Hanging by a finger

 

In my recent review of Mandelbrot's latest, (mis)Behavior of Markets, I emphasized Mandelbrot's point that markets are chaotic. This means they often have wild, unpredictable swings. So do people's lives when they are subjected to market forces without relief.

What the New Deal sought to relieve was the ups and downs of the market that crushed so many people. While the Great Depression was awful - and actually depressing - for almost everyone, the wealthy few survived it a lot better than everyone else. There was a big difference between those reduced to doing without servants for the duration, and those without supper. New Deal programs were rough and ready attempts to ameliorate the situation for the tens of millions without work, many of whom were forced out of their homes into hobo camps and Hoovervilles. There was little or no intellectual or theoretical foundation for what FDR started.

Keynesian economics was developed shortly before FDR's election and gave the intellectual tools for understanding (thus, regulating) boom and bust. Sadly, Keynes was not popular in FDR's White House, so it was not until World War II that Keynesian economics was united with the New Deal by the singular American determination to win the war. John Kenneth Galbraith, the well known liberal economist, was one of the overseers of the Keynesian policies applied during that time. As a result of his work, and the success of the wartime effort, the United States began a post-war program of becoming a Welfare State. Similar and even more extensive programs were put in place in Europe and Japan at that time. However, the United States never completed the process.

The purpose of Keynesian policies was to smooth out boom and bust. The government was the crucial means of making the required adjustments, because no other social institution has the required power. During the post-war period, and until the late 1970s, Keynesian policies were applied, as in LBJ's Great Society, and worked very well. Boom and bust was reduced. Generally, especially for ordinary people, the stresses of recession were greatly reduced.

Of course, the simple idea behind Keynesian policies is to rake off the tops and fill in the bottoms. This means tax the rich and give to the poor, because the rich are the top and the poor are the bottom. While this seems to disadvantage the rich, in reality it does not. The increased consumption by the lower classes (as a result of redistribution) has the interesting side-effect of making the rich richer. However, it is true the rich would be even richer if they didn't have to pay the taxes. This last point is what conservatives realized, and what they have sought to achieve since Ronald Reagan's 1980 election.

Since 1980, the Welfare State, such as it was, is being taken apart by conservatives, regardless of party label. The rich have indeed gotten richer. The Great White Bandit has contributed magnificently to the well-being of the rich in this process. Of course, the corresponding truth is that, since 1980, the poor have gotten poorer.

Now, with most of the Keynesian mechanisms reduced or removed, markets rule. The net effect of it all is simple: there is a winnowing process which impoverishes more and more of the people in favor of the very weathy few. Graphically, this means the distribution of incomes is shifting to the left (toward zero) and fewer and fewer people control more and more of the assets and income. Today, 1% of the people own more than 50% of the means of production. 10% of the people receive more than 50% of the income, and own 90% of everything. The great dividing line between one world and another was 1980.

So, naturally, we're back to the way it was, before the New Deal, before FDR and even before that. That's what Gosselin's writing is all about.