Tuesday, December 7, 2010

A Blue State Apocalypse?

by Michael Kaplan

“The global financial crisis could be heading to a blue state near you: that is the latest grim news from the New York Times: ‘Mounting Debts by States Stoke Fears of Crisis.’ Normally a cheerleader for the free spending (in bluespeak, compassionate) policies of the public sector union dominated, high tax, high cost states like California, Illinois and New York, the Times now warns that fiscal ruin could be at hand.”

“The problem is state debt. New York, California and Illinois look more like Greece to their bondholders every day. Since the November elections, investors have been dumping their bonds, and hedge funds are betting against them, perhaps realizing that a Republican House is not going to offer generous, condition free bailouts.”

This, from Walter Russell Mead’s most recent blog post, is not pleasant reading. And he’s not alone in his concern. Pat Buchanan issued the same warning on Sean Hannity’s radio show (December 7, 2010). How the federal government and our politicians—Democrats and Republicans both—respond to this looming debt crisis in the blue states will determine whether the American economy can move forward into a prosperous twenty-first century. The wrong choices could plunge us back into the economic meltdown of 2008, or worse. Will Jacksonian Tea Party Republicans get locked in mortal combat with progressive blue state Democrats over federal bailouts to California, Illinois, and New York? Will these states be forced to shut down their public services, including police and fire departments and their state university systems? (As I teach at a state college, this is of some importance to me.) Will the blue state debt crisis and federal dithering lead to a collapse of the stock and bond markets? It’s hard to imagine Jacksonian conservatives voting to give bailouts to the hated public sector unions. Sean Hannity insists that when forced to the wall, the blue states will be compelled to restructure their finances and renegotiate their public sector union contracts, if the federal government refuses to bail them out. The blue states simply can’t afford their generous public sector pensions and health benefits. On the other hand, Jacksonians do make up the bulk of police, fire, and emergency service personnel. Jacksonian conservatives have always insisted on the necessity of these public services, even if they are willing to defund education. If there was ever a time that America needed wisdom to guide it, Mead says, this is it!

Interestingly, the U. K. publisher of Mead’s book God and Gold, used a colorized detail from America Guided by Wisdom, as the cover design. Is Mead, or his publisher, trying to send America a message?

Mead has argued over a number of blog posts that the collapse of the blue social model, and figuring out what should replace it, is the major challenge America now faces. “The fiscal meltdown of the big blue states, if financial Armageddon actually arrives, will be the biggest domestic crisis for the American people since the Depression, and the biggest crisis for the Democratic Party since the Civil War.” The blue social model—the “blue beast” or “Fordism” as Mead also calls it—is a social and economic system of managed capitalism, based on cooperation between big government, big business, and big labor. We also know this model as the progressive welfare state. This model, first conceived in the Progressive Era at the start of the twentieth century, emerged triumphant with Franklin Roosevelt’s New Deal in the 1930s; it provided needed social and economic stability, smoothing the rough edges of capitalism, in the middle years of the twentieth century. “The anarchic, cutthroat capitalism of earlier American eras” Mead writes, “gave way to a more stable system in which a handful of large companies with large labor unions peaceably divided the mass market.”

(Mead, Power, Terror, Peace, and War: America’s Grand Strategy in a World at Risk [New York: Alfred A. Knopf, 2004], p. 45.)

FDR. Architect of the blue model.

Here is Mead’s description of how the blue model worked in its 1950s heyday:
The private sector was dominated by large, regulated and mostly unionized oligopolies and monopolies like the Big Three automakers and the AT&T telephone monopoly.  Government had a large and growing civil service protected cadre of professionals and bureaucrats and provided ever-increasing public services.  The public schools and the universities were also built on the blue model: they provided lifetime employment to those who worked for them and were expected to provide more and better services each year. College education was expected to become more and more affordable for more and more people, with government subsidies making up the difference. Politics was a process of negotiation between large, organized interest groups: the Big Three automakers and the UAW hammered out the division of the industry’s revenues at the bargaining table, but also negotiated through the political process to enhance the position of the industry as a whole and to shape government policy to the marginal benefit of either the unions or the companies.
The blue social model was a triumph of progressive social imagination and political organizing; for two generations it effectively reconciled capitalism with the demand for a better living standard and more security for the population at large.
It was under the blue model that the university-trained elites, now so despised by Jacksonians, took charge of society’s major institutions. These educated elite intellectuals, administrators, and technocrats presented themselves as the “honest brokers” who could resolve social and economic conflict through compromise, and manage both government and the economy in a rational and disinterested way. The intellectuals and technocrats in the public- and private-sector bureaucracies of the blue-model welfare state saw themselves as the very embodiment of Minerva’s wisdom celebrated in Barralet’s print. Working for the common good, they would guide America into the promised golden age of never-ending progress, prosperity, and social harmony. Of course it hasn’t worked out that way.

FDR himself was less than impressed with the idea of government by credentialed experts and technocratic elites. In a speech he delivered as governor of New York in 1930, Roosevelt rejectedThe doctrine of regulation and legislation by ‘master minds,’ in whose judgment and will all the people may gladly and quietly acquiesce. . . .” He did not believe that any class of “master minds” existed, or ever had existed, which could be “so unselfish, so willing to decide unhesitatingly against their own personal interests or private prejudices, men almost god-like in their ability to hold the scales of Justice with an even hand . . . and we cannot expect a complete reversal of all the teachings of history.” Roosevelt clearly understood the Jacksonian fear of oligarchy. Turning over the government to the cognitive elite, limiting the influence of the people, would “bring about government by oligarchy masquerading as democracy.” The economic crisis of the 1930s pushed FDR into creating just such a bureaucratic regulatory state, the blue model, placed in the hands of the “master minds.”

In truth the blue model’s promise of economic security and social harmony, like that of its European social democratic counterpart, was unrealistic and unsustainable in the long term. Capitalism rests on the dynamic process of creative destruction. There are no guarantees that an individual or a business will succeed. For individuals to believe that big government, big business, and big labor could provide them with a clear path to stable jobs and careers, ever rising living standards, and a life free from risk, was foolish in the extreme. Yet for two generations this was what Americans had come to expect. This is why many people, especially in my mother’s generation, look back to the 1950s as the best of times; a time when life was good, families stayed together, and the American Dream wasn’t just a pipe dream.

By the 1970s the effectiveness of the blue model was clearly coming to an end. While it provided two generations of social and economic stability, the blue system was much too rigid and inflexible in its operation. Large government bureaucracies were unresponsive to the needs of citizens while large business corporations were unresponsive to the needs of customers. The result was a slowdown of economic growth and the stifling of innovation. Nimble foreign competitors outproduced American corporations, exposing them as lumbering dinosaurs. The disastrous Vietnam War shook America’s self-confidence, exposing the “best and brightest” of the technocratic elite as arrogant fools, and causing the public to doubt American exceptionalism for the first time. The energy crisis of the 1970s, initiated by Saudi Arabia and fellow OPEC states in response to the 1973 Arab-Israeli War, pushed the blue system to a crisis point. New York City, the great laboratory of blue social policy and epitome of the liberal progressive project, was teetering on the edge of bankruptcy. America seemed to be falling into a terminal decline, its economic and military power eroding away. This set the stage for the triumph of Ronald Reagan and the conservative movement in 1980. Reagan believed his mandate was to revive free market capitalism, restore American exceptionalism, and bring America back to her Jacksonian heritage, by rolling back the Aquarian cultural revolution of the 1960s and dismantling the blue welfare state.

Ronald Reagan. Nemesis of the blue model.
In the thirty years since Reagan’s election the blue model has effectively been dismantled in the private sector. (The Aquarian cultural revolution has proved more enduring.) Workers in the private sector now have to hustle and work harder to produce more, often for less money, fewer benefits, and with much less job and pension security, than their parents did in 1970. As a result corporate profits and the stock market have soared; those Americans vested in the market saw their net worth increase considerably, at least until 2008. Reagan’s model of lower taxes, deregulation, sound monetary policy, outsourcing, and business efficiency (read corporate downsizing—fewer employees using new techonologies to produce more) led to wealth creation on an unprecedented scale. The 1980s saw the emergence of a fully globalized economy. It also produced economic polarization and concentration of wealth in the upper income brackets on a scale unseen since the 1920s. But enough of that wealth trickled down to whet Americans’ appetites for more. And that would prove to be the Achilles’ heel of the new go-go economy of the ’80s, ’90s, and 2000s.

As I have written before, American laissez-faire economics and Jacksonian rugged individualism, at least in the days before the blue model was instituted, were hard-edged and tolerated a certain measure of social cruelty. Individuals had to measure up to the demands of working hard for most of your life, delaying gratification, carefully saving what you earned, and trying to find a balance between security and risk taking while pursuing happiness in a competitive society, or end up falling behind. At the end of the day there were at least as many Americans—farmers, artisans, factory workers, professionals, and businessmen—who failed and were thrown under the bus as there were those who succeeded and attained wealth and happiness, sometimes beyond their wildest dreams. As General Patton said, “America loves a winner and will not tolerate a loser.”

Michael Barone suggests that the blue social model led to a bifurcation of American culture into a “Soft America,” and a “Hard America.” Soft America rejects hard-edged competition and individual accountability while working to cushion the consequences of failure in the name of building up self-esteem. Soft America is the welfare state, the blue social model; the values of Soft America are most prevalent in the public education system. Hard America, on the other hand, is Jacksonian America, committed to traditional values of hard work, competition, rugged individualism, individual accountability, and suffering the consequences of failure. Barone writes that
Soft America took over much of society because in the early and middle 20th century, America seemed to many people to be too Hard. Not many kids made it up the educational and job ladders. Much work was hard labor, and in the 1930s, jobs were scarce and charity inadequate. Educators wanted to make schools Soft, and New Dealers wanted to shield people from the marketplace with strong unions and Social Security. By the 1970s Soft America was trying to Soften Hard America with guaranteed incomes, job tenure, and comparable worth (bureaucrats, not markets, setting salaries).
The Reagan Revolution was in effect Hard America striking back and reasserting the reality principle: “that Soft America lives off the productivity, creativity, and competence of Hard America. And that we have the luxury of keeping part of our society Soft only if we keep most of it Hard.”

Some liberal progressive historians and journalists are even concluding, with a sense of despair, that the blue social model was “the long exception” to the normal pattern of political and economic arrangements in American history. That America really is a conservative nation, where the New Deal and the Great Society were, as Paul Krugman bitterly observed, “an interregnum between Gilded Ages.” Their bête noire, Ronald Reagan, who they hoped was an aberration, really was restoring America to her normative regime of rugged individualism, free market economics and hard-edged social relations.

Yet in reality Hard America was not nearly hard enough. As more wealth was created, a growing cornucopia of consumer goods from computers, cell phones, iPods, and other high tech gadgets to the latest fashionable designer wear, trendy foods, and ever more luxurious homes, were dangled before the American people’s eyes. Americans in the private sector did work harder than ever, but for most it was never quite enough to secure the affluent lifestyle they desired. Middle- and upper-middle-class incomes failed to keep pace with the desire to appear hip and cool and look like a winner, by consuming all the status-symbol goods that were out there. Technology, deregulation, and globalization led to the rise of a new global elite of superstar entrepreneurs, investment bankers, and media celebrities, which set new standards for average Americans to live up to. This, according to economist Joseph Stiglitz, has led to what he calls “trickle-down behaviorism.” The new global plutocrats came to live in their own rarefied world, increasingly disconnected from the aspirations and destinies of their countrymen, while the professional upper middle class, and even the middle class, were now obsessed with trying to keep up with the Kardashians.

Ronald Reagan believed in and wanted to revive the traditional American values of hard work, self-discipline, and self-reliance in the pursuit of happiness and the achievement of meaningful goals. But this was lost in the mad scramble to have it all and have it now that Reaganomics, when combined with the Aquarian culture of self-actualization, unleashed. The more problematic elements of the blue model—the promise of economic security ensured by the government and ever expanding entitlements— joined with the more problematic elements of the Reagan model—the promise that an unregulated free market could effectively police itself against abuse by its biggest players, and would inevitably and consistently create a rising tide that lifts all boats—to give Americans misguided expectations of just how much affluence and security they could attain.

David Brooks suggests that the past thirty years have also witnessed a fundamental shift in American attitudes regarding the connection between wealth creation and living standards. In the pre-1980 industrial economy, one’s quality of life was the direct by-product of the amount of wealth one created. This fostered a materialist view of life. “But in an affluent information-driven world,” Brooks writes, “people embrace the postmaterialist mind-set. They realize they can improve their quality of life without actually producing more wealth.” Many of the high tech gadgets that symbolize our age and define the parameters of our workaday lives, are produced by relatively small numbers of workers. Information technology (IT) has enhanced our standard of living, added fun and excitement to our lives, and made a small number of entrepreneurs and financiers very rich, but has not created many well-paying jobs. Brooks concludes that “many of our recent difficulties stem from the fact that many Americans think they are richer than they are. . . . For the past few decades, Americans have devoted more of their energies to postmaterial arenas and less and less, for better and worse, to the sheer production of wealth.” Americans, especially those in the upper-middle-class professions, now place self-actualization—living a rich and adventurous life, filled with passionate engagement and endowed with symbolic meaning (what I call the mythopoetic journey)—ahead of a singular focus on wealth creation. But in the end, the pursuit of such a life is a luxury that can only be sustained in a society that creates, and continues to create, large amounts of wealth. Those who would climb Maslow’s pyramid must earn the right to do so by contributing their fair share of wealth producing labor to that society.

Americans have grown complacent over the last twenty-five or so years. Those born into the upper middle class in particular, but middle-class Americans as well, have come to expect effortless affluence as a birthright, forgetting all the hard work needed to achieve individual and national success. Victor Davis Hanson writes that “America is not creating enough wealth to justify the notion that everyone should go to college, get a higher-paying job than their parents, buy a nice, affordable house, and retire earlier and with more money than did prior generations. We have forgotten what wealth is—and how tenuous our grip on the good life is.” The excesses of both the private sector and the government, and of more Americans living beyond their means in an economy driven by credit, led to the meltdown of 2008. For everything there is a tradeoff.

The United States can no longer afford to maintain the blue model in the public sector. As Mead explains:
Blue institutions aren’t productive enough and efficient enough to provide the services we need. There’s a hard and bitter truth here: workers in these sectors are going to have to accept lower wages and less security going forward—and they will have to produce more than they do now. Much more. This sounds draconian and harsh, but with a relative handful of exceptions everybody else in the United States has been facing this reality for the last generation.
Voters, especially Jacksonian voters, Mead rightly insists, will not pay higher taxes so that public sector employees can enjoy guaranteed employment with secure pensions. They will not accept shoddy government services delivered by arrogant bureaucrats. Our political and business leaders, intellectuals and policy wonks, really need to do a lot of hard work and hard thinking to devise strategies to head off the blue state apocalypse, move the public sector into the twenty-first century, and bring the blue model to as soft a final landing as possible. Don’t hold your breath.

© 2010 Michael Kaplan

Final revisions: February 22, 2011.