Debunking the right-wing: Economics
The United States’ basic economic system is capitalism, which is organized around production for market exchange with private ownership of the means of production by capitalists who hire workers to produce things. The mainstream of American political opinion agrees on this fundamental point. Where disagreement arises is on the role of state intervention in the economy to favor social welfare. Since the late 1970s, the dominant opinion in the establishment and mainstream media has been that minimizing government spending is the best approach, and that capitalists should have near absolute control over the firms that they own.
Recently, however, this free market notion has been challenged by a large movement demanding the reform of the American system. In particular, the two-time Presidential candidate Bernie Sanders has been a figurehead of this. He and others argue that it is high time we return to a variant of the capitalist system that gives greater heed to social welfare. They directly tie themselves to the golden age of socially-oriented reformism under the Presidency of Franklin Delano Roosevelt, who oversaw the program known as the New Deal. Our modern day reformists are calling their project the Green New Deal, and they are once again challenging free market orthodoxy, just as Roosevelt challenged that of his predecessor, President Herbert Hoover.
A majority of Americans are unhappy with the status quo, and are looking for a change from our current system of neoliberalism. Once-secure economic dogmas are now being challenged, thus making it necessary to address the old, stale myths of neoliberal ideology.
“Tax cuts are good for the economy! The wealth trickles down!”
This idea has a long history in neoliberal ideology, being fundamental to its doctrine. In the United States, we most closely associate it with President Ronald Reagan and his economic advisor Arthur Laffer. Although Reagan did not begin the turn of the modern US to free market fundamentalism, since it began in the 1970s, he can certainly be said to have consolidated it. The idea proposed by Reagan and Laffer to the American public was that taxes were far too high, and that this was harming the economy. They prescribed a heavy dose of tax cuts and austerity cuts on government spending (though Reagan made an exception for the military, which he pumped billions of dollars into).
Their argument was that such policies would lessen the tax burden on capitalists, allowing them to invest greater sums of capital, contributing to greater growth of the economy. In their formulation, to avoid accusations that the policy would just make the rich richer and paid no attention to the actual distribution of new wealth, they claimed that a lessened tax burden would lead to capitalists paying workers more. So the rising tide of the economy would benefit everyone, regardless of their class.
In practice, this messianic prophecy has not come to pass. Real wages have stagnated, leading to declining consumption, economic growth has slowed, and the wealth gap has grown staggeringly large. With a crumbling infrastructure, lack of funding for badly needed programs, and an average wage level far below the rate of productivity, it’s clear that Reagan’s utopia was a false promise. The wealth does not trickle down.
“Regulation leads to inefficiency and discourages investment!”
This argument assumes that any significant regulation raises the cost of production in whatever industry that it is being applied to to such an extent that it becomes unsustainable to invest in and inefficient. Apparently, deregulating industries is better for growth and regulation is not even necessary for the quality of products or safety of workers and consumers to be guaranteed.
Free market fundamentalists tell us a fairy tale about how if a company harms workers or has poor working conditions, they can simply work elsewhere. If a product is of poor quality, or a company harms consumers, the consumers can simply vote with their dollars. Thus, the market self-regulates.
The reality is not so shiny when industries are deregulated. Historically speaking, companies have deceived customers and exercised monopoly power to avoid facing any consequences for quality of products or for outright harmful products. Before medicine was significantly regulated, cocaine and heroin were sold as pain killers. Infamously, cigarettes were long advertised as having health benefits. In a more recent example, Johnson and Johnson knowingly sold baby powder with asbestos, causing cancer in their customers. The idea that consumers can make rational choices based on the quality of a product assumes they have all the information that they need, and that they have the option to consume from another company with a higher quality.
Once again, this also applies to workers. Unlike in paper models, workers have little choice in the labor market. The vast majority of American workers must live paycheck to paycheck, meaning that they lack the security needed to change jobs at a whim. Further, even if they decide to switch jobs based on poor working conditions, a deregulated economy will tend to have common trends in those conditions. If some firms that have better working conditions, they can only hire so many workers. What remains for the rest?
Where regulation has been lacking, companies have poisoned customers, lied about their products, forced workers into horrific conditions, and failed to justify their claim to self-regulation. The only reason child labor is restricted in the modern US is because labor unions forced the hand of the government. Capitalists cannot be trusted to look out for the well-being of communities. Their first priority is always maximizing returns of their investment, regardless of the cost in life that it yields.
On a side note, it is often argued that regulations harm the ability of small businesses to get off their feet. There is a kernel of truth in this notion. There is a phenomenon called regulatory capture, wherein big corporations twist regulations through lobbying and exerting direct influence over regulators to exempt themselves and sabotage rivals.
This does not point to the need to abolish regulations. Instead, it points to the fact that big corporations are yet again the main group responsible for the doom of small businesses, both in their competition with them and their rigging of the rat race. The solution is not to abolish regulations, something which we are told is for small businesses, but in practice helps big capitalists who eat up small capitalists. It is necessary for the workers to take over the big capitalist firms and run them for society rather than a few private interests.
“Social welfare costs too much!”
Claims in this vein have come out in full force in the midst of the government implementing COVID-19 relief measures. Social welfare is seen as a drain on the economy alone, with beneficiaries being portrayed as “useless eaters.” This model of the economy assumes that it works exactly like a household, with spending on a deficit being something extremely dangerous to be entirely avoided.
The economy does not work like an individual household. Deficit spending is necessary to promote growth, and does not inherently lead to debt spirals. It depends on the prospect of future growth giving greater tax revenue and offsetting the cost of social spending. If done right, it can be extremely efficient, especially compared to free market fundamentalism. This applies to the spheres of financial assistance, housing, healthcare, and education. Charity does not go far enough, and individual effort can only do so much when there is a lack of jobs. Social assistance is the way to go.
Social welfare is not throwing money into the void. It is necessary to help people get back onto their feet and be able to actually participate in the economy. In the long run, a well-oiled social welfare system offsets total costs of social welfare, as solving a problem in one go with full commitment costs less than half-heartedly addressing it and having to come back to it repeatedly. The ideology of “pull yourself up by the bootsraps” is unrealistic, and ignores the lack of prospects for unemployed and underemployed people. There simply is no option but to put together a holistic social welfare system.
Actual trends in US spending are very telling. While conservatives cry murder at stimulus checks, they enthusiastically throw trillions of dollars at the bloated military budget. They also toss fortunes toward police forces, neglecting important institutions for quality of life like infrastructure. Where they do decide to spend on things other than expansionist and occupying armies, they are most excited about giving billions in corporate welfare. Capitalists who are too stupid to run a firm are rewarded for failing, while people who fall through the cracks of a dog eat dog economy are damned as “welfare queens.”
“Increasing the minimum wage drives up the cost of living and increases unemployment!”
This absolutist argument does not account for context or for the importance of the amount a minimum wage is increased by relative to the average returns on production. In the US, wages have lagged far behind productivity. By contrast, the cost of living in most areas has skyrocketed, especially in the realm of housing.
While a higher minimum wage would cut into the profits of capitalists, it would not ruin them. They can very well afford to pay workers a living wage. They don’t because the lack of labor unions and deregulation enables them to force the American working class to live in conditions where they must make frugality a basic principle to survive. Historically, it has not always been this way, nor does it have to be.
In Seattle, Washington, the conservative prediction of minimum wage increases destroying the city has not come to pass. Housing costs have certainly continued to rise, just as they have for decades. But this is not proof that we should never try to raise the minimum wage at all. It simply tells us that reforms can only go so far and last so long, with fundamental transformation of society being necessary. They are, nevertheless, not something to shy away from.
“The private sector is more efficient than the public sector!”
This narrative depends on the belief that the public sector is inherently bureaucratic and sluggish. This is not always the case. Funding is a major factor in the efficiency of the public sector, and where it is underfunded, it certainly fits the bill of this stereotype. The DMV, so often used as the example of this, is itself underfunded.
The private sector is not as efficient as it is made out. Private capitalists, being focused on maximizing profits, will milk consumers for as much as they can, especially if they have monopoly power. Is Comcast innovating when it exercises local monopoly power to charge customers unreasonable prices for inferior services? Why innovate, which requires making risky investments, when you can simply squeeze more out of what you have?
In practice, it has been the public sector that has been the most important avenue for innovation. Private companies tend to avoid investments with little returns, especially projects that require large, sustained investments. This is why research and development has historically been dominated by the public sector.
The public sector is also far more efficient at producing public infrastructure, which requires the kind of large-scale planning and coordination that private companies have a hard time with. Where the free market has had free reign over infrastructure, it has produced disjointed messes. Even the examples of private sector innovation always touted as proof of its efficiency, such as Tesla, depend significantly on government subsidies to fund risky investments.
“Competition always breeds innovation!”
This claim is especially fundamental to free market fundamentalism and to capitalist ideology itself. The belief is that competition necessarily forces capitalists to be more creative than their competitors, to produce better products, and to be more efficient. However, there is a built-in incentive for the more powerful capitalists to sabotage competition.
Capitalists want to maximize profits, and competition forces them to drive down prices and places them on a weaker playing field with workers. By contrast, monopoly power, seized by destroying competition, enables capitalists to squeeze workers and consumers for as much as they can get. Centralization and consolidation of capital are simply inherent tendencies to the capitalist system itself.
Even assuming perfect conditions of competition, this system is flawed to its core. Competition gets in the way of cooperation, meaning that industries which require coordinated efforts like public transportation are harmed by a free market approach. Cooperation enables rational allocation of resources on a large scale, whereas the “invisible hand” of market competition rarely works out in practice as described on paper.
Big companies like Walmart have already built up an internal system of cooperative planning among their firms. This yields far greater success than internal competition models. While this model is taken up for the purposes of maximizing profits, it also offers a vision for a different future based on rational planning of production. This future is socialism, and its basis is already set by the tendency for monopolization of capital and the growing necessity of social control over the economy to keep society together.
Socialism is the working class seizing control over production and operating it in the name of society. As we suffer in the midst of the COVID-19 pandemic and economic recession, the need for a new system that puts people over profits only becomes more evident.