Race to the bottom leads to corporatism

Right-wing advocates of limited government often argue that locating political power in state governments is preferable to locating it in the federal government. The reasoning they give for why this is the case is a bit complicated. On its face, it seems like it is irrelevant where government power is located. After all, a state government can be just as involved in regulation and social programs as the federal government is. Advocates of this view do not deny that, but they typically claim that locating power in state governments will force states to compete with one another which will lead them to reduce regulations and taxes in order to attract businesses.

That is, they believe that the natural conclusion of inter-government competition for capital investment is a race to the bottom which will force governments to increasingly dismantle labor laws, environmental laws, taxes, and other regulations. When the federal government sets nationwide standards, owners of capital have no way to escape them except of course to move out of the country, something they increasingly do. However, if a state sets a particular standard, owners of capital can just shift that capital to another state and easily avoid it. Thus, this strategy of relocating power in the states will usher in the kind of limited government those on the right-wing would like to see.

That is the theory at least. In reality, the mechanism used to force the creation of limited state governments — the profit-motivated decisions of investors — will actually create large state governments that provide generous handouts to attract businesses. Advocates of this strategy typically think of it in terms of the pairwise comparisons of investors. An investor choosing between two states would choose the one that had less environmental regulations, assuming everything else about the states was identical. Along the same lines, an investor deciding between two states would pick the state that had lower taxes, no workplace safety rules, and no unions. The state that was imposing these profit-reducing measures would then be starved of capital investment, and would thus be forced to dismantle them to stay competitive.

This analysis of what would happen makes good sense, but it does not go far enough. There is nothing that would constrain states that are competing with one another to only use decreased state intervention to attract investors. In fact, at some point all of the regulations would have to be repealed which would leave the states no choice but to compete in some other way. That other way would of course be through subsidies, corporate welfare, and other sorts of monetary bribes. If an investor is choosing between a state which will cut them a check from the public coffers and one which wont, clearly the state giving them money would be preferred. The same competition effects would kick in, and states would be off to the races to see who could hand out the most money to attract capital.

This kind of corruption of the state by owners of capital is quite natural and pops up in almost any place where a free market is supposed to exist. Noam Chomsky’s talk on this phenomenon which he refers to as the “really existing free market theory” is illuminating:

And the principle of really existing free market theory is: free markets are fine for you, but not for me. That’s, again, near a universal. So you — whoever you may be — you have to learn responsibility, and be subjected to market discipline, it’s good for your character, it’s tough love, and so on, and so forth. But me, I need the nanny State, to protect me from market discipline, so that I’ll be able to rant and rave about the marvels of the free market, while I’m getting properly subsidized and defended by everyone else, through the nanny State.

The brute fact of the matter is that a capitalist who has to choose between a perfectly laissez-faire state and a corporate welfare state will always choose the latter. Forcing states to compete to attract capital will consequently always lead to the construction of corporatist states, not limited-government paradises. To suggest otherwise is to pretend that owners of capital will not invest that capital where it will yield the best return, i.e. that capitalists will not act as capitalists.

Centrist third party destined to fail

Thomas Friedman’s article on an upstart third party in Sunday’s New York Times has been generating buzz. Friedman explains that the new party — Americans Elect — will be one of a radical centrist variety. Eschewing the normal nominating processes, it will harness the power of the internet to nominate its own candidates for President and Vice President, stipulating that they cannot both come from the same political party. This is supposed to lead to the nomination of more representative candidates that will challenge the entrenched interests of the two major political parties.

On first glance, it is not clear what distinguishes Americans Elect from the spectacularly failed Unity08 movement which made a similar splash in the early parts of the 2008 presidential election. Americans Elect is wrapped in the same sort of vague centrism and similarly requires multi-party representation on the ticket. Unlike Unity08, it appears that Americans Elect at least superficially understands the necessity of actually organizing to get on the ballot, something which is quite difficult due to ballot access laws that are designed to frustrate third party participation.

Other than that, its chief novelty I suppose is its heavy dependence on internet participation. Its polished website and internet nominating process makes it somewhat distinct from Unity08, but not in a good way. Absent mass participation — which I am willing to predict will not materialize — the nominating process will almost certainly devolve into a comical circus of fringe candidates with dedicated internet supporters. Judging from how often Ron Paul supporters organized to spam internet polls last election cycle, I can already see him being a big contender once he loses in the Republican primary.

My real problem with Americans Elect, however, is not its internet-heavy process or its remote chances; rather, it is its reliance on the tired political rhetoric of populist centrism. According to this rhetoric, the Democratic party is an uncompromising left-wing political machine, and the Republican party is an equally uncompromising right-wing political machine. They are both controlled by hyper-partisan interest groups that seek to polarize the American people who are, on this view, actually more in agreement with one another than disagreement. If only we could find the sweet spot right in the middle of the right-wing and left-wing, we would somehow find the correct governance.

This populist centrism is surprisingly widespread. For instance, Jon Stewart’s whole persona as one of the few mature, reasoned, and therefore legitimate political commentators is premised on just such a populist centrist line. Additionally, you can hear the sentiment echoed in the voice of the everyday person who remarks that they are not a Democrat or a Republican, and that they are conservative on some things and liberal on others. Of course, this is a view you have to line up behind to position yourself as someone who is truly politically independent.

The chief problem with this centrist line is that it is not truly centrist, at least not on any normal political spectrum. As Paul Krugman succinctly points out, the modern-day Democratic party is really a moderately right-wing party. The policies that they pursue are the same ones that Republicans advocated less than two decades ago. The idea that finding some arbitrary point in between the moderate right-wing Democrats and the more extreme right-wing Republicans will generate excellent public policy is completely without merit. This is an especially strange rhetorical line when one considers that the center — when conceived of as being in between the Republicans and Democrats — is constantly shifting.

More than that, populist centrism seems to completely reject the idea that there are actually good reasons to have a defined political persuasion other than vaguely “in the middle.” It is not mindless partisanship or political dogmatism to line up behind a unified conception of the role of government that forwards a coherent program based on a particular worldview. In fact, that approach to doing politics actually makes sense because it is based on carving out a definite position based upon theories, arguments, and ideas. It differs from the amorphous centrism of parties like Americans Elect which defines solid political ground as being relational to existing political tides — the relation being of course in the center of them.

That Americans Elect will almost certainly fail goes without saying. However, in its failure it will probably provide at least some boost to the frustratingly incoherent rhetoric of populist centrism. That contribution, no matter how small, will only help to make the mainstream political discourse more vacuous than it already is.

The race and class dynamics of old age entitlement programs

The President and leaders in Congress have been bandying about different ideas for reforming Medicare and Social Security. As one might expect in a deficit reduction showdown, these ideas uniformly seek to reduce the costs of the programs for the federal government. Of course, any time a politician or commentator mentions reducing the costs of entitlement programs, they actually mean something a little bit different. What is really going on in these plans to cut costs is not a reduction in spending, but a shift in who carries out the spending. Cutting Social Security benefits, for instance, does not magically make seniors need less food; it just shifts the cost of that food on to the seniors and off of the federal government.

In the last year alone, there have been numerous and creative approaches to making old people pay more. Paul Ryan’s budget plan — which replaces Medicare with a voucher program that is indexed to inflation instead of health care inflation — was designed in a way that ensures that the rising costs of health care will be increasingly shouldered by seniors instead of the federal government. An idea which changes the way the cost of living adjustment for Social Security is calculated would decrease monthly outlays to pensioners by 9% in the next 30 years relative to current law. Finally, a recent proposal to increase the Medicare eligibility age to 67 would require seniors to pay for two additional years of private health insurance before they become eligible for Medicare.

This last idea — which was apparently endorsed by Obama at times in the debt ceiling negotiations — runs into more than just the typical cost-shifting problems. In addition to requiring old people to pay more, it has a disproportionate impact on poor people and oppressed racial groups. This is something that does not typically get brought up in the debates surrounding increasing the age qualifications for entitlement programs. For instance, I have never heard it mentioned when the occasional plan surfaces to increase the retirement age for the Social Security program.

The reason raising the qualifying age for entitlement programs disproportionately hurts poor people and oppressed racial groups is that these constituencies have a shorter life expectancy than average. A study published in 2010 provides a snapshot of the life expectancy differentials of various socioeconomic and racial groups. Differential socioeconomic status — which includes considerations of education, income, job type, and other factors — neatly correlates with differential life expectancies. Those in the lowest socioeconomic group have a life expectancy of 75.4 years while those in the highest group have a life expectancy nearly 6 years higher at 81.2 years. As this chart indicates, significant differences are also found along racial lines, with Blacks enjoying a life expectancy significantly shorter than their otherwise similar white counterparts.

While raising the qualifying age for Medicare or Social Security does take away benefits from all of the racial and socioeconomic groups, it takes away a higher percentage of benefits from the groups that have shorter lives. Taking away 2 years of benefits — as raising the Medicare qualifying age to 67 would do — from someone who lives to 70 years of age strips them of 40 percent of all of the benefits they would have ever received from the program. Meanwhile, someone who lives to 75 years of age would only be foregoing 20 percent of their benefits in such a change. At the extreme end, some groups — namely Black males in the lowest socioeconomic group — would, on average, miss out on Medicare benefits altogether if the qualifying age was increased to 67 since the life expectancy of that group is 65.3 years.

Compounding the injustice even more is the fact that the payroll taxes which fund Social Security and Medicare are only paid up to a certain level of income. These regressive taxes are not paid on any income made above $106,800. So wealthier individuals are paying a smaller percentage of their income into the Social Security and Medicare programs despite the fact that they live longer, and therefore reap more of the benefits from them. Raising the qualifying age will only increase the already existing imbalance of burdens.

The proposal to increase the age for Medicare eligibility is thus truly heinous. If forcing seniors to pay more for their health care is not enough of a problem by itself to reject the proposal, the class and race dynamics ought to be. Reducing the deficits by giving poor people and oppressed racial groups an even worse deal in this society than they already have is totally unacceptable.