Despite of what one hears, especially from the right, of the
dire consequences government interference in the economy can cause, one can
easily judge that during this nation’s history, the American economy has been
allowed to do its own thing. The overall
direction of the production, distribution, and consumption of the goods and
services this nation enjoys is the product of American businesses making their decisions over such matters. The general
trends might have been influenced by governmental policy, but for most part, only
on the periphery.
But one can
ask, in relation to this relationship between the private sector and
government, what has been the projection over the years? And what does that projection have to do with
civics education? This posting poses these
questions and cites the work of Linda Yueh to help gain insight over these
concerns.[1] She asks
the hypothetical question: what would
the leading historical economists say about what is going on with the economies
of world – especially those of the leading economic nations?
Such a review obviously starts with
Adam Smith and that review can possibly be the subject of a future posting, but
here the focus is on the overall concerns of the current situation. Smith is mentioned to bolster the claim this
posting initially makes. That is, that
the state and direction of the economy is established – or should be
established – by the private sector.
That would be in accordance with Smith’s economic theory. He made popular the notion of laissez-faire
economics – a “hands off” policy.
This belief in minimal government direction
has led to an evolving progression which the path the economy has pursued. That progression has been from agriculture to
manufacturing/industrialization to deindustrialization/service-based economies. That progression has met with various
problems but currently what causes worry is stagnant wages in post-industrial
nations.
Leading these nations are the two most
minimal government-intrusion economies, that is the economies of Great Britain
and the United States. Yueh, in terms of
how these two nations are dealing with this overall problem, writes,
Yet, that’s what post-industrial
nations like Britain and the United States are attempting to do – roll back the
deindustrialization process by encouraging manufacturing and reducing the share
of national output accounted for by services.
This urge to rebalance the economy arose after the 2008 financial crisis
which revealed the fragility of a large banking sector.[2]
This general concern and trend need some context. To what extent are the economies of these
nations in a post-industrial mode? As
currently structured, the economies of these nations are over three-quarters
serviced-based (as determined by national output) and much of their economies rely
on financial services to generate their output and income.
Can one
attribute this turn of becoming service-oriented based economies to policies that,
in effect, limited the role of government? Well, one can trace the turn to the 1980s
when the two prominent champions of free markets were in power. That would be Margaret Thatcher in the UK and
Ronald Reagan in the US. And the changes
Thatcher and Reagan ushered in were a reaction to what existed at the beginning
of their respective terms of office.
And, in turn,
that set of conditions was the product of a historical development. The relevant history in the US, for example, began
at the end of World War II. Initially, in
this period, the US enjoyed inordinate advantages given the destruction of that
war on the industrial nations of Europe and other areas of the world. Unscathed was the US which gave the American
economy an unparalleled advantage. The
world found itself highly dependent on the manufactured goods coming from
American factories. But starting in the
1960s, US advantages were becoming a thing of the past.
What happened? Well, the heavily damaged countries got back
on their feet and were then beginning to compete in industrial markets. But there is more to the story and an
important aspect of the developments happening during that time has to do with
how the economy began to be viewed.
William K. Tabb provides and explains
one element of what else was afoot.[3]
He points out that economic growth depends to a great
degree on businesses having the ability to reasonably predict what is going to
happen. To do that, the economic sectors
at a given time share what he calls a social structure of accumulation (SSA)
perspective. That view gives a nation’s policy
makers a general model of how the economy is working.
Tabb
claims the US economy, through its history, has experienced a series of SSAs. During the time under consideration (1945-1968),
the nation was under the influence of the Keynesian SSA. That view was a product of the Great
Depression and it basically legitimized a relatively strong government role
within the economy – a far cry from Smith’s advice. That mental construct provided rationales for
institutionalized government programs – Social Security, Federal Deposit
Insurance Corporation, and an array of regulatory agencies to oversee the
economy.
The
prudence of this general approach began being questioned during the late 1960s
and through the 1970s. That decade was
hit by rampant inflation and a lack of faith in the abilities of the Jimmy
Carter Administration to meet the demands of that time. To the perceived rescue, the nation turned to
Reagan and he returned to a strategy more in line with Smith’s views. So extensive was this shift that Tabb
considers the change as one to a newer SSA, the neoliberal SSA.
The
term neoliberal should not be confused with left of center liberals. Instead, it is linked more with a libertarian
view – which is highly anti-government in general. As it would be applied to the economy, Reagan
was successful in limiting government’s role in the economy. Through the Reagan’s administration, the
nation’s economy shifted to this neoliberal view and that bias held until the financial
debacle known as the Great Recession of 2008.
During
its reign, that newer bias in policy led to a high degree of deregulation. Many blame the 2008 debacle on a lack of
regulation over the financial sector. Of
particular concern was the mortgage and banking industry. The current question is: did the Great Recession and its aftermath sufficiently
discredit the neoliberal view? That
question is still an open one. What is
not in doubt is that there remains a problem.
The
acceptance of neoliberal view did not only predate the financial crisis, it
also led to manufacturing businesses going abroad to cheaper-labor
countries. China stands out as one such
country. In turn, that led to a
multitude of former factory workers in the US losing their jobs. This and automation have created a
disenfranchised segment of the American workforce.
That
is, to many the reason there has been sluggish growth and underemployment,
especially those who can still remember better days, has been the deindustrialization
of the economy. Hands off led to this
global economy with its newer supply sources of manufactured goods.
Now,
this, in turn, has led to many benefits, but it imposed significant costs on
these identified displaced workers. In
addition, those costs have been coupled – one might see a cause and effect – to
more extreme politics. There is now a
president who identifies himself as a nationalist – a more extreme position of conservative
politics. There is also, as of this
writing, the leading vote getter of the opposing party, a socialist.
In
the minds of many, something needs to change if there is any chance of regaining
a more moderately based politics that existed before these imbalances took
hold. Here are Yueh’s comments on these
factors,
The
2008 crisis revealed the downside to having an economy with a large financial
services sector. Banks had become
complex and interconnected, and their business became harder to understand and
to regulate. Their responsibility for
causing the worst recession in a century prompted calls from the public to
regulate the banks more tightly in the US and UK. The crash also led the American and British
governments to want more manufacturing, thus they have sought to ‘rebalance’
the economy towards making things once again.[4]
So, are these the first
signs of a new SSA development? And, if
that’s what is going on, is it congruent with efforts to find the way toward a
period of reindustrialization? Yueh,
perhaps with that in mind, takes it upon herself to review what contributions
prior giants in the field of economic study – like Smith and John Maynard
Keynes – offer the current situation.
This
blog will share some of those ideas and add what it sees civics education can
add to any resulting efforts, at least from the perspective of the classroom. After all, as the current political drama the
nation is experiencing indicates, these economic factors play a very energetic role
in defining what the nation will be contesting in the political thicket at any
given time.
[1] Linda Yueh, What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve
Today’s Biggest Problems (London, UK:
Penguin, 2019 (Kindle edition)).
[2] Ibid., 11-12 (Kindle edition).
[3] William K. Tabb, The Restructuring of
Capitalism in Our Time (New York, NY:
Columbia University Press, 2012).
[4] Linda Yueh, What Would the Great Economists Do?,
13 (Kindle edition).
