The sham of neoliberalism
Review of Can American Capitalism Survive? Why Greed Is Not Good, Opportunity Is Not Equal, and Fairness Won't Make Us Poor by Steven Pearlstine
This book sets out to disprove the tenets of neoliberalism, the ideology that has underpinned our current view of economic policy options since the late 1970s. Its pillars are: supply-side economics, whereby tax cuts should generate investments better than government intervention ever could; share-holders deserve primacy, i.e. corporations should prioritize shareholder interests above all else; the complete dismissal of all concerns regarding community, ethics or fairness as naive and ultimately counter-productive. Pearlstine spends the bulk of the book refuting these arguments: not only do they undermine the American society, he concludes, but they are bad for the economy as well.
In order to prove that "greed is not good", Pearlstine attempts to establish a theoretical underpinning. To do so, he goes over the reasoning of Adam Smith and then Charles Darwin: the former believed that government needed to intervene to maintain trust and cooperation in a capitalist economy, by way of regulation and active counter-balancing measures; the latter proved in evolutionary theory that altruism and cooperation operated to the advantage of human society and organization. Unfortunately, he argues, the acceptance of Milton Friedman's argument in favor of the exclusive pursuit of shareholder value drew our attention away from these concepts, creating a winner-take-all mentality that is undermining the foundations of the modern economy and society. This is the longest chapter and I found it rather banal.
Pearlstine then gets down to the brass tacks of the immediate claims behind neoliberal economics. While the market is supposed to be about freedom of exchange and the right to the fruits of one's labor, current reality is proving this is not the case. This is because on the hand, the rise of giant corporations and conglomerates, a near-monopoly power that can control prices and wages and on the other, inequality as exemplified by the 1%, who are using political influence to perpetuate their advantages and claim an ever-larger share, in effect exerting control over the market. Globalization only makes all of this worse, exporting jobs while further concentrating power at home and disenfranchising workers. Taking these factors into account, he argues, the "market" doesn't function at all as advertised in political rhetoric. This is a solid chapter that is well worth the price of admission.
Then there is the argument that all we need is a “level playing field”. Pearlstine demolishes this notion as unrealistic, not only because people have different genetic endowments but because luck and social class are far more important than conservatives are willing to acknowledge: having the right parents bestows cultural and any number of other advantages, as in financial.
Perhaps the biggest fallacy, Pearlstine says, is the argument that inequality is the inevitable consequence of “market efficiency”, that there is an inherent trade off between fairness and growth. Indeed, he presents evidence that equality not only increases trust and belief in common purpose, but enhances incentives for individuals to work and invest in society and the community, raising productivity in the process and adding to long-term growth prospects. Indeed, as we can see, tax cuts for the 1% have not appreciably contribute to productive investment, will not, and can’t - in particular because a bloated financial industry skims most of it off for their own bank accounts.
It is hard to argue against any of this. The real problem is what to do about it. Unfortunately, Pearlstine's proposals struck me as extremely weak. First, we should "eliminate special interest money in politics". Second, we should offer guaranteed income for life in exchange for public service during a number of years. Third, corporations should share profits with employees. Fourth, educational opportunities should be open to all. Fifth, by a combination of taxes, redistribution, and incentives (or "pre-distribution" measures), we should reduce the concentrations of wealth and economic power while restoring competition. Finally, we should de-emphasize the shareholder-value ideology. Now, these measures would be very nice, but does anyone imagine they are politically feasible? I do not see how we can get there, but I do applaud Pearlstine for attempting to make a case.
As it stands, I believe American capitalism is headed towards some kind of implosion. While I do not think Pearlstine has many realistic prescriptions to offer, he does provide a good sketch of what the problems are.