The Social Dimension of Prosperity

By Dan Kervick

In a recent interview in The Straddler, James K. Galbraith discusses some of the points he developed in his recent book, Inequality and Instability.  One of the most important of those points is that inequality leads to a stop-and-go crisis economy of credit-fueled asset bubbles.  This economy delivers large rewards to a few fortunate predators, but delivers a lot of instability, stagnation and insecurity to the rest of us.

But, Galbraith also makes some striking and important points in the interview about what he sees as mistaken places of emphasis in contemporary progressive political rhetoric.  One problem is the tendency to lose sight of the most vital systemic constituents of postwar American middle class prosperity – and also the expectations and aspirations that constituted the middle class outlook.  These key elements of prosperity are, Galbraith says, hard to measure quantitatively:

I think there is a tendency on the left to underestimate the success of the programs that created and sustained the middle class and the middle class mentality. There’s a tendency to focus on some statistical aspects of what’s happened to wages—median wages in particular—and to focus less on the role played by Medicaid, Medicare, Social Security, the housing programs, public education, and support for higher education, all of which gave us a population that had the attributes of a middle class society.

Part of what Galbraith wants people to focus on here is that the economic well-being of individuals and families depends on a larger social context.  A good part of a people’s prosperity comes from each household’s share of publicly delivered goods, and from the confident optimism that is generated by a strong social infrastructure of security and mutual support.   What we are losing in these areas can’t be identified by zeroing in on quantitative measures of wages alone.  Galbraith develops this point further:

So I think there is a threat to the middle class, but if I were talking about it in political terms, I wouldn’t be giving an abstract statistical picture of wages. This doesn’t connect to people’s experiences. If I were designing the boilerplate rhetoric of a popular movement, I would take a blue pencil to these statistical formulations. I don’t like the stagnant median wage argument—I think it obscures what actually happened. And I don’t particularly care for the “one percent” argument. I understand it has a certain power, but one can be much more precise about what it is you want to attack, and what it is you want to preserve and to build. I would cut to the chase: we need to tear down the financial sector and rebuild it from scratch in a very different way.

And what are the things that we “want to preserve and to build”?   Certainly among them is a social order in which there do not exist the kinds of profound inequalities that spawn the financial dysfunction and instability Galbraith describes in his book.   But Galbraith is asking us to recognize that even in an economy is which take-home wages are flat, people’s lives can be improving if they are receiving increasing shares of public goods.  Similarly, if we boost take-home wages, it will be to no avail if the surrounding matrix of public goods is eroding.  A good life is not all about increases and decreases to the flow in one’s own personal pipeline of cash.   Building prosperity isn’t just a matter of boosting private consumption opportunities – not if at the same time people’s minds are rotting because of inadequate education; not if their lives are getting more fretful and insecure because of the erosion of social insurance programs; not if their community lives are disabled because of the disappearance of public space and public facilities, and not if their opportunity for community engagement is vanishing because they live in a ruthless laissez faire economy that devours their time and transforms most working people from full human beings into mere human resources possessing only instrumental value to a system of production run by plutocrats.

Galbraith argues that the Obama administration has failed to come to grips with the depth and epochal nature of the crisis they inherited following the 2008 election, and failed to grasp what the crisis signified about the dysfunctional nature of the contemporary US financial system, the engine of the predator state:

With the Obama administration there was a vast failure to look at the crisis in a realistic way—to assess what it actually was. When you look at the period of, and immediately following, the crisis, the new administration bought into the view that this was a temporary event, and that there would be—at some point—a return to the normal growth path. They didn’t assess the possibility that this wasn’t true—that we’d reached a turning point and we were not going back to that path. And therefore, they created expectations that they could not meet. What they did was vastly too small, and they treated the financial sector as though it were going to behave in the future the way it had behaved in the past—namely, making loans that support economic expansion. But in the environment that we were in—which was basically a debt-deflationary environment—the financial sector makes money not by promoting growth, but by promoting contraction: by shorting things, driving down prices, selling off assets, liquidating, and foreclosing.

And Galbraith worries about the difficulty we face in trying to reorient the national conversation to address our challenges.  We find a lot of denial in the face of the relentless predatory attacks on the foundations of our former prosperity:

So we need to think about how we cope with a truly fundamental change in circumstances—and that’s what we’re not doing. What troubles me is that it’s practically impossible to nudge the conversation in that direction and still remain within the pale of credibility of your listeners, because they so strongly want to believe that what you’re suggesting to them can’t be so.

As a former educator, I am especially concerned about one front in the plutocratic war on middle class prosperity: the assault on our understanding of the role and value of education.  While there is much discussion these days about the failures of elementary, secondary and higher education, the emphasis falls relentlessly on the role of education in delivering a population that is internationally “competitive” in the workplace.   And certainly that is a very important consideration.  But the problem of contemporary American education isn’t solely that it is failing to train people for the work lives that the private sector economy is preparing for them.   Education is also a fundamental primary good that satisfies the human craving to know, to understand and to perfect the mind and spirit.   This was recognized long ago by Aristotle when he stated in the very first sentence of the first book of his great Metaphysics that all human beings by nature desire to know.   Intellectual improvement and perfection is something we seek for its own sake, not just for its instrumental value.  But I fear we are in the process of creating a 21st century economy in which people are increasingly being forced to accept that they and their children are going to have to settle for less of this great primary good, and must trade it in for lower-order utilitarian job-training.   In the debased and anti-democratic social vision of neoliberal technocrats, a rich and humane education will once again be a good reserved for privileged elites.  If we resist this vision, and want to preserve broad access to a more profound education for the whole citizenry, we must recommit to the obligation of creating and delivering this kind of education as a matter of public enterprise.  The body politic must command the resources it needs to carry out this enterprise, because the profit-grasping private sector will never deliver it for us.

The social dimension of prosperity is a theme that also emerges is a recent column by Ross Douthat, decrying what Douthat sees as an insufficient US birth rate.  To my mind Douthat’s piece is a slightly weird combination of tradition-minded conservative veneration of family with the mercenary economic nationalism of competitive baby-making.  And I am not interested in following Douthat into his natalist conservatism, with its characteristic anxiety about the depletion of the human stock of the homeland.   Whether the US population – or global population for that matter – should be increasing, decreasing or holding steady at a sustainable level is a topic for another time.

But what we can all recognize is that whatever population policy appeals to us, it is always going to be the case that among the chief tasks of any society is the need to rear and educate the generations that will replace the society’s current members, and that will carry the society forward.  Fulfilling this need requires that we provide the secure, healthy and nurturing environments in which that great task can take place.  I would suggest that modern neoliberalism with its radically individualist ethos is quite inhospitable to family life, as it is to most other forms of enduring community and social solidarity.

If Douthat wants to do something about the problem of declining birth rates, he should start with the ideology of greedy acquisition and the cult of anti-social self-reliance that now dominates his party.  He also might want to think about how the disempowerment of American labor has led to the lengthening of work hours, erosion of personal time and growing insecurity about the future, three things that contribute to the degradation of family life.  He and his Republican allies need to realize that a decent and well-functioning human society isn’t something that just happens and self-organizes out of the hubbub of the free individual pursuit of happiness or gain, mediated only by market exchange.  A real, civilized society isn’t just a Hayekian information processing network of pulsating price signals.  A society is rather something that people have to build and maintain with deliberate and thoughtful cooperation.

One final area in which we should be thinking more about the social dimension of prosperity is in our ongoing discussions about budget priorities and spending.  While conservatives are insistent on cutting back public spending on almost everything other than the military, liberals and progressives tend to resist these calls for immediate belt-tightening by arguing that our economy still needs more stimulus.   I have come to deplore the dim rhetoric of “stimulus” that now characterizes the enfeebled liberal side of the debate in the neoliberal era.   The role of government cannot be limited to acting as a mere defibrillator for the occasional economic heart attack, a device for reviving an economy whose private sector is fundamentally sufficient to generate an economically healthy society all by itself, at least most of the time, but that just needs a little exogenous jolt here and there.   I think anyone with common sense now has abundant evidence to see that the private sector and private enterprise are, while vital to a creative and dynamic society, quite incapable of creating and sustaining full economic health and full employment on their own.  Indeed, the natural outgrowth of private enterprise left alone to do its private thing is the predatory financial sector Galbraith has described in his work.  We need major, significant public investment in charting a strategic economic direction for our country, and in creating productive public enterprises sufficient to keep all of our people employed and secure, to shore up the social power and position of working people, and to ensure we are working up to our potential in building a future.

18 Responses to The Social Dimension of Prosperity

  1. Will Richardson

    Private and Public spheres of our Common Wealth are weak, anaemic and emaciated; we want a strong healthy society hearbeat, not an obese one!

  2. If we actually understood that from an evolutionary perspective we are a rare eusocial species (truly social) that expresses this through “nesting” in which we have currently reached the state of a “One-Nation Nest” with many smaller “nests” encompassed within it we might just start to see things in a different light.

  3. About a million years ago, I spent one year at a “public” school in the U.K. That, for some reason, is what they call a private school over there. It was like visiting another intellectual planet. At sixteen, after not understanding any of them, I learned enough algebra, geometry and trigonometry to pass what they call the “O Level” test in General Mathematics. (O is for ‘Ordinary’. A-level, for ‘Advanced’, means college-prep). I also passed in English, General Science, Geography and History. I’ll never forget the teachers I had over there – they call them “masters”, and they are – true masters of both their complex areas of study and of the ancient high art of pedagogy.

    In Finland, the highest-pay and the highest social status are reserved exclusively for school teachers. Only the best of the best are deemed worthy of the honor of teaching high-school and college students. Some people and nations, apparently, still get it. When will Americans re-learn what we’ve so sadly forgotten about education?

  4. Great post, Dan. With regard to this:

    “I have come to deplore the dim rhetoric of “stimulus” that now characterizes the enfeebled liberal side of the debate in the neoliberal era. … I think anyone with common sense now has abundant evidence to see that the private sector and private enterprise are, while vital to a creative and dynamic society, quite incapable of creating and sustaining full economic health and full employment on their own. ”

    Krugman unwittingly provides an excellent case in point.

    He has stated often that we need to stimulate the economy now — in a liquidity trap. But he always adds that we DO have a long term debt problem — that we need to lower the debt (and deficits) in the long term. When he says that, he never qualifies it with a statement about employment — he implicitly assumes near full employment in the future. He thus eliminates, by assumption, what even Warren Buffett understands — that the private sector may not be able to deliver full employment for the foreseeable future.

    He should be saying that whether we will have a debt problem in the future requiring cutting government spending or raising taxes ALWAYS depends on the level of GDP — liquidity trap or not. That is, whether or not we need to reduce the deficit — to lower the debt — is ALWAYS endogenous and depends upon the ability of the private sector to deliver full employment (despite a continuing negative trade balance due, in his words, in large part, to China’s currency manipulation which is unlikely to change.)

    Thus when he says we have a long term debt problem — driven mainly by health care costs — that must be addressed through deficit reduction, he is treating the debt/GDP ratio and the share accounted for by health care costs — which are endogenous — as policy variables that can be targeted. And he is implicitly assuming full employment that continuing deficits are necessary to provide!

    He is thus engaging in circular reasoning and begging the question about whether we have a long term debt
    problem and whether deficits must be reduced in the future. As we know, it is not possible to know whether we have a long term debt problem without stipulating future GDP, and we can’t stipulate future GDP without stipulating the deficits that will be required to ensure full employment. (To add insult to injury, he is also assuming that likely-faulty CBO debt projections are correct.}

    Given the widely prevalent and faulty analogy that government is just like a family, his insistence that we DO have a long term debt problem but need to spend more now makes no sense in the policy discussion — because a family that has a long term debt problem MUST begin to cut its deficit NOW.

    By saying he is sure we have a long term debt problem he plays right into Pete Peterson’s hands!

    • Yes, I hate it every time he says that. He is reinforcing the idea that every time we spend we are adding to a tab that eventually our kids have to pay back.

      • It’s a vestige of the whole “crowding out” meme central to loanable funds — as you know.

      • Mark Robertson

        I don’t understand why MMT people wring their hands about Paul Krugman. His agenda is obvious, and it never changes.

        Krugman is a deficit dove. He wants to cut the budget deficit, but not cut it. Or cut the deficit little by little over time, but not right now. Or cut the deficit when the economy recovers, so the economy can fall back into a recession. Or cut the deficit while increasing it. Krugman spews this self-contradictory garbage in order to please both Pete Peterson and the public. Krugman’s absurdities support the lies of the 1% that the U.S. government has a debt and deficit crisis, while Krugman also opposes cuts to social programs right now. It is worthless gibberish, but that is why Krugman gets so much exposure. It’s why he was given a Nobel Prize.

        Krugman knows that if he ever spoke the truth, plainly and completely, then he would be cast out of the public eye. He would be reduced to sharing his poppycock on a personal blog.

        Hence he will never be more than half truthful. He will never endorse MMT, or the truth about Monetary Sovereignty. He will only include enough truth to make ordinary people think “Krugman cares,” and make MMT people sigh and pine like unrequited lovers, wishing that Krugman would “just get it.”

        Krugman is worthless. I am not interested in anything he has to say, since I already know what he is going to say. Every time.

  5. “As a former educator, I am especially concerned about one front in the plutocratic war on middle class prosperity: the assault on our understanding of the role and value of education.”

    This includes the incredible assualt on access to college — in which so-called liberals and the higher education community energetically partcipate. A 4-year public college education is beyond the reach of students from low- and moderate-income families today — particularly disadvantaged and minority students.

    But it is fast moving beyond the reach of students from middle-income families as well — especially those in which the main wage earner has lost a job and any home equity has disappeared. Galbraith states that, “With the Obama administration there was a vast failure to look at the crisis in a realistic way—to assess what it actually was.” This is absolutely the case with respect to families’ ability to pay for college.

    Austerity-driven cutbacks in state need-based grant aid, along with cannibalization of federal student aid programs, will have catastrophic effects on enrollment and degree completion, which is already declining among the youngest Americans.

    As you wrote,” In the debased and anti-democratic social vision of neoliberal technocrats, a rich and humane education will once again be a good reserved for privileged elites.”

    • ” a rich and humane education” can be obtained by a person of normal intelligence with a little gumption at the library and via the internet for a very small monetary investment. What students and their parents are actually paying for is a certificate of attendance and financial commitment, it doesn’t give much indication of knowledge acquisition. Maintaining and, in fact, expanding, a pedagogical format transplanted from post-medieval Germany is conservatism in high heels and fishnet stockings. Of course the idea that most humans need a college education to make their way in the world is silly as well.

  6. “A good life is not all about increases and decreases to the flow in one’s own personal pipeline of cash. Building prosperity isn’t just a matter of boosting private consumption opportunities – not if at the same time people’s minds are rotting because of inadequate education; not if their lives are getting more fretful and insecure because of the erosion of social insurance programs; not if their community lives are disabled because of the disappearance of public space and public facilities, and not if their opportunity for community engagement is vanishing because they live in a ruthless laissez faire economy that devours their time and transforms most working people from full human beings into mere human resources possessing only instrumental value to a system of production run by plutocrats.”

    I think you’ve stated perfectly my deepest feeling on the matter. Living on an individualistic island so as to consume more and more stuff is a vacuous existence. There is so much more to a balanced and healthy life than simply working and buying things. The dictum, “he who dies with the most toys wins” seems to be the prevailing ethos that neoliberalism has given us since Reagan’s days. It has virtually destroyed our collective souls, not to mention the damage exacted on the planet. Yes, we need to work to live. Yes, we need to consume to live and to keep our economy functioning. Yet at the same time priorities must be reordered. Progress does not necessarily equal more consumption. In fact, in going forward less might mean more, at least if emotional and physical well being are part of the calculus. It’s a balancing act that most bright folks I know struggle with every day of their lives.

  7. in the meantime…..all the people making less than 5,000 net (take home pay) and the unemployed need higher wages……work on that right now….

  8. You said

    “One of the most important of those points is that inequality leads to a stop-and-go crisis economy of credit-fueled asset bubbles.”

    What Galbraith actually said was

    “this instability is not a result of inequality; rather, inequality is a symptom of the shaky and, in the end, unsustainable foundations of an economy…”

    As for the statistics, his point is that using a single number such as median wages obscures the progress that has been made. You make it sound like stagnation of the median wage understates the damage to the middle class. What he said:

    “The typical story is that median wages peaked in 1972 and have been stagnant and falling since then. As a result, it must be the case that people who are working now are much worse off than they were ten, fifteen, twenty years ago. That’s not an accurate story—at least not up until the crisis in 2008—because over that period the labor force became younger, more female, more minority, and more immigrant. All of these groups start at relatively low wages, and they all then tend to have upward trajectories. So there’s no reason to believe that life was getting worse for members of the workforce in general. On the contrary, for most members of the workforce it was still getting better. Plus they had the benefit of technical change and improvement in the other conditions of life.

    • Yes, Galbraith says that the important middle class decline begins in 2008.

      I found the interviewer’s characterization of Galbraith’s views confusing. The full paragraph is:

      Galbraith’s inquiry results in several interesting claims, foremost among them that the fundamental deleterious effect of income inequality is economic instability. But this instability is not a result of inequality; rather, inequality is a symptom of the shaky and, in the end, unsustainable foundations of an economy lurching from crash to crash as it maintains its reliance on credit-fueled stock or asset bubbles that provide massive rewards to select few and always changing sectors (finance being the one constant) in which select few highly remunerative jobs exist.

      The paragraph says that instability is an effect of inequality, but not a result of inequality. I fail to see the logical difference. My understanding of Galbraith’s views is that inequality both causes, and then is causally reinforced by financial instability. The growth in inequality causes an excessive reliance on credit-fueled growth. That produces financial instability, and it also produces the opportunity for some opportunists to earn massive rewards, and in the end inequality is even further intensified.

  9. I’ve nothing to add, except thanks for this very deep discussion.

  10. A very informative article written by Dan Kervick emphasizing the importance of education and growth of human population for having a balanced and prosperous human society. It is not only the money but also physical and mental health which cause happiness in one’s life.

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