House-breaking capitalism

A new essay of mine, “Merchants of Doom” (with the online title, “Is Capitalism a Threat to Democracy?”), appears in the 14 May 2018 issue of The New Yorker. It reviews Robert Kuttner’s new book Can Democracy Survive Global Capitalism? (Norton), and also takes note of Barry Eichengreen’s The Populist Temptation (Oxford) and Dani Rodrik’s Straight Talk on Trade (Princeton).

Americans may not have been better off in the 1950s, but they made more progress

In this morning’s New York Times, David Brooks, citing a new book by Steven Pinker, claims that there’s been more economic good news in America lately than has been appreciated.

Brooks (or Pinker) sets up a bit of a strawman by claiming that a “smothering orthodoxy” of economic observers have been wrongly idealizing the 1950s. In fact it isn’t the 1950s per se that gets idealized, in the tracts I’ve read; it’s the progress that the American economy made following World War II, which abruptly stopped in about 1973. And if you kick the tires on some of the numbers in Brooks’s article, this “pessimistic” assessment holds its own.

Brooks writes, for example, that “Between 1979 and 2014, . . . the percentage of poor Americans dropped to 20 percent from 24 percent.” I don’t have Pinker’s book, so I’m not sure what the underlying source for this claim is, but it is contradicted by the US Census, which reports that in 1979, the percentage of Americans living in poverty was 11.7 and by 2016 had risen to 12.7. By the word “poor,” therefore, Brooks and Pinker must mean something other than “living in poverty.” For a fuller picture, here’s a quick graph I made, using the Census’s data, of the proportion of Americans living in poverty between 1959 and 2016:

Source: Table 2, Poverty Status of People by Family Relationship, Race, and Hispanic Origin, U.S. Census Bureau

It seems to me that the natural inference to be made from this graph is that the Great Society programs of the 1950s and 1960s did an amazing job of combating poverty, but that progress has stagnated since the early 1970s—which happens to be the “gloomy” (as Brooks terms it) consensus among most economists studying such problems, however hopelessly conformist and noncounterintuitive that consensus may be.

Again relying on Pinker, Brooks writes that “we should not be nostalgic for the economy of the 1950s” because at that time “A third of American children lived in poverty.” The US Census numbers do confirm that in 1959, 27.3 percent of Americans under the age of eighteen were living in poverty. However, by 1969, that proportion had fallen to 14.0 percent, rising again to 22.3 percent in 1983 (hi, Reagan!), after which it dithered for decades. It was at 18.0 percent in 2016. Which sounds to me, again, as if the Great Society accomplished wonders, and as if no serious progress, and in fact some retrenchment, occurred after that. Here’s a graph of American children living in poverty, 1959 to 2016:

American children living in poverty, 1959 to 2016

Source: Table 3, Poverty Status of People, by Age, Race, and Hispanic Origin, U.S. Census Bureau

Brooks writes that “Sixty percent of seniors had incomes below $1,000 a year” in the 1950s. Again, I’m not sure what the underlying source for his claim is, but a flat number like that isn’t all that telling. Once more then, this time with feeling, here’s a graph of the percentage of American seniors living in poverty over the years. (I’ve combined it with the same percentages charted just above for all Americans and for American children):

Americans living in poverty, 1959 to 2016: all, children, and seniors

Source: Table 3, Poverty Status of People, by Age, Race, and Hispanic Origin, U.S. Census Bureau. (Note: There are no data for seniors between 1960 and 1965.)

America has done better by its seniors than it has by its children or by its citizens generally (hi, Social Security!), but still, what the shape of the green line here tells me is that the yeoman’s work of ending poverty among seniors was done before 1973, and that further progress has only been incremental (and in the past twenty years, negligible).

Bonus round: Brooks, channelling Pinker, also claims we shouldn’t look back fondly to the 1950s because back then “only half the population had any savings in the bank at all.” Again, I don’t know the source of this claim, but unless we know how much was in those savings account, the statistic probably doesn’t reveal much except changes in banking habits. More suggestive, I think, are the data that Edward N. Wolff has assembled about the median wealth of US households. Here is a hasty chart I made from some of Wolff’s data:

Sources: Edward N. Wolff, “Household Wealth Trends in the United States, 1962-2013: What Happened over the Great Recession?” NBER Working Paper No. 20733, December 2014, and “Has Middle Class Wealth Recovered?” presentation at the ASSA Meetings, January 6, 2018. (Note: In his 2018 presentation, Wolff gave his numbers in 2016 dollars, so I divided his 2016 number by 1.03 to put it into 2013 dollars in the graph here.)

Was the typical American household in the middle of the economy wealthier in the 1950s? Full disclosure, the 1950s aren’t on this chart, so there’s no saying. But pace Brooks and Pinker, the “gloomy refrain” about the American economy—the reason observers feel pessimistic—isn’t that the economy has gotten worse since the 1950s, but that in about 1973 it stopped improving the lives of average Americans. And that seems to me to be confirmed by the blue line here: the middle-of-the-road American household made steady progress in wealth during the golden age, but the last few decades took it on a bubble-and-burst ride that left it no richer than it was in the late 1970s.

 

Free trade, jobs, rage, and policy

After a week of missteps, the Republican National Convention concluded on Thursday night with a speech by Donald Trump that was strong and persuasive. Unusually, for Trump, most of the statements in the speech were actually true. Trump’s character is so flawed that his election would, I think, be devastating; the success of his speech therefore terrifies me.

In this post, I want to revise an earlier post of mine, in which I tried to explain Trump’s appeal and how hard it is for an upper-class liberal to reply to it. I agreed, in that post, with the widespread notion that Trump is channeling the rage of the working class, and the class just above it, about the migration of American jobs to other parts of the world. Like others, I suggested that the rage may be justified even if Trump’s proposals offer no real solution. I wrote that Trump seems to be offering to restore workers’ dignity by arranging for the nation’s borders to do what a union’s picket line used to do—keep out competition that would erode labor’s earning power. At the end of my post, I mentioned, as a caveat to my own argument, that Trump’s proposal wouldn’t work, because a trade war would in fact destroy American jobs, and that American manufacturing, somewhat puzzlingly, is “at an all-time high, if measured in dollars rather than jobs.”

A few weeks later, I un-published my blog post, because it seemed to me that my caveats carried more weight than the post they were attached to. It also seemed to me that in the post I had underestimated the importance of dog-whistled racism to Trump’s appeal. But I’ve now republished that post, with a half-disavowal, and I’m adding this one, because I think it’s worth continuing to try to figure out what’s going on—even if all I really manage to do in this post is think out loud.

From the top, then: Trump’s RNC speech contains two appeals. The first is to fear of violence. As most members of America’s beleaguered fact-based community already know, Trump is exaggerating the dangers posed by civil unrest and terrorism. No policy could guarantee complete safety from either threat, but both are being handled relatively well by ordinary policing. Could they be handled better? Sure. But with the exception of 11 September 2001, terrorism-related deaths of American citizens seem to have been lower this century than they were in the 1990s, and the outcomes of America’s wars in Iraq and Afghanistan hardly suggest that a more militant approach would improve matters. Trump’s fear-mongering has a racist color here, frightening and worth paying full attention to. His demagoguery on this point seems fairly straightforward, however, at least to those willing to see it, and for the rest of this blog post, I want to focus on his second appeal.

That appeal takes the form of a promise to restore earning power to Americans in the working class and the class just above it. Trump claims that he, unlike Clinton, cares about American jobs rather than American money-making, and that he will bring back to America jobs that have been lost through free-trade agreements to foreign manufacturers. He calls Clinton a “puppet” of big business and the moneyed elite, and for his RNC speech, someone on his speechwriting team had the canny idea of reviving a term deployed by Franklin D. Roosevelt during the Great Depression: he called American workers “the forgotten men and women of our country.” This is a remarkable reversal of the historical alliance of the Republican party with business and finance, but then, it probably doesn’t make sense to think of Trump as a Republican. He took over the Republican party the way a parasite might take over its host. He’s a new breed, and he won’t be defeatable by old methods.

In my earlier post, I tried, at the risk of seeming more sympathetic to Trump’s message than I’m entirely comfortable with, to explain why Trump’s message might resonate with people who feel shut out from the prosperity of the last couple of decades. The opportunities for class resentment and misunderstanding here are rich. The meritocratic ethos of America’s elite is galling if you happen to be living beneath it. The gall, to be specific, is in the extra little fillip of hegemony that makes the lives of the rich not only superior in luxury but also, at least seemingly, superior in virtue. Organic milk may be too expensive for your budget, but conventional milk, you’re told, is cruel to cows. You may not be able to afford an apartment close enough to your job to allow you to bike to it, but you nonetheless have to hear that bike lanes are saving the world from climate change. It’s irksome to hear injunctions to save the world if you’re having a hard time just surviving in it. (I write this, please understand, as a vegetarian who buys organic milk and bikes daily. And yes, I know that bikes alone won’t save the world from climate change.) Political correctness begins to seem like another of the elite’s purchases—another display of the ability of the rich to afford nicer things, one of those things being a nicer soul. And there’s a niggling suspicion, in the person who can’t afford the nicer things, that the financiers, lawyers, executives, and consultants who can afford them have drawn much of their wealth, in the last few decades, from offshoring—from the separation of the design, management, and marketing of products from the actual making of them, which has been in many cases shipped abroad.

Trump is saying to his audience, You’re right to be angry; you’re right to feel that it’s unfair; they betrayed you. “America has lost nearly-one third of its manufacturing jobs since 1997,” he said, last Thursday night in Cleveland—a statement that a fact-checker at the Washington Post confirmed with the words, “This is true.” As the Post reported in 2013, America had 17 million manufacturing jobs in the 1990s, and two decades later only had 11.7 million. Though Trump doesn’t mention it, manufacturing jobs seem to pay better than others, making their loss particularly hard.

An economist might reply that jobs are not the same as profits, and that manufacturing is actually doing okay if you count the dollars. Like almost everything else, the real value added by American manufacturing crashed during the Great Recession (2007–2009), but since then it has mostly recovered. Why so few jobs, if the dollars are still coming in? As the Post noted in 2013, “the price of robots relative to the cost of human labor has fallen 40 to 50 percent since 1990, and that trend is expected to continue.” In other words (and this is more or less the official story, according to American manufacturing’s boosters), maybe American manufacturing has gone high-tech and now relies more on mechanization than it used to. Maybe the nature of American manufacturing has changed, nudged by competition with low-wage countries like China, and maybe American manufacturers now simply need fewer workers than previously. After all, classic economic theory predicts that free trade is always in a country’s interest, despite anecdotal evidence to the contrary.

But in a 2015 report titled “The Myth of America’s Manufacturing Renaissance,” the nonpartisan Information Technology Innovation Foundation (ITIF) reported that in fact free trade hasn’t had the beneficial effect on America’s manufacturing sector that classic theory would predict. “U.S. manufacturing lost 11 times more manufacturing jobs in the 2000s than in the 1990s despite similar rates of manufacturing productivity growth in both decades,” the report’s authors write. The acceleration suggests that the loss of jobs can’t be entirely explained by robots. According to another common explanation for job loss in manufacturing, it’s natural, as a nation’s economy matures, for its service sector to grow as its manufacturing sector shrinks. Maybe so, writes the ITIF, but “Consumption of manufactured goods as a share of U.S. GDP, when measured in inflation-adjusted terms, is the same today as it was 40 years ago.” If we’re still paying as much we used to for manufactured goods, that suggests that the economy itself hasn’t altered in a fundamental way; we’re just making fewer manufactured goods than we used to, compared to our trading partners. Just to make sure that their news is perfectly depressing, the ITIF also explains that though there has been a small rebound in manufacturing in the past few years, it has probably been caused by people finally getting around to making purchases that they postponed during the Great Recession. The rebound won’t last.

It’s worth spelling out that the ITIF report doesn’t disprove the official, boosterish narrative about the inevitability of job loss as productivity rises. Of course that’s happening, the report admits. (Though, woe to the politician who tells the people. The disappearance of your job is a sign of American manufacturing’s progress and rising efficiency is probably not something that it is in the interest of any politician in a democracy to say.) It’s just that something else is happening, too, on which a cheerful face cannot be painted.

What is it? It’s probably beyond the capacity of a literary critic moonlighting as a political blogger to give an answer. My suspicion, based on little more than reading the morning paper over the years, would be that in their rush to save money by offshoring, America’s corporate managers inadvertently dispersed centers of expertise, including supply chains, that had long anchored particular manufacturing sectors in the United States—thereby destroying what the Harvard Business Review calls “industrial commons.” No manufacturer can be self-sufficient, especially not a high-tech one; making complicated things well requires a community of other skilled makers. If the only source for needed parts is in Japan, an American automaker may feel obliged to shutter an American factory.

What is to be done? Trump’s proposal to scrap free-trade agreements is unlikely to bring any centers of manufacturing excellence back home. In fact, as the New York Times has reported, Obama actually tried a Trump-style tariff in 2009, slapping a 25 to 35 percent tariff on Chinese tires to protect American tire-makers. Three years later, Obama claimed that he had saved a thousand American jobs, but in the meantime, Americans had spent more than $1 billion more on tires than they otherwise would have, and a retaliatory tariff from China cost America another $1 billion in lost chicken sales. The Los Angeles Times adds, moreover, that as the market adjusted to the tariff, “shipments from South Korea, Thailand and Indonesia doubled in value, more than offsetting the decline in Chinese-made tires,” and that while sales of American-made tires did rise after the tariff, employment in American tire-making “continued a long and steady decline.” Not quite a win-win outcome.

If the American government were to try to nurture a particular industry, in an attempt to restore a manufacturing nexus, the effort might risk being condemned as a subsidy by one of the free-trade organizations that America belongs to. (Industry-specific subsidies are sometimes allowed, but only in developing nations.) And then there’s the danger of betting on the wrong horse; cf. Solyndra.

Economists like to complain that voters fail to understand that free trade is worth the costs. In fact, however, according to the Pew Research Center, a majority of Americans still believe that free trade is on the whole a good thing, 51 percent to 39 percent (though Trump supporters consider free trade a bad thing, 67 percent to 27 percent). And Gallup finds that 58 percent of American adults consider foreign trade an opportunity, and only 34 percent consider it a threat.

To trade freely or not to trade freely . . . It seems to be hard to think outside of this particular box. Trump doesn’t. Sanders doesn’t, either, really: he voted against every free trade agreement that came through the Senate. Clinton voted for some free-trade agreements and against others, depending on her assessment of the protections afforded by each agreement to workers and the environment. That may sound too nuanced for this election cycle, but I have even worse news. I’ve spent a day and a half now puzzling over this blog post, and just now I googled for “Hillary Clinton industrial policy,” to see if she had gone on the record with any ideas. It turns out that there’s a fact sheet on her campaign site, corresponding to a speech she gave in December 2015, that proposes investing in America’s “industrial commons.” I swear I didn’t know this until I reached the paragraph you’re now reading. Her fact sheet is hopelessly nerdy, a bit verbose, and rather bland—not unlike this blog post. But Clinton got there ahead of me. Never let it be said that she doesn’t do her homework.

Tariffs are the new picket lines

Update: I now think that the caveats in the final paragraph of this blog post outweigh the points that I was trying to make in the post itself, and I’m going to try to explain in a new post.

A month and a half ago, during a wide-ranging email conversation with a friend about the kinds of madness and extremism that are at large this election season, I admitted that “I have been daydreaming about writing a long blog post about all the ways in which upper middle class liberals are blind to the hatred of them, and to the reasonable motivations for that hatred, experienced by people outside their class.”

I never did write that blog post, in part because my friend and I continued our conversation, and I put most of my ideas into one of my later emails to him. I offer the email here, as a fragment, because even though the issues remain current, I don’t seem to have the stomach to polish it up into even a proper blog post. The only change I’ve made to my original email is to add links to document some of the claims.

To follow the thread of the argument, all you really need to know is that my friend had suggested, in an earlier email, that the economic power of the highly educated was resented nowadays almost as if it were a kind of sorcery.

My reply:

I don’t think that what the symbolic class has done is in fact as mysterious to the working class as you’re describing. I think it’s pretty simple, actually: the symbolic class enriched itself by shipping offshore the manufacturing jobs that used to employ the working class here in America, thereby increasing profits for companies whose stocks the symbolic class owns, rendering cheaper the goods that the symbolic class still has the money to buy, and rewarding themselves with high salaries in recognition of their improvement of their employers’ bottom lines.

Piketty claimed that contra classic economics, the progress of capitalism has been widening the gap between the haves and the have-nots. The only rebuttal of Piketty that persuaded me was one that pointed out that although he’s right, empirically speaking, about what has happened in America and Western Europe, he’s wrong about what’s happening on a global scale. In other words, globally, the classic economic model remains valid: overall, financial inequality is diminishing with time. But what that means, on the ground, is that wealth in the BRIC nations is increasing at the expense of the wealth of the poor and middle classes in America and Western Europe. Globally the normal distribution of wealth still obtains, but in order for wealth to find its natural level, now that most of the dikes and dams that used to isolate the nations have fallen, the Chinese worker has to be paid more than he has been, and the American worker less.

I dissent from your idea that this looks like sorcery. In fact, I think everyone pretty much knows what’s been going on. Or rather, I think many working-class people know what’s going on, though perhaps some of the woolly-minded symbolic elite have preferred to look away. Classical economics claims that free trade always improves everyone’s lives, and that if some manufacturing jobs are lost to a low-wage competitor, new jobs will take their place. But lately there’s been some economic evidence of what everyone already knows: those jobs are service jobs, lower in prestige and status and pay than the manufacturing jobs that have been lost.

The elite have responded to their own perfidy in two ways: the brutal and cynical among them choose to see themselves as supermen, above the communal morality that restrains the herd. The more thoughtful of the elite believe that the shift they have helped to engineer, and that they have profited from at the expense of less-privileged fellow-citizens, was inevitable, because of globalization, but have the decency to feel that they do owe something to the peons they have dispossessed of their livelihood. And so they support expanding and strengthening the welfare state. Thus all the millionaires at Goldman Sachs and McKinsey who donate to Clinton. They feel a bit guilty, but the dispossession of the American working class was going to happen even if they themselves didn’t have a hand in it, and all they can really do is offer a bit of compensation in the way of affordable housing and pre-K programs. What these liberal elites don’t realize, or would prefer not to realize, is that their condescension is even more roundly hated by the people they have harmed than the brutal, openly avowed selfishness of their fellow expropriators. The displaced worker is upset about his loss of dignity, and he’d rather that his enemy reveled in the theft than patronized his victim with “concern.”

Is this rational on the part of the dispossessed worker? No. Rationally considered, his best option is to take whatever handouts he can get from the upper-bourgeois managerial class. But it sticks in his craw. He doesn’t want to be the “good” object of charity. He wants to be what he once was: the ambivalently regarded, somewhat menacing worker who was an independent source of economic value. He’d rather, if need be, be “bad,” in fact. Trump is offering to give this worker back his independence and dignity. He’s salted the offer with a bit of crypto-white grievance, which is what the elite liberals have focused on, but I think Trump’s main appeal is the (phantasmatic) restoration of dignity and place in society. Unions have been delegitimized, politically, in America, but Trump’s vow to restore tariffs has the appeal of making America’s national borders serve as a kind of massive proxy union. Tariffs become the new picket lines, as it were.

Postscript: A few corrections and for-the-recordses. Trump’s winking invocations of racism and political violence are of course dangerous and increasingly seem a central part of him. The trade wars he threatens to wage wouldn’t achieve what the unions of the early twentieth century achieved, and are instead likely to do great harm. It may well be, moreover, that the elite symbolic class was correct and that globalization couldn’t have been delayed, let alone dodged. A sign of the inevitability: offshoring is now happening even to white-collar jobs. And finally, confusingly, despite a dispossession of the white working class that has spiked deaths among them by suicide, alcoholism, and drug abuse, American manufacturing is at an all-time high, if measured in dollars rather than employees—thanks to robots.

A retrospective glance

The New Yorker, as you may have heard, has redesigned its website, and is making all articles published since 2007 free, for the summer, in hopes of addicting you as a reader. Once you’re hooked, they’ll winch up the drawbridge, and you’ll have to pay, pay, pay. But for the moment let’s not think about either the metaphor I just mixed or its consequences, shall we?

A self-publicist’s work is never done, and it seemed to behoove me to take advantage of the occasion. So I googled myself. It turns out that I’ve been writing for the New Yorker since 2005 and that ten articles of mine have appeared in the print magazine over the years. All seem to be on the free side of the paywall as of this writing (though a glitch appears to have put several of the early articles almost entirely into italics). Enjoy!

“Rail-Splitting,” 7 November 2005: Was Lincoln depressed? Was he a team player?
“The Terror Last Time,” 13 March 2006: How much evidence did you need to hang a terrorist in 1887?
“Surveillance Society,” 11 September 2006: In the 1930s, a group of British intellectuals tried to record the texture of everyday life
“Bad Precedent,” 29 January 2007: Andrew Jackson declares martial law
“There She Blew,” 23 July 2007: The history of whaling
“Twilight of the Books,” 24 December 2007: This is your brain on reading
“There Was Blood,” 19 January 2009: A fossil-fueled massacre
“Bootylicious,” 7 September 2009: The economics of piracy
“It Happened One Decade,” 21 September 2009: The books and movies that buoyed America during the Great Depression
“Tea and Antipathy,” 20 December 2010: Was the Tea Party such a good idea the first time around?
Unfortunate Events, 22 October 2012: What was the War of 1812 even about?
“Four Legs Good,” 28 October 2013: Jack London goes to the dogs
“The Red and the Scarlet,” 30 June 2014: Where the pursuit of experience took Stephen Crane