A PATH FOR AMERICA: PROPOSALS FROM THE DEMOCRATIC LEFT
Harrington, Michael
The American welfare state is in a profound crisis, and not just because the affably mean, pragmatic ideologue who is president of the United States is destroying some of the most important...
...INVESTMENT, Reagan's third argument goes, has been starved by those deficits and all that social spending...
...Roughly two-thirds of federal nondefense monies go to people over 65 years of age through Social Security, Medicare, the 40 percent of Medicaid devoted to seniors, and so on...
...The Social Dimension I HAVE BEEN FOCUSING on the economic dimensions of the crisis of the welfare state because I think these are the most important determinants of that crisis...
...The chairman of U.S...
...It is disingenuous to pretend that the Administration's program will protect the needy and will spread sacrifice evenly," he told a congressional committee in March 1981...
...But a well organized, intolerant minority can wreak havoc in our political life, and some of the social gains of recent years could be destroyed in the process...
...Indeed, Tsongas sometimes makes implicit criticisms of his own basic position...
...In that scheme, the interest of up to $1,000 for an individual or of $2,000 for a couple filing joint returns was made tax-exempt in order to induce savers to lend to banks at a rate substantially below market levels...
...Liberalism, which is as far left as America has ever gone, will have to go a good deal beyond itself if it is even to preserve what it has already won...
...They have, I fear, a very real political future...
...Perhaps the high water mark of Keynesian self-confidence in the '60s is to be found in the report of the National Commission on Technology, Automation, and Economic Progress...
...It caused many in that privileged group to switch funds out of other forms of savings—adding little or nothing to the sum total of capital...
...The single group benefiting the most from this process is precisely the one that receives the bulk of welfare-state spending: the aging...
...Far from it...
...I do not want to exaggerate the appeal of the Moral Majority and similar formations (there are, after all, radical fundamentalists who find an egalitarian and compassionate message in a literal reading of the Bible...
...There was little compensation for the bad news in two other sectors: housing became a disaster area because anti-inflation tight money policies inflated the financing cost of a home and sent mortgage rates through the roof...
...when the problem is a lack of money, it does work...
...Indeed, Ronald Reagan is himself a perfect refutation of his own thesis that deficits cause economic crisis...
...Indeed, it should be frankly acknowledged that constituencies that join together behind this basic program might fight one another on other issues...
...Yet he is appointed for a term of 7 years and operates in a powerful institution run completely by bankers...
...The present crisis is not one more cyclic down in the "normal" capitalist pattern of boom and bust (which the liberalism of the '60s thought it had abolished...
...He wants the tax-deferred savings to go into "productive endeavors" and even wants a temporary Reconstruction Finance Corporation to do some very limited planning—but that is all...
...What we are creating," he said, "is a way to give politicians an excuse to do what they know ought to be done anyway...
...Affirmative Action is being scapegoated as a cause of lower productivity...
...BUT THEN CAME the 1975 New York City fiscal crisis, with Rohatyn playing a prominent role, followed by the growing awareness of the national crisis of stagflation...
...The GNP in 1940 was $99.7 billion, well under the level of $103.1 billion achieved in 1929...
...There are, let it be frankly said, furious scholarly debates over the degree of monopoly and oligopoly in the American economy...
...But, as the Brandt Commission on NorthSouth demonstrated (to the satisfaction of the London Economist as well as of the Socialist International), a Western commitment to the modernization of the Third World could generate jobs in the First World while meeting the capital needs of the globe's poor...
...Neither can the minorities and the poor, even assuming that they overcome internal rivalries and the low level of political participation that is one of the worst consequences of being put into an economically and socially inferior position...
...yet it had an enormous impact upon domestic, civilian America...
...All of them, including Ronald Reagan's, assume a degree of national economic planning...
...One result was that the automobile industry, the very model of an oligopoly sector, now faced foreign competition (including competition from American companies producing overseas...
...Meanwhile, the JEC reports, the British, French, and Japanese have been developing extremely efficient high-speed trains that are competitive with airplanes at intermediate distances...
...There is no "principled" way of defining where that balance is...
...That power, it was argued, would be offset and tamed by liberals dominating the government...
...The various movements staffed by the college-educated "new class"—the environmental, peace, and disarmament movements and other groups —have had a remarkable impact on America in recent years but they, as the 1972 campaign dramatically demonstrated, are nowhere near a majority either...
...This was not, as the Reagan Council of Economic Advisers argued in its 1982 report, caused by excessive government intervention...
...There is an important point that should be stressed here...
...In the past," Hart wrote in a memorandum in February 1982, "we have tried to solve our economic problems with more federal spending, or more federal regulation, or more federal bureaucracies...
...In the abstract, it is possible to design a progressive consumption tax (by exempting the basic expenditures of the majority and putting a high levy on the luxury expenditures of the rich...
...Two years of wild corporate acquisitions," Business Week commented in 1982, "mainly financed by short-term borrowing, have pushed corporate debt to more than half a trillion dollars...
...Hoover picked up this idea in 1932, and Roosevelt ran with it in 1933...
...And the fact of the matter is that, since the economy began to suffer from chronic crisis around 1970, all the achievements of that quarter-century have been under attack...
...So is the role being played by blacks in major American unions and in the churches...
...yet the Gross National Product (GNP) dropped by more than 7 percent in the 1938 recession...
...In the aftermath of that event, four main economic philosophies have been competing to become the new wisdom of the '80s...
...Revitalizing the Nation's passenger railroads would provide an excellent start in reindustrializing America because it would require the creation of a major industry...
...There was, Rohatyn says, "reduction by the banks of interest rates paid by the city and extension of the time period of the city's loans . . . . " This is an essential point, necessary to preserve the symmetry of sacrifice...
...Unemployment was reduced by 40 percent but remained at 15 percent of the work force until we got war-induced full employment...
...This would lead corporations to lower prices in the hope of maintaining profits through increased volume...
...That is straight conservative doctrine and, as we have seen in the discussion of the American welfare state, largely untrue...
...There is remarkable corroboration of the realism and the soundness of this idea, coming both from Republican and Democratic members of the Joint Economic Committee (JEC...
...But apart from being outrageously antiegalitarian, this strategy is also unworkable...
...Significantly, the president had to beat a clumsy retreat on this issue...
...Indeed, the committee then goes on to identify 20 areas in this country in which such a technology would be economically feasible...
...it is government at the grass roots that has grown, particularly in the health and education sectors and, on the whole, for the good...
...By thus moving to get control of the speculative uses of money and interest and thereby channeling real resources to economically and socially useful investment, another inflationary factor could be brought under control...
...But proposals that move in a socialist direction by democratizing the decisionmaking powers now held by corporations are very relevant...
...Felix Rohatyn presents an even more complex phenomenon: a sort of "social democracy with a corporate face...
...This is why the 419 American system is not merely unjust but also the most expensive (as a percentage of GNP) in the Western world...
...The American system ingeniously combines the worst of capitalism and the worst of socialism by operating fee-for-service in a health system that is financed by third-party insurers and in which no one has a stake in cost control...
...For there is, I think, a mobilizable constituency for quality integrated and public education...
...In fact, as the Congressional Budget Office documented in a careful survey of the literature in early 1982, big deficits have been associated with lower interest rates in the postwar period because these deficits are induced by recessions that, until the present crisis, have reduced the demand for money...
...In part it was a consequence of the merger mania...
...Nonagricultural employment was 30.6 million in 1939—almost a million workers less than in 1929...
...The major emphasis in the program that is developed here is upon rebuilding America...
...To do this, the Reagan CEA continues, it is necessary "to lower the household consumption rate," that is, to impose the governmental will upon the "sovereign" consumers of free-enterprise theory...
...In his more candid moods Rohatyn recognizes that there really was no equality of sacrifice in New York City...
...When this crisis is resolved, for good or bad, the auto and steel industries will not return to their old ways as they did after the recessions of 1954-55 and 1959-60...
...In what follows, I shall try to answer that question by means of significant examples...
...The CBC alternative budget is a perfect witness to the accomplishments of the black political movement...
...And this trend has probably been aggravated by the epidemic of corporate mergers in the late 1970s and early '80s...
...If, however, that time is not used to mount an assault on the basic sources of corporate control over the economy, then immediate gains will be subverted in the long term...
...In the 25 years between 1947 and 1972, real wages measured in constant (1977) dollars increased in every year except two and were 60.6 percent higher at the end of that period than at the beginning...
...And Daniel Patrick Moynihan wrote in 1969 that the problem of "fiscal drag"—constantly increasing government revenue as a stable or even declining share of an exploding GNP— meant that "administrations must be constantly on the lookout for new ways to expend public funds in the public interest...
...More recently, legislation also proposed that corporations in407 ternalize some of the most outrageous social costs they had been imposing upon the earth, air, water—and people...
...Why "inevitable...
...Inflation HOW COULD such things be done without rekindling the fires of inflation...
...But since investment in this society is controlled, not by the poor, the workers, or even the middle class, but by the corporate rich, such a strategy—however well-intentioned and carefully qualified with liberal details —is a scheme for the public subsidy of the corporate rich...
...Business Week generalized the problem: Bred during a century of economic predominance based on the exploitation of an internal frontier, American attitudes are not suited to a 408 world economy that has become increasingly integrated . . . where much of U.S...
...There will be either radical innovation in a regressive direction—already begun by Reagan —or radical innovation in a progressive direction...
...That, as we have seen, is a prescription for the manipulation of an unknown, a fact highlighted by the recent erratic trends in the money supply...
...The social spending cuts of 1981 were primarily aimed at the working poor who get CETA jobs, Food Stamps, Medicaid...
...Both outlooks involve a sort of dirigiste laissezfaire —the use of government power to impose broad limits of choice upon markets that are then allowed to make the actual investment decisions...
...In the second stage, the contradictions did not assert themselves dramatically, although they did work to make the very corporate rich who had opposed the welfare state into the chief beneficiaries of government intervention...
...but it creates very few jobs for minorities, youth, and laid-off workers in the Northeast and Midwest...
...all of the major investment decisions must be subjected to scrutiny...
...It was rationalized in the name of "national defense"—but then, so was everything in those days...
...Emphasis in the original.] The JEC then argues that the development of this industry should be the joint task of business, labor, and government...
...Without, however, waiting for such a sweeping reform one can, as the CBC has documented, propose achievable reductions in some of the most outrageous tax expenditures and thus restore all current cuts, and even add social outlays, without increasing—indeed while decreasing—the federal deficit...
...I say this even though I have great respect for the minority of socialists and democratic leftists who, on the basis of the same religious principles that bring them to our movement, disagree with the majority of us on this matter...
...With the enormous increase in the sophistication of planning "technology," monopoly control of computers and experts becomes as much a threat to democracy as monopoly control of money and factories...
...This "mock syndicalism," James Gilbert has noted, was actually designed to thwart the unions, giving a semblance of worker control in order to avoid the reality...
...The collapse of 25 years of historical trends, along with the ideologies that explained them, was not the "fault" of individuals...
...But all of these measures would not suffice...
...The relative shares of the social classes remained stable and the upward trend in real wages was financed out of economic growth rather than egalitarian policies...
...Or new institutions for a third stage of the welfare state that, if it will not eliminate private corporate power, will bring this power under a degree of popular control and democratize decision-making power over economic allocation and investment...
...and there is a massive campaign to "solve" the problems of the economy by increasing the degradation of the environment...
...I put the issue paradoxically to stress the practical importance of a generalization made earlier: that corporate America is going to be around for the foreseeable future and certainly during the next stage of the welfare state...
...Steel was even more explicit: he demanded still further tax reductions for the companies before they would begin to invest...
...For a generation it had been assumed, with considerable evidence, that prices and joblessness formed a kind of seesaw...
...One factor certainly is the increased control corporations can exert over prices—which subverts the very market mechanism that is supposed to transmit the signals of fiscal policy...
...What is involved is a crisis of the very structure of the welfare state—and the consequent imperative to develop structural reforms for its next or third stage...
...In 1977 Japan spent 17 percent of GNP on social welfare (not counting the very large welfare expenditure of corporations), West Germany spent 30.6 percent, and the United States 14.2 percent...
...The slack will not be taken up, this analysis continued, by jobs in the service and whitecollar industries—for they, too, face technological extinction at a great rate...
...Clearly, the legal authority and precedent for credit allocation are in place...
...For one thing, as the conservative London Economist has documented, this subsidy affects different industries in different ways: the cost of capital declines 14 percent for communications but less than 9 percent for electrical industries...
...The CBC Alternate Budget for 1982 did not attack these handouts wholesale—though many of them are clearly biased in favor of the rich...
...Military spending creates high-technology employment for skilled people already in short supply, thus having an inflationary effect on the labor market...
...Not coincidentally, the war years marked one of the greatest gains for blacks and women in American history...
...Rohatyn's habit of analogizing the present national crisis with New York City's fiscal crisis of 1975-76 provides us with a fairly clear example of what he has in mind for the country...
...Since Social Security, for all its flaws, is one of the most popular programs in the country, the attack on it must be carried out discreetly...
...Moreover, as we have seen, there was more money available for corporate take-overs in 1981 than new money for nonresidential fixed investment...
...Therefore I will briefly sketch what I take to be some of the important factors in this development...
...The American welfare state is in a profound crisis, and not just because the affably mean, pragmatic ideologue who is president of the United States is destroying some of the most important gains ever made by the people of the United States...
...And the consumer credit component favors those who can run up big bills at the expense of those who pay cash or use a lesser credit card with a roof on how much can be charged...
...At this point Rohatyn's RFC ceased to be mainly a welfare program for corporate debtors and became the institution that would plan the country out of its economic predicament...
...For it is articulated within a framework of authentically liberal values...
...Not all of them, it should be stressed, are regressive—for instance, the loss of $2.6 billion, owing to exemptions given to the elderly and the blind is quite defensible...
...After cutting social spending, but setting off the deepest recession since the 1930s, his prospective deficit rose to record levels...
...That would lead to full employment and though there might be problems for particular groups of workers, stimulative economic policy would take care of the main problem...
...Their prosperity is the key to the nation's prosperity, the source of investment funds...
...In the American imagination, that sector is populated mainly by oldfashioned family farmers...
...The assault on the minorities and the poor will continue, environmental gains of the past decade will be scapegoated and sacrificed, and a frustrated, embittered social atmosphere will make the Moral Majority's attacks on women's rights, on gays, on dissident books, and on all other "deviants" that much more plausible and effective...
...The central thrust of a progressive third stage of the welfare state must, then, be the democratization of the corporate power over basic economic allocations and decisions...
...there must be mechanisms that prevent the stagflationist trends of corporate policy from operating in the first place...
...Food and energy account for about one-third of the Consumer Price Index...
...The contradictions were softened because that period, 1945-70, was a time of secular boom, living standards were indeed rising, and it was possible to finance a modest measure of social justice out of a growth dividend...
...These are times in which the paranoid element in American political life can flourish, when people, unable to come up with real solutions to real problems, turn upon imaginary villains: feminists, gays, humanists, dissidents in general...
...Inflation was higher in this country, too, but even though Vietnam raised the Consumer Price Index (CPI) in Johnson's last three years, the average rate of CPI increase for the Kennedy-Johnson period was still a mere 2.2 percent...
...There would be a war of each against all at the bottom and middle of the society, and the only winners would be those at the very top, whose security would be increased as the energy for significant social change is drained away in civil wars between the losers...
...In March 1982, Business Week ran a cover story on the "second computer revolution" resulting from the development of "artificial intelligence...
...and medical costs have continued to rise even when other costs have fallen...
...In fact, however, the five-year increase of $1.5 trillion in military spending is the worst kind of economic investment America can make...
...their decisions as to technology and plant location and pricing shape the future...
...Indeed, what is needed is an "RFC that is publicly accountable but is run outside of politics, like MAC in New York State, [and] could provide . . . capital as well as negotiate the stringent concessions that have to come with it...
...Under such circumstances—whether by intervening through a dirigiste laissez-faire policy, as in Reaganomics and neoliberalism, or by building corporate priorities into a planning structure, as with Rohatyn—government will inevitably discriminate in favor of the elite controlling basic allocations and choices...
...Since this has happened in every advanced Western nation and in Japan, one can speak of a crisis of late capitalism itself...
...A national commitment to renewable-source energy systems, built on a human scale and capable of being used in the Third World as well as in the United States, could meet these criteria...
...These and other forces contributed to the great mystery of 1982: why, in the first quarter of that year with the economy in decline and the money supply on the rise, did real (inflation discounted) interest rates remain at the highest level since the Great Depression...
...It is not just that real wages have declined from the high of 1972 to a level that had been reached as early as 1963...
...By 1982 every political tendency in the United States realized that the nation was in a radical crisis requiring new policy departures...
...Adolf Berle had told the president of the Federal Reserve Bank and some businesspeople in May 1970 that the debt problem in the private sector was such that "they had better organize an RFC and be quick about it...
...Yet it would be absurd to advocate an anti-inflationary program that does not make national health insurance a central component...
...Until the banking system went into orbit in the 1970s, creating so many new forms of (usually upper-class) money that the Federal Reserve Bank no longer can really define the money supply, savings-and-loans were allowed to give interest rates slightly higher than commercial banks in order to ensure that there would be a supply of mortgage credit...
...Inevitably...
...In fact it is dominated by corporations controlling the inputs (farm machinery, bank credit, and so on) and corporations controlling the outputs (processors, packagers, exporters...
...Under those circumstances, a "tight" fiscal policy— reducing the federal deficit, or even creating a surplus by budgetary restraint and cuts— would slow the economy, result in layoffs, and thus contract demand in the marketplace...
...The mortgage components are favoring owners as against renters, and owners of mansions in the upper brackets as against owners of modest houses in the middle and working class...
...In a study that tends, if anything, to deemphasize the extent of poverty in the United States, the Congressional Budget Office showed that, in 1976, one-fourth of the American people would have been poor had it not been for public transfer payments...
...The construction of a new rail system is another case in point...
...That is, the "normal" workings of the economic system left 21.4 million families impoverished...
...particular sectors—agriculture, energy, health, housing —have their special impact...
...the debt addiction of corporations and the ingenuity of banks at creating money turns monetarism, which was always dubious, into an ineffectual program for controlling a mystery...
...The common denominator of a majority movement in America today, I believe, will be primarily found in economic policies that will benefit this majority...
...He sees the resolution of the New York City crisis—in which he played a central role as an architect of the Municipal Assis414 tance Corporation (MAC) and the Emergency Financial Control Board (EFCB)—as a model for what has to be done in the nation...
...In 1981, $82.6 billion was spent in corporate take-overs...
...Neoliberalism, then, surely is better than Reaganism in that it is more compassionate and even sensitive to equity considerations about the distribution of income...
...There is no evidence that it had any impact on housing...
...Lyndon Johnson proudly declared in his final economic message to Congress (January 1969) that "No longer do we view our economic life as a relentless tide of ups and downs...
...It asserts, like Reagan, that the fundamental problem in the present crisis is the supply of capital rather than, as is actually 413 the case, the systematic misuse of existing capital, to which the private sector devotes so much energy and ingenuity...
...are socially cruel and reactionary...
...technology has migrated abroad and where energy independence is rapidly becoming a wistful memory...
...In short, in the reactionary scenario, the historic reel could begin to run backward and advances made 50 years ago —such as Social Security—could be subverted or even abolished...
...This result is unfair, but it is to some degree inevitable and its consequences must be faced...
...The trade union movement, the largest organized component of the democratic left, cannot, on its own, win a national election...
...The original RFC, created by Herbert Hoover, was a descendant of World War I government intervention into the economy when the War Finance Committee planned and funded industrial expansion, and the railroads, telephone, and telegraph companies were temporarily nationalized...
...David Stockman, to his credit, was even thinking of proposing a "mansion gap," which would have limited the amount of interest that can be deducted under this item...
...The final option for America as it moves toward the third stage of the welfare state is social democracy with a social democratic face...
...from 57 million workers in 1947 to nearly 80 million in 1969...
...Therefore the third stage of the welfare state must at least begin to transform the basic structures, which not merely undercut minimal social decency but also are a major source of economic crisis...
...Over time the efficacy of the best system of controls will decline...
...Top-down, corporatedominated, nondemocratic planning...
...There was a certain logic in the development of the black nationalist trend in the civil rights movement of the '60s...
...When corporations, and the corporate rich, are in charge of the critical investment decisions that determine the economic course of the society, they are, by that fact, more important than anyone else, including a democratic majority...
...So Reagan's policies are based on a fundamentally flawed analysis...
...And so, throughout the foreseeable future, there will be private corporations with considerable economic power...
...And the very same banks that avoided helping the city that housed them were willing to make much riskier investments in the Third World...
...It speaks to the needs of constituencies that are a potential majority force in the United States...
...Let me be candid about it...
...increased internationalization of the American economy makes private and public plans based on national assumptions obsolete...
...There is the Moynihan bill that would provide tax expenditures for private—which in many cases would effectively mean segregated—education...
...agribusiness took 92 percent...
...Controls in and of themselves are not good or bad, inflationary or deflationary...
...Throughout the entire postwar period, the average U.S...
...So internal as well as international changes in the very structure of the money system turned monetary policy from a tool of government planning into a dangerous mystery...
...Even though the success of the second stage of the welfare state was accompanied by a minimum of institutional change, it was quite real...
...Given the "end of ideology," which resulted from this unprecedented situation, we were told the political decisions were now merely technical and expert, a characteristic of the "postindustrial" (which had to mean postcapitalist) society...
...At the same time, many Americans were unable to get mortgages because of sky-high interest rates and had trouble financing cars for the same reason...
...How, within that constraining framework, can one at least begin to control that elite power...
...The banks had profited enormously from selling municipal paper and they well might have begun to dump it on the basis of insider information about the emerging cri415 sis...
...Only now do we see sweeping technological change threaten at precisely the time when the policy tools of which the Commission was so sure no longer work...
...This is a political, as well as an analytic, necessity since the strategy to be outlined here sees radical reform as the only means of defending and deepening the gains of the past...
...In that sense, the technological element in the current situation is a classic repetition of an old pattern...
...Full Employment THERE MUST BE a planned, federal creation of entire new industries to provide jobs for Americans, putting them to work satisfying real needs and, wherever possible, also eliminating sources of inflation...
...Yet between 1950 and 1980 the debt of all levels of government (state and local as well as federal) went up by 340 percent, while private borrowing soared by 1,642 percent...
...I call this "social democracy"—and not socialism— because, in realistic political terms, it envisions a structural reform of late capitalism, not society's basic transformation...
...For there must be standby authority for the imposition of—note the precise way the thought is formulated —price, executive compensation, rent, and wage controls...
...Let me theorize Rohatyn's accurate empirical statement...
...In the 1970s Communist agricultural failure in such countries as the Soviet Union and Poland led to enormous increases in U.S...
...Part of the problem, he argues, is that there is too much democracy and the minority no longer respects the decisions of the majority (which is very close to the Trilateral Commission thesis that the West is suffering from democratic "overload...
...And there is an enormously important social issue that, I think, can unite us, black and white: the struggle of integrated quality public education in the United States...
...That meant a wage freeze, a 20 percent reduction in the municipal work force, increased transit fares, tuition at the City University, a shift of pension costs from the city to the unions, and new taxes...
...are self-contradictory and will not work...
...Other major forms of domestic transportation are also experiencing difficulties...
...And, as we have seen, an increased supply of capital can facilitate speculation rather than real investment...
...I am for our fighting in our own name on the issue and probing to see whether it could become the position of the entire movement...
...Not one cent of subsidy money —not even a tax deduction for the cost of moving—to a company that moves out of a community without giving advance notice, defending its actions in terms of social costs as well as private benefits, and agreeing to pay for those social costs by helping to create new, alternative jobs for those made unemployed by that decision...
...Health is a prime case in point...
...That would strike a massive blow at one of the critically important democratic institutions in the society, the public school...
...But, since 1970, the contradictions of the 416 private sector have become impossible to ignore and the systemic flaws of standard liberal theory have helped to discredit liberalism and make a reactionary conservatism seem plausible...
...There is ample precedent for this approach...
...Social Security, the heart and soul of the welfare state, was enacted—and so was Aid to Dependent Children (ADC...
...Measures to rebuild the barn door after the rustlers have fled are useful, but in a limited way...
...This is one of the sectoral sources of inflation...
...All this can sound "social democratic," which is why some unions have been attracted to Rohatyn's approach...
...There were, to be sure, recessions in 1949, 1953, and 1959, with American unemployment rates significantly higher than those in the European welfare states...
...They differ on what plan to implement and how...
...But this would require, as Richard Goode has shown, even more progressive rates than in the case of an income tax...
...And "Fanny Mae"—the Federal National Mortgage Association, a spin-off from the old RFC—also worked to the same effect...
...Even if such outlays were enormously beneficial on economic grounds I would oppose them...
...But the translation of those value choices into political programs is, under modern conditions, a process that requires computers and experts...
...Indeed, in this period the percentage of the labor force enrolled in unions—a critical index 406 of the political power of the people in a welfare state—declined...
...The Reagan program has been exhaustively criticized from the left and all that is needed here is to summarize a persuasive indictment...
...That is merely one more sign of a historic turning point: the end of the second stage of the welfare state in this country, and the beginning of the battle over the third stage...
...It is justified on the grounds that it will give the corporate rich the funds to invest in jobs and productivity that will benefit the entire society...
...They, as other major departments of the economy, will be basically changed...
...One of the most radical economic, social, and political decisions ever made in this country was taken during the Administration of Dwight Eisenhower: the Federal Highway program...
...One other factor—technological change— has only begun to have an impact on the American economy but it, too, promises to bring deep-going changes that will render the policy patterns of the past half-century obsolete...
...In New York in the past, in America in the future, everyone must suffer, the rich and poor alike...
...The JEC details the many things that are wrong with them but one statistic might stand as a paradigm for all the other problems: "The average speed of passenger trains in the United States has declined 417 from 70 miles per hour in the mid-1950s to a current average of 40 miles per hour...
...Social Security is under attack for the first time in its history, and the demand to roll back the living standards of the aging comes from Democrats as well as Republicans...
...In practice, the "All Savers" favored those people who had slightly more than $15,000 to invest and who had incomes of more than $30,000 a year (the higher your income, the better the deal...
...for instance, some Catholics will, in addition to joining in the campaign for a truly democratic foreign policy in the Third World, work in right-to-life movements that are at loggerheads with feminists...
...Clearly, as this analysis has demonstrated, the crisis of the welfare state is going to be resolved by national economic planning...
...And as long as that basic structure of corporate dominance goes unchallenged, the crisis will, as Rohatyn recognized, be resolved at the expense of the poor, the working people, and even the middle class...
...It will probably be done by using one of the favored antisocial weapons of these times: statistics...
...so is national health...
...Here is a concrete example: 420 Since the CBC provided this illustration of how it would be possible to defend welfarestate gains simply by requiring the rich and corporations to pay a part—only a part—of their fair share of the tax burden, the tax expenditures have continued to increase...
...Gary Hart does not even make that bow...
...I will, for instance, be relatively brief in talking of social policy, not because it is unimportant, but because I believe that the restructuring of the economy is the precondition for progress in this era...
...There was a tremendous increase in employment, income, and GNP: from $208.5 billion GNP in 1946 to $930.3 in 1969, more than a fourfold increase...
...What is needed, I would suggest, are a number of democratically structured regional rail corporations with community and labor participation as well as input from working management and government...
...What Sir John Hicks, Britain's first Nobel laureate in economics, calls a "fixprice" market is a major factor in the United States, particularly in manufacture, communications, and transportation...
...But this planning (the "social democratic" component) is to be done in elite fashion (the "corporate" face...
...But the problem is that the United States already has the cheapest welfare state in the advanced world...
...That question is relatively easy to answer, not the least because, in 1981, the Congressional Black Caucus (CBC) provided an excellent and quite specific model of how this might be done...
...The context has changed...
...Now the momentous question at issue is: what kind of planning...
...Even though major population centers receive adequate air service, many smaller communities are losing service as a result of airline deregulation and the increasing cost of providing service...
...To the degree that such policies would reduce unemployment, they would cut that $30 billion federal deficit cost of each percentage point of joblessness...
...An America in which interest payments are now a higher percentage of national income than profits is awash with money being used to "rearrange" assets rather than to produce goods and services...
...That, however, has not prevented them from having a devastating effect on the real world...
...Milton Friedman and his ilk spin 18th-century fantasies to legitimate the late 20th-century domination of politics and economics by corporate power...
...The aging, however, were not the only group to advance during the second stage of the welfare state...
...410 Two of these policy options—Reagan's and the one urged by the "neoliberals" in the Democratic party—share a faith in the ability of financial markets to allocate capital to uses that are both privately and socially useful...
...The main point I want to make here is not about the structure of a new rail industry, important as it is...
...Rather, it is the challenge of proposing and implementing significant structural changes of the system within the system...
...There is another old-fashioned social value that I think might be a new idea for the '80s: racial integration...
...The leftist heart beats strongly when someone suggests raising the corporate income tax, but the leftist mind has to realize that "pricefix" companies simply add all, or most, of that cost to the price they charge, thus imposing the levy on the consumers...
...At the same time, farmers, heavily dependent on borrowing, were devastated by soaring interest rates...
...Some of the organizational forms and tactics—particularly the flirtation with violence—were, and are, wrong...
...The key strategy here, I believe, is to make any subsidies to corporations dependent upon their conforming to a democratically determined economic plan...
...their liberalism is genuine but irrelevant...
...In the 1982 budget these hidden, but quite real, outlays total $266.7 billion...
...Part of the answer is that corporations have become much more addicted to debt—and short-term debt in particular—than ever before...
...In the 1982 budget battles, the inevitable consequences of a mad logic began to assert themselves...
...Each of these investments would also promote environmental protection while simultaneously creating jobs...
...Controls administered by Richard Nixon's appointees with a mandate to "zap" labor were reactionary...
...The growth dividend yielded by this approach was then employed to provide a minimal (in the United States, often subminimal) living standard for those who could not participate in the private labor market (the very young, the aging, the severely handicapped...
...But why, then, group these neoliberals next to Ronald Reagan...
...In both cases the good news (price increases slow down) was purchased at the cost of bad news (agricultural depression, industrial recession...
...In the "golden age" of 1965-69, nonresidential fixed investment was 10.5 percent of GNP, but in 1979 and 1980 it was 10.7 percent...
...At this point I must simply state that I do not know whether that question would split the unity of the coalition...
...Each therefore explores ways to reward investment and restrict consumption...
...So much for the famous assumption that "throwing money at problems" never works...
...The central point is that the CBC attacked a concealed form of federal spending that has been increasing much faster than the open outlays in recent years: tax expenditures...
...We are, in short, for truly democratic planning, truly democratic public ownership, genuine democratization, and we see the process of decision-making as having a profound impact upon the priorities that will be decided upon...
...However, let's leave the scholarly argument over the consumption tax aside (and there are, it should be noted, two sides to it...
...Corporate concentration and conglomeration further attenuate the influence of markets and undercut fiscal policies that assumed those markets would send the proper signals...
...Our aim is, of course, to persuade that coalition to come to accept them...
...In the halcyon days of 1945-70 the car manufacturers, choosing to ignore the UAW's advice, profiteered off increasingly inefficient and expensive autos, while conceding the market in small, fuelefficient vehicles to the Japanese and West Germans...
...424...
...by 1980 almost 17 percent of the population held college degrees...
...It is impossible for me, or anyone else, to elaborate a finished account of why these things have happened...
...The choice here is that investment must be favored as against consumption, above all, as against the "nonproductive" consumption that is social spending...
...THIS SYSTEM doesn't work any more...
...Indeed, the ideal system would be one in which all taxes (federal, state, and local) except the federal individual income tax would be repealed, and all funds would be collected progressively through that individual income tax...
...Rohatyn helps in defining what that third stage of the welfare state should be...
...Second, I believe, as a socialist, that corporations should receive subsidies as part of a plan for rebuilding America...
...There are many ways to evade them, and business is willing to invest a tremendous amount of time and money in order to learn the ways...
...We favor, of course, the right of a woman to choose an abortion if that option is necessary...
...It took seriously one estimate that manufacturing jobs would, over the next 30 years, decline by more than 80 percent (from between 25 and 28 million to 3 million...
...And in this threatening context there is the prospect of a new technological revolution...
...and on and on...
...This fits into Rohatyn's "Japanese" insistence that Washington must plan, by means of wage freezes as well as government funds, to solve the present crisis...
...It was Richard Nixon who encountered the new reality but, much as one would like to blame that scoundrel for almost anything, in this case it was not his fault...
...This was one of them...
...By redefining the Consumer Price Index —and by scrupulously ignoring the way in which it underestimates the costs borne by the aging—the government can lower the real income of people over 65 and reverse the trend of the 1960s in which the poverty of that group was cut in half...
...In wrongly seeking to control deficits that are the effect, rather than the cause, of the economic crisis, Washington discovered that it had to attack programs for the aging...
...in the OPEC–induced crisis of 1974-75, joblessness and prices rose together...
...In the recession of 1969-70, unemployment rose but prices did not fall at the expected rate...
...The DuPont–Conoco and U.S...
...The program outlined here has obvious political implications...
...But the crisis also has a positive function from that same corporate point of view: it not only permits, but forces, restructuring, the closing of the least efficient units, investments in new technologies...
...There were also significant social gains...
...There has also been money for speculation...
...No longer do we fear that automation and technical progress will rob workers of jobs rather than help us to achieve greater abundance...
...companies spend over $10 billion a year in lawsuits among themselves, much more than in any other Western economy...
...Business people preach sobriety and abstemiousness to the federal government...
...They are young, sound, innovative, and have placed themselves strategically between the "extremes" of Reaganism and '60s liberalism...
...Felix Rohatyn is rather frank about his elitism...
...There is one other item in this list of sacrifices and it is worth closer examination...
...To be sure, Tsongas bows in the direction of that problem...
...and this is one reason for its defeat...
...The status quo is not an option for the '80s...
...Worse, such a situation could lead to internecine struggles among the victims: the organized against the unorganized...
...In fiscal policy, the "trade-off" between unemployment and prices no longer operates or, more precisely, does so at intolerable costs: it takes a deep recession to reduce prices even temporarily...
...His central proposal is to switch from an income tax to a consumption tax in order to maximize saving and investment (which would not be taxed...
...In a matter of months, the estimated cost of farm supports, including multibilliondollar subsidies to nonproduction, jumped by $5 billion...
...The third strand in the Reagan policy is tight-money policy to control inflation...
...There was a quarter of a century in which, with an anomaly or two, each year was better than the last in terms of buying power...
...That is beyond the capacity of any Congressional Committee...
...The other two options—Felix Rohatyn's and the one advocated in this essay —favor planned investments, but they differ profoundly as to how this should be done...
...Even as the inflation rate eased somewhat in 1981-82, health costs continued to soar...
...But it takes place in an utterly new environment and forms a further destabilizing factor...
...But the coalition that advocates the full-employment and anti-inflation policies outlined here must also realize that there is a tremendous social dimension to this undertaking...
...As in the 1890s and the 1930s, there will have to be a fundamental restructuring of the system— within the system...
...By 1944 it had shot up to 32.4 million...
...In The Road From Here he writes that .. if we maximize "justice" we destroy the conditions for economic growth...
...In this very brief survey of some basic causes of the present crisis, every case involves structural change that invalidates the conventional theory and practice of the last 50 or so years...
...There followed an agricultural depression...
...The two planned social investments just proposed—for alternate energy and a new rail system—would both reduce the inflationary component of the present energy and transportation system...
...But in 1981 huge crops and the embargo of exports to Poland (second only to the Soviet Union as a customer) depressed prices...
...Steel–Marathon deals are only the most obvious recent cases...
...In some industries, the tax breaks are so lucrative that nonprofitable investments become rational —which is to say, the losses are assumed by the taxpayers...
...However, a careful survey of the data, Edward S. Herman's Corporate Control, Corporate Power, concluded in 1981 that "price competition has diminished in the process of growth and maturation" in this country...
...He said of the New York City crisis, as we have just seen, that "when government cutbacks occur, the needy always get hurt...
...He notes, for example, that West Germany, far more economically successful than the United States in recent years, spends a higher percentage of its GNP on government than does this country, and he attacks the class bias'of Reagan's programs...
...422 Therefore the democratic left should adopt a basic principle, which it seeks to implement in the third stage of the welfare state: that wherever planning decisions are to be made, public funds be available to significant groups that wish to engage in counterplanning...
...Politically, when a major shift is made in the tax system in order to maximize investment, there is no way to impose steeper rates on the rich, if only because that undercuts the very rationale for the whole undertaking...
...One cannot be sanguine about the struggle for national health insurance —it has been going on for a generation, has had the support of a clear majority of the American people throughout that period, and has never even come close to serious consideration in the Congress...
...And the railroads...
...those measures are ways to increase the democratic power of the majority over the economic decisions that determine so much of their lives...
...And there is, of course, Reagan's even crasser support for tax exemptions for segregated education...
...Small wonder that, particularly during the Kennedy and Johnson period, the notion came to the fore of a crisis-free, ever-expanding economy with stable prices...
...In 1978, then, the poverty rate among the aging was about half of what it had been in 1968...
...Any scheme that (wrongly) seeks to expand the supply of capital by preferred treatment of investment income must, even when accompanied by a populist rhetoric, subsidize those with most capital...
...In a somewhat more populist mood, he advocates tax-deferred accounts for everyone...
...half of Washington's budget is allocated to "payments to individuals," most of that money once again going to the aging...
...In part this was a legacy of the inflated 1970s, with corporations borrowing in short-term markets and assuming they could pay off in depreciated dollars...
...In a 1976 speech, Rohatyn made it clear that his RFC would force governors to make certain political decisions in order to get infusions of capital...
...This situation reminds one that, for all the tremendous changes that have taken place in capitalism over the past century or so, some of its classic mechanisms remain intact...
...In somewhat oblique language, he comes out against the RFC approach, denouncing government subsidies to "sunrise" industries (and a policy of allowing "sunset" sectors to die...
...In fact, of course, the 1960s' euphoria was permeated by ideological assumptions...
...The neoliberals—I have in mind Senators Paul Tsongas and Gary Hart in particular— share some of Reagan's assumptions, yet they are economic as well as social critics of other aspects of his program...
...The second stage of the welfare state lasted from 1946 to 1969, culminating in a euphoric "golden age" under the Kennedy and Johnson administrations...
...Therefore, Social Security has to be cut...
...The JEC, to be sure, will probably be appalled by the way in which I modify their scheme for a tripartite effort of business, labor, and government by calling instead for democratically structured, publicly owned corporations...
...Bureaucracy FOR A GENERATION, the American right has been attacking the welfare state by denouncing its bureaucratic tendencies...
...More positively, the assumption was that social harmony could and would exist so long as the state compensated for the inadequacies of market capitalism without touching the core of capitalism itself...
...there was a tenfold increase in the funds for public higher education between 1950 and 1970...
...outlays on welfare were about 60 percent of those of the other Western societies (excluding Japan, but including Australia and New Zealand...
...In theory, control of the money supply by the Federal Reserve works in much the same way as fiscal policy: "easy" money facilitates expansion, "tight" money controls prices...
...At the same time, sectoral—often very "American" —causes worked to further destabilize the system...
...Financing HOW ARE WE going to pay for all of these fine things without contributing to an inflationary spiral...
...Moreover, Hart is an opponent of the military's obsession with oversophisticated technology and Tsongas explicitly defends gay rights...
...Highway System is rapidly deteriorating...
...As the conservative economist Herbert Stein has acknowledged, the Keynesian "textbook," which provided the policy framework for a generation, is now obsolete...
...Between 1970 and 1980 the portion of American goods production that was exported rose from 9 percent to 17 percent...
...In the 1970s, the crisis of the second stage of the welfare state brought this idyll to an abrupt end...
...THE THREE PILLARS of Reaganomic theory are, in short, constructed out of sand...
...It was—and here the notion of "social democracy with a corporate face" emerges—supported both by the extreme right wing of the New Deal, including Jesse James who administered, the program, and by the plan-oriented left wing (people like Adolf Berle...
...The Nation's major airports and primary air lanes are congested...
...Once that is done, the Reaganites say, the households will "freely" make the decisions the planners want...
...In more specific terms, if you maximize all your "just" social programs, the costs would be so burdensome as to cripple the economy, leading to sharply reduced governmental revenues and the collapse of these very programs as a result...
...And they go lower and stay lower only if production costs do the same...
...Clearly, the Fed should be subjected to democratic controls with the term of the chair to expire at the same time as that of the president who appoints him, and the governing board should be broadened to include representatives of the unions and the consumers...
...The blacks were right to be frustrated at idealistic whites who were going to "save" them, and they understandably insisted upon organizing and leading their own movement...
...Therefore, credit allocation should be part of an anti-, inflationary program, seeing to it that funds are channeled to genuinely productive, socially valuable uses...
...In short, we are not simply seeking a progressive resolution to the economic crisis of the second stage of the welfare state—but an increase in justice and freedom for the entire society...
...In the recent past, enormous sums of borrowed money have been available—despite all the talk about "crowding out"—for corporate take-overs that do not create jobs or increase productivity...
...The chair of the Fed is perhaps the second most important economic policy-maker in the United States, ranking just after the president...
...But just because the rightist critique in this area is either a well-intentioned proposal for irresponsible bureaucracy or a fraud designed to conceal the bureaucratic reality of late capitalism, it does not mean that the left can ignore the issue...
...the building-trades people who would have built the houses and the auto workers who would have constructed those cars suffered unemployment as a result...
...One can argue endlessly about the contribution of government policy to this progress—did Washington stimulate the boom or mainly get a free ride out of it...
...Tax expenditures," Joseph Minarik of Brookings wrote, "are preferential departures from identical treatment of all types of income under either the individual or corporate income taxes...
...Take two dramatic examples: between 1970 and 1980, the number of commodity future contracts (a publicly sanctioned form of gambling) rose by 450 411 percent...
...As Felix Rohatyn concedes on occasion, there were national investment policies that encouraged the migration of jobs from the Northeast to the Sunbelt without taking into account, or planning for, the consequences...
...At the same time, it should be stressed that the gain in living standards was not the result of a redistribution of income and wealth...
...This provides the business clientele for "social democracy with a corporate face...
...There is a second trend that sometimes even countervails the one we have just described: the internationalization of American capitalism...
...At a minimum, they were guilty of incredible naivete—William Simon, the most unctuous of capitalists, has said that the bankers, including himself, never questioned the "underlying fiscal conditions of New York" when they were giving official financial advice to New York...
...As the Congressional Budget Office computed the consequences of the president's 1981 proposals: Share of Total Tax Savings by Income Class Expanded Income Class Share of Total Returns Share of Tax Savings $0-10,000 36.6 3.3 10-20,000 25.9 8.7 20-30,000 18.1 21.1 30-50,000 14.6 31.0 50-100,000 3.9 18.0 100,000 and over 0.9 17.9 Source: Table 8 in "Analysis of President Reagan's Budget Revisions for Fiscal Year 1982," Congressional Budget Office, March 1981...
...In general, these times of uncertainty and crisis, of fear of layoffs and stagnating or declining real income, make people a prey to the right as well as a possible source of mobilization for the left...
...Particularly when it is clear that the taxpayers would have to provide the "risk capital" for the undertaking...
...Even more to the point, Ken Auletta has documented how the banks actually improved their position during the city's crisis...
...The point is not to blame Tsongas for the failings of an "All Savers" program that postdated his book, but to suggest that the problems writ so large in the case of "All Savers" are inherent in the approach he advocates...
...The most progressive way of dealing with the tax system is to make the individual income tax fairer...
...His chosen instrument for this program is a new Reconstruction Finance Corporation (RFC) that will act as a federal investment banker, putting money into "sunrise" industries, creating a new economic base for the Northeast, and dealing with a host of other problems...
...Here again the facts do not conform...
...That does not mean that each of them abandons its full agenda...
...And in a series of laws in the late '60s and early '70s Washington finally took some minimal responsibility for the protection of the environment...
...That is not only unfair, it is uneconomic since it diverts resources to nonproductive uses...
...The bankers, in fact, prospered rather than suffered...
...Let there be no mistake then: life was significantly better in 1970, at the end of the second stage of the welfare state, than at the beginning, in 1945...
...An economic crisis is bad from a corporate point of view: it reduces profits, drives out the more vulnerable companies, and so forth...
...BUDGET DEFICITS, which are the result of that "prodigal" but actually nonexistent welfare spending, are identified as another source of our troubles...
...BEFORE EXAMINING THIS CRISIS, it is important to sketch the achievements of the second stage of the welfare state...
...Put more cynically and in the words of a Washington wit, the RFC is "Felix Rohatyn with a 100-billiondollar check...
...female against male...
...It rose to $210.1 billion in 1944...
...Stagflation"—simultaneous high prices and unemployment—is a new phenomenon, and it reflects changes in the very structure of late capitalism...
...it was part of a massive tendency of the society as a whole...
...But if there is political maturity—if such disagreements are fought out in such a way as to make the unity behind a common program possible—those problems can be kept manageable...
...More recently, European governments have been profoundly disturbed by the fact that money is taken out of productive uses in their domestic economy and sent to the United States for risk-free high rates of return in the money market...
...But even if one did not know that interesting fact, it is clear that Hart's proposal is a classic case of dirigiste laissez-faire politics: having the government rig markets in favor of "free enterprise...
...Even more important, since all economic proposals that are now being debated call for some planning, the actual result of the "antibureaucratism" slogans of the right is to dismantle institutions that protect people and to provide for hidden, and therefore elite, planning...
...This points to a critical truth, one that subverts both Reaganite and neo-liberal theories: it is not the supply of capital that is problematic, but the use made of it...
...Thus any serious socialist critique of the welfare state must have as its first premise a defense of these gains...
...But that does not change our agreement on the conditions that demand a new railroad industry in the United States...
...That is an interesting proposition in the light of the experience with the "All Savers" accounts (which took place after Tsongas's book was published but casts a great deal of light on his proposals...
...It is creating a new space for human freedom and autonomy under the complex conditions of late twentieth-century life...
...We have said —and continue to say—that the majority could make the basic value choices better than the elites that speak in its name...
...I am against these, primarily on noneconomic grounds: they threaten existence on the planet and, by destabilizing an already unstable balance of terror, dramatically decrease the national security of the United States...
...The internationalization of American capitalism was most dramatically evident in an area that many people think of as almost precapitalist: agriculture...
...But what of the $31.3 billion not paid to Washington because of the deductibility of mortgage interest and interest on consumer credit...
...But where a corporation moves into a community in distress and starts hiring, generous public subsidies...
...Roughly two-thirds of federal domestic spending goes to people over 65 years of age...
...While Reagan was thus taking Food Stamps away from the working poor and trying to figure out a tactic for the attack on the aging, his tax cuts were giving enormous benefits to the very rich...
...Indeed, it could well be supported by the more sophisticated, foreigntrade oriented sector of capital, which understands that it must compete with state planning in every other advanced capitalist society and might want to emulate it at home...
...Finally, President Reagan has proposed huge increases in military spending...
...Hart, to be fair, says of "supply-side" economics: "In practice, it brings high interest rates, massive deficits and depression levels of unemployment...
...When the New York City crisis broke, there were questions as to whether they should be indicted for criminal responsibility in the breakdown...
...but this crisis also takes a peculiarly American, and therefore exceptional, form in this country...
...It is supported by three demonstrably false propositions: • GOVERNMENT SPENDING in the United States, by taking away from investment and subsidizing consumption, is the cause of declining investment and productivity...
...The CBC "alternative budget" restored all of Reagan's reactionary cuts ($27.4 billion) but increased the government's tax revenues by $27.1 billion...
...The first stage lasted from 1933 to 1939 when Franklin Roosevelt, with consummate political skills and little conceptual sense of what he was doing, improvised a series of responses to the Great Depression...
...This is done by changing after-tax wage rates and the after-tax return on capital...
...This raises an important problem regarding the politics of the democratic left coalition for a third stage of the welfare state...
...Then a combination of energy crisis and growing internationalization of the capitalist market made this policy a prescription for disaster...
...In that year 10 7 million families were kept above the poverty line through government action...
...This is the basic rationale for all of Reagan's reactionary policies...
...The fact that America is the only advanced capitalist society without a national health system means that our medical structures are not simply more unjust but also more expensive than those in the rest of the capitalist world...
...At the same time, American banks have been busy creating new kinds of money—checking accounts with interest, certificates of deposit that authorize withdrawals —and brokerage houses have, in effect, been going into the banking business...
...It also was a key element in the effective—but also unplanned—decision to destroy mass transit in America by providing huge subsidies for private passenger automobiles and for the trucking industry...
...After the war that experience was generalized as big business—most notably John D. Rockefeller, Jr.—came out for "industrial democracy" with a system of tripartite governance...
...Women now are slightly in the majority of the society, but women committed to feminist principles are a minority within that majority...
...421 But we—and here I speak particularly of socialists like myself—have a responsibility to state our politics openly and clearly, even if we do not demand that the broad coalition adopt them in toto...
...Hart and Tsongas are convinced that America's basic problem stems from overconsumption and underinvestment...
...Conversely, stepped-up federal spending would inflate demand, business would hire workers and employ unused capacity in order to take advantage of new opportunities...
...Right after the law passed, Thomas Graham of Jones & Laughlin Steel told the New York Times: "What we need is an international pause in adding steelmaking capacity...
...So when oil costs went down—in part because of a more efficient use of fuel, in greater part because an economy in recession uses less energy—that too helped 409 moderate the inflation rate...
...food exports: they jumped from $9.4 billion in 1972 to $17.7 billion in 1973 (the year of the first big Soviet grain deal) to $41.2 billion in 1980...
...This result is unfair but it is to some degree inevitable...
...Here is a key passage in which the JEC states the basic conclusion of this analysis: The development of a high-speed passenger rail system in the United States would have benefits that extend far beyond saving energy and improving personal transportation...
...Everybody pays the maximum tax rate on their income except those who receive income in the form of capital gains—the latter compute their tax at a preferential rate on the capital-gains portion of their income...
...the imported share of sales in this country went from 9 percent to 21 percent...
...It was not 418 just those priced out of the market who were hurt...
...The reason is that the evolution of latecapitalist society has subverted the effectiveness of some of the theories and practices of the second stage of the welfare state...
...The Depression was ameliorated...
...It means that each commits itself to the united movement as well as to that fuller, more specific agenda...
...What New Yorkers were forced to accept, he holds, was "a period of austerity...
...Fixprice" markets are, as Business Week stated when it summarized Hicks's view, . largely insulated from the forces of supply and demand...
...it is the fundamental assumption about the need for more capital and the profound faith, so contrary to the actual experience of recent years, that an expanded supply of investment funds will automatically be allocated to economically productive, socially useful purposes...
...The "New Economics" congratulated itself on having solved the basic contradictions of the system by means of "fine tuning...
...Therefore, controls —and plant closing legislation—are a valuable technique for buying time, for slowing down and blunting the corporate tendency to ride roughshod over consumers and communities...
...Much of that assault is based on fiction: federal employment has just about kept pace with population growth during the last two decades...
...The issue is not simply an economic program...
...Credit allocation is a critical measure in this context...
...But it should also be remembered that one of the conservative criticisms of controls has merit...
...In theory this was supposed to provide a pool of money for mortgages...
...if social meanness were the key to economic success this country should by now be far ahead of Japan and West Germany...
...That is what I wish to propose...
...Had Hubert Humphrey been elected in 1968, he would have had to face the same problem and his response, though preferable to Nixon's, would have been almost as inadequate...
...The left is not for planning or public ownership or the democratization of investment as an end in itself...
...Within this variegated movement the democratic left—and particularly its socialist wing —has to make a difficult existential decision: how to push a movement in a progressive direction on these questions, but not to push it so hard that its unity is shattered and all communication becomes impossible...
...But why does government policy treat speculative borrowers in the same way as—in reality better than—consumers who want to buy the necessities of the present living standard and thereby can help provide employment to auto and construction workers...
...Between October 1979 and February 1980, the money supply rose by 7.7 percent, then dropped by 7.9 percent in the next quarter, increased by 11.9 percent in the following year, then fell by 0.3 percent during the next two months, and went up by 12 percent in the two months after that...
...They avoided prosecution (which even the Wall Street Journal understood was one of their purposes), increased the assets of the largest banks by 23.5 percent while lowering their municipal securities to 3.4 percent and municipal paper to less than 1 percent of their assets...
...In 1977 the farmers received a little less than 8 percent of the total market value of their crops...
...This reactionary redistribution of income dramatically deviates from the accepted norm (observed mainly in the breach): that taxes should be based on ability to pay...
...This was, said Walter Heller, chairman of the Council of Economic Advisers from 405 1961 to 1964, "the age of the economist...
...Now the JEC has told us in November 1981 that massive investment has become impossibly expensive to maintain: The U.S...
...black against brown and yellow and red as well as white...
...Central to all political capitalism, and especially to its American variant [Walter Dean Burnham has written] was the denial of the fundamental contradiction between accumulation and consumption...
...The "uncontrollable" element in the current situation is not, as Reagan argues, government spending, but an economy out of control that imposes expenditures—like that extra $5 billion in farm subsidies—on conservatives and liberals alike...
...Controls that genuinely seek to contain all prices, incomes, rents, and, where required, wages, in any form, and that are administered openly and democratically can be helpful in the fight against inflation...
...This was done even though some 15 million Americans were in uniform...
...Companies set prices in these markets to reflect their production costs...
...Both the first and second stages of the welfare state assumed that it was good and proper for corporations to dominate the economy...
...Indeed, the Securities and Exchange Commission investigation of the mess contained assertions that might have caught the eye of a public prosecutor...
...Tsongas mines a similar vein...
...The German metal workers' union came to similar conclusions, calculating that 45 percent to 55 percent of the jobs in West Germany would be affected by electronics...
...There can also be specific programs aimed at sectoral sources of both inflation and unemployment...
...In this context, I think the coalition is, right now, ready to back Affirmative Action for women and minorities, comparable pay, equal rights, and no discrimination on the basis of a sexual preference...
...Socialism is not on the immediate agenda...
...World War II was the only time government intervention really fulfilled its economic promise, but also an exception since it required a global conflict to dragoon our society into economic rationality...
...What is at stake is not a total transforma423 tion of American society...
...By a judicious elimination of just a few tax expenditures, the CBC was able to show how revenue could be raised that would more than offset the cost of restoring the reactionary cuts made by Reagan and still bring in a lower projected deficit than that of the president...
...Conversely, as long as this crisis persists, trade unionists will be on the defensive, struggling against demands for "give backs" in which they are asked to pay for the incompetent investment policies made in the boardrooms...
...That same internationalizing process is also one of the reasons why monetary policy is in disarray...
...Rohatyn is for a planned, technocratic reindustrialization of America by means of a coalition of government, business, and labor that will guarantee—in theory, though only in theory —equality of sacrifice on the part of all the participants...
...This idea, Business Week reports, came out of a Treasury report prepared for William E. Simon, one of the most vigorous supporters of largesse for the corporations...
...In the brief, first stage of the welfare state, the contradictory potential of this arrangemeM was hardly apparent since people were gratefUl for any relief from the worst collapse in the history of capitalism...
...But if this policy did, for some reason, work, then the tight money would likely cancel out the effect of the tax stimulus and slow down, or even abort, the recovery...
...These enormous outlays created no new jobs and did not increase productivity, yet they were $11 billion higher than the productive expenditures in the same year for nonresidential fixed business investment...
...Affirmative Action programs for minorities and women made some—limited—impact...
...In addition to being cruel, these cuts will have no significant impact on the current crisis since they attack symptoms, not causes...
...What is wrong with Hart's proposal is not some hypothetical possibility that can be debated by scholars...
...All that is needed to deal with new technology, the Commission said, was the proper manipulation of total demand...
...To be sure, the government intervened, primarily by means of fiscal and monetary policy, in order to assure a proper mix of buying power and investment and thereby to guarantee full employment and price stability...
...Given this reality, Peter Peterson, the secretary of commerce under Gerald Ford, pointed out in 1982 that it is impossible to balance the budget simply by attacking the poor: ". . we would run out of unworthy poor people long before balancing the budget," he wrote...
...But one has to understand the context that gave rise to those attitudes...
...But for this system to work as well as it should, one of the great autocratic principalities of the American political structure has to be challenged: the Federal Reserve Bank...
...When Rohatyn originally came up with the idea of reviving the RFC in a New York Times article in 1974, he was primarily concerned with a way of helping corporations deal with their new debt addiction...
...The very broad spectrum to which one can appeal on these issues is not, however, necessarily united on social issues such as women's rights, gay rights, the rights of accused defendants, and so on...
...Socialists have never argued that the majority possesses technical expertise...
...Under these conditions, the "private" decisions of auto and steel makers had the public consequence, not simply of causing unemployment and injuring entire regions of the United States, but of making obsolete the established economic policy, which had been designed for a relatively closed, national economy...
...The second stage of the welfare state was based on a mixed economy in which, however, basic economic decisions were still made in corporate boardrooms...
...However, and this was particularly true in the United States, the private sector remained in charge of the allocation of most resources—an arrangement the state was supposed to facilitate, not challenge...
...The whites in that movement, and I do not exclude myself, sometimes showed a touch of noblesse oblige in an otherwise excellent commitment...
...the health lobby against the school lobby...
...Aid to Families of Dependent Children (AFDC) was added as an afterthought, with the expectation that it would soon become unnecessary...
...It is that the membership of the JEC, including its Republicans, understands that the conscious and planned creation of an entire new industry is necessary both to meet national needs and to create jobs...
...Because their central point, their controlling assumption, is conservative...
...Indeed, the 1979 decision to let interest rates soar —which was supposed to reduce inflation— was made in response to international pressures...
...But why involve the very industry that helped to destroy the rail system...
...But it is clear that a growing sophistication about macroeconomic tactics had some positive effect...
...America was thereby dragged into the 20th century, about 50 years after Bismarck and 30 after Lloyd George...
...If that were so, why had it taken a full quarter of a century for this effect to assert itself...
...The program outlined here for the third stage of the welfare state seeks to identify a common denominator of economic and social need that can politically unite all the progressive movements...
...Northeast against Southwest...
...There's too much 412 capacity in the free world...
...This may sound like conservatism pure and simple, but it isn't...
...Thus Tsongas criticizes the Kemp-Roth tax proposal of 1981 as inflationary, but defends the notion of massive subsidies to capital...
...The Carter administration was the last gasp of the conventional wisdom, oscillating between moderate and reactionary Keynesian tactics...
...All the corporate books must be opened...
...Can one imagine the howls of consternation from the right if the National Labor Relations Board were staffed totally by trade unionists with terms of office allowing them to outlast elected presidents with whom they disagreed...
...According to the Federal Highway Administration, the federal government must expend $360 billion [in 1980 dollars] over the next 15 years just to maintain and repair the existing far-from-adequate road quality of the 847,000 mile federally aided highway system...
...Years of experience with similar tax deals in Britain," the Economist said, "make most Europeans rather dubious...
...And it is, of course, much more realistic than either Reaganomics or neoliberalism: it has the virtue—but also the vice—of being workable...
...Prices tend to change slowly, whether up or down...
...The basic Reagan strategy was succinctly stated by the Council of Economic Advisers (CEA): "The Administration seeks to increase capital formation by both raising the level of output and reducing the fraction of output consumed...
...These patterns, John Stephens has demonstrated, are primarily the result of the low level of tradeunion organization and the absence of a labor or socialist party in this country...
...Politically it might be called Reaganism with a (somewhat) human face...
...With some other adjustments, the CBC projected deficit for fiscal 1982 was actually $1.5 billion less than Reagan's figure (the latter has, of course, turned out to be an artifact fashioned by conservative fantasies...
...But with a huge Eurodollar market and multinationals using satellite communications to shift funds around the globe with dazzling speed in order to take advantage of shifts in the value of national currencies, the Fed faces problems it has never before encountered...
...The mergers further increased the concentration of the American economy—and thereby further weakened the capacity of the traditional Keynesian fiscal remedies...
...When government cutbacks occur, the needy always get hurt...
...And by 1979, American corporate investment overseas reached almost 10 percent of total investment...
Vol. 29 • September 1982 • No. 4
