Sunday, February 10, 2013

Evolving concepts of economics

Macroeconomics, that is.  The big picture.

The last few years, it seems there's been endless debates about the economy, but little, really, about economics.  It's interesting in that last time this really occurred in a major way, in the early 80s, there was a great deal of debate about economics.  Not so really know, showing, I guess, how successful conservative economists were in the early 80s in establishing their concepts as the predominant ones.  I don't mean that to be a criticism of conservative economics, or of capitalism in general, that's merely an observation, although one that they'd regard as an imperfect one.

Very obviously, although there's a lot of argument about the parameters of it right now, the economic model of the United States is a type of conservative capitalism, based on relatively low taxes (at least on an international scale), relatively low government expenditures, save for defense (again, based on international standards), relatively low government direct government involvement in the economy (international models again) and relatively low regulation (again, compared to other nations)  It's also a model that completely accepts the legitimacy of business organization, i.e., corporations and limited liability companies.  We're having a lot of arguments about the parameters right now, in no small part because the economy has been poor for at least five years or so, and because there's a large gulf between the President and at least the Republican party on many of these points.  Indeed, just recently we saw that gulf become very visible, as in the debate over the "fiscal cliff" the GOP insisted on not having a widespread tax increase while the Democrats wanted one, and the Democrats are loathe to cut social services and spending, while the GOP would like to.

While it would seemingly be a surprise to both sides, particularly given the language that they sometimes use about each other, they're basically arguing about the left and right ends of the same economic model.. And, given the success of the model, it's become the model for much of the rest of the world.  Indeed, some areas of the world are much to the right of the United States on the model, while many others, such as much of Europe, is significantly more to the left. Still, by and large, the competing economic models receive very little attention anymore.  It's an interesting long-term trend.

Looking at the topic from a century long prospective, this is very much contrary to even recent history.  Whether that means all of the other models have been tested and found wanting, or that some weren't tested, or if this is just a temporary hiatus in competing models, needs to be seen. But for a blog that looks at long term trends and history, it's all pretty interesting.

If we go back a century (say 1912), after mercantilism had long died, we'd see that the United States basically had a laissez fair economic model, as did much of the rest of the world.  Still, Socialism was a strong contender at that time, and it had a huge following in Europe.  Communism, the radical expression of Socialism which united Socialism's governmental ownership of the means of production with extremely radical political propositions, was also a gaining force in some regions, typically those that had the most autocratic rule.  In regions where there was democratic expression, Socialism tended to be less radical, but even at that, pre World War One Socialist were more on the Communistic end of things than they would later be, by quite some margin.

Even in the US Socialist, although in a milder form, were gaining traction as a political force.  We've seen that over at the Today In Wyoming's History blog, where Socialists, and even a few Communist, political candidates obtained votes during the Progressive Era.  Communist didn't receive many, but they did receive a few votes.  Socialist, however, did okay in elections in some areas, mostly those with heavy Eastern European populations and a lot of coal mining.  It'd be absolutely inconceivable that a Socialist, let alone a Communist would receive any votes in Wyoming today, although there is one member of Congress presently, from the Northeast, how is a self described Socialist.  Most politicians in the US, however, would run from that description, and that accusation has been levied at President Obama fairly frequently as a condemnation of his policies, rather than a praise.

The Progressive Era also saw the first real homegrown alternatives to pure laissez fair capitalism in the US.  Coming first out of the Populists, and then adopted by the Progressives in the Republican Party, who ended up being the Progressive Party, a modified type of Capitalism was proposed by such luminaries as the Theodore Roosevelt, who went after Trusts in a major way, viewing them as anti competitive.  The Trust Busting efforts of TR are legendary, but much less well known are his later propositions to force large national corporations to exist in sort of a public utility status, subject to extensive regulation, and in which the public would, by statute, own a certain percentage of the shares.  Indeed, this unique approach to regulation of economic activity remains the most radical economic proposition ever suggested by a former President, even today.

 Theodore Roosevelt

Indeed, in current economic news corporations have been discussed a great deal, but never in terms of terminating them or changing their basic nature. That's fairly amazing, if we consider that a century ago TR was basically suggesting altering them enormously.  In the entire Western world people are so completely used to corporations and related business entities that they're regarded as natural.  That really says something about how far the economic model is accepted, as of course corporations and limited liability companies are not natural at all.  The only "business entity" that is natural, would be the partnership, as people naturally join forces to accomplish all sorts of goals, but partnerships generally do not shield people against liability, except where the law has come in to provide that.  Corporations, on the other hand, always do.  A corporation is a "person" in the eyes of the law, even if not in reality, and therefore while the corporation may be liable for its acts, the individual shareholders are generally not.  That's a radical evolution in liability, and only came about as in the late mercantile period it became obvious that for big economic enterprises there was little other choice but to grant such concerns that privilege.  But the concept has become so widespread in the Western world that there are now millions of little corporations.  Indeed, for various reasons, there are corporations made up of one single person, and there are corporations made up of shareholders who are corporations.  Quite a few law firms, for example, are "Professional Corporations' or limited liability companies made up of Professional Corporations which have each have one single shareholder, that being the individual lawyers.

TR's Bull Moose economic platform failed, doomed in part because the Democrats were co-opting the less radical parts of it and because the GOP adopted a conservative approach to economics under Taft, thereby guaranteeing that Woodrow Wilson would become President.  Wilson was a "progressive", but for the most part this didn't reflect itself in economics.  The generally good economy of the teens and twenties meant, for the most part, that people lost their interest in alternative economic theories in the US anyhow, until the Great Depression.  This wasn't the case, however, in Europe.

Before going on to Europe, however, I can't help but note how this entire TR/Woodrow Wilson/Taft era provides an example of  how much American politics have changed, and not necessarily for hte better.  That an election could field such very serious and intellectual men, in one single race, is amazing.  And the nature of their views was so deep, that it makes current politics look rather embarrassingly shallow.  Taft was a traidtional laissez fare type of politician, but he was otherwise a mild reformer and a great intellect.  In modern terms, he would be a middle of the road Republican.  Roosevelt, on the other hand, simply couldn't exist  in a modern American political party, even though he's widely admired to this day.  In some views, particularly those which feel into the category of "Americanism" he'd be regarded as a Tea Party conservative now. Economically, however, he was the most radical national politician we've ever had, far, far, to the left of anyone since him.  Personally, on moral grounds, he was a deep social conservative.  In political terms, however he was on the left on social issues.  On foreign policy he was a hard interventionist.  No party now would have him.  Wilson, on the other hand, is singularly uninspiring in some ways, but politically, and in terms of temperament, I've often thought that he is so like Barack Obama, or rather that Barack Obama like him, that its frightening.  On that, with their similar academic employments, it should be noted that Wilson's temperament and background operated to largely make his second term a failure, something that perhaps President Obama should study.

I also can't help but now that Wyoming's Governor Carey was one of the Republicans who bolted the party and who became a Progressive.  That too is an amazing thought, as I can't imagine a sitting Wyoming governor in recent years bolting a national party to join a third party.  That says something about the era, and also something about how popular Theodore Roosevelt was.

 Republican, and later Progressive Governor of Wyoming, Joseph M. Carey, his family, and Dorthy Knight, daughter of a Wyoming Supreme Court justice.  Ms. Knight appears to be looking in a different direction than the Carey family, but presumably that isn't due to a split in economic views.

Returning to Europe, World War One enormously boosted the fortunes of socialistic parties in Europe everywhere.  In Germany, the largest economy in Europe, the war brought the Social Democratic Party into power, as it was the largest party in the Reichstag when the Kaiser resigned, and that catapulted it into the unenviable position of being the German party that had to negotiate the German surrender, a fact which would contribute enormously to its downfall in 1932.  All over the former Imperial powers of Europe, hard left groups that had been suppressed by autocratic governments came roaring into influence.  In Russia, a host of radical political parties espousing socialism, or the ultimate antithesis of it, anarchy, vied for power.  In the one legitimate election that the Russians had after the Czar abdicated the Socialists won, but they were soon overthrown by the a coalition of Right Radical Socialist, Left Radical Socialists and Communists. The Communist, in turn, quickly did away with their competition, and a civil war ensued.

 The hairy inspiration for the hard left of socialist political thought, which doesn't include all socialist, German Karl Marx.  More people have died due to his political thoughts than due to any other political ideal.

A civil war also erupted in Germany, a fact seemingly forgotten in modern history, as the Socialist government called upon the anti socialist, mostly monarchists, army to put down Communist insurrection everywhere.  Ultimately, unofficial right wing German militias were needed to suppress Communist forces. The Socialist won, but came out of the conflict largely discredited and weak.  And for the first time a Socialist party in power was forced to rely on very conservative elements in orer to put down Communists.  Civil wars or near civil wars also broke out in newly independent Finland and Hungary, but with different results.

 Social Democratic Party leader, and first President of the German republic, socialist Frederich Ebert.

Even the UK saw Socialism spring up, although in the form of the fairly mild Labor Party. Fears of a Communist revolution caused the British to reform their electoral process, however, wisely granting a much wider franchise to the British working man.  It turned out that most British Socialist were ahead of the curve and were solidly democratic,  but that didn't keep the government from worrying about it. At any rate, the expanded British Labor Party quickly became part of the regular British political scene.

Mexico, which few of us today would regard as radical, either politically or economically, actually preceded Russia in these regards, in being the first significant state to fight a civil war in which radical leftist would come out in top.  Many, but not all, of the Mexican revolutionaries were socialist or even basically Communist.  Extreme leftist Mexican politicians would come to power in some regions of the country, which lead to a second civil war in the 1920s.  The United States had good reason to worry about Mexico in those days, as it didn't come out of the war democratic or capitalistic.

 Venustiano Carranza de la Garza, radical left wing ruler of Mexico following the second state of the Mexican Revolution.  Carranza came to power as a "general" of the Mexican Revolution following the assassination  of Modero and the counter coup that overthrew Modero's government.  Carranza, in turn, would face rebellion from Villa and Zapata.

The wars in Mexico, Russia, and effectively Finland, saw a primitive third force come up also, which would develop in the West in a very advanced form, but which is now completely forgotten for the most part, that being Distributism.  Distributist were regarded in Europe, where they had much more influence than in the United States, as a "third way" between Communism and Capitalism, or between Socialism and Capitalism.  Basically agrarian  and anti-corporate in form, the economic theory did not espouse the nationalization of economic resources, but the distributing of them when possible. So, it was essentially anti corporate in nature, and argued that economic resources should, where possible, be distributed down to individual owners.  In parts of the globe, therefore, the Distributist argued in favor of busting up landed estates and distributing it to family farmers.  This saw some early expression, although not in an informed sense, in the Mexican Revolution and the Russian Revolution, where agrarian armies sprang up with that being their principal goal.  The most successful of these was arguably Emiliano Zapata, who was more of an agrarian revolutionary than anything else.  The economic theory did, basically accidentally, take root in post civil war Finland, where the economy became agrarian until after World War Two.  As an experiment, the Finnish example was a success, with Finland not being greatly impacted by the Great Depression due to its agrarian economy, but a mixed success given the basic hard nature of Finnish lives in that period.  A similar accidental employment of the concept occurred in newly independent Ireland, where its being mixed with autarkic  principals made it only a partial success at best.

 Agrarian revolutionary Emiliano Zapata and his staff.  Like Modero before him, Zapata would be assassinated.  His memory lives on in southern Mexico, however, and revolutionaries in the region in the 1990s styled themselves as Zapataistas.

In a highly developed form, Distributism saw its reflection and refinement in the works of individuals like G. K. Chesterton, and it tended not only to rely on economic theory, but also on (Catholic) social justice theories.  In the United States it never seems to have gotten much traction, but agrarian thought did see a revival during the Great Depression, when Distributism hit its high mark in Europe, in the form of the "Southern Agrarians."  The Southern Agrarians were not all southern, although they principally were, and they came out in opposition to Franklin Roosevelt's New Deal economic policies, which they felt, correctly, was destroying the agrarian culture of the South. Unfortunatley, however, their close attachment to the rural South seemed to put them in close attachment with the ongoing negative racial and social views of the South as well, which have to be discounted in order to take their major tract, "I'll Take My Stand," (unfortunately a line form the Southern anthem "Dixie") seriously.

 Self portrait by British journalist, philosopher, commentator, novelist and polymath, G. K. Chesterton, with the British Distributist slogan.  Public Domain image in the United States as over 70 years have passed since first publication.

Similar agrarian focused economists likewise sprang up in Europe outside of the immediate Distributist fold, such as the Austrian economist Wilhelm Röpke, who perhaps became the most influential of them all due to his role in the successful post war reconstruction of the German economy.  In economic circles today Röpke is warmly remembered, but it tends to be somewhat overlooked that he was really a Distributist, insisting on the  distribution of land, arguing in favor of some non productive land uses based on quality of life views, a critic of Socialism, but also a critic of Capitalism.  Modern Germany's economy, and the German economic miracle following World War Two, are largely Röpke's work, something that most American capitalist probably miss, and that does mean that the German economic approach, and their strong economy, have some very significant differences when compared to the United States.

The Distributists and their fellow travelers were perhaps unique in some ways as they were so focused on individual families, which conceptually made them the opponent of both Socialists and Capitalists. They did not oppose capitalism in general, but they feared the concentration of wealth in the hands of Capitalist, and felt that in order for an economy to be just, the means of production had to be continually forced down to the individual or family level.  This often saw its expression, in agriculture, in being agrarian centric.  In the UK this took on some interesting philosophical deminensions as agriclture began to mechanize post World War One, as the franchise also expanded, and individual land ownership expanded at the same time.  Some Distributists, such as Chesterton, saw Distributism not only as being the best form of economy, but, reflecting a strong current of Catholic social teaching at the time, they also saw it as the most just.  Chesterton also saw it as the best hope for English Catholics, a minoritiy in their own country, as the thought was that the agrarian unit would leave them able to practice their faith free of pressure from the outside.  Chesterton's slogan at the time was "three acres and a cow," relfecting the small scale apporach that Distributist favored.

In other areas where Distributism or near Distributism was influential, the thinking was similar.  Emiliano Zapata's army sought land distribution but also closely identified itself with the Catholic Church.  Newly independent  Ireland did the same, although it also, under DeValera also came to hold autarkic views which did not suit its economy well.  Finland, on the other hand, seems to have just slipped into being an agrarian state, probably reflecting the basic nature of its economy when it was part of the Russian Empire.

If Distributism was billed, at the time, as the "third way" between Capitalism and Communism, a more accurate analysis would have probably placed it as a contestant in what was really a five way race, as at least two other theories contended mid Century, when Distributism was at its high water mark. The mass economic mobilization of World War Two was the end of Distributism for the most part, as everyone agreed in the Western World that economy had to be mobilized on a grand scale, something that Distributism, that was very small scale by nature, could not provide. Distributist, therefore, put their dreams on hold, and by the war's end that dream deferred was basically permanently denied, although a few Distributist and related Agrarian thinkers exist today, albeit with no national influnce. Perhaps the last economist who was Distributist in outlook to have a seriouis governmental role was Willis Cochran, who served in the Department of Agriculture in the Kennedy Administration, but he soon found that his philosphocial thoughts were ignored by that administration.

Distributism was not tried in any major economy therefore, but Autarky was, with disasterous results.  Autarky was the economic concept of a nation attempting, contrary to Adam Smith's observations, to produce everything within its own borderes, thereby, theoretically, boosting its own employment thereby.  Autarky was the economic philosophy of fascistic states, although it proved to be completely unworkable.

The nation that best exemplified autarky was Nazi Germany.  Many people still believe that Nazi Germany was a capitalistic state, and the Communist emphasized that in their propaganda, but in fact it was not by any means. Autarky was the official economic philosophy of the Third Reich, which makes a great deal of sense as it dovetailed so strongly with that country's whacky racial superiority theories.  Autarky generally breaks down when it becomes evident that no nation can really produce everything within its own borders, and the banning of imports simply leads to deprivation and illegal markets.  But the Germans had a convenient out, in that they felt that they could conquer any raw materials they required, a view which they seemingly shared with Japan of the same period. With ever expanding borders, and a nasty philosophy to justify it, they could come to expand their borders to control what they did not originally contain.  Where that didn't work, in their philosophy, closely controlled client states could provide the rest, which lead the Germans to view, for example, Spain as a future agricultural and mining belt serving Germany.  Spain, under German influence, adopted the theory too, with predictably bad results, not ever realizing that in the eyes of its German ally, it was just a big farm and mine.  As noted, Japan, ruled by its military in this period, tried essentially the same thing, conquering a part of China, and ultimately trying to seize resources all throughout Asia.

Autarky was never workable anywhere it was tried, and some have theorized that had the Germans not gone down in defeat in World War Two that a revolution would have occured in any event, when the economic system completely collapsed.  At any rate, autarky is one economic theory that proved not only wanting, but so very bad that it passed out of existance pretty quickly.  True full scale communism took longer, but ultimately it collapsed too as it was never really consistant with human nature.  No real socialistic system was capable of enduring human beings.

That would lead, of course, to the assumption that Capitalism triumphed in the end, but that assumption would not be correct either, as there's no singular accepted capitalist model.  In the 1930s capitalist countries everywhere heavily modified their systems to allow for a fair amount of government intervention in the economy by one means or another, and truth be known almost every advanced economy interfered in the private sector a bit before that.  In the 1930s the British economy and the American economy was very much impacted by the thinking of John Maynard Keynes, who held that the government had a role to play in Capitalism in spurring and depressing the economy to try to flatten out the business curve via the use of taxing, spending, and borrowing.  Inspired in part by Keynes, but in part just by the need to do something, the American government also came to have, during the 1930s, a great deal of direct involvement in all aspects of the economy, which enormously expanded the size of the government. The extent to which this was a success has been debated, but World War Two effectively converted the experiment into a full scale wartime mobilization effort that likely was successful in ending the Great Depression for a variety of reasons.

British economist and later U.S. government economist, John Maynard Keynes.

The shock of the Great Depression was so vast that basically the economic model it created is with us still to some degree, although it was much more so prior to the Reagan years.  It seemed to be the accepted model in the US at least up through the early 1970s, with a high degree of government involvement in all aspects of the economy at least up through that time.  A general acceptance of the New Deal era changes in the government combined with the ongoing Cold War, which necessitated a large defense structure, made this model the accepted one to most Americans.  The destruction of European infrastructure during World War Two, moreover, meant that the American economy did very well in the 1950s, as it almost would have to have, given that it was the only manufacturing industrial economy left intact.  Booster of the American model, at that time, often conveniently forgot that all of our other major competitors had their industry bombed into oblivion only shortly before.

Starting with the late 1960s, however, serious questions about the existing model began to be raised, and ultimately the economy began to have serious trouble.  The high level of spending of the 1960s and early 1970s combined with major inflationary forces sank the economy into a period of protracted recession with inflation that caused some to seriously question if the economy was sliding into failure.  Conservative economist, however, felt that spending and borrowing were the sources of the problem, and they came into power with Ronald Regan. Very controversial at first, Regan ultimately succeeded in largely putting his economic model into play and, when combined with a forces recession, the long period of stagnation ended.

Since then, the Regan model has been the basic accepted one, although the degree to which it is used has varied over time.  At some points commentators have stated that we've entered a period of permanent conservative economics. At other, they've felt that this was not the case.  But from at least 1980 or so up until recently, this basic model has held sway, which was based at least conceptually on the idea of low taxes and fairly low government involvement in the economy, although the commitment to that concept has waxed and waned depending upon who has been in office.  The same basic idea has been at work in many other economies as well, starting first with the British economy when Margaret Thatcher was Prime Minister.  The complete collapse of real Communism brought this style of economics into much wider global acceptance as well.

The high level of government involvement, however, appears to be making a marked return since 2008, brought on by the "Great Recession" of 2008.  That event caused Republican President Bush to back a massive infusion of money into the economy which Democratic President Obama followed upon. Since then, Democrats in particular who never really accepted the retreat of the pre 1980 economic theories have been campaigning a bit for a return to an earlier era, and have been receiving some sympathetic treatment on occasion.

Ironically, in Europe, where government involvement has remained stronger, the opposite has been happening since 2008, and various European governments have started austerity programs designed to put their budgets in line.  This has been massively unpopular in some countries, Greece in particular, but Spain also provides an example.  After World War Two, European economies were heavily influenced by Social Democrats, a democratic branch of the socialist economic family, which tended to focus on the government providing services.  Now that they can no longer be paid for those same governments are looking at the unpopular choice of scaling them back during rocky economic times.  Early retirements and great unemployment benefits appear to be going out the window, although here and there votes drag them back in, as they have in France.

Austerity has been a topic in the US as well, even as there's discussion on expanding the government's role.  This has all been playing out in Congress where the fight between the Administration and Congress has been focused on spending vs. taxation, with the Republicans wanting to cut spending, and the Administration wanting to raise taxes.

All of which is no doubt pretty darned dull, but it is interesting how economic thought has actually narrowed over the past century. Either we know a lot more about how the economy must work, or we think a lot less about various aspects of it.  Even with fewer models, it seems that the various parties can't really get along on how much will be spent, and on what. Perhaps that should be no surprise, as what is paid for, and how, really are big deals.

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