Chapter 3 – history of democratic capitalism

Has happened before, yet we failed to learn the lessons. “why elected politicians might choose to respond to the select top rather than the broad middle – contrary to the predictions of democracy’s greatest theorists both ancient and modern.” Aristotle, Alexis de Tocqueville, John Stuart Mill, et al. have also theorized that a strong middle class is essential to a democracy. Chapter 3 – history of democratic capitalism

Lays out the argument that echoes that of Robert Dahl in 1985 and 1996, that capitalism and democracy are pushing in opposing directions. Democracy demands equality, capitalism demands inequality. Underproduction of public goods and overproduction of negative externalities. Economic resources = political resources Economic inequality developed in underregulated markets results in political inequality which undermines democracy. Capitalism vs democracy

This is why studying political science and economics separately can lead society to not fully understand the context of what is going on. Left brain/right brain thinking: literal vs pragmatic and contextual This is why we have the conditions we have now. This is why we have not heard these ideas previously. Intersection of the disciplines

“A set of institutions and laws…that would limit the excesses of wealth and property.” Madison in Federalist #10 – “the most common and durable source of factions has been the various and unequal distributions of property.” The threat of concentrated wealth

In our single-member system with the duopoly of power represented by the two major parties, political analysts typically talk about the swinging of the pendulum. As one faction appears to become too powerful, the pendulum swings in the opposite direction. • The pendulum had significantly shifted toward the Democratic party during the Keynesian period. A number of issues caused the pendulum to swing back to the Republican party during the 1970s. • Perceived overreach in social welfare programs in LBJ’s Great Society. • Social issues like civil rights (including bussing and affirmative action), the ERA, gay rights, and environmental issues. • The oil crisis and the resulting stagflation that was labeled as the “Failure of the New Deal”. • LBJ’s expansion of military involvement in Viet Nam. Nixon had campaigned against the war, but then expanded it even further to include Cambodia and Laos. Dual dangers and the power of the middle

Drift is their term. Incrementalism is the term used by Baumgartner and Jones. Generation by generation, a new normal becomes accepted. IE In the 1950s and 1960s the government was thought of as worthy of trust and Americans saw taxes as their responsibility as a citizen. Today, government is seen as untrustworthy and taxes are something to be avoided. Is this a shift in perception only, or have we shifted from a government that works for the greater good to an oligarchic government as proposed by Hacker and Pierson? Why isn’t the thermostat working?

This could not have happened without political support of voters. Political policies are supported by economic theories built on models that ignore political power and the effect of accumulated capital on the Democratic process. The majority of Americans have either no political knowledge or often have inaccurate political knowledge. IE Hoover raised taxes and caused the Depression or the stagflation of the 1970s and 1980s was the result of the “failure of the New Deal”. Economic courses in universities advocate for lower taxes and lower wages based on oversimplified economic models, even though their theories have failed to provide the promised prosperity. True believers

The distribution of markets is not a natural phenomenon. Markets are a manmade institution. “There are no pre-political markets. Markets are inevitably shaped and channeled by political forces, dependent on the rules that are created and enforced by those who control the coercive power of the state.” We discussed the concerns of earlier economists that saw the study of economics as moving back to this concept of markets as a natural, pre-political phenomenon. This is how economics has been primarily looked at over the last 30 years. Legal realism

Best known for his Wealth of Nations in which he uses the term, “the invisible hand of the market”. Earlier produced the Theory of Moral Sentiments in which he suggested that humans are naturally inclined toward sympathy for the less well off and that individuals having accumulated enough for their own needs will indulge in charity. “Wherever there is great property, there is great inequality…Civil government, so far as it is instituted for the security of property, is in reality, instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all.” Adam Smith

H&P “In short, property and markets rest on government and law.” An economy is an institution with rules made up by government. Who makes those rules and what are the goals of those rules? H&P “And, in the Progressive critique, they had to be restrained and limited by government and law.” Rostow “As Myrdal and Robbins have pointed out in this generation, the individualist-utilitarian creed did, indeed, make the case for free competitive markets and for private property; but it also contained within its presuppositions the case for free elections, on a one-man-one-vote basis; for destroying or controlling monopolies; for social legislation which would set considerations of human welfare off against profit incentives; and, above all, for the progressive income tax.” Compare to Rostow

H&P “Without such restraints and limits, greater economic inequality would lead to greater political inequality, which in turn would lead to government policies that reflected the interests of those at the top. Swamped by the tides of inequality, democracy would give way to oligarchy-the very concern that recent economic events have cast in stark relief.” Robert Dahl in 1985 “If citizens are unequal in economic resources, so are they likely to be unequal in political resources; and political equality will be impossible to achieve. In the extreme case, a minority of rich will possess so much greater political resources than other citizens that they will control the state, dominate the majority of citizens, and empty the democratic process of all content.” Robert Dahl

“In American politics, it is hard to get things done and easy to block them. With its multiple branches and hurdles, the institutional structure of American government allows organized and intense interests – even quite narrow ones – to create gridlock and stalemate. We recognize the President’s ability to veto a bill that has been passed by Congress, but what about a Committee Chairman’s ability to veto it by refusing to report it out of committee? Or a Senate minority’s ability to veto a bill by filibuster? Or an advisor who kills consideration of a policy position by removing it from the list of possible considerations? Venue shopping, gatekeeping, and veto power

“The weight of rural interests – including the agricultural sector and extractive industries located in low-population states – is magnified.” Think in terms of the “Bible Belt.” Filibuster and partisan polarization. Minimum percentage of the population that could elect a Senate majority is 17%. The senate

H&P discuss the reforms pushed forward in the Progressive era only to be shot down by the courts in the Lochner era. “The Progressive Era gave way to the Roaring Twenties of unbridled capitalism, market celebration, and industry-dominated politics. It also, of course gave way to the Great Depression – a sequence that now seems eerily familiar.” The Progressive era and the lochner era

“For too many of us the political equality we once had won was meaningless in the face of economic inequality. A small group had concentrated into their own hands an almost complete control over other people's property, other people's money, other people's labor, other people's lives. For too many of us life was no longer free; liberty no longer real; men could no longer follow the pursuit of happiness.Against economic tyranny such as this, the American citizen could appeal only to the organized power of Government. The collapse of 1929 showed up the despotism for what it was. The election of 1932 was the people's mandate to end it. Under that mandate it is being ended.” FDR

Failure of a free market philosophy • “distilled Adam smith’s relatively nuanced view of human nature down to its free-market vapors” • “mixed it with a Calvinist social Darwinism” • Success as a sign of superior personal character • Poverty or bankruptcy as individual moral failing • Such oversimplification is as significant a mistake as writing off the current situation as solely the result of greed and corruption. • Andrew Mellon still calling for allowing all to fail so business ventures could be taken over by more competent individuals. • “the limits of the relatively weak federal government and money-dominated politics that had previously reigned.” Great depression

Imperfect, but a step in the right direction. • Pragmatism – if what you are doing doesn’t work, try something else. If it does work, don’t stop doing it. • Bolstered middle-class democracy. • Measures that gave unions more power to organize and bargain. • Previously shot down in the Lochner era. New Deal solutions

“End result was a new economic order – built on the conviction that the federal government had a responsibility to stabilize the economy, provide economic security, and ensure at least a modicum of redistribution from rich to poor.” Redistribution vs distribution. Rostow would define a progressive tax structure as providing more equitable distribution as corporations would be more willing to increase worker’s pay rather than hand it over to the government in taxes. Paradigmatic shift

FDR threatens to pack the Supreme Court. • Expanded the role of the Presidency to meet the economic crisis. • FDR’s 1st Inaugural Address: • Clearly defines the problems faced and the need for prompt action. • Declares the need to act without haste. • Certain that Congress will work with him to meet societal needs, but… • “But in the event that the Congress shall fail to take one of these two courses, and in the event that the national emergency is still critical, I shall not evade the clear course of duty that will then confront me. I shall ask the Congress for the one remaining instrument to meet the crisis—broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe.” • “Defend against all enemies, foreign and domestic.” Changes in the political and economic order

Invoked as a response to the “race to the bottom” being played out in the state capitals of the time. Concern regarding capital flight. At the time of the Great Depression, capital flight was the threat made against states to find favorable legislation. Today, globalization it used to threaten capital flight against the federal government. Increased federalism

“unions and other voluntary organizations flourished.” “the depression was the result not simply of an economic breakdown but of a political collapse.” Seeking “more than economic reversal; it was political renewal.” This pluralism brought to an end in the 1970s. Developing pluralism

Chapter 3 – history of democratic capitalism