40 Years of Decline: The Neoliberal Story

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During my conversation with Nathan Anderson, he says he literally watched Germantown, his neighborhood, crumble. Nathan was born in 1973, which coincides with many economic policy changes.

I’m about to go full Chomsky, so strap in.

First, I’d like to point out that our founding fathers whom everyone loves so dearly were not the arbiters of egalitarianism portrayed in the mainstream historical record. James Madison noted the problems of democracy here:

 

Landholders ought to have a share in the government, to support these invaluable interests and to balance and check the other. They ought to be so constituted as to protect the minority of the opulent against the majority.

Madison is essentially saying that we need to protect the private owners of land from the majority. Another of Chomsky’s favorite quotes is this gem from Adam Smith, the father of laissez-faire economics:

All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.
Wealth of Nations, Book IV

The 1960s was the most democratizing decade in American history. Civil rights, women’s lib, anti-war protests, the list goes on. The opulent don’t like too much democracy. One such example is the Trilateral Commission’s 1975 report titled (this isn’t a joke) “The Crisis of Democracy.” In it, the Commission says

… some of the problems of governance in the United States today stem from an excess in democracy…
Page 113

In the past, every democratic society has had a marginal population… which has not actively participated in politics…  it [the marginality of some populations] has also been one of the factors which has enabled democracy to function effectively.

Page 114 (Emphasis mine)

 

There were large groups looking to beat back democracy and undo the civilizing advancements of the 60s. In many ways they were successful. Two things above all else set the stage for the decline of neighborhoods like Germantown:

  1. Mass Incarceration

  2. Neoliberal economic policies

To keep with the Chomsky motif, he would argue that mass incarceration is actually an extension of neoliberalism, but here I’m going to count them separately.

 

Mass Incarceration

 

In the late 70s, incarceration rates began increasing, then skyrocketing in the 80s under Reagan / Bush and continuing through the 90s under Bill Clinton.  Much of this began with Richard Nixon’s tough-on-crime win in 1968. This became an easy go to for politicians looking to get ahead in the polls. Nixon declared The War on Drugs in 1971, which largely acted to disenfranchise African American communities — who had only been granted Civil Rights seven years prior. Germantown is a primarily African American community, and has been since Nathan was young. 

 

According to data compiled by The Sentencing Project, in 1974, approximately 200,000 people were imprisoned in the US. This number had been relatively stable for several decades. But, it doubled to 400,000 in 1982 and doubled again to 800,000 in 1990. It has almost doubled once more, resting around 1.5 million in 2015. The United States has only 5% of the world population, but 25% of the world prison population.

 

Nationwide, blacks constituted 37 percent of all drug arrestees in large urban areas, blacks constituted 53 percent of all drug arrestees.
HRW.org

Although African Americans are less likely than whites to use drugs, they are much more likely to be imprisoned for it. Blacks are arrested for drug possession at 3 times the rate of whites according to a 2009 report by Human RIghts Watch (HRW). In 2011, African Americans made up 45% of the drug offender prison population whereas whites only made up 30%, according to the Bureau of Justice Statistics.

The crack “epidemic” largely affected inner-cities with high concentrations of African American communities. In 1986, Congress passed the Anti-Drug Abuse Act, which increased sentencing for crack 100:1 compared with cocaine. Cocaine and crack are almost identical, making the sentencing disparity baffling — unless you analyze the racial differences in drug use, in which case it makes perfect sense. Crack is able to be purchased in smaller quantities than cocaine and as such is more affordable. The affordability issue explains its prevalence in lower socio-economic areas. 

Incarceration is a vicious cycle. Once convicted, the barriers to education, employment, and other things necessary to living a good life are much greater. Because of these barriers, recidivism rates are extremely high. Recidivism is when a person with a prior conviction going back into the system. Interestingly, Bill Clinton worsened the problems prisoners face when he signed the Violent Crime and Law Enforcement Act of 1994. (Bill Clinton will come back into play in the neoliberal part of this piece.) Among the many facets of this law, it imposed minimum mandatory sentencing laws, essentially, taking away the autonomy of judges to rule on a case by case basis. It also took away Federal Pell Grants for prisoners, increasing their barrier to education. Some statistics from a 2005 study by the National Institute of Justice:

 

  • Within three years of release, about two-thirds (67.8 percent) of released prisoners were rearrested.
  • Within five years of release, about three-quarters (76.6 percent) of released prisoners were rearrested.
  • Of those prisoners who were rearrested, more than half (56.7 percent) were arrested by the end of the first year.

 

There is also the issue of disenfranchisement. This means the inability to vote in public elections. Laws vary by state, but the Sentencing Project estimates that 5.85 million Americans were unable to vote in the 2012 Presidential election, because of felony disenfranchisement. That number includes almost 3 million who have fully served out their sentence, but are still unable to vote. And again, African Americans are affected much more by this than other races. Almost 8% of voting age African Americans are unable to vote due to felony convictions, compared with 1.8% of the general adult population.

The taskforce appointed by Chicago Mayor, Rahm Emanuel in the wake of the Laquan McDonald shooting, found that the Chicago Police are “plagued by systemic racism.” I could prattle on about all of this for several more days and there would still be much more to say. However, it should be clear that American law enforcement as a whole is plagued by systemic racism.

How does all of this tie into neoliberalism? Chomsky has said that mass incarceration happened as a product of neoliberal policies because you’ve got all these unemployed people and you “have to put them somewhere.”

Because we can compare many reports filed by people whom we can recognize as really the same person, we are able to see through schemes, such as those encouraged by the Obama campaigns (especially in 2008) to encourage individual contributors to break up contributions into what looks like many “small” donations.
— How Money Drives US Congressional Elections (Thomas Ferguson, et all)


 

Neoliberalism

 

First, we need to analyze the postwar period between 1945 and the early 70s. This period is referred to as “The Golden Age of American Capitalism.” After the war, America controlled an unprecedented amount of world wealth, about 50%. During this time, manufacturing boomed, along with the population. This growth was largely egalitarian, meaning that people of all income backgrounds were better off (This is of course not true of race). However, in the late 70s, things began to change.

What is neoliberalism? You’ve probably heard the term used as an epithet against Obama-Clinton style Democrats. Chomsky quips that the term is quite ironic, because it’s not liberal and it’s not new. Essentially, it boils down to a system of governance marked by globalisation, private wealth and power, and economic insecurity for the vast majority of the world. In fact, during his 1997 testimony to the Senate, Alan Greenspan pointed out that the success of the economy was in part due to growing worker insecurity. 

The neoliberal seeds were sown in 1975 with the recently inaugurated Congress, full of young Democrats, including Bill Clinton. This was in the wake of the Watergate scandal and the Vietnam War, so young, idealistic liberals were an easy sell. There is a great piece in the Atlantic in which Matt Stoller fully deconstructs the philosophy and its origins. This young class of Democrats abandoned the populist, trust-busting ideology that defined the party since the New Deal. They shifted their economic stance rightward toward deregulation and increasing corporate power, while moving left on social issues. This is now referred to as identity politics.

There are many who contend that the Democratic party hasn’t moved right. Jonathan Chait argues this position in New York Magazine. However, there is ample evidence that the both parties have shifted to the right since the 70s, with Democrats now occupying the political space once home to moderate Republicans, and Republicans drifting off the map. Thomas Ferguson, a political scientist from MIT, proposed an electoral theory called “The Golden Rule: The Investment Theory of Party Competition,” released in 1995. His thesis is that each election cycle, wealthy investment groups coalesce to invest in candidates which will advance their agenda with formal government policies. This theory has been met with much criticism for obvious reasons, but in 2016, with colleagues Paul Jorgensen and Jie Chen, Ferguson released “How Money Drives US Congressional Elections.” The authors analyze House and Senate election outcomes and resources invested in each candidate between 1980 and 2014.

The United States has very lax political donation laws, so in order to create their data set, they had to compile a unified dataset using records from the Federal Election Commission (FEC) and Internal Revenue Service (IRS). Even those who admit that money plays a part in elections, insist that it is not representative of the mainstream, however Ferguson writes that:

We also exploited our new, unified dataset to identify contributors whose names and addresses differed, but who were in fact the same people, and linked them to businesses they managed or controlled to produce far more accurate estimates of the true concentration of campaign contributions. We demonstrated, for example, that the 1% -- defined quite carefully – dominated both major parties; at the same time, however, our results once again directly confirmed the huge differences in the extent to which specific sectors and blocs of firms within big business differentially support Democrats or Republicans. The results point up the futility of trying to understand the dynamics of American politics without reference to investor coalitions and strongly support a broad investment approach to party competition. We showed that the case of the Tea Party was no different by tracking the rates of support for its candidates within business as a whole but, most importantly, within big business. Claims that major American businesses do not financially support Tea Party candidates are plainly false.
Page 7 (Emphasis mine)

Sorry for the long block of quoted text, but it highlights my point perfectly. Most interesting is that businesses support the Tea Party which was supposedly a grass-roots conservative group. However, this is also true of the Obama campaign, which was said to be made up of small donations from average citizens:

 

Because we can compare many reports filed by people whom we can recognize as really the same person, we are able to see through schemes, such as those encouraged by the Obama campaigns (especially in 2008) to encourage individual contributors to break up contributions into what looks like many “small” donations.
Page 12. (Emphasis mine)

 

Their findings were that the correlation scatter-plots were almost straight lines. The lowest House r-squared value being .747 in 1990 and the lowest Senate r-squared value being .309 in 1982 (However, if this outlier is removed, the lowest is .613 in 1980). This means that there is a very strong correlation. To be technical R-Squared is a measure of variance, meaning that 75% of the variability between outcome and investment in 1990 has been accounted for with Ferguson's model. Obviously, correlation doesn’t equal causation. Being weary of this, Ferguson and his team used various statistical methods, including Bayesian analysis to rule this out. There are not two parties in the United States, but one — the business party, with small factional differences between them. The evidence of America’s plutonic structure doesn’t stop there.

62 individuals own the same amount of wealth as the bottom 50%.
— OxFam

 

In 2014, Martin Gilens of Princeton and Benjamin Page of Northwestern analyzed survey data regarding public policy opinion between 1982 and 2002. The data was segregated by income group. This study is weaker, with much lower r-squared values, but the findings are still rather shocking. They report that when there is low support (1 in 5 in favor) amongst the American economic elite for a policy, (defined as those in the 90th percentile of income) it is enacted about 18% of the time. However, a proposal with high support (4 in 5) is enacted about 45% of the time.

Driving the point of income and social inequality home further, OxFam, an NGO, regularly releases reports on world income disparity. Their 2016 report found that 62 individuals control the same amount of wealth as the bottom 50%. That is sixty-two. 62 people own the same amount of wealth as the bottom 3.5 billion. This problem is accelerating rapidly: the bottom 50% have lost $1 trillion since 2010, a 38% drop. And that is with the world population growing by 400 million in that time frame.

 

Real wages for non-managerial, private sector employees have been stagnant since these policy changes began in the late 70s, in some cases, even declining. According to Pew Research, the average hourly wage in 2014 was about the same as it was in 1979, once adjusted for inflation (Referred to as purchasing power). The contrast is stark when segregated by income percentile:

What gains have been made, have gone to the upper income brackets. Since 2000, usual weekly wages have fallen 3.7% (in real terms) among workers in the lowest tenth of the earnings distribution, and 3% among the lowest quarter. But among people near the top of the distribution, real wages have risen 9.7%.

 

What has changed?

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  • The North American Free Trade Agreement (NAFTA) was enacted in 1994. It is more aptly described as an investor rights agreement. It decimated the manufacturing sector of the United States economy while also hurting poor Mexicans. However, it was a great success for the rich in both countries.

  • Financial Services Modernization Act of 1999. (colloquially Graham-Leach-Bliley) This removed many regulations put in place after the Great Depression, such as the Glass-Steagall Act, which separated commercial and investment banks.

  • Financialization of the economy. Financial services are now 20% of the GDP, up from 10% in 1947.

  • Reduced government funding to public universities. Skyrocketing tuition has created a dichotomy of being in a debt trap, or lower educational attainment

  • Reduced ability for collective bargaining or unionisation.

  • Privatization of public utilities (water, prisons, etc)

  • Reduced funding to public schools. This is a well known problem in Philly.

  • Out of control healthcare cost. The United States spends twice as much per capita than other OECD countries with similar life-expectancies

The Takeaway

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The outcome of neoliberal economics and mass incarceration are clear. A survey by the Federal Reserve found that 46% of Americans couldn’t cover an unexpected $400 bill. Although both whites and nonwhites are in a rocky situation, whites still tend to fare better. This means that while the issue is largely shifting from race to class, racial divides still play a large role in economic outcomes in the United States. The vanishing middle class is fed up with being forgotten about and lied to for 40 years.

 

There are reasons to be hopeful though. Bernie Sanders ran an unprecedented campaign. The media hated him, he had no corporate backing, no political backing, and yet (if not for the deceit by the DNC) he probably would have won the Democratic nomination. Americans under 30 cast more votes for Bernie Sanders in the primaries than for Trump and Clinton combined. There is also galvanization of largely disenfranchised populations through groups like Black Lives Matter and others. Even the International Monetary Fund, (IMF) one of the key arbiters of neoliberalism are now questioning its virtues. Crowdfunding services, Meetup, social media, and other resources allow for communication and collective action on a scale never before seen. 

I am not against deregulation and in favor of the government running everything. I am however in favor of sensible regulations to keep the balance of power between corporations and individuals, to avoid a corporatocracy. 

 

To leave you with a quote, President Eisenhower, a conservative Republican once said of unions:

 

Today in America, unions have a secure place in our industrial life. Only a handful of reactionaries harbor the ugly thought of breaking unions and depriving working men and women of the right to join the union of their choice. I have no use for those -- regardless of their political party -- who hold some vain and foolish dream of spinning the clock back to days when organized labor was huddled, almost as a hapless mass. Only a fool would try to deprive working men and women of the right to join the union of their choice.

By today’s political standard, Eisenhower would be a ranting, raving, liberal wingnut.