the neo-liberal virus: its not just in the U.S.!

Le Monde today publishes a long thumbsucker about the sudden collapse of electoral hope in Sarkozy’s camp. It concludes with the man himself, who was recently consoled by visits from two former European presidents – Gerhard Schroeder and Felipe Gonzalez. Note, well, that these consolers were the leaders of the ‘socialist’ parties in their respective countries. That they would form the cortege of Sarkozy’s well wishers tells us a lot about European politics over the last decade – marked by the utter betrayal of the left by  the elite within the leftist parties.

I am noting this to preface my take on the recent debate between John Quiggin – a leftleaning economist – and Tyler Cowen – a rightleaning one – over what Quiggin calls “entrenched inequality.” There have been numerous papers lately that demonstrate the ossification of opportunity in the U.S. The upper class has entrenched its wealth and power, the upper middle class is stuck, the middle class is downshifting, and the poor are increasing.

Cowen has surveyed the evidence and proposed that perhaps social mobility – upward mobility for the majority, downward mobility for the wealthiest – isn’t such a great thing anyway.

As often happens, the debate plays out as one that pits the U.S. against Europe. Frankly, I find this bizarre. The neo-liberal agenda that has aggravated the plutocracy in the U.S. doesn’t stop at Bar Harbor. It has, in fact, been disseminated throughout Europe at least since the end of Thatcher’s misrule in the UK. And, as Sarkozy’s friends show, it has been disseminated not simply through rightwing parties, but through leftwing ones. In fact, by a cruel irony, rightwing parties, with their residue of nationalism, often end up opposing ‘liberalization’, and thus, de facto, protecting the social democracy put in place (however spottily) in Europe during the Cold War period.

I think the evidence – at least from the OECD - is that upward social mobility is stalling in all the developed countries. At the same time, as the OECD report for 2011 makes clear, between 1980 and 2008, every OECD country recorded the trend of the top 1 percent accruing a growing share of the total income.

Yet both Cowen and Quiggin are content to knead up this matter in the old tired mold of the U.S. versus Europe.

Cowen’s arguments echo the usual conservative rotomontade about “Europe”: for instance, the idea that in Europe, the public sector is vast and the private sector small. Here is Cowen on how smart Americans know the action is in the private sphere, while “[l]ots of smart Europeans decide to be not so ambitious, to enjoy their public goods, to work for the government, to avoid high marginal tax rates, to travel a lot, and so on. That approach makes more sense in a lot of Europe than here. ”

What could this mean?
The first thing I’d point out is public goods/private goods distinction, upon which much of his argument rests, seems to envison the government as something that consists entirely of tax collectors, while the private sector consists wholly of Apple. In fact, governments can do a lot of different work, depending on what is nationalized and what isn’t. For instance, they can nationalize trains, or the mail, and provide the same service that private trains and private mail companies provide. Profit is a functional difference, but for the people working in the institution, it doesn’t really matter.

As importantly, no developed country has a pre-1930s public workforce. In the U.S., the number of people who work for the governmenton all levels – local, state and federal is 17 percent. Now, that is less than the EU average, but significantly higher than the Japanese average of 8 percent. (see paper by J. Handler, here, and it is also a higher percentage than in Germany, the Netherlands or Italy. All of which tends to say that Cowen is using a piece of received wisdom instead of goiing to easily available sources to make his points. This is not economics, but punditry.  However, Quiggin does not parry this stroke, since he, too, seems to buy the image of Europe as the paradise of social democracy.

Another of Cowen’s arguments identifies taxation and redistribution. Now, this is not entirely erroneous.  According to the OECD report, “OECD-wide, inequality in income after taxes and transfers, as measured by the Gini

index, was about 25% lower than for income before taxes and transfers in the late 2000s, while poverty measured after taxes and transfers was 55% lower than before taxes and transfers.” However, the results depend on the tax regimes and government spending. If, for instance, the U.S. taxes and spends that tax money on the military, the redistributive effect is very low. This is where the EU is very good. According to Handler:

“According to the latest data available (2001), there are significant differences in the structure of the public sector between the EU and that in Japan and in the US. These differences are highlighted by Figure 7. The largest difference, gauged from the social protection figures, is that the EU15 redistributed roughly 12% of GDP more than the US and 8.5% more than Japan. Moreover, the EU15 is leading with regard to health expenditures whereas it spends less than half the share of GDP on defence than the US does. Finally, the US devotes slightly more public expenditures to education than the EU15 and considerably more than Japan.”

It should be noted that in two areas, the U.S. does outstandingly poorly. Its public expenditure is tremendously dedicated to healthcare, and yet it also spends more privately on healthcare – due to the enormous inefficiencies of a mostly private healthcare system. And the same is true with education, as the Government decided, long ago, to encourage private loans for college students, rather than setting up a wholly owned Government subsidiary to do the job. The result has been inflation of debt and an explosion of expenses in colleges, which are now administered by the same cadre of creeps one finds directing things in banks, private equity firms, or lobbying houses.  

That said, the EU has been far from immune to the neo-liberal virus, which is why it is threatened with massive wealth inequality and the politics that flows out of it – as anybody who looks at the austerity counter-revolution going on here can see. Developed economies really need higher levels of public employment – Germany’s is scandalously low, as is the U.S.’s – in order to produce what, at this stage of affluence, developed economies really need – more and better public goods. Choking the rich – imposing caps on income and expropriating absurd amounts of wealth – is only a tactic in the general movement that we should be seeing to a fairer system that spreads the benefits of the economic system to all. For instance, the use of the internet to set information free has shown that the information – in terms of tech and media products – will keep on flowing even if IP laws are changed to radically limit the monopoly power of IP holders. Similarly, healthcare as a public good is actually easier to do now than it has ever been, and would be cheaper if it were treated as a public good – i.e. the state simply inflating the population of healthcare workers far above its current level, throwing up clinics with the appropriate technology with abandon, etc. Instead, we are mired in the coils of a dying healthcare system that has elevated the incomes of doctors and dentists to absurd heights and taken no advantage of the advances in tech and education that would allow much of the work of the GP, for instance, to be done by an RN. And so we could go through the whole list – lower working hours, less emphasis on the money-merit connection (if you have a real talent, then it is a joy to do it in itself. Money is secondary), and in general the more humane capitalism that we are all very near, and that is being pissed away to keep our masters in yachts and single malt scotch.