The Guarantor State

Last week, I wrote two posts about the two mysteries embedded in our current social order. For the convenience of the reader, I am going to repost them after this post.

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The mask under which the American social order has changed, in the last twenty-five years, is that of the scale of government. It is either in the favoring the bigness or the littleness of the state that conservatives are supposedly divided from liberals. This mask disguises the very contours of what really happened, but in that it has served its purpose. The end of the old, Keynesian order in the seventies did not arise from the extraordinary size of the state. Rather, it arose from a very traditional capitalist crisis, one which the economists had thought to have managed away: the falling rate of profit. To use just one index: the New York Stock market, which peaked for the decade at the beginning of 1973. By the end of 1974, the Dow Jones Industrial average was 30% lower than it had been in 1964. It wasn’t until 1980 that the market finally recaptured its 1973 peak. The period was marked by the fear that wage gains had outstripped productivity gains – hence the period’s salient, and to Keynesian eyes, weird combination of inflation and unemployment.

There is an interesting French economist, Michel Aglietta – he is a member of what is called the Regulation school of economists. Aglietta’s roots are in Marxist economics, but since 1980 he has been tunneling through a whole different tradition – one that includes Gabriel Tarde, Rene Girard, and Georg Simmel. Aglietta has been trying to move the center of gravity of the economic vision of money, and that includes Marx’s vision, which he believes to be insufficient. Here’s how he describes his latest book with his frequent collaborator, Andre Orlean:

“Neither commodity nor State nor contract, but trust” . Such is the most concise résumé of the monetary conception put forth in La monnaie entre violence et confiance [Money between violence and trust]. This work maintains that money is ultimately based on the social faith that makes it unanimously accepted by a community because each of its members anticipate that all the others desire it—in other words, what has been called its ‘liquidity’. Such an approach is opposed (in various forms and to different degrees) to the metallist, chartalist and contractualist conceptions
which situate the origins of money, respectively, in its nature as commodity, in the State or in the contract.
Although our analysis remains a minority view among economists, it is not without precedents; indeed, it belongs to a long albeit neglected tradition honoured by the names of Marcel Mauss, François Simiand and Georg Simmel.”

I like Aglietta’s idea because it embeds economic processes in what I think of as the existential situation of politics, which is negotiating the social meaning of what it is like to be a particular person in a particular setting. If we take the crises that preceded Reaganomics in these terms, as a crisis of trust and desire, it makes it easier to see that what happened, under Reagan, was not the dissolution of the welfare state per se. In fact, the web of middle class entitlements expanded, correlative to the increase of taxes on the middle class – for instance, for social security – to pay for them. Rather, under Reagan the long term foundations of the welfare state were structurally weakened. This weakening was the effect of creating a rivalry between two previously harmonized parts of the economics of state intervention: the state as guarantor, and the state as provider. And that in turn came as a response to a crisis in the international order – our second mystery, which is how rich states have protected their wealth from poor states within a system that should have theoretically shifted wealth, or at least the system of production that produces wealth, to those poor states.

The rudiments of the guarantor state go back to the end of WWII, when the federal government used the idea that the soldiers were socially “owed” to set up housing and education guarantees. These guarantees were not directly provided – rather, they were structured to use private means as instruments of a social welfare function. It was the genius of the system, up until the late seventies, that direct provision of welfare by the state (such as the programs launched by LBJ) and the indirect guarantee of economic goods and services by the state did not essentially conflict. However, underneath that harmony there was always the possibility that these modalities would conflict. The crises of trust in the seventies brought that latent possibility to the surface. The poor, under Reagan, served as a symbolic scapegoat, even though the real amount of state money going to the poor, as opposed to middle class entitlement programs, was inconsiderable.

At the same time, the state expanded in an odd way that can only be captured by Aglietta’s notion of trust. The state allowed private financial institutions to greatly expand their ability to lend, and to lend to a much larger clientele, in order to finance its response to the falling rate of profit. It is odd, when you think about it – why would lending increase as wages stagnated and the protection of domestic manufacture progressively dissolved? It seems counter-intuitive, but it was actually rather brilliant. In order to keep afloat, middle class families quickly (in historical terms) injected other earners into the job market. The single earner, father dominated family became very expensive to maintain, especially as there was a retrenchment of direct state provision – for instance, of childcare. What took the place of the state was the enormous expansion of credit guaranteed by the state.

The response to the guarantor state by the part of the old liberal orthodoxy was one of bafflement. That bafflement continues to this day – we have tomes telling us that the denizens of Kansas are too dumb to vote for their economic interest, when in fact their economic interest is being systematically misread by the liberal orthodoxy.

The guarantor state has another odd effect – the mobilization of savings. It is this which, in the long term, undermines the persisting dimension of social welfare – of middle class entitlement. It makes it seem like we are getting poorer and poorer – less able to afford social goods – as we are getting richer and richer.

But enough, basta! For today.

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