firms was a static reality; that technological and management innovation had reached its apex; and that coordination could be accomplished through "socialist calculation". All of these assumptions turned out to be untrue. However, the Progressive policies had the effect of squashing innovation. Since World War I, the pace of nineteenth century innovation has been seriously dampened. Moreover, since 1971, the unrestricted ability of the Federal Reserve Bank to expand the money supply has resulted in four things.

1. Wall Street has diverted investment capital into decreasingly productive uses, with the process leading to the sub-prime crisis
2. Inflation has reduced real wages
3. There is less innovation because of the diversion of capital away from optimal uses
4. There is increasing income inequality as workers suffer from inflation due to monetary expansion and the stock and real estate markets have been inflated by low interest rates due to the same process. Since the wealthy own stocks and the poor work, Federal Reserve Policy has been distastefully cruel. Theft is wrong. But to institute an ongoing policy of subsidizing the wealthy at the expense of workers is an especially depraved policy.

The end result of this process is the establishment of a new American feudal socialism along the lines of France's. Like the French, America has become an increasingly stratified society, with an elite that benefits from Wall Street's access to Federal Reserve counterfeit. The average productive worker no longer can hope to save to start an entrepreneurial firm because of bloated home costs and taxes, and entrepreneurship and innovation are squashed by big business's monopolization of credit and its diversion into ill conceived real estate development.

One more note--the level of American political discourse has devolved to the point where there are two Progressive Parties--the pro business socialist Progressives of George Bush and the social democratic Progressives of Barack Obama. Yet, a large percentage of Americans do not agree with either view.


Joe Bubel said...

Are you trying to depress me?

Who was the last 'non progressive' president, in your opinion? Reagan? Or must we look further back, say in the 19th Century?


Mitchell Langbert said...

The last non-progressive president, McKinley, although he was already moving in that direction. A better answer is Grover Cleveland, who left office in 1896. Reagan was definitely a Progressive. Seriously, Joe, I'm depressed myself.