John Buell

Liberalism’s Uncertain Future

Why have US liberals and European social democrats been unable or unwilling to combat the austerity that so captivates the world? On one level the answer is obvious. A more strident and well-financed conservatism has been in the ascendance. But New Deal liberalism and European social democracy have had internal problems of their own. Today’s column will focus on the conservative mindset and US liberalism’s post World War II’s response. The next column will examine the travails of US liberalism over the last 30 years.

It is easy to forget today just how surprising the triumph of the pro-capital ideology is. That ideology celebrated markets free of the state as the source of a dynamism and sensitivity that no government bureaucracy could achieve. That conviction seemed decimated by the events of the Great Depression. Conservatives’ claim that in the proverbial long run things might work out seemed scant comfort to even many of the business leaders of the immediate post WWII generation. That generation had experienced the success of World War II rearmament and even such unorthodox practices as price controls and rationing.

Yet Friedrich von Hayek, the principal architect of the market celebration, was too clever a polemicist not to have an answer. If one is losing the argument over economics, change the conversation.  He argued strenuously that whatever the success of wartime planning, any economic planning led inexorably to the excesses of totalitarianism.

Irish political economist Philip Pilkington counters: “One may as well make the observation that totalitarianism was often accompanied by arms build-up, therefore arms build-ups ‘cause’ totalitarianism.” He adds that it is absurd to suggest that “Hitler’s Germany and Stalin’s Soviet Union – had formed because a naïve democratic government had engaged in some economic planning that then got out of hand and resulted in tyranny.”

Pilkington reminds us that the harsh economic demands of Versailles led to hyperinflation in Germany and the turmoil that aided Hitler. Nazi popularity waned once US loans began and inflation subsided, but after the crash of 1929, unemployment soared and was exacerbated by the Weimar government’s misguided turn to austerity. Hitler resumed his disastrous march to power.

Pilkington, however, warns us: “Hayek’s delusion, with all its emotional overtones, spread quite effectively. Today whenever we encounter an anxiety-ridden Tea Partier, it is Hayek’s delusion that we are hearing echoed through the chambers of history, albeit in slightly vulgarised form. It is the fear, distrust and paranoia which Hayek’s portrait of a free society descending into barbarism evokes that captures the minds of those it touches. That it is completely deluded and ignorant of history only makes it more effective, like all propaganda, in its role as propaganda. The bigger the lie, the more emotional investment it requires to believe in and so the more it captures the uncritical and the emotionally weak.”

Pilkington’s analysis is provocative, but he perhaps places too much emphasis on the role of Hayek and the libertarians in the post World War II era. That era was marked by domestic and international bargains shaped by pragmatic business and political leaders who accepted at least some role for government and even unions. Hayek and his sympathizers did not go away, but provided a kind of background chorus ready and willing to reassert themselves when the opportunity presented itself, as it unfortunately did.

In the late 1940s even some US business elites recognized the need for stable market demand in order to sustain an ever more productive capitalism. They supported the economic reconstruction of their erstwhile enemies and tolerated moderate unionism. This Grand Bargain between labor and capital brought steady economic growth and declining inequality both in the US and Western Europe.

That bargain contained the seeds of its own undoing. Revolutions were occurring in the developing world. On the economic front, Japan and Germany experienced remarkable gains in productivity while American workplaces experienced increasing turmoil. Unions had been granted the right to bargain over wages, but questions of workplace organization had been ruled out. Japan and Germany had achieved growing productivity. Furthermore, minorities had been left out of the Grand Bargain and began to express their discontent amidst the growing general prosperity of the ’60s. The consequence of turmoil abroad and at home was soaring government expenditures for a welfare/warfare state.

The late ’60s and ’70s are remembered for the conjunction of unsettling antiwar, civil rights, and feminist movements. But equally part of that story was the so-called stagflation, the bouts of inflation coincident with rising unemployment.

Economist Robert Vienneau, drawing on path- breaking work of Cambridge economist Nicholas Kaldor, asserts: “the prelude to stagflation was also marked by a significant explosion in commodity prices that occurred in the second half of 1972. Part of the problem was the failure of the harvest in the old Soviet Union in 1972–1973 and the unexpectedly large purchases on world markets by the Soviet state. That was exacerbated by the uncertainty caused by the break up of the Bretton Woods system, after Richard Nixon had ended the convertibility of the US dollar to gold on Aug. 15, 1971.”

That breakup itself was rooted in part in the combination of massive military spending and social welfare expenditures designed to address the growing social revolutions of the period. That decision marked the US movement from a creditor nation to one burdened by a trade deficit. In a recent interview, Greek economist and author of The Global Minotaur, Yanis Varoufakis comments:

“What Nixon recognised was that, once the US had become a deficit country, [its Bretton Woods era role as supplier of global credit] could no longer function as designed. Paul Volcker had identified with immense clarity America’s new, stark choice: either it would have to shrink its economic and geopolitical reach (by adopting austerity measures for the purpose of reigning in the US trade deficit) or it would seek to maintain, indeed to expand, its hegemony by expanding its deficits and, at once, creating the circumstances that would allow the United States to remain the West’s Surplus Recycler, only this time it would be recycling the surpluses of the rest of the world (Germany, Japan, the oil producing states and, later, China).” The US made the latter choice, with implications not only for its economy but for the future of its democratic politics, a subject to which I will turn in my next column.

John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email jbuell@acadia.net.

From The Progressive Populist, March 1, 2013