The last 35 years or so, an era of liberalization and “globalization,” has been hailed as an era of fantastic growth and economic prosperity. Thanks to Reagan and his economic reforms, we currently live in an era of magnificent economic conditions. Is it true? Is all the triumphalism merited? Well, as usual, it depends on who we’re talking about. It’s true that there has been outstanding performance of the economy, but it’s a very narrow part of the economy. It’s quite true that the ultra-rich have been making out like bandits. We get to read about their euphoria all the time. For the ordinary American, however, the story is quite different.
In my post on what are called “economic miracles,” I noted that the ordinary worker in America has been working harder and longer hours only to see their wages stagnant or decline. Most people have actually seen their wealth go away, not accumulate. The poor have been getting poorer (and the rich, richer). On my post on what’s being called “globalization,” I pointed to data to shows world GDP growth rates have slowed nearly 40% in this new era compared to the era before, which was called the Golden Age (Robert Skidelsky also discusses this in his book, Keynes: The Return of the Master). Poverty rates were steadily declining right through the early 1970s; since then, the poverty rate has either increase or stagnated. The same is true of unemployment rates, but instead of staying stagnant after the early ’70s they soared to unprecedented levels and today we are again approaching the levels we saw under Reagan.
Just about on every measure, this “Golden Age of Capitalism”—the Bretton Woods era—has outperformed this new era, which is now being dubbed the “Leaden Age.” Writes David Harvey, “The only general point of agreement is that something significant has changed in the way capitalism has been working since about 1970.” In The Long Twentieth Century: Money, Power, and the Origins of our Times, Giovanni Arrighi explains: “Rigidities increased further, real growth ceased, inflationary tendencies got out of hand, and the system of fixed exchange rates, which had sustained and regulated post-war expansion, collapsed. Since that time, all states have been at the mercy of financial discipline, either through the effects of capital flight or direct institutional pressures.” That is, states have been undermined by “the empowerment of financial capital” and economies have gone out of control.
The Golden Age of Capitalism (by “capitalism,” it’s understood we mean “state capitalism”), unlike the current Leaden Age, was marked by economic growth that was egalitarian, less severe business cycles, and overall stabilization. The dismantling of the Bretton Woods system and the descent into the Leaden Age has brought about rampant speculation, loss of capital controls, and unregulated exchange rates, all resulting in volatility, severe business cycles (take now, for example), slower growth, higher interest rates, worker insecurity (or, more euphemistically, “labor market flexibility”), and all the rest described above. (This descent is also discussed in John Eatwell and Lance Taylor’s book, Global Finance at Risk.) Now Paul Krugman, an economics professor at Princeton University and the recipient of the Nobel Prize in Economics in 2008, has been doing some Reagan mythbusting of his own. First, he debunks the idea that growth was greater in the Leaden Age than in the Golden Age. Next, he dispels myths about Reagan policies creating greater growth on a per capita basis. Finally, he goes on to explain productivity growth was more rapid during the Golden Age, not during the era of Reaganomics.
Now I’m sure some people may not be happy with the foregoing arguments, even though I find them more descriptive than normative. They might see it as an attack on free markets, but I don’t think it is. In fact, the Bretton Woods system was built around the idea that free trade was good but there needed to be some regulations on finance. Those arguments are not novel and you don’t need to read Keynes to find them. And while Reagan certainly liberalized the economy in some senses, for example through deregulation, Reagen really had no faith at all in free markets. He was, in fact, a big-time state capitalist; take, for example, James Baker who boasted to business groups that the Reagan administration has offered more protection to American business than any post-war presidency (it was, in fact, more than all of them combined). Today, we continue to operate on the idea which is that you socialize risk and costs and privatize profits—the idea of lemon socialism. Contemporary examples stare us right in the face. But Bush’s idea of abandoning “free market principles to save the free market system” is not new by any means. The point I wish to make, if any, is that these ideas are not healthy for democracy are not, as shown above, particularly conducive to economic growth in any meaningful sense.