15 May 2009

Nostalgianomics: An Alternate History of the 20th Century

The new issue of Reason carries a cunning little historical article by Cato Institute scholar Brink Lindsey. It's a preview of his new treatise Nostalgianomics, which is a critique of criticism of growing inequality in America. Lindsey doesn't deny that inequality has grown since the 1980s, and he doesn't say flat out that it's a good thing, either. He does argue, however, that inequality is the price we should be willing to pay for greater economic opportunity for everyone.

Lindsey's argument is worth examining, whether in the magazine or the treatise, because it shows how libertarian priorities and their view of history may diverge from other people's. He credits the comparative equalization of incomes in the immediate post-WW2 years to what's known as the "Treaty of Detroit." This term covers a general agreement between business and labor to tamp down strikes and other disruptions in return for high wages and recognition of unions as collective bargainers. Lindsey opposes an account he attributes to Paul Krugman, last year's Nobel laureate in economics, who blames growing inequality on the breaking of the "Treaty of Detroit" by business in collusion with the Republican party.

Without trying to dispute Krugman's assumption that the working class in general was better off in the 1950s and 1960s, while the "Treaty of Detroit" was in effect, Lindsey emphasizes that the times weren't so good for everyone. This excerpt from the Reason article sums up Lindsey's argument.

The Treaty of Detroit was built on extensive cartelization of markets, limiting competition to favor producers over consumers. The restrictions on competition were buttressed by racial prejudice, sexual discrimination, and postwar conformism, which combined to limit the choices available to workers and potential workers alike.

Bit by bit, in Lindsey's account, revolutionary social changes increased the appearance of inequality because unprecedented numbers of hitherto excluded people were flooding in at the ground floor of career advancement. Those changes include the liberalization of immigration law enacted under Lyndon Johnson in 1965. Immigration of unskilled workers accounts for "roughly 30 percent of the increase in adult male annual earnings inequality between 1979 and 1996" according to a study cited by Lindsey. While he doesn't refer to a "gender gap" in pay, it makes sense to assume that more women in the workforce has had a similar effect on inequality. Lindsey does mention a factor in growing household inequality: the growth in two-career families and the tendency of the affluent to marry each other "explains about 13 percent of the total rise in income inequality since 1979."

Also significant, Lindsey admits, is the decline in union power decried by Krugman, but Lindsey identifies that as a symptom rather than a cause of the change. Unions have shrunk, he suggests, mainly because unionized businesses have gone under due to competition from non-union rivals, and not because of a corporate-political conspiracy. That begs the question of why non-union rivals rose in the first place, but Lindsey notes that the laws that have effectively hamstrung union organization actually predated the "Treaty of Detroit," which only consolidated the position of existing union shops.

Cultural factors are also important in Lindsey's analysis. The 1960s counterculture rebelled against the "Organization Man" conformity of Krugman's idealized 1950s, Lindsey contends, and "upended the social ethic of group-minded solidarity and conformity with a stampede of unbridled individualism and self-assertion" that peaked during the "Me Decade" of the 1970s, and peaked again during the "decade of greed." "With the general relaxation of inhibitions, talented and ambitious people felt less restrained from seeking top dollar in the marketplace," Lindsey asserts, "Yippies and yuppies were two sides of the same coin." Although Lindsey doesn't use this example, Jerry Rubin was often cited during the 1980s as living proof of this trend.

Part of Lindsey's argument is disingenuous. It doesn't follow that to restore the equalization of incomes that prevailed in the 1950 would require the reimposition of all the discriminatory or repressive rules that existed then, as Lindsey seems to imply. He can't seriously think that levelling incomes means subjugating women, immigrants or other minorities. But he does believe that any attempt at levelling will limit opportunity in general, on principle. The main part of his argument is a matter of principle for him, but his principles aren't necessarily ours.

Note again that Lindsey doesn't dispute that the Baby Boom years were a golden age for the American working class as a whole. He insists, however, that times were tougher for aspiring entrepreneurs. He insists further that inhibited competition is bad because it means less choices for American consumers. Lindsey's is a typical Libertarian viewpoint that sees the ideal American as an entrepreneur and/or a consumer while downplaying any identification of America with the working class. This, obviously, is not a conservative viewpoint. It would have been conservative to resist the trends Lindsey describes, as far as the labor market is concerned. So it's interesting to note that the self-identified "conservative" party of the era welcomed and encouraged most of these developments, apart from the counterculture stuff. What was conservative about that?

Lindsey makes a lot of sound historical points, noting that many of the deregulatory policies that contributed to growing inequality were enacted during Democratic administrations. I think he makes a case that the trend shouldn't be seen as a reactionary conspiracy. But when he insists that we should see it all as a good thing, I think he goes too far. How we view these developments is a matter of perspective. Lindsey has the liberty of choosing his perspective, but it's not the only one. We can look at it from a different angle and still see growing inequality as a problem that can be corrected without the reversion to McCarthyism that Lindsey warns against. After all, those formerly excluded people are part of the working class, now, and they'd benefit from the reestablishment of the old policies just like everyone else -- one hopes.

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