The End Of 20th Century Democratic Capitalism

The COVID-19 epidemic, by revealing the incompetence of most western Democratic governments, has marked the end of 20^th century democratic capitalism. Broadly, the post-World War II deal between capitalists and socialists was “you stay loyal, allow the wealthy to be wealthy, and the wealthy will treat you right.” It was a pretty good deal, better than the brutal failures of revolutionary socialism. But the western system won and the capitalists, having decided they did not need the loyalty of a broad public anymore, started undermining it. It took a generation, but the wealth of the broad middle class of the 1960s was looted.

And now the virus. It has become clear that the democratic west is incompetent at picking and leaders and cannot not feed its people, shelter its people, or protect them from an epidemic. What is left? A social order still could be rebuilt from this shambles. There are still educated people, still skillful managers, but somehow the will must be found to do this, to put the pieces together into a system which can work for all the people, and not just a privileged minority.

The Revolution is here, or perhaps the Second Civil War. The right wants to establish its aristocratic order, only it is incompetent. The left wants to establish its socialist order, only it does not know how. Some few small-r republicans want to maintain personal freedoms and government of the people, but they are losing out.

I suppose I ought to be writing about the revolution, and how to win it but, honestly, I don’t know how. We only dimly know our goals. “Survival, and no rule by tyrants,” I have said, but that is not a plan. So instead I will write about the failure. Perhaps I will see a few glimmers of a path forward.

Three points and two timers:

1. Capitalism on the libertarian model is brittle. The saying in computing, perhaps due to computer scientist and psychologist Gerald Weinberg, is, “If builders built houses the way programmers wrote programs, the first woodpecker that came along would destroy civilization.” For libertarian capitalism, COVID-19 is the woodpecker.
2. By the Constitution, the power of the purse rests with the House of Representatives. The Senate has stolen that power.
3. We have now bailed out the wealthy twice; we cannot do it a third time.
4. And, finally, two timers. Humans must change their relation to their natural environment, or there will be no future for human civilization at all. Other nations will not wait for the United States to put its house in order; rather many will take advantage of its weakness.

Libertarian capitalism is brittle.

During the build-up of libertarian capitalism, when it was accepted dogma, there were all these arguments made that, despite a lack of law and regulation, despite the whole thing working like a bucket of fiddler crabs, each one striving to climb to the top of the heap over the bodies of all the others, the goal of making a profit would result in a emergent stable and productive economic order with unprecedented personal liberties for all.

Oh, sweet naïve capitalists.

Just as grades in a grading system where the stakes are high and there is no discipline, self or imposed, go to the cheaters, profit went to those who cheated. Instead of a stable, productive economic order we got one in which the majority of actors did the minimum work for the maximum profit, and quality and safety be damned. The very wealthy determined that the best way to extract the most profit from workers was to move the work to places where workers had the worst negotiating positions. Profit-seeking business owners each specialized in what they felt they could make the most profit at, resulting in long supply chains. One shock: widespread systemic financial fraud, a change in trade policy by a major actor like the USA, a rise or fall of a major input like petroleum, an epidemic, a panic, and the whole thing stumbles.

And that is where the system is now. The claim underlying libertarian capitalism: that it is the best way to reliably satisfy human needs and desires in a way which maximizes liberty, has failed. It cannot reliably feed, shelter, or care for a population and it has left the entire world to the mercy of the very wealthy.

The Senate Has Stolen the Power of the Purse

Not long before I wrote this, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES.) It is a hideous bill,[1] a huge bailout for the richest corporations (six trillion dollars), some loans for small businesses, a temporary expansion of unemployment insurance, a too-small one-time payment for individuals, and a raft of various smaller provisions, a repetition of the infamous “bail out Wall Street but not Main Street” of 2008. As soon as the bill was signed, President Trump stated that he would not abide by its oversight provisions.

How did we get here?

Madison stated,[2] that the “power over the purse” rested with the House of Representatives, but the actual constitution said, “All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other bills.” The Senate is one of the great failures of the US Constitution. It is unrepresentative, Madison and Hamilton themselves said it was a political compromise, [3] and as soon as it was created, turned into a platform dominated by a series of reactionary minorities. It proceeded to defend slavery and went on to such wonderful activities as blocking trade agreements for no apparent reason and raising tariffs during a depression. In our time it is dominated Majority Leader Addison Mitchell McConnell Jr., a deeply corrupt political leader. [4] The Senate, dominated by Republicans and led by McConnell, has a deep and abiding love of people who have large quantities of money, and the Senate has to concur with any spending bill. The Senate, being the Senate, extorted six trillion dollars for their cronies, and peanuts for everyone else. Which brings us around to…

We Cannot Do This Again

In 2008, gross malfeasance, some of it going as far back as the Reagan administration, led to a collapse of the financial services industry, followed by the discovery that, released from the bounds of law and regulation, the financial services industry had created a vast network of securities based on questionable mortgages. [5] The collapse of this brittle system caused, first, the collapse of the global financial system, second, the eviction of many from their homes, and, third, a depression that lasted ten years. Over a decade later, millions of house titles remain clouded and the abruptly valueless securities involved remain on the books of many banks. In the process, the Federal government bailed out the banks, the state governments took the side of the mortgage servicers, and thousands were thrown out of their homes and millions bankrupted. The American middle class has never recovered.

And now, COVID-19. Millions of people staying home in fear of their lives. Small businesses failing for lack of custom. The highest rate of unemployment insurance claims, probably, since the unemployment system was built, and an utterly inadequate Federal response, with states cash-strapped by years of austerity. And yet more money going to the biggest businesses, apparently mostly Administration cronies.

I don’t see how we can do this a third time; there will be nothing left to loot. We will instead have people dying for lack of basic necessities, malnutrition and starvation, and people turned out into the streets. If the USA does not somehow right itself, finding a way to provide decent lives for all its people, it will sink into a society dominated by inequality and not return for a generation, or possibly much longer.

Two Timers

If the USA sinks into poverty, it will do so in the context of an increasingly hostile world, both natural and human. Constraining climate change, yes, that is the first of these problems and right now it looms largest, but it is only the most immediate problem. When we crest that peak we will see other peaks behind it: habitat restoration, resource provision, and other things we have not yet guessed. We do not have much time to batten down the hatches before the storm.

And the rest of the world will not wait, either. It is a multipolar world now and every major power wants a piece of the future. The brief US-dominated world order of the late 20^th century is going to look benign compared to a world dominated by the brutal fascists and dictators that have emerged in China, Russia, India, Brazil, and places I don’t even know to name. And all of them are careless of the natural world. There are too many people chewing away at the remnants of the wild world, too many fossil-fuel plants being built. As the United States is careless of its people, these powers are careless of the natural world. When the storms, both literal and metaphorical, come, how will we protect our people?

Conclusions

The obvious observation is that we need to respond to change. The social contract underpinning 20^th Century democratic capitalism is broken and cannot be restored. Our leadership is mostly quite old and disinclined to act, while the very rich are, now as always, working to increase their wealth.

When I was simulating the likely number of deaths of Senators from COVID-19, I realized how very old the Senate is. The median age is nearly 65, and 27 Senators (27%) are over 70. But the median age of the House of Representatives is 59, and 87 members (20%) are over 70. Look at the leaders! Senate Majority Leader McConnell is 78. Senate Minority Leader Schumer is 69. House Majority Leader Pelosi is 80. House Democratic Whip Hoyer is also 80. House Minority Leader McCarthy is 55. House Minority Whip Scalise is 54. These people are old, and their educations and the circumstances of their lives do not remotely equip them for the world we now live in.

There is exponential growth in social and cultural trends as well as in epidemiology. It took more-or-less 30 years for the regulatory changes of the Reagan administration to infect the entire financial system. For the first two decades there were only early signs of the disease. Then a recession in 2001. Then the crash of 2008.

Our system is not equipped to handle revolutionary change, but the history of the USA has been a story of nothing but. It demands a quick, disciplined response. Instead, we have panic and proposals of revolutionary change and reaction. “Tear it all down and something new will spring up” is nonsense; long before anything useful springs up, the dictators and the strongmen will take control. Equally, though, turning control over the old people who got us into this mess is not going to go anywhere; they have not magically become wise. (Yes, I am looking at you, Vice-President Biden.)

If 20^th century capitalist democracy is done, what will we put in its place? Where are the leaders who we can follow into the future? Where are the philosophers that will shape their leadership?

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[1] David Dayen, “Unsanitized: Bailouts, A Tradition Unlike Any Other,” The American Prospect (blog), March 25, 2020, https://prospect.org/api/content/2720367a-6ea3-11ea-bc75-1244d5f7c7c6/ .

[2] James Madison, “Federalist 58: Objection That The Number of Members Will Not Be Augmented as the Progress of Population Demands Considered,” February 20, 1788, https://avalon.law.yale.edu/18th_century/fed58.asp.

[3] James Madison and Alexander Hamilton, “Federalist 62: The Senate,” February 27, 1788, https://avalon.law.yale.edu/18th_century/fed62.asp . “A government founded on principles more consonant to the wishes of the larger States, is not likely to be obtained from the smaller States. The only option, then, for the former, lies between the proposed government and a government still more objectionable. Under this alternative, the advice of prudence must be to embrace the lesser evil; and, instead of indulging a fruitless anticipation of the possible mischiefs which may ensue, to contemplate rather the advantageous consequences which may qualify the sacrifice.”

[4] Jane Mayer, “How Mitch McConnell Became Trump’s Enabler-in-Chief,” The New Yorker, April 20, 2020, https://www.newyorker.com/magazine/2020/04/20/how-mitch-mcconnell-became-trumps-enabler-in-chief.

[5] See, for instance, David Dayen, Chain of Title : How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud (New York: The New Press, 2016). But there are many books which address this from many viewpoints.