In 1919 Frank Crane pointed out (in “Justice,” one of his Four Minute Essays) that charity was a poor substitute for justice. Charity, he said, is a palliative which leaves injustice — privilege — in place, while helping the most unfortunate. Charity makes it possible for the poor and unemployed to scrape by, thus enabling the system of privilege to continue. But justice makes charity unnecessary by removing the root causes of poverty and unemployment.
Today, we could say of the welfare state and Keynesian fiscal policy what Crane said of charity.
A whole host of statistics indicate that the current recession is unlike any other since the Great Depression. The number of long-term unemployed, and the number of people competing for each available job, are both more than double their levels in the recession of the early 1980s. While I think Obama’s stimulus package probably stopped the free-fall in job loss that occurred in First Quarter 2009 — just barely — we can see that as soon as the money stops being spent the economy stagnates again. So we’re probably headed either into the second leg of a W-shaped recession, or into a long-term period of stagnation and zero job growth.
Our old ideas on what it takes to overcome the state capitalist economy’s inherent tendencies toward excess capacity are becoming obsolete. And the causes go back to Frank Crane’s understanding of justice.
Injustice is at the heart of our economic problems. By making capital and land artificially scarce and expensive, the state forces workers to sell their labor in a buyer’s market and thereby reduces the bargaining power of labor. The owners of land and capital are thereby enabled to collect scarcity rents.
The economic effects are destabilizing. Income shifts from workers, who work mainly to meet their consumption needs, to rentiers with a high propensity to save and invest. The result is a chronic tendency toward overaccumulation and underconsumption.
At the same time, the state subsidizes the most centralized, capital-intensive forms of production, leading to mass-production industry with overbuilt plant and equipment that’s constantly plagued with idle capacity.
The problem was “solved” for a while by World War II, which blew up most of the plant and equipment outside the U.S. and created a permanent war economy to absorb a major part of the destabilizing economic surplus. But by 1970 the industrial capacity of Europe and Japan had been rebuilt, and the old tendencies toward chronic stagnation were resumed.
Since then the tendencies toward stagnating economic growth, excess capacity, and jobless recoveries have increased from one decade to the next. The economy has become increasingly dependent on speculative bubbles to soak up surplus capital, and on growing consumer debt to absorb excess industrial output.
Given state capitalism’s inherent tendencies toward stagnation, the welfare state and Keynesian demand management are absolutely necessary parts of it.
State intervention creates maldistribution of purchasing power and excess production capacity. Government attempts to remedy the resulting destabilizing tendencies by taxing a small fraction of what was originally shifted from the producing classes to the rentier classes, and giving it to the most destitute portion of the exploited classes, in order to prevent politically destabilizing levels of unemployment and homelessness. It runs a deficit during economic downturns in order to provide sufficient demand to compensate for the shortfall in purchasing power.
The problem is that the relative periods of downturn keep getting longer, and the deficit spending required to correct for the chronic demand shortfall keeps getting larger.
Once the state substitutes privilege for justice, it inevitably creates destabilizing tendencies that must be met by one of two possible courses of action. One is to remove the privileges and allow the natural operation of justice, so that the chronic instabilities don’t arise. The other is to add secondary interventions like the welfare state and Keynesian fiscal policy, so the destabilizing tendencies don’t get too bad — and to keep increasing the level of such intervention when it no longer works the way it should.
So to the “conservatives” who want to “cut spending” and “balance the budget,” I give this warning: Understand the implications of what you demand. If you will not have a welfare state and deficit spending, you must have a free market — a genuine free market, not the kind of fake “free market” the U.S. Chamber of Commerce, AEI and Heritage Foundation call for. You must cease to enforce monopoly rents to the owners of land, capital and “intellectual property.”
If you go only halfway, removing the palliative measures without removing the injustice — if you choose a fake corporatist version of the “free market” — you will only give us another Great Depression worse than the last one.
The choice is clear. If you will not have justice, you must have welfare and Keynesian stimulus spending. There is no third way.