Beware the Fiscal Musket

Samuel Clemens, Guest Writer 

If the Department of Defense sent our troops abroad with muskets and bayonets, everyone—Republican and Democrat, from die-hard Trump supporters to the followers of Bernie Sanders and everyone in between – would scratch their heads and wonder how they could be so naïve. Why then, do the Department of the Treasury, Labor, Commerce, HUD, the SEC and all the other agencies that grapple with the most important macroeconomic forces in this country, get a free pass? How can anyone expect them to solve today’s economic problems using yesterday’s tools?

Adam Smith and F.A. Hayek were brilliant men, but they were defining economic principles for a world that does not exist anymore. Describing systems and markets that do not exist anymore. Smith was describing agrarian economies with many small firms in near-perfect competition, and far fewer barriers to entry into the market (Howard Zinn, New Deal Thought, p 10). Globalization, automation, and deindustrialization have transformed modern economies, increasing the share of economic bargaining power for those with financial and technological capital, and leaving labor in limbo (Joseph Stiglitz, The Price of Inequality, pp 5-16). What was the election of Donald Trump, if not a defiant rejection of globalization? Fears about mass migration, outsourced labor, and diminishing economic mobility were at the center of his campaign platform. In retrospect, this platform was the stronger one, and we have yet to see how powerful this surge of populism throughout the industrialized world will become.

Yet the Trump administration, as well as the most outspoken Republicans on fiscal policy such as Speaker Paul Ryan (R-WI), Sen. Ted Cruz (R-TX), and Rep. Jason Chaffetz (R-UT) miss the boat on the driving factors of this rejection of the modern economy. They can keep falling back on the Invisible Hand, pretending that regulation is the real barrier to inclusive economic growth, and promising voters that unfettered free-market capitalism will save them all, but the writing on the wall says otherwise.

Why are they trying to fight the economic battles of the 21st century using muskets? This ought to be a time when policymakers are asking existential questions about the sustainability of this economy; instead they are doubling down on hands-off economic theory that predates electricity, much less computer chips. What will happen to all those Salt-of-the-Earth Rust Belt Trump supporters, who we’ve heard so much about since the election, in a society where a growing share of people cannot generate any value for the economy? Will they be as amenable to the dismantling of the Department of Education when high-skilled labor is the only ticket out of poverty? Will they look back favorably of the destruction of the EPA when the only jobs at those carbon-emitting factories are for engineers and robots? As the capital of the super-rich multiplies exponentially, while wages for the broad majority stagnate and decrease, will they still believe the tired old line that unions and the Department of Labor are the job-killers (Stiglitz, p 77)?

I do not have the answers to these questions, nor a blueprint for how to design economic growth that includes everyone. I can only look at history and try to learn from it. The Industrial Revolution was a period of incredible growth, accompanied by incredible growing pains. Squalid, disease-ridden slums,  deadly working environments, and slave wages were the reality for most people (Zinn, pp 159-162; Joy Hakim, An Age of Extremes, pp 116; Joy Hakim, An Age of Extremes, pp 116). For decades after the start of industrialization, politicians kept repeating the hollow promise of Rugged American Individualism and the idea that anyone with the will and creativity could succeed, ignoring the structural factors that determined economic outcomes for the overwhelming majority of people (Stiglitz, p 36; John Dewey, The Public and Its Problems, pp 155-158.). Ignoring the fact that laissez-faire capitalism did not, in fact, create market efficiency for consumers, it created an abusive and exploitative cartel of monopolies (Hakim, pp 30-34). But eventually policy makers woke up. The Progressive Era, and the New Deal Era after it ushered in a litany of labor laws, anti-trust laws, financial regulations, health codes, and publicly provided infrastructure that drastically improved the standard of living for millions of Americans (James P. Young, Reconsidering American Liberalism , pp 176-179).

It is not hard to draw a comparison and say that we are in the midst of a Digital Revolution that is reshaping our economy and society as profoundly as industrialization did. But when will policy makers stop advocating the fiscal equivalent of a musket and recognize that the rules of the game have changed?

One thought on “Beware the Fiscal Musket

  1. At some point the powers that be need to wake up to the fact that we may be facing mass unemployment in the next few decades due to the rise of A.I and automation. At that point, all the old ways of seeing things – socialist, capitalist, free-market, statist, etc are going to be thrown completely into confusion. As you state, it is happening already.

    Liked by 1 person

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