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Home Publications Blogs Beat the Press Plutocrats vs. Populists: Good Piece Until the End -- Answers are Easy

Plutocrats vs. Populists: Good Piece Until the End -- Answers are Easy

Sunday, 03 November 2013 08:17

Chrystia Freeland has a good piece in the NYT on the rise of plutocratic politics in the United States and elsewhere and the populist opposition it has provoked. The piece makes many interesting points but then towards the end strangely tells readers:

"Part of the problem is that no one has yet come up with a fully convincing answer to the question of how you harness the power of the technology revolution and globalization without hollowing out middle-class jobs."

No, this is very far from true. There are very convincing answers to this question, it's just the plutocrats block them from being put into practice.

Topping the list of course would be aggressive stimulus to bring the economy back to something resembling full employment. This not only would give tens of millions of people more income, it would make many bad jobs into decent jobs.

In a tight labor market employers will pay someone $15-$20 hours to work as a retail clerk at big box stores or fast food restaurants or as custodians. These jobs pay very low wages in the current economy because government policy acts to limit employment. If we didn't have policy (fiscal and exchange rate policy) that reduced employment, then there would be more demand for labor and the wages in low-paid occupations would rise.

In terms of globalization, we have deliberately structured globalization so as to put downward pressure on the wages of low and middle wage earners. There is no reason, except for political power, that we could not have designed globalization to put downward pressure on the wages of the doctors and other highly paid professionals. This was a policy choice, it has nothing to do with the inherent dynamics of globalization.

Also, the high pay on Wall Street would be brought down to earth with the end of too big to fail subsidies. This policy reversal coupled with the imposition of financial speculation taxes or other taxes that would bring taxation in the financial industry in line with taxation in other industries (a policy even advocated by the IMF), would substantially reduce the take of Wall Street plutocrats.

And replacing government granted patent monopolies in the drug and high tech sectors with more efficient mechanisms of supporting innovation would also go a long way towards both reducing high end incomes and making essential medicines more affordable. These and other issues are discussed in The End of Loser Liberalism: Making Markets Progress, among other places.

Anyhow, it is bizarre that Freeland would end her piece by asserting the problem is a lack of answers. As she effectively documents, the plutocrats have managed to seize control over politics in the United States and elsewhere. There is no lack of good answers, the problem is that the plutocrats have power to stop them from being put into practice.

Comments (20)Add Comment
written by skeptonomist, November 03, 2013 9:21
Downward pressure has been put on the wages of what were formerly middle-class workers in the US by the removal of manufacturing to other countries, where lower standards of living allow far lower wages. Flight of manufacturing created a greater pool of labor for food-service and retailing. The situation is certainly not that goods continue to be manufactured in the US by robots (or by immigrants), they are made in other countries which have lower wages and more favorable government policies. Of course the shift to more speculative financial operations also applies.

This has nothing to do with health-care services, which can't be transferred to other countries, except by actually increasing total costs (health-care tourism). We're not going to move courtrooms to China either. Solutions to high health-care costs are well known, since they have been applied in other countries, and they have nothing to do with international trade.
The Empty Gaze and Stare of Journalists Who Feel Compelled to Assign Economic Causality
written by Last Mover, November 03, 2013 9:42
... harness the power of the technology revolution and globalization without hollowing out middle-class jobs ...

Of course, the well known conflict between productivity of physical capital versus labor lies at the root cause of the visible carnage boiling away daily on the surface between populists and plutocrats.

"Harness without hollowing", that's what it's all about isn't it, a natural law of economics, a supply of too much inefficienct labor and too much efficient capital at the same time that crowds out labor with obvious unemployment.

While we're at it try this one for nice recap of causality to top off the reason for the war between populists and plutocrats:

The yoke around the neck of the middle class was heavy, drawing them down like a pair of oxen plowing the worn ground for the last time with a final surge of low-tech luddite output.

Then one day, a globalized modern tractor showed up from afar. Oh look said the yoked populists, let's harness its power so we can shed this yoke and collect a higher marginal revenue product for our effort. After all, labor and tractors are complements, not substitutes. They need each other to produce more, so much more that one of us can tend house while the other works.

Not so fast said the plutocrats. It's our tractor and it's the only one in town. If anyone is going to harness its power it's us, the monopsony buyers of labor who don't have to pay labor's share of the productivity gains under free markets and high unemployment.

Now put that yoke back on. You're going to need it if you want a job pulling us around town in rickshaws as we sip martinis and shop for some good financial deals.

Read Econ 101. Capital and labor are substitutes. You've been hollowed out and replaced by the tractor.
written by foosion, November 03, 2013 10:04
>>Solutions to high health-care costs are well known, since they have been applied in other countries, and they have nothing to do with international trade. >>

Allowing doctors and other healthcare workers to immigrate to the US and allowing drugs to be imported from lower cost countries would greatly lower costs and is international trade.
written by dick c, November 03, 2013 10:06
"Part of the problem is that no one has yet come up with a means of convincing plutocrats to go along with populist strategies to harness the power of the technology revolution and globalization without hollowing out middle-class jobs." Does that sound better?
written by A Populist, November 03, 2013 11:23
Plutocrats are woefully ignorant of economics, and the true reasons for decline.

Well-meaning people cite various reasons for chronic high unemployment, and low wages - with lack of STEM workers, "globalization", and an aging population being the most commonly cited culprits.

However, these are easily debunked.

Let's start with STEM workers. Adjusted for inflation and productivity, starting salaries for engineers are really not very high. Economics says that if STEM were the key problem holding back the economy, those wages would be sky high, and employers would be frantic to do whatever it takes - including raising wages dramatically - to get the needed workers (if they were thus unable to meet demand for their products and services). The economy is much more adaptable than many give it credit for. If tech workers were in such shortage, then (for example) car makers would offer fewer models, etc, to use less of that scarce labor commodity.

Regarding demographics: productivity increases continue to outpace the effect of aging. We do *not* need to make paupers of retirees - on the contrary, we need to pay workers more, to allow more demand, shorter work hours and earlier retirement.

Globalization need not reduce wages. A higher minimum wage, balanced trade, and stimulus are solutions which *will* work to fix the economy.
Not strange at all
written by Jennifer, November 03, 2013 12:50
She's running for office in Canada. So, of course she can't do anything about the plutocrats.
written by joe, November 03, 2013 3:11
The "populist" solutions that are proposed are ironically all heavily influenced by the Austrian school (aka the Koch Bros). Read any of these "populist" tea party blogs and you see working class people complaining about inflation, regulations, environmental laws. tort reform etc. Of course govt intervention is fine when it comes to intellectual property and limited liability. In other words, the populist movement is another example of plutocrats blocking reform.
no the Kochs are plutocrats...clearly not populist...
written by pete, November 03, 2013 3:54
The Kochs have some sort of perverted libertarian bent that they use as a guide to dole out their money. I did read that they kind of appologize for accepting stolen money (tax breaks etc). But they do fund a lot of stuff, they are clearly uberplutos. And pretty decent philanthropists, too. E.g., their exhibit on evolution in the Smithsonian is outstanding, and out to make atheists out of anyone who sees it.

This times article was so confusing. It seemed she wanted benevolent and smart plutocrats like the Roosevelts and Kennedys, and did not care for the populism of folks like Reagan and Obama or Teaparty and Occupy. I think the fundamental issue with populism is that there is no idealogical basis for what to do, just a rather simple "make the pain go away", so you can get massive populist failures like Hitler, Venezuela or Washington DC under Berry, or perhaps Obama. So she longs for smarter plutocrats (I guess like Soros, or Perot? but not the Kochs) to help straighten things out so that the populists don't jerk us around. Very bizarre article.
Don't forget a shorter work week
written by David M, November 03, 2013 4:07
The 8-hour day, 40-hour week are vestiges of 19th century labor struggles, and have been codified in the US for nearly 75 years. 8 and 40 are completely arbitrary and could be changed at either the national or local level (observe the way localities are raising the minimum when congress won't). There's no reason hours couldn't be reduced to help alleviate unemployment.
That being said, I'd trade a shorter week, and even minimum wage, for a basic income guarantee (or, as I like to think of it, permanent universal strike pay).
I think she meant to say "plutocrat approved answers..."
written by Perplexed, November 03, 2013 5:01
If you deny veto power to the plutocrats, many solutions become apparent. But, as Larry Lessig points out, it starts here:
http://www.ted. comtalkslawren...republic_

And you should add this to your list Dean:
Anarchism is not populism
written by Perplexed, November 03, 2013 5:11
The anti-government philosophies being attributed to the Kochs, Libertarians, Tea Partiers, and Randites were articulated by Bakunin long before any of them were born. Is there a way to get journalists to study history before bestowing their "knowledge of the world" upon the rest of us? http://dwardmac.pitzer.edu/Ana...eless.html
Needing a new system
written by tommy, November 03, 2013 9:13
At this point, there is no way the missly class can be rescued using the 'old' economic model. What is now needed is a new economy based upon co-operation and mutual support - - where WE THE PEOP{LE share and care for each other.

Continuation of the existing model will only bring more chaos, suffering, and households living at or near poverty level.

The needs is to build communities where people share resources and practice living in trust and harmony
written by urban legend, November 03, 2013 11:04
I still don't see how putting downward pressure now on professionals' earnings is going to help the middle class and low income people. Fairer maybe, but how is that going to help unless the reductions for professionals will be moved to everyone else? At least most of them actually work for their incomes, and in general they are, while very good, not outrageous like financial executives and traders.
Mass Migration Prevents Tight Labor Market
written by jerseycityjoan, November 03, 2013 11:21
How are we going to have a tight labor market for people in low wage jobs as long as mass migration continues?

The Senate immigration bill would roughly double current legal immigration. This would mean we are bringing in more new foreign workers than we are creating new jobs.

It would legalize the illegal immigrants already here. We can expect that shortly after they are legalized, political pressure would be such that their tens of millions of overseas family members would start coming in.

I'd love to have a tight labor market but I don't see how that can happen if we have another 40+ million new immigrants coming in over the next 20 years. Surely nobody thinks the poor people who are coming in on temporary work visas are going to go home? -- And there nothing in place to identify them and make them go home.
written by watermelonpunch, November 03, 2013 11:47

I just looked up the definition of Populist, just to consider whether or not Tea Party libertarians would qualify, after reading Perplexed comment.

a member of a political party claiming to represent the common people

I don't think these people think of themselves as "commoners". I think they think of themselves as "winners", even if they're really not.

a member or adherent of a political party seeking to represent the interests of ordinary people.

I think Perplexed is right.

People who are libertarian surely cannot think of themselves as ordinary. They think themselves special... and that that specialness makes them deserving while others are not.

Even if the specialness of "success" is just a delusion they have. A misguided notion that they're actually part of a successful middle class who's worked hard & gotten rewards, when really if you looked at their income and their situation and lack of choices, they're actually lacking freedom to live as they could, and near poverty.
And that lack of freedom comes from the fact that they're not actually being paid fairly or succeeding in our society... but certainly it's not because of government regulations. It's from various policies against ordinary people like them... who they fail to realize they're of that group.

Honestly, that's what I see all the time.
I try to talk to people about this, but it's like they think I'm crazy. Or maybe most people are in denial about this too. I think geez, do they even realize that they're near poverty? They don't. They're near poverty, and they don't even realize it. So how could they have an attitude of solidarity with other people who are, like them, not far from being poor themselves, when they refuse to even see how similar they are?

That's why there really isn't a strong populist movement. Just fractured groups with bizarre fears, who are kept divided in a hostile political climate created by people who are very afraid that liberals & tea partiers might realize how many goals and issues they actually agree upon, and form an alliance.

That's why I am thoroughly against public disparagement of people who identify with the Tea Party.
I know that had something been different in my life at some point, I could be as equally diverted as them, from my own best interests.
I know I'm ordinary.
And I feel I have to be ready to welcome in solidarity, anyone who realizes, like I have, what's really happened to us. And focus on commonalities, rather than what makes someone think someone else is nuts.
Cushioning Slowly Disappearing for Working and Middle Classes
written by jerseycityjoan, November 04, 2013 8:03
Great post, Watermelonpunch.

Something to keep in mind is that the older ones who are poorer have things like furniture and homes they may have purchased when they were doing better.

They are living on fumes. Also there's an massive income transfer going on as Baby Boomers are receiving inheritances from their parents, which in many cases includes proceeds from parents' home.

Now of course many more of today's under 35s are never going to accumulate significant assets. Many, frankly, will never make more than $10 or $15 an hour.

So we are hearing a lot of hot air talk from retirees who are holding their own -- and actually doing far better than many kids in their 20s will ever do -- in the Tea Party.

But they are right to be worried about where things are headed. I am worried sick myself. And their grandchildren will be living in a different world, with far fewer jobs and opportunities available.

I may disagree with them on some of the issues but I feel there's a great connection between the Tea Party and Occupy Wall St. What we need is a mass movement that will actually scare our elites and restore some power -- and some money in the form of higher wages -- to the people.

written by Hammer Dog, November 04, 2013 10:39
Why no mention of the effects of unchecked immigration on the downward pressure on wages? Sealing the borders would certainly help to tighten up the labor market.
written by Mbuna, November 04, 2013 1:55
"Topping the list of course would be aggressive stimulus to bring the economy back to something resembling full employment. This not only would give tens of millions of people more income, it would make many bad jobs into decent jobs."
Well, in theory, yes but in reality I'm not so sure. I think an argument can be made that the channels through which the stimulus would be distributed have already been captured by the plutocracy resulting in only a minor difference when it comes to more and better jobs for individuals. Furthermore I do think more stimulus money would wind up in the plutocratic hands than not, ultimately resulting in more more gains in wealth and power for the rich.
And yes, I want to suggest that perhaps we have gone past the point where the current system can be salvaged unless there are very major changes and I see none forthcoming.
written by Mbuna, November 04, 2013 2:05
I wanted to add one further comment regarding my earlier post- with the revolving door one sees between financial regulators and financial corporations it is important to understand that large portions of what we might normally consider to be the US government are nothing more than a front for corporate interests these days. We are talking government by the corporation and for the corporation here and ultimately stimulus money would be used to feed those hungry corporate mouths. And for all those who strongly object to this reality there is plenty of room for all of you in the many Corrections Corporation of America facilities to be found throughout the country.
Low Wage Industries Demand More Cheap Foreign Labor
written by jerseycityjoan, November 04, 2013 5:27
Here we have our patriotic American corporations using their multi-industry cheap labor trade group " Essential Worker Immigration Coalition (EWIC)" rejecting American workers and higher wages:

"Our American-born workforce will increase only 1% over the next 10 years. The restaurant industry alone projects a need for 15% more workers. There are simply not enough American-born workers to fill the jobs we expect to be created by a vibrant economy in the coming years.”

http://www.immigrationcomplianceblog.com/EWIC Statement oct 22.pdf

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.