The surprise Republican primary victory of libertarian economic fantasist and teacher of economics Prof. David Brat in Virginia’s conservative 7th District has highlighted a point of agreement between the progressive left and far right/libertarians like Brat: both say they are against “crony capitalism”. While Brat came across to voters and most of the press as a “true believer” in a religiously-tinged libertarian-style economics that decries subsidies and state involvement in industry, the actual sordid history of libertarianism is that it has functioned as an effective cover for corporate lobbying and government’s regulatory and economic support of the interests of the wealthy and large corporations, i.e. crony capitalism. “Libertarianism,” largely a politicized strain of the social philosophy called Austrian economics, was invented after WWII as a lobbying instrument for the interests of corporations like General Motors, at the time amply boosted by federal government spending during the war yet apparently wanting to, in the public eye, disassociate itself from that help after the war.
From its beginnings, there has always been a close relationship between the cynical, crony capitalist “libertarianism” of people like Eric Cantor, whom Brat defeated, and the somewhat starry-eyed type of libertarianism evinced by Brat that so charmed Virginia 7th District primary voters. But Brat, as it turns out, is more like a ringer for an “independent” idealistic Christian-libertarian underdog, carefully groomed by right-wing billionaires. Much was made by Brat’s supporters and the media of the disparity between Brat’s campaign spending ( by some estimates $200,000) and Cantor’s war chest that was 25 to 40 times larger. However billionaire “dark money” has supported Brat for a number of years and particularly during this campaign. The academic position Brat occupies at the small liberal arts school, Randolph-Macon College, is funded to the tune of $500,000 by the ex-Wall Street billionaire CEO of the Cato Institute, a Koch-founded and funded think-tank, and there are indications that Koch payments to right-wing talkers Laura Ingraham and Mark Levin led them to paint a David and Goliath story to the Republican base, in which Brat was the anointed hero.
With the influence of the Koch network, it has become the fashion among some right-wing billionaires to fund and engineer the campaigns of candidates that appear to be upstarts and rebels, hiding their influence and monetary advantages relative to ordinary political donors as much as possible. One of the chief funders and political organizers of the rise of libertarian and neoliberal thought over the past five decades, Charles Koch’s clever political-intellectual strategy has been via the founding and funding of think tanks like the Institute for Humane Studies and the Cato Institute, to yoke the pro-greed, elite-friendly policy recommendations of the far right to otherworldly libertarian idealists who sometimes stand up for civil liberties and equality before the law, stances which resonate with many on the Left. Meanwhile in his political ground-game, Koch has attempted through activist organizations like Americans for Prosperity and other political front groups to blend, as seamlessly as he can, the pursuit of policies that favor the rich, the fossil fuel industries, and large corporations while speaking of “freedom”, free markets and government overreach. Brat’s focus on crony capitalism is an exact echo of Charles Koch’s own public claims that he has devoted himself and some of his billions to fight “cronyism”. Via the intricate Koch network, built over decades of work and patronage, Koch seems to have figured out a way not to pay Brat directly but nevertheless he is supported by Koch supporters and mirrors Koch’s ideas
Professions of belief in yeoman small businesses and the evils of “big government” have a durable appeal among Americans who are generally very poorly informed about economics, especially the role of governments in economies. Mainstream academic economics, based as it is on the assumption of a “natural” market and an “unnatural”, supposedly inefficient government, has been no help in informing economists, economics graduate students or the general population about these matters. Steeped in the myth of rugged individualism, many Americans feel a pleasant sense of aggrandizement to think that either their own earnings have come from their work and brains alone, or to enjoy vicariously the wealth and apparent splendor of the already wealthy, believing that it is entirely merited by their own unique worth as people. The cult of celebrity and business celebrity more specifically feeds into the culturally sanctioned and amplified social explanatory model of an entirely meritocratic social hierarchy. The more realistic view that an economy is built via networks of cooperation between people that include a powerful boost from government spending and public sector economic activity is hard to fit into market-fundamentalist, individualist mythology, even though it corresponds more faithfully to actual economic history than the assumption of entrepreneurial self-sufficiency favored among others by Charles Koch but shared much more widely as part of the artificial neoliberal “common sense”.
Some celebration from the progressive left that a starry-eyed believer in libertarian/”Austrian” fantasy-economics awoke the antipathy of voters against the reality of right-wing crony capitalism does little good for spurring an encounter with reality for the American electorate and political class regarding government’s role in the economy. A joint progressive-libertarian opposition to crony capitalism, as pushed in Ralph Nader’s latest book, without a positive plan for government spending and regulation still reinforces the unrealistic “free”-market schema embedded in both mainstream neoclassical economics and “Austrian” economics. Mainstream economics and its more philosophical “Austrian” offshoot both see government as purely subtractive of the “real” private economy, as largely a negative influence. The mythical “free” or some future carbon-price adjusted “free” market also will not build, in time, the net zero carbon emitting society within two to three decades.
Expanded Government Spending to Address Global Warming, Social Inequality and the Liquidity Gap
I have made the case from a number of approaches that an expanded public sector and expanded government spending are critical factors in serious efforts to address global warming and the critical dependence of current civilizations on fossil fuels. I have called this approach “climate Keynesianism” to distinguish it from what might be called “climate Pigovianism” that dominates current discussions of viable climate policies. A climate Keynesian program must be, in addition, designed to reduce economic inequality, increase the share of earnings from labor, and thereby address the chronic macroeconomic liquidity gap inherent in capitalism, to which Keynes devoted a good portion of his life’s work.
However economists and economics, focused as they have been on markets and market dynamics, i.e. relationships among private sector actors, have not had a lot to say about what real projects government should spend upon therewith mobilizing real resources for the delivery of a specific good or service. Samuelson’s 1954 theory of public goods is a line of inquiry that economists might have built upon to direct public spending most wisely but remains an isolated island in the inconsistent mélange that some called Neo-Keynesianism and then more recently New Keynesianism. Alternatively, many in the tradition of Keynes have focused on the stimulative effect of certain general classes of spending over others, with the focus of that effect on private sector economic activity. In these discussions, the varying multiplier effects of these general classes of government expenditure are addressed, as some types of spending lead to more spending cycles within the same accounting period, while others lead to savings and therefore lesser stimulation of the economy.
In all, the focus of most economists associated in some fashion with Keynes has not been to directly debunk neoclassical myths in their own discipline as well as push back against libertarian/neoliberal/”Austrian” political attacks that suggest or declare government’s supposedly optional or sub-optimal role in the economy. In other words, the incipient anarcho-capitalism of “Austrian” and neoclassical economics has been rarely countered head-on within economics. The primary fears of the public to which right-wing and neoliberal political operatives have played involve the real but also, in the libertarian and neoliberal imagination enormously inflated, challenges of government corruption, inefficiency, and possible tyrannical control. I will attempt below to create a framework within which these concerns can be addressed with a greater chance of resolution, within the context of what governments and peoples must do next with their time, effort, and money.
Corruption, Inefficiency, Tyranny and Government Budget Decision-making
If what is required to change the energy and land use basis of society are massive increases in government spending and intensified government action, there also emerges the potential of increases in corruption, i.e. cronyism, inefficient use of the instrument of government, and increases in government control over parts of civil society. The danger of corruption is especially acute in the current plutocratic era, co-engineered by corporate elites and right-wing millionaires and billionaires, where financial and real resources have become more concentrated and the political influence of the wealthy and corporations is near an all-time high during the modern era.
In the neoliberal/”Austrian”/libertarian criticisms of cronyism and fear-mongering about the real and potential corruption of governments, the implication or stated goal is to reduce government spending because of the supposed “tyranny”, greed, or inherent corruption of government officials. The supporters of libertarian/neoliberal/”Austrian” economics, often funded by millionaires and billionaires, have so often repeated this story that it is now accepted as common sense and fact by many who do not seem, at the same time, to acknowledge the continuing value of the instrument of government to serve the public good. This vision also, conveniently for the plutocrats and their representatives who promote it, edits out the gravitational pull of concentrated wealth and the actions of wealthy individuals on the functioning of government. It is in their view the government officials, the always incipient “tyrants”, who are greedy and grasping, as the wealthy right wingers try thus to disown their own and more generally private greed.
Particularly in the US, there is also, in the libertarian Right’s delusional persistence and insistence on government’s inherent corruption, inefficiency and tyranny, oftentimes a psychological and political displacement of racist sentiment onto the institution of government. The US anti-poverty programs of the 1960’s were, as Minsky observed, poorly organized to have a durable effect and to be shielded from right-wing and racist reaction, relying with the exception of Medicare on creating “special needs” groups rather than offering universal benefits. There emerged a culture of ressentiment of government that the Republican Party, starting with Richard Nixon but intensifying from then on, has come to specialize in exploiting. Whites who felt excluded from the already fragmentary American social safety net, embraced with full abandon the story that no one needs government. The liberal, would-be defenders of government action were at first caught trying to defend well-intended but poorly designed programs and then there emerged “New Democrat” leaders, like Bill Clinton, who mostly gave up and embraced the market-religion of neoliberalism. The attempt was made to marry via “left” neoliberals like Clinton and Obama, a political appeal to lower income people and people of color while also embracing policies that undermined, in overall tendency, their economic well-being. With little or no help from the social sciences, in particular economics, it has been difficult over the last few decades to face with sober equanimity in the public sphere the benefits and dangers of reliance on government.
Formal government corruption emerges when government officials pursue policies, including spending decisions that differentially serve either their own personal financial interests or those of patrons who have paid politicians, their associates or family directly for that favorable outcome. Formal corruption is in most legal systems a prosecutable crime, though the degree to which it is uncovered and prosecuted is a function of the strength of the rule of law in general, the government’s own internal watchdogs, as well as the strength of non-governmental civil society, including an independent press. Informal corruption, more common and often legal, is when government decisions are predicated on the expectation of favors and favorable outcomes at some point in the future, though no direct payment has been made for any one spending or regulatory decision. While formal corruption is easier to document in given instances, informal corruption is more difficult to document in specifics, though can be observed over a period of years as a system of favoritism that leads to politicians pursuing personal, associate or narrowly partisan interests that defeat an easily recognizable public interest. The current “money out of politics” movements in the United States focus on informal or legal corruption. If the public interest, what the Modern Money school calls the “public purpose”, is not well defined, then both formal and informal corruption are harder to document and harder to combat. Contrary to the libertarian/”Austrian” anti-government narrative, Transparency International’s Corruption Perceptions Index places some of the countries with the largest public sectors as being less corrupt, at least in the perception of those polled.
Efficiency/inefficiency in government spending is a more complicated matter and given the biases in mainstream economics as well as the economic fantasies of libertarian/neoliberal politicians, a new and fairly complex definition of it is in order at another time. Below briefly is an outline of how this issue might be framed in an economics that recognizes the substantive role of government in the economy.
A distinction must be made between efficiency/inefficiency in spending in currency-issuing monetarily sovereign governments (US, UK, Japan, Canada, China, etc) and currency-using governments (Euro-Zone countries, local and regional governments), the latter mostly regional and local governments. The world’s currency-issuing governments via their net spending supply the world’s economies with their stock of financial liquidity across the entire business cycle, independent of the boom-bust cycle of money creation and destruction by bank lending. During economic downturns, when bank created liquidity is drained from the economy and debtors are put under pressure, the role of the countercyclical spending of monetary sovereign governments becomes more obvious in a national or within the world economic system. Less powerful, the currency-using governments recycle currency within that system to pursue local, regional and in the case of the Euro-Zone governments, national aims. Furthermore, as government spending addresses a number of elements of the process of building and maintaining civilization, i.e. the public purpose that are hard to measure numerically, it is difficult then to determine the degree to which one type of spending achieves that purpose more “efficiently” than others.
How much social good or harm a government can achieve with a given level of spending plus targeted, sufficient taxation, i.e. the efficiency of fiscal policy, is then a topic with a good deal of complexity, though there are some areas where it is fairly straightforward. Also, in addition, government activity can both enable efficiencies and create inefficiencies in private sector transactions that are not justified by service to a public good, though the neoliberal/libertarian/”Austrian” account of this is entirely untrustworthy: these political operatives glorify the private aims of the wealthy or mythically creative entrepreneurs and almost never recognize the existence of a common good, let alone account for its weight in government spending and regulatory decisions.
Keynes and the schools that follow him have used unemployment or employment levels as a measure of overall social welfare, perhaps an output measure to then enable the measurement of fiscal/spending efficiency. While employment level is one metric, income distribution and the ability of workers to pay for their own and their family’s living expenses are as well part of the complex and interactive calculus by which government spending is used to add to the demand for labor and also determine wage levels. Overall economic growth measured by GDP, which does not encompass either employment or income distribution, is another effort to measure overall social welfare. Delving into the complex realm of alternative indicators for social welfare, it might be possible to measure the effects of government fiscal policy via tracking changes in a statistic like the Genuine Progress Indicator, which is a single metric that can be designed to subtract social “bads” and add in social “goods” that are not counted in GDP. The construction of the GPI is a political effort that involves decisions about the valuation of various monetary and non-monetary aspects of social and environmental functioning.
Finally, there is the possibility of government tyranny, which might develop in a variety of different regimes given government’s legal monopoly on violence and taxation, as well as highly developed surveillance and information-gathering capabilities. The potential for tyrannical exertion of government’s power is more likely in an era and regime, like the current one, where the rewards of economic activity are so concentrated, government is corrupted by money from elites, and governments possess unmatched technologies of police-military power. However, the fears stoked by the libertarian/neoliberal propaganda campaign are largely directed elsewhere towards the possibility of government directing its power to rein in the excesses of the wealthy and powerful: the “tyranny” they apparently fear is government spending for the betterment of ordinary people, increased taxation on the wealthy, and increased regulation of private industry which is one of the prime targets of their political campaign. Hayek’s 1944 “Road to Serfdom” created a fictional narrative about government that has become the template for decades of smears of government’s role, even as Hayek and his co-conspirators privately acknowledged the benefits of government programs.
In reality beyond the false or inflated fears of libertarians, there exists the possibility that regulations and expansion of the public sector might overreach their usefulness and undermine individual or corporate economic initiative or personal liberty. Government spending more money and an increase in government employment may lead to an increase in government’s control over a wide variety of aspects of life. If that increased control for the most part succeeds in reining in socially harmful behaviors or economic activities without infringing on the freedom of ordinary people, then it cannot be said that there has been a net loss of liberty in society as a whole. If that control, in net, impairs human freedom and happiness, it should be fought and changed. However that campaign will be unproductive and hurt the integrity of both government and civil society, if it starts from libertarianism’s juvenile premise that a pure “negative” freedom from government or from obligation to others is desirable or achievable.
Some may have the impulse to run away from the instrument of government based on hysterical and politically-exaggerated fears or out of disgust with the longstanding emotion-laden debate paradoxically conducted on an abstract philosophical level. Those sincerely concerned about freedom and social welfare should help create a public discourse that better defines the potential positive actions of government and holds governments accountable for failures to achieve those positive actions, in addition to monitoring actual and potential infringements by government on liberty, especially on the liberties of those who do not now enjoy abundant privilege. For too long, criticisms of government have falsely conceived of government as an instrument that is simply an imposition on an autonomous civil society rather than co-constituent and guarantor of the integrity of that civil society, including its very real and gritty economic dimension. The libertarian/right-wing focus on government as “dead-weight” on society must be discarded in favor of one that sees government as a co-creator of social goods as well as social “bads”.