How economic thinking is ruining America
Reading the Sunday Review section of The New York Times this past weekend, it was impossible to miss the pervasive gloom. Frank Bruni, Maureen Dowd, Thomas Friedman — all of them chose to write about the feeling that the United States is in steep decline.
A lot of the anxiety is wrapped up with foreign policy and the widespread perception (at least among pundits and right-wing Republicans) that America's standing on the world stage has diminished under Barack Obama. As I've argued before, I think much of this is overblown and flows from unrealistic expectations about how much the United States and its presidents can control events around the globe.
But there's more to the gloom than this. For 10 years in a row, the number of Americans saying that the country is on the wrong track has exceeded the number who take a more positive view. That's a sharp break from historic trends, and a sign that something isn't working the way it used to.
That something is the economy. Inequality is up, while growth, job creation, and middle class wages are running far below historic norms. That's enough to drive even the cheeriest American to despair.
We don't lack for commentary on our economic problems — though most of it comes down on one side or the other of our usual partisan divide. The Right says we need to cut taxes, regulation, and spending; the Left says we need to increase taxes, regulation, and spending. We try a little of one, then we try a little of the other. And when nothing much changes, each side says it's because we didn't follow through thoroughly enough on its program to the exclusion of the opposite.
That's because there's something bigger going on — something we haven't even begun to consistently acknowledge, let alone coherently respond to.
Stated simply, we've allowed and encouraged economics to slip the bonds of politics. This has given successful entrepreneurs, corporate executives, bankers, and financiers an unprecedented degree of autonomy, with profit-seeking overriding political or cultural loyalties or restraints of any kind. Up until recently, most of us have hoped or assumed that everyone would benefit from this development — a rising tide raises all boats and so forth — but the reality has proven more problematic. And we just aren't sure anymore.
The European Union is perhaps the most obvious and explicit example, thought it's far from being the only one. Begun as a multinational coal-and-steel cooperative, it became a free-trade zone, and then adopted a common currency and began to eliminate vestigial expressions of political sovereignty such as national borders — all without building broadly accepted and affirmed Europe-wide political institutions. The result is a continent run by bankers and bureaucrats with very little democratic consent or accountability.
But the EU isn't alone. A similar dynamic increasingly plays itself out today in myriad ways across the globe. Free trade agreements create porous borders, diminishing national oversight of economic decision-making. Meanwhile, technology has led to the rise of a truly international, financialized form of capitalism in which trillions of dollars in capital flows around the globe instantly, rewarding regions and nations that increase profits and punishing those that don't.
And which regions produce higher profits? The ones that pay workers less while placing a lighter tax and regulatory burden on business.
Consider how the current battle over the minimum wage is likely to play itself out in the U.S. Seattle wants to raise its minimum wage to roughly $15 per hour. But if it does, businesses can easily move to suburbs of the city so they can pay lower salaries, which will hurt workers in Seattle.
Then let's say Washington state decides to back up Seattle's efforts by raising the state-wide minimum to $15 per hour. In that case, businesses may well choose to relocate to other parts of the country, thereby punishing the state for raising its minimum wage and rewarding states that keep theirs comparatively low.
This points to the need for a higher federal minimum wage. But what's to stop a corporation from relocating to other nations where it will find cheaper labor? In a world of free trade and indifference to national attachments, the answer, of course, is nothing.
Just as nothing will stop Pfizer from buying U.K. firm AstraZeneca and reincorporating in Great Britain to avoid paying America's higher corporate tax rate. (At least 50 American companies have already done precisely this — reincorporating in another country to avoid paying U.S. taxes — with roughly half of them moving overseas in just the past two years.)
Sure, the Obama administration's 2015 budget proposes language that would effectively ban such moves. Let's see if the president can get it passed over the objections of big business.
I'll just say I'm skeptical. These days all the incentives run in the other direction. If we "punish" businesses by taxing them or making them pay workers higher wages, they'll be "forced" to cut back on hiring and maybe even "need" to lay people off. That's the way we increasingly talk and think.
And for economically justifiable reasons. The world seen through an economic lens is a place where people are motivated entirely by instrumental concerns — above all by concerns for profit and loss, competitive advantage and disadvantage. When the government acts in a way to diminish profits, it is doing something (in economic terms) that is unambiguously bad.
But something that is economically unjustifiable may be politically necessary and even salutary. Unlike economics, politics combines instrumental considerations with non-instrumental ideals such as community, loyalty, citizenship, and the common good. A world in which these ideals have been sacrificed on the altar of economic profit-seeking will be a world…well, it will be a world that looks a lot like our own.
No wonder we're feeling gloomy.