I was reading an article on Arstechnica entitled ‘Utility’s negligence caused giant methane leak, air quality regulator says’ ( link ) and someone had posted the following comment: “Who creates socialists? Greedy capitalists” which got me thinking regarding the rise of the welfare and why it eventually fell with the Milton Friedman’s monetarism on the rise and the popularity of Reagan (United States), Thatcher (United Kingdom), Douglas (New Zealand) and Keating (Australia) which was born out of the failure by the political establishment of the day to respond to the oil crisis then followed by stagnant wages, growth flat lining along with countries such as China coming into the world stage that had once been isolated off on its own doing its own thing. The question is, where did the modern welfare state originate from and what can be learn from its downfall so that if there is a restoration of a welfare state that the mistakes that were made in the past aren’t repeated again.
The Fabian society was created in 1884 in the belief that capitalism needed to be saved from itself rather than completely abolished thus many of their ideas formed the basis of the modern welfare state and mixed market capitalism with strong regulations. For those of us on the centre left such as myself, Bernie Sanders and Elizabeth Warren, we’re the bulwark against the masses wanting to completely over throw the system thus to call what we advocate as Socialism is a distortion of what Socialism actually is. For decades during the cold war there was an accepted orthodoxy by business and the rich that paying a little bit more tax and regulation was an insurance policy to pay for the pacifying of the masses vs. having an uprising and losing it all. With the downfall of communism and the rise of neo-liberalism we’ve seen consensus between the two parties with the only difference between fought over an increasingly smaller ‘middle ground’ where the options that are presented are slight variations on the same ideas rather than substantial differences.
So what happens when the likes of Bernie Sanders or Jeremy Corbyn comes along? well, we’re told that these people are radical, they’re socialists, they’re raving left wing loony’s when in reality they’re not doing anything radical other than bringing back tried and true policies that have worked in the past but feel out of favour with the rise of neo-liberalism. So looking at it from that point of view, rather than what Bernie or Jeremy being the radical you could argue that they’re conservative in terms of ‘return to what works’ where as the radicals were the ones who set the ball rolling with the massive swing to the right and the dismantling of the welfare state.
Part of that dismantling of the welfare state was the move to lower taxes and more ‘user pay’ system but also included a move away from demand based theory and Keynesian economics to supply side theory (or as George H. W. Bush called it ‘voodoo economics’) and monetarism. The former held that it was the role of the government to use fiscal policy to smooth of the economic cycles – during the good times you run surpluses to pay down debt and during the down turns you run budget deficits to maintain demand so the economy doesn’t fall off the cliff (hence my criticism of George W Bush, George H. W. Bush’s son, who ran massive deficits during the good times thus giving the US didn’t have the leverage to really make the big stimulus required not to mention the sabotaging by Republicans by injecting tax cuts that should never have been put in there).
Monetary policy plays a part but the primary instrument to maintaining demand would be to use the power of the state to borrow and create jobs through large public works project which works as a bridge to the private sector getting back on track. When it comes to the issue of high private debt there is always the option of creating inflation (controlled inflation of the monetary supply) through quantitative easing which the state then uses to fill in the deficit which would drive wages up and prices up but the nominal amount of debt would reduce as a percentage of over all earnings meaning that you inflate the debt away. Although there would be an impact on savers since the value of their savings would reduce the opportunity of cost not doing something would be substantially worse as the corresponding growth after inflating the debt smaller would result in a sharp recovery and regaining at least some of the lost value from the savings. There is an issue today where we can get inflation and wage increases to decrease debt loads but will be an entirely different discussion along with talking about supply side economic theory.
This goes onto the other point that I’ve seen being put out about Hillary, “she is the most electable” and “Bernie is so far left! he is unelectable” yet if you said to blue collar workers what would happen under Reagan I hazard to guess that most would never have envisaged what we see today. With the voting in of Reagan the political pendulum within the United States was moved to the right which resulted in all the parties taking a move to the right (with the overlay of the Republicans unholy alliance with the religious right and the former Dixiecrats) and the Democrats moving from a centre left social democratic party (or as close as they could get given the US political climate) to some what of a centre to centre right party.
What I’d argue is that the Reagan campaign used the failure of government to respond to challenges as being the failure of government and the evidence needed to justify the Reagan doctrine of stripping the government to the bone, removing regulation and allowing the market to be free. The same argument can be and is being made by Bernie but in the opposite direction, that the market place has failed to deliver and that it justifies the expansion of government into the economy through regulation and fiscal stabilisation of the economy along with social programmes such as single payer healthcare and free tertiary education that will have the byproduct of benefiting the private sector through supplying a highly educated workforce.
The other part of the equation is Bernie realising that the error which Obama made was winding up the movement which got him elected as soon as he took office which resulted in the infrastructure being lost. The net result of this was that when the midterms came around all the infrastructure required to get people to go out and vote weren’t there so even if Obama wanted to get things done he couldn’t because he didn’t have the mandate by the people by having a Democratic majority in the upper and lower house. Bernie, unlike Obama, realises that if you want to make large changes then you need to have a mandate from the people to make it possible and to do so you need the masses turning out at every level of government and voting or otherwise the chances of success is very low. The big question is whether he can continue the momentum – I really do hope that his supporters turn out and make possible what could be a once in a life time change in the US political climate towards something better.