The twisted politics of enforced economic pain
By the end of the year, American taxpayers will no longer be part owners of General Motors. That is good news all around. Nationalization of a private company rarely makes economic sense. Even for red-blooded socialists, the ownership of the means of production has long been an empty threat, a totemic cul de sac that for years led socialism down the wrong path. Regulation is a far better way to ensure an industry works for the public good.
The federal government is not best-suited to administer a private industry. The emergency that once threatened American motor manufacturing has passed. State intervention has forced much-needed restructuring into a hidebound business riddled with grandfathered practices and anachronistic benefits. Intervention avoided the deleterious knock-on effects of the collapse of a major domestic industry, helped the external balance of payments, and saved thousands of skilled jobs in good time.
The return of GM to whollyÂ private handsÂ will no doubt set off hand-wringing from those who would have preferred GM to go properly bust during the financial panic of 2008, then restructure itself without state help. Those who opposed Steven Rattnerâs motor rescue argue that government intervention to prevent a company from going broke interferes in a timeless process of rebirth as natural as the change of the seasons.
Quoting the Austrian Joseph SchumpeterâsÂ notionÂ of âcreative destruction,â a term borrowed from Karl Marx, such dogmatic harbingers of woe welcome bankruptcies and business collapses as a means towards purposeful regeneration. Expect them to concentrate on the costs to the federal government of keeping the American motor manufacturing industry alive; do not expect them to estimate the real cost — to the shareholders, to the motor workers, to the nation — of allowing it to die.
Other âAusteriansâ point to the Austrian thinker Friedrich Hayekâs warnings of governments encouraging investment in the wrong industries, leading to more unemployment in the long run than can be saved in the short run. But Hayekians tend to be backseat drivers, always quick to criticize and slow to offer any alternative except a hopeless shrug.
The common theme among those who would prefer to invite an industrial doomsday rather than put it off is the assumption that there can be no gain without pain. The notion of punishment for the wicked is also prevalent among those advocating austerity: to atone for previous sins — such as the Greeks borrowing too much to maintain a lifestyle they could ill afford — lean years should be imposed in which everyone must trim their standard of living and pay reparations.
Some, such as the Dutch and Germans, have used austerity to punish southern Europeans, such as the Greeks and the Spanish, they felt had not worked hard enough to live as well as they do. Some, such as David Cameronâs government in Britain, set out onÂ a needless program of austerityÂ which suited those who believed Margaret Thatcherâs program of privatization of state assets and dismantling of the welfare state had not gone far enough. The result was two unnecessary recessions in the UK on top of the 2008 recession and an undignified insistence by the well-heeled in government, for whom austerity is a minor irritation, that everyone but them must make sacrifices.Â Â
Here we have highly-paid shills for big business advocating austerity for everyone except the super-rich. The economic royalists have never had it so good, paying for a mantra that has taken hold of the political discourse, that debt is bad and public debt the worst of all.
We are living at a time when borrowing has never been so cheap — the European Central Bank is even talking about levying ânegative interest ratesâÂ – and the cost of keeping people out of jobs has never been so high. Yet the dominant thrust of an economic argument that has gained universal respectability, even among Democrats, is not that everyone should be put back to work without delay, but that high unemployment should become permanent to ensure that public debts are paid off fast.
Businesses like the cheapness and weakness of labor that policies of mandatory unemployment for millions produce. Politicians congratulate themselves for taking âhardâ decisions that inflict untold misery on the blithe assumption that the more harsh and bitter the medicine, the more it will do good. Many voters, too, appear to believe they deserve to be chastised for living high on the hog for too long.
Where did they get this idea? There is nothing in economic theory to suggest that being poor is a virtue. On the contrary, most theory is directed toward finding ingenious ways to maximize prosperity despite the vagaries of the business cycle. Yet deep in the psyche of many of the Austerians and Austrians who are summoned to provide some intellectual justification for the beggar-thy-neighbor policies is a sense that only by feeling bad can you feel good, only by inflicting misery can pleasure result, only by paying off past debts can prosperity be restored.
There is both a religious as well as a psychological basis toÂ passing off punishment as a virtue. John Maynard Keynes recognized it and asked, is it the sado-masochistic make-up of some economists that causes them to enjoy pain and welcome inflicting pain on others? Hayek acknowledged a righteous dimension to his cheese-paring economics. His eternal pessimism led him to believe Keynesâs revolutionary notions about borrowing at the height of a depression to be âimmoral.â This has led some to believe Hayek was implicitly condemning Keynesâs sexuality, though, perhaps because of the circumstances of his own failed marriage, Hayek did not press the notion as far as he might.
Religion and morality may have little to do with economics but a great deal to do with politics, particularly in America. The thrust of many western religions is that the good life is one that minimizes material possessions and that a simple life in this world will lead to untold rewards in the next. Calvinism, the creed the sociologist Max Weber believed was the key to understanding the emergence of capitalism in northern Europe, both insists upon hard work without reward and a modest outward display of wealth to signify being part of an elect heading for heaven.
It is the Protestant/Roman Catholic divide that underlies the economic debate about debt in the European Union today. The northern European Protestant nations, including Britain, admonish the southern Catholic nations — and Catholic Ireland — for not treating wealth creation seriously enough. When Martin Luther launched Protestantism and set off the Reformation, he could not have imagined he would be encouraging the debt wars that dominate todayâs European politics.
In America, political battles over personal morality — such as homosexuality andÂ womenâs health rights, which used to preoccupy conservatives — have given way to arguments over the role of debt in society. The old plea for âfamily valuesâ has been replaced by the charge that those who do not prioritize the paying off of debt are poor parents and grandparents as their descendants will be left to pay the check. It was when pandering to a question based on such sentiment that Harvard history professor Niall Ferguson suggested Keynes did not care what happened to children and grandchildrenÂ because he was gayÂ and had no offspring.
A more persuasive family values argument would suggest that families are kept together and work at their best when everyone is working, well-housed, and comfortably well-off. The best way to destroy family life is to impose the stresses and strains of living without a wage-earner in the family. Just as it is virtuous to work, it is virtuous to provide work. To punish the victim of structural joblessness for being poor and a poor parent to boot is doubly harsh. And to disguise such an assault on the poor as an act of morality is the height of hypocrisy.
Nicholas Wapshott is the author ofÂ Keynes Hayek: The Clash That Defined Modern Economics. Read extractsÂ here.
PHOTO: A bronze statue of a worker called “The Builder” stands in front of the Unites Auto Workers Union Solidarity House in Detroit, Michigan, September 8, 2011. REUTERS/Rebecca CookÂ