The Welfare State Goes Corporate, Pt 3: Free Market Ideology

From 1933 to 1973 with the predominance of liberal “big government” the U.S. economy grew 600% and averaged 4.88% GDP growth per year. In the 42 years afterwards, 1973 to 2015, the economy grew 202% and averaged 2.77% per year. (These facts account for inflation, use real GDP figures). The notion that “big government” regulations and interventions in the economy failed is clearly false. The crises of the late 1960’s and early 1970’s led to ideological and policy changes that have proved a failure. In spite of this, a new conventional wisdom took root based on free-market, trickle-down economics, once called voodoo economics by George Bush, Sr. One reason for this odd situation is historical amnesia. People care about “What have you done for me lately?”. The 1970’s are in the distant past and the economic stagnation persists due to corporate welfare policies failing to trickle down to the non-wealthy. The prevailing system is the plutocracy run by corporate executives and their lobbyists who function as the de facto government. This system afflicts members of both political parties and they point their fingers at each other as the ineffectiveness of the system persists. The true nature of the problem and its historical causation get no coverage in the mainstream media. Instead, trite talking points are disseminated as if they were facts.

The recent past of the 2008 meltdown and the slow recovery sheds light on the persistence of hatred of “big government” intervention in the economy, which translates into slashing social programs while continuing to fund the military and corporate subsidies and tax breaks. The 2009 stimulus, Recovery and Reinvestment Act, had $288 billion in tax relief and a paltry $111 billion for infrastructure and science. Metaphorically speaking, a band-aid was put on an amputed limb. The meltdown got a fraction of the remedy it required for a robust recovery. But the prevailing message, particularly on conservative media, is that “big government” failed here.

This is in the same vein as underfunding the USDA so that there are a fraction of the meat inspectors necessary to safeguard our meat supply.  The conservative spin for this debacle is “failed government regulations”. The USDA is impaired to perform properly and then blamed by faux journalist corporate shills for this impairment.  The reality of inadequate regulation does not get air time. The many outbreaks of E Coli and other contaminants/bacteria are due to corporate profit-seeking prioritized over proper regulation.

The current STD epidemic has resulted from cutbacks in states’ health budgets. On October 19, 2016, it was revealed that “STD cases are at an all-time high in the US”

The uptick in the number of cases is caused by reduced access to STD testing and treatment, the CDC says. More than half of state and local STD programs have experienced budget cuts, the agency says, and more than 20 health department STD clinics closed in one year alone. Sexually transmitted infections cost the US health care system nearly $16 billion each year, according to the CDC.

“We have reached a decisive moment for the nation,” Jonathan Mermin, director of CDC’s National Center for HIV/AIDS, Viral Hepatitis, STD, and TB Prevention, said in a statement. “STD rates are rising, and many of the country’s systems for preventing STDs have eroded. We must mobilize, rebuild and expand services — or the human and economic burden will continue to grow.”

Contrast this prevalence of austerity and stagnation with a prior prosperous era. Post-World-War-II big government policies saw the mass movement of people from poverty into the middle class. Between 1945 and 1960, the median family income, adjusted for inflation, almost doubled. Rising income doubled the size of the middle class. Before the Great Depression of the 1930’s only one-third of Americans qualified as middle class, but in postwar America two-thirds did.

No boom period is perfect or lasts forever. The Bretton Woods system created in 1944, covered in my prior blog post, had flaws which led to its falling apart in the 1960’s. Add to this the plummeting of corporate profits from the mid 1960’s to the early 1970’s while wages kept climbing as they had before. This basic economic fact was piled on top of seismic shifts in the global economy, essentially globalization as Europe and Japan built their industrial economies, exported more than they imported from the U.S., piled up American surplus dollars, traded them in for gold, so that America’s gold supply was about to run out and Nixon had take the U.S. off gold and end the Bretton Woods system.

Other major events included the 1973 OPEC oil embargo and the ensuing quadrupling of oil prices, the ongoing devaluation of the dollar from 1971, crop failures, and stagflation, the combo of high inflation and high unemployment. The total set of seismic events and crises allowed free market economists like Milton Friedman (a monetarist who emphasized controlling the money supply) and Friedrich Hayek (an Austrian economist, author of The Road to Serfdom) to gain acclaim, get Nobel prizes in economics, and lay the blueprint for the “revolution from above”, that is, a corporate takeover of government policies. Welfare was refashioned to serve corporations, not poor or middle-class people. Taking the government off the back of corporations would enable the enhanced profits to trickle down to the lower echelons of society. This is what Americans have been told since free market ideologues like Friedman and Hayek became fashionable and eventually mainstream when Reagan took office.

The term “neoliberalism” is applied to government policies marketed by free market economists. David Harvey offers his definition:

 The theory takes the view that individual liberty and freedom are the high point of civilization and then goes on to argue that individual liberty and freedom can best be protected and achieved by an institutional structure, made up of strong private property rights, free markets, and free trade: a world in which individual initiative can flourish.  The implication of that is that the state should not be involved in the economy too much, but it should use its power to preserve private property rights and the institutions of the market and promote those on the global stage if necessary. The original liberalism on which neoliberalism is based goes back to the late 1700’s with enlightenment philosophers like Adam Smith, David Hume, and John Locke who touted limited constitutional government, where life, liberty, and private property were protected.

In her classic book, The Shock Doctrine, Naomi Klein explains Milton Friedman’s neoliberal policies. He asserted governments must remove all rules and regulations standing in the way of the accumulation of profits. Second, they should sell off any assets they own that the corporations could be running at a profit. Third, they should dramatically cut back funding of all social programs. Within the three-part formula of deregulation, privatization, and cutbacks, Friedman had plenty of specifics. Taxes, when they they exist, should be low, and rich and poor should be taxed at the same rate. Corporations should be free to sell their products anywhere in the world and governments should make no effort to protect local industries or local ownership. All prices, including the price of labor, should be determined by the market. There should be no minimum wage. Friedman wanted to privatize health care, the post office, education, retirement pensions, and even the national parks. He was calling for the dismantling of the New Deal — that uneasy truce between the state, labor, and corporations that had prevented a popular revolt during and after the Great Depression. Whatever protections the workers had managed to win, whatever services the state now provided to soften the edges of the market, the Chicago counterrevolution wanted them back.

Friedman rose in stature as the experts stumbled to come up with a viable alternative to Bretton Woods. The dollar, which had been overvalued for decades, naturally had to be devalued, which means inflation. Plus, quadrupling the price of oil ripples through the whole economy. Add to this major crop failures and the associate price hikes. Inflation is made much worse. These crises, not big government, created the downtrodden inflation-plagued 1970’s. But a person blessed with eloquence speaking axioms about free enterprise and the virtues of entrepreneurs and capitalism in general, namely Milton Friedman, can grab the spotlight, win over the public and help dictate government policies.

The next blog installment digs into the details of Friedman and others who ushered in the neoliberal era which persists to this day.

References:

http://www.multpl.com/us-gdp-inflation-adjusted/table

 On Neoliberalism: An Interview with David Harvey
by Sasha Lilley

The Shock Doctrine by Naomi Klein

http://www.ucsusa.org/news/press_release/study-finds-usda-woefully-underfunding-research-needed-to-spur-better-farming-practices-0635#.WA4rEPkrLqA

http://www.theverge.com/2016/10/19/13331854/sexually-transmitted-infections-chlamydia-gonorrhea-syphilis-increasing

https://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009

http://www.countriesquest.com/north_america/usa/history/a_world_of_plenty/the_middle_class_expands.htm