Groupthink and Rigidity of the Statist-Liberal Consensus

Progressivism led to a consensus that the state is necessary to manage the economy. Republicans like William Howard Taft emphasized the free market to a greater degree than did Democrats like Woodrow Wilson, but both political parties have been committed to a state managed big business system. Unfortunately, the system has not performed well. The subsidies that the state has provided the financial sector have been squandered on excessive salaries and incompetent management. When the financial firms prove to have been ineptly run so that they near bankruptcy, the public bails them out further despite years of mismanagement, poor decision making and excessive salaries. Income transfers from the public to state-supported managers, to include CEOs in the corporate manufacturing and service as well as in the financial sector, have resulted in increasing income inequality even as firms are not managed competitively by global standards. Despite the failures of the Progressive model, few observers question its merits. In particular, the peculiar argument that society should evolve, so that the adoption of the Progressive model was appropriate in 1910 and is also appropriate today begs the question: why is the Progressive model appropriate today if society evolves? And why are academics, politicians and businessmen so defensive about the Progressive model given its repeated failure, its tired history and its antiquated assumptions about the importance of scale, mass production and stability?

Part of the obsessive commitment to the Progressive model results from the liberal groupthink that was necessary to its foundation. Progressivism was first and foremost a mode of transfer of wealth from the general public to corporate interests. It accomplished this by reducing competition and establishing preferred access to credit by large business. Smaller business may have been accomodated to a degree, but the most important source of business innovation, entrepreneurial start-ups, are missing from the Progressive model. The result was a decline in American competitiveness during the twentieth century. The major business innovations after 1940 were Japanese, not American.

Liberal groupthink plays a key role in defending progressivism. Liberalism establishes a hierarchy of media that is imitative, much as in many mid-century industries firms followed a price leader or followed pattern collective bargaining in their industries, in media there is a unitary point of view that reflects the opinions of liberal leadership. Such opinions are costly to believe if you are an investor. They are costly for society to follow. They have destroyed New York City. They have caused the loss of competitiveness in American industry. But the comfort that liberal groupthink provides to its acolytes provides a critical bond, much as religious belief does.

Progessivism's Ossification

The current political, economic and social system in the United States was formed in the Progressive era. There were some additional changes in the Depression era, notably introduction of some pro-labor legislation and the abolition of the gold standard, but Roosevelt, Taft and Wilson established the basic outline of today's political economy. The argument for reforming the 19th century approach to American government, which was not laissez faire because of the spoils system and involvement of local government in the economy, was that economic evolution leads to the need for new approaches to government. In particular, it was believed that the rise of big business changed the relationship between the state and business enterprise because big business was capable of abuses that needed to be regulated. In addition, there were arguments that the federal government needed to provide guidance and expertise to big business. As well, the Progressives believed that credit markets needed to be managed.

Without treating the claims that Progressives made, the question is, why do we still have, 90-100 years on, the same economic system that the Progressives developed? Have business processes not changed? Have labor relations not changed? Do the supposed threats that Standard Oil and US Steel posed in 1911 remain the same today? Have economic processes and technology not changed? If so, then why do we have the same system of regulation today that Woodrow Wilson considered to have been evolutionary in 1914?

The model of business regulation has proceeded as follows:

government support for business (19th century) ---> regulation and selective support(Progressive era) ----> attack and hyper-support (New Deal era) ----> ossification and increasing special interest power; inability of corporate/government system to increase net living standards ---->de-modernization, increasing income inequality and social stratification.

The problem is that Progressivism failed to anticipate evolution, despite its claim to be founded on evolutionary economics. The Progressives did not understand that government policies did not necessarily lead to rational decision making, and even if they did were going to become outdated. When they do become outdated, they are far more difficult to change. Thus, the Progressives' mainstream, statist model (and I include all three presidents, Taft, Wilson and Roosevelt) led to inflexibility and inability to evolve. This has led American society to become less imaginative, innovative, progressive and equal than it could have been. Mainstream academics, who see their role as supporting the liberal-big business consensus via Marxist and state liberal ideologies, have appeared increasing retrogressive and out of touch with developments in world business. For instance, no academic of importance advocated quality management before it became a critical competitive issue in the 1970s and no academic of importance has offered a coherent explanation for declining real wages since the 1970s.

This Week's Triumph of Howard S. Katz

Last week Howard S. Katz pulled out of gold and commodities and went long on stocks. The next day his stock picks went up 15%. They fluctuated since but are now significantly up. Many who heard of this move last week were puzzled. Mayer Rothschild once said, leave the last 10% to someone else. Howard seems to have left the last 5%, for although gold went up to $1002, it is now in the $920s, and Howard sold at 950. In place, Howard bought certain specific stocks that have aggressively outperformed the indexes. Howard's "conservative" portfolio is now at an all time high. Yay Howard!

Progressivism Contradicts progressivism

Progressivism was the ideology of early twentieth century American government. Its argument was based on the idea that big business had developed to a point where it was too powerful not to be regulated and that in order to counteract big business's power the limited federal government of the 19th century needed to be expanded. Progressivism was mainly concerned with how to best manage big business in the public interest. The Progressives were pro-large business. They did not think, as many business executives did not think, that private ownership of monopolies was necessarily appropriate. In many respects Progressivism was similar to Marxism in that it argued that big business was a natural historical development and that an increase in state power was necessary to manage the big business. The Progressives wanted to make certain that the efficiency potential of big business would be actualized and that efficiencies from big business would be managed in ways that weer conducive to the public interest.

The pro-big business attitude of the Progressives changed during the New Deal. Part of the reason was that the New Deal did not focus on the efficiency goal. This was viewed as having been achieved. As well, the New Deal emphasized the importance of finance as opposed to manufacturng, and its policies primarily reflected the interest of large financial firms. In order to accomplish this, the New Deal had to cloak its positive supports for finance with imagery related to social democracy. The New Deal is thus associated in the minds of historians and the public with Social Security, the Fair Labor Standards Act, the National Labor Relations Act, the Securities and Exchange Act and unemployment insurance. However, the chief and most far reaching reform of the New Deal was the abolition of the gold standard and the granting to the financial community the power to create fiat currency in its own interest unimpeded by the gold standard.

In order to justify this profoundly redistributive policy that served the interests of large corporations, real estate holders and stockholders as well as the commercial banks and Wall Street the New Deal needed to seem anti-business. This was accomplished by insisting on unionization of large manufacturing, which created short term political resistance from Alfred Sloan and other business leaders but in the long run (seven decades) provided little or no benefit to the working class. At first, the division between manufacturers and the Roosevelt administration made Roosevelt seem a traitor to his class. However, this is not the case. The financial arrangements Roosevelt created resulted in the largest gains and the longest gains that have accrued to capitalists in the history of the world. There is no other time in recorded history when the asset markets have risen so consistently and to the degree that they have since the New Deal, and there is no other time in American history when real wages have progressed so little.

The progressives lack the perspective of the Progressives because Progressivism held that economic growth depended on a set of social relations, to include big business, stabilized markets and efficiently run companies, and that social justice would flow if big business was managed appropriately. It recognized that efficiency and productivity necessarily preceded social justice. In contrast, the New Deal did not focus on efficiency and concerns. It saw its goals as primarily redistributive. In rhetoric, business executives were reactionaries who fought its redistributional goals and big business was therefore its enemy. The New Deal assumed that the problem of production had been solved. Its followers were not able to grasp the profoundly redistributive policy that the New Deal established of redistributing from the poor to the rich because they naively assumed that the regulatory sops that were thrown to the poor constituted a major redistributional program. But the New Deal gave $100 to the rich for every $1 it gave to the poor, and in public image broadcast the $1 while cloaking the $100 in arcane Keynesian lingo that served as a cloak to 19th century Populist ideas, namely Greenbackism and free silver.

Academics were only too happy to lend credence to Keynesian rhetoric and to serve the rich. Marxism and Keynesian were two ideologies which ultimately serve to cloak the interests of the financial community and alternatively serve to so cloak the academic community's true intersest in providing succor to the wealthy.

Second, progressive rhetoric depicted big business as the enemy rather than a necessary development. Without claiming to foster business progress, progressivism becomes a form of attack on the nation's source of wealth. Small p progressives do not articulate a theory of economic growth and advocate ideas, to include protectionism, income taxation, regulation and expansion of the state that can easily be shown to harm innovation and economic development. The progressives are not troubled by their assault on progress because of their quaint insistence that the problem of production despite the development of innovative production concepts in Japan that American firms have been unable to replicate and have been protected from replicated by the progressives' inflationist and government support policies for big business.

In fact, the progressives reserve their worst venom for the few innovative businesses, such as Wal-Mart, which have contributed to economic growth. Those that have not, from Wall Street to Detroit, are viewed with favor by the progressive movement.