The Tyranny of Disbelief
Greetings everyone. I had to take a little break from #fixingcapitalism due to the end of the world and all.
I spent November and December stockpiling water and medicine, learning how to eat bark and whatnot. Then in January I discovered Indivisible, and I made some new friends. Since then, I’ve been taking the Indivisible Guide pretty seriously. I’ve been calling my senators, showing up at townhalls, tweeting about healthcare a lot. I even gave a speech from the Denver capitol steps.
The main idea of the Indivisible movement is to focus on the legislative process, because that is where we have a chance to influence the daily machinations of congress. I have to say, it works. It’s been thrilling being there, 24/7, using every tool in our box to protect American democracy. I’ve been part of activist movements in the past that were not as effective as Indivisible. In fact, what I remember best is the feeling of putting out a tremendous effort only to have no impact at all. I wrote I about it in my book.
But resistance is work. It’s emotionally draining, physically exhausting and expensive. I suppose this is part of how democracy is supposed to function. People who are willing to put out can have an impact. Those who aren’t, cannot. I wish I understood that before. It’s sad to recognize the value of something only because it’s about to be lost. In a democracy, members of congress kind of have to listen to you, and in most cases they actually want to.
Of course, there are those who do not. I’m talking to you Cory Gardner. I can’t believe you took this picture while you were supposed to be on recess in Colorado.
But we have lots of ways to make them feel us, and we keep coming up with more. Have you heard that Cory Gardner’s approval rating in Colorado is at 27%? It’s true. That’s a disaster!
But here is the thing. At best, we‘ve achieved a very brief stay of execution for the post-World War II liberal democratic order. It may be too late to make even that rosy assessment, given recent comments by world leaders to the effect that the United States can no longer be relied upon as an ally.
Furthermore, the underlying trend which gave Trump his rise, in which Americans are withdrawing trust from their institutions writ large, remains intact. The political center is eroding with breathtaking speed. Popular support for the political parties continues to reach for new lows.
I’m writing this, partially to celebrate the fact that the G.O.P. gambit to defund the American healthcare industry has stalled if not failed, and I get to keep taking my meds for a few more months. But I’m also writing because I’ve spent weeks resisting, and I know that now, while the opposition regroups, is our opportunity to make a badly needed pivot.
As resistances go, we’ve become good at pressuring our members of congress. But we aren’t good at everything. We aren’t good at answering to our critics. And we really aren’t good at healing from the wounds which separate us from moderate and principled conservatives, as well as from the social democratic/anti-capitalist left. Indivisible has been compared to the conservative Tea Party movement. But one thing the Tea Party didn’t have to contend with was another faction of more conservative conservatives constantly hitting them from behind.
If we don’t do something to address the philosophical divide both to the left of us and to the right of us, I feel like democracy and capitalism will die together, having never realized their full potential. We must use this brief opportunity to heal, but also to grow in our belief system, so that we can progress in our views, rather than regressing. This is why I’m writing today; I want to take time to address the most frequent criticism I’ve heard since the election; that the Democratic Party has no vision.
Yes, I know. Hillary Clinton had a well-developed policy agenda and it wasn’t her fault that everyone else made it about the emails. But the muscle of the complaint is in the fact that there is no overarching meta-narrative to explain what type of policy structure that Democrats would use if we were to obtain a governing majority. Conservatives have the rubric of free markets; lowering taxes, cutting spending, and eliminating regulations to guide and explain their behavior. If Republicans are to be believed, Democrats are the party of more taxes, more spending and more regulation.
In my view, the complaint that we don’t know what policy-making philosophy we stand for, pretty much sticks. In other words, we are doing nothing to disrupt the conservative framing of our positions.
While we are busy #resisting, they remain utterly convinced in the logic of limiting and even dismantling our government. In their minds, they have been losing to the forces of big government and cultural liberalism for decades. The danger inherent in Trump’s antics means nothing to them. The more outrageous, the better. They believe in their vision, their movement and they hate the cosmopolitan elites (me).
If I believed in the laissez-faire vision of capitalism, in which government always harmfully interferes with the markets whenever it moves, sleeps or breathes, I would be a Republican. But that is not my belief. That is not how I envision capitalism. My vision is one where capitalism and democracy grow together. I believe that markets need governments like a tree needs roots. As the tree grows, so do the roots. Once the roots grow, you can’t really ungrow them. Cutting them would be bad for the tree. When that underlying truth becomes well understood, we will be able to take our next step forward as a civilization.
What are we going to do about this ideological struggle, so that we can live peacefully under a single government while resolving the conflicts which divide us?
One of the ideas of the Indivisible Guide was to take a pause on pursuing a specific policy agenda. And in honor of the seriousness of the situation, I have been giving most of my efforts towards resistance rather than policy debate. But I need to get back into the fray. I worry about where the Indivisible movement is headed ideologically. There are the moderates who want to avoid ideological discussion anyway (and this is part of the problem). And there are those who demand some sort of reckoning for the perceived failures of the Democratic Party, not only during 2016, but going all the way back to the Bill Clinton administration.
Bernie Sanders, meanwhile, has not changed his ways at all since the campaign. He has it made clear that his goal is to pull the party farther left even if it means leaving the G.O.P. in control of the House next year. Most likely, he is afraid that if Democrats win too big, that they will not “learn their lesson” which, apparently, is that they must cut all financial ties, assume a life of poverty and commit to the three principles of Bernocracy:
- Single Payer Healthcare
- $15 Minimum Wage
- Free College, to be paid for by Wall Street as punishment for 2008.
To realize full Bernerhood however, one must finally adopt a forth precept; the rejection of identity politics. Basically, Sanders yearns for a return to New Deal-style liberalism. But is this the best progressive program for the 21st century? Is the best way forward from neoliberal capitalism really a return to early-stage capitalism?
Any serious effort to answer this question must begin with some kind of post-mortem on neoliberalism itself. Exactly what do we think went wrong? I’ve been a critic of neoliberalism since the so-called “Battle of Seattle” at the World Trade Organization in 1999. However, my understanding of the issues has evolved a lot since then. These days, I almost never write or tweet without making the point that governments which issue their own currencies do not need to balance their budgets. Balanced budgets and fiscal austerity are the defining feature of neoliberal policy. Neoliberalism was created by Milton Friedman, Hayek, and others in an effort to give the ethos of “limited government” a policy-making direction in the wake of the New Deal, World War II, and the welfare-state driven “Pax Americana” of the 1950s and 1960s. What were most threatening to these conservatives were not the immediate consequences of government involvement in the economy. What was most threatening was the power and prosperity that stemmed from this relationship. It simply couldn’t be the case that the New Deal and our very costly intervention in World War II had made America wealthy. But the wealth said otherwise. To convince Americans that the prosperity all around them wasn’t real, they began to warn us of all the bad things that would happen if the national “debt” became too big. They filled newspapers, books and radio stations with stories to make us afraid.
But no one took them seriously until the “stagflation” of the 1970s, which gave us weak growth alongside high inflation. The inflation was a consequence of high oil prices brought on by many wars around the world combined with the formation of O.P.E.C., whose initial strategy was to keep the oil price as high as possible by constraining the supply. Meanwhile, weak growth was brought on by decades of high taxes implemented in an effort to keep the national debt from increasing. The result was an atmosphere in which reasonable people could believe that excessive taxes and regulation were ruining our economy and setting us up for devastation. The outcome was the Reagan Revolution and the breaking of the O.P.E.C. stranglehold on oil prices and inflation along with it. Then there were the tax cuts in the context of ongoing Cold War spending which reignited growth and created an explosive stock market. Meanwhile, Fed Chair Paul Volcker raised interest rates to the highest levels ever in an effort to stop the inflation. But it was the decline of oil prices which really stopped the inflation. What Volcker did was to create a precedent for high interest rates on public debt which would take an entire generation to reverse.
This policy resulted in a steady transfer of wealth from the middle class to the upper class. You see, when the currency issuer offers “interest payments” on its “debt,” what happens is that investors, who are people seeking a return on savings, can chose to hold government “debt” instead of holding a corporate bond or a mortgage. This means that if you are a corporate or individual borrower it is going to cost you more money to borrow from a saver, because the credit assets you are issuing must compete with government-issued assets for a spot on an investor’s balance sheet. Unlike payments made on the public “debt,” which expand the total quantity of savings held by the private sector, interest payments on private debt are transfers from borrowers to savers i.e. from the middle class to the wealthy.
The national “debt” is actually equity held by the private sector. And “interest payments” are actually dividends. I use quotes to remind the reader of this.
Neoliberals believed that raising interest rates was the trick to stopping inflation: “Inflation is always and everywhere a monetary phenomenon.”
Furthermore, Friedman advocated a Quantity Theory of Money which held that “money” is created at the point where cash balances are created. A careful study of our banking system will reveal that cash balances are most often created when banks make loans. So, the neoliberals believed that money was created in the banking system with the assistance of the central bank. Therefore, administration of the “money supply” could be performed by the central bank at arms length from the legislature, which was prone, according to Friedman and friends, to do irrational things. Friedman argued that the legislature should not attempt to respond to inflation nor unemployment, but rather should leave this to central bank experts in the dark arts of monetary policy.
Make no mistake, we must be enemies of neoliberal ideas. But we must attack neoliberalism from the roots while other critics simply flail at the leaves.
Neoliberals said that interest rates were the appropriate lever for controlling inflation. But we say that “interest payments” are a source of long-term inflation via dilution of the currency, and that any “interest payments” on a currency issuer’s “debt” are a force which induces inequality in addition to inflation in the long run. In the short run however, we acknowledge that interest rate hikes will reduce capital expenditure, consumer spending and corporate profits, resulting in increased unemployment.
Neoliberals said that inflation was a monetary phenomenon, but we say that it is a real phenomenon. Gold and oil are the biggest culprits thus far. In the 1970s inflation in the United States was brought about by constraints on the supply of oil. But more recent cases of high inflation, such as Venezuela, suggest that low oil prices can also be a culprit. This is because Venezuela built its economy on a foundation of high oil prices. They would sell oil to obtain dollars, and then sell the dollars in order to import needed items from abroad. When each barrel of oil began fetching a fraction of the dollars, the result was an inability to obtain all of the needed imports. Hyperinflation is the result of a fracture in the domestic supply chain that, for whatever reason, cannot be met by imports. The result is a shortage of needed products which forces individuals to divest of whatever financial assets they are holding in order to obtain them, from baby food to toilet paper. The Weimar Republic is another good example. Whereas Venezuela issued currency in an effort to support domestic consumption, The Weimar government issued currency in an effort to extinguish a foreign debt (denominated in gold). This did not result in mass impoverishment of the population, only an overabundance of government-issued currency which made financial planning and price-setting difficult. The inflation of the 1970s in the U.S. also involved a dependence on foreign imports. But unlike in Venezuela, it did not spin out of control. This was because of U.S. power, hard and soft, which resulted in the O.P.E.C. nations losing control of the energy supply.
See? Inflation is always a real, not a monetary phenomenon. For nations of the future, the trick to avoiding inflation will be to promote strong domestic supply chains where they can, and where they cannot, peaceful, stable relations with their trading partners. The Weimar Republic could have worked off its war debts with exports to obtain the gold, but it chose dilutive “money printing” instead. Venezuela could have diversified its domestic productive capacity. It could have launched a public sector jobs program funded by a newly-issued currency, but it chose “money printing” instead. Inflation is not a monetary phenomenon, but it often provokes a monetary response when it happens. If we encounter inflation in the future, our response should be to look for a root cause in the supply chain before attempting any fix involving the currency. We should never do what the neoliberals did, which is to demagogue the issue by saying that inflation is an inevitable result of having government as a participant in the economy.
The neoliberals responded to fiscal crises all over the world with demands for austerity by the local government. While the U.S. stock market and the national “debt” boomed together in the 1980s and 1990s, disciples of Milton Friedman and Paul Volcker were traveling around the world working for the I.M.F. and the World Bank, demanding that developing countries essentially purge their local governments in order to obtain U.S. dollar financing. Public services were slashed, unions were busted, industries were privatized and deregulated in the name of promoting an efficient “free market” economy.
By the time of the “anti-globalization” movement of the late 1990s, we could already list dozens of cases of countries where fiscal austerity had been tried and failed. Economies all over the world were struggling under the leadership of a neoliberal United States. Empirical evidence that “free market” strategies did not produce the promised effects were insufficient to convince the journalists, economists, and financiers who were rapidly building cottage industries to celebrate and promote the “rising tide” of neoliberal ideology. Empirical evidence was insufficient to prevent austerity from coming home. Manufacturing jobs were already flowing overseas, hitting the black community especially hard. The result was large scale unemployment and a thriving drug trade in inner cities of the United States. The white commentariat was eager to view this development as a failing of black Americans’ character and culture rather than the macroeconomic phenomenon that it was. Rather than recognizing the danger we all faced, the canaries were blamed for dying in the coal mine. The passage of N.A.F.T.A. accelerated this transition, and made for a massive increase in the incarcerated population of the United States.
The neoliberal monetarists believed that workers, after being relieved of their old, union jobs and their welfare incomes, would go out and find jobs in newly created industries. They thought that new loans would be issued, creating “money” with which to pay the workers, while capitalists, being finally relieved of their excessive tax burden, would then show up with offers to hire the unemployed in profitable new ventures. Their Macro 101 textbooks and professors told them so.
The narratives regarding global trade and government participation in the economy were so deeply intertwined that it was difficult, as a college activist, to tell what was most important. The “anti-globalization” movement wound down shortly after the inauguration of George W. Bush, and eventually gave way to a smaller movement opposing the wars in Afganistan and Iraq. As I learned more about the politics of austerity, mass incarceration and international trade, I realized that as bad as the problems were, we didn’t have any solutions. We were known as “anti-globalization” demonstrators, but we would always deny being protectionists. We would always deny being nationalists. We would scream that we didn’t like this model of globalization. But we had no alternative of our own to offer. This made me feel like I had become part of an anti-intellectual movement, so I rejected it and moved on.
In fact, I went looking for a job on Wall Street. I didn’t reengage in ideology again until after the Global Financial Crisis of 2008, when I discovered Modern Monetary Theory as a potential solution to our problems. The M.M.T. developers were capable of explaining the financial relationships between the public, private and foreign sectors of the economy in a totally new way. That is, they argued from statements about accounting relationships rather than from mathematical and statistical logic. Their explanations were what finally made sense to me in terms that I could now understand as someone who analyzed trading data for a living. The MMTers could explain the trade deficit as well as the currency issuer’s budget deficit, and they could finally explain what was wrong with monetarism itself. After everything, it was the government’s deficit and nothing to do with the banking system that determined how much savings the private sector enjoyed. While the National Debt Clock in Union Square claimed that each U.S. household owed some $100,000, the M.M.T. developers explained that this amount was actually the per capita savings of a U.S. household! In other words, the meaning was precisely the opposite of what the sign said. The national “debt” is what we, as individuals, own. It is not what what we owe.
The neoliberals had tricked themselves, and us, into thinking that “money” was being removed from the private sector via government borrowing operations, when in fact nothing of the sort was happening. Instead, the practice of paying interest on the national “debt” was redistributing wealth from the middle class to the rich, while creating a phenomenal sport for Wall Street traders. Interest-rate derivative markets exploded as corporations struggled to manage their very real exposure to the decision making of the Federal Reserve. Corporate treasury departments were even encouraged to believe that they could become “profit centers” in and of themselves, by trading interest-rate derivatives using the firm’s cash.
Nowadays, it has become fashionable to claim that the elites of global capitalism are corrupt. That is not what I am trying to suggest here. What I will say is that for a long time, Wall Street interests were the beneficiaries of a situation in which the true relationships between public and private institutions had been obfuscated to the point where almost no one understood them correctly. Monetarism created a flow of income that was easy for wealthy savers to access, and served to transfer wealth from the middle class to the rich. But in addition, it created risk throughout the economy that could only be managed using baroque derivative products offered by Wall Street firms. All of this was in the name of helping government create demand for U.S. dollars by offering interest on the “debt,” as if there was not already sufficient demand for the currency.
So yes, monetarism is the biggest scandal in the history of Wall Street. But it is not a conspiracy. It was not a deliberate effort to make the rich richer and the poor poorer. It arose from something that I call the tyranny of disbelief. Neoliberals could not believe their eyes when the U.S. “bankrupted” itself to fight World War II and somehow came away wealthier for it. Instead, we must have been “kicking the can down the road.” Neoliberals did not believe their eyes when the “liberation” of global trade left American cities looking like war zones. Instead, it must have been that those communities were inhabited by lazy, inefficient workers. Nor did they believe their eyes when the explosive deficits of the 1980s and 1990s gave way, not to hyperinflation, but to a long period of unexpectedly low inflation, in which the Fed would try as hard as it could to generate higher prices via monetary policy, and still fail.
Quantitative easing was supposed to unleash hyperinflation as well, but the neoliberals who made this prediction were wrong, over and over again. Still, the tyranny of disbelief persists. Without ever correcting their thesis, the voices of Wall Street have been clamoring for a return to “normalized” (meaning much higher) interest rates. They said that “the market” would demand these rate hikes by rejecting the issue of new treasury securities. It never happened, but did the neoliberals ask themselves what they got wrong? No. They succumbed to the tyranny of disbelief.
The tyranny of disbelief is not a purely conservative affliction. The left suffers as well. We didn’t believe that globalized capitalism could be as good for the developing world as it has been. Otherwise, we would have had a hard time opposing it. Literacy rates have risen dramatically, infant mortality and death by treatable illness have fallen. Under the free trade paradigm, the world has not become “America’s sweatshop” as we used to say it would when I was in college. Instead, many other countries have learned to engage in the high economies of tech, finance and media. Now they are in a position to lead, at precisely the moment that U.S. leadership is faltering. Far from being a war-mongering modality of economic development, globalization has unleashed an era in which human beings are less likely to die of violence than ever before. You would never know this from the rhetoric of the left however.
The tyranny of disbelief is in the ideology which tells us that people should vote their economic class interests, rather than the interests of their religious and ethnic classes. In real life, rich people only want to make themselves richer than other rich people. They do not care about making the rich richer as a class. Likewise, members of the middle class do not want to advance as a group at the expense of the rich. They want to become wealthier than other members of the middle class, and they feel threatened when they see members of “other” middle class sub-classes ascending. There is no evidence of solidarity based simply on the size of one’s balance sheet, or one’s income statement. Yet, the tyranny of disbelief causes us to reject our observations in favor our ideology, which states that economic class interests must dominate.
Why do we suffer from the tyranny of disbelief? Why don’t we update our theories about the world based on new observations as they arrive? I believe it is because observations are transient, while ideology accumulates over time. We establish ideological narratives during our youth, and from then on we protect ourselves from observations that challenge those narratives, and seek to observe happenings which allow us build upon those previously established beliefs.
Narratives are not free. The crafting of an effective ideology requires a great deal of work. When the real world contradicts a person’s ideology, the normal human response is not to go on a quest into the unknown for a new book of answers. The normal human response is to deny or dismiss the observation in an effort to protect the old belief system.
But what if we sought to protect ourselves from the tyranny of disbelief? What if we established a mental discipline of seeking, protecting and defending those observations which we find most uncomfortable? What if we forced the established beliefs to cohabitate with the realities which contradict them, until our ideologies came back into harmony with the truth of the world? Could we then rise up against the tyrants within, and replace our old, broken ideologies with spiffy new ones? I don’t know if that is possible, but I desperately want it to be.
With respect to our economic system, my own breakthrough came from realizing that it was monetarism and the balanced budget ideal, and not the ideal of frictionless global trade that was the problem with neoliberalism. With that, I could change my view on trade. It is true that many jobs have moved overseas and that Americans have been hurt by this flight. However, fault lies with our government for failing to make up the income gap with deficit-financed investments in public assets including infrastructure, education, healthcare and so on. Because they believed that money comes from banks (via the loanable funds narrative and the money multiplier found in Macro 101 textbooks) the neoliberals of the Volcker/Friedman generation allowed the domestic economy to languish as U.S. dollar assets flowed overseas. Banks could increase their leverage, resulting in an increase in cash balances backed by increasingly questionable collateral. But they could not replace the financial wealth which was being depleted from so many household balance sheets. Only deficit-financed government spending could do that and the neoliberals rejected it, over and over again, because they were entranced by the notions of monetarism and “limited government.”
Yes, neoliberalism is awful, but no, today’s Berniecrat leftists are not close to addressing what is awful about it. Instead they would throw sand in the gears of our economy with new taxes, particularly aimed at financial activities, and a punitive regulatory style rooted in an ideology which insists that markets are inherently unstable, unreliable and unethical. They would not bring an end to the suffering caused by the balanced budget ideal around which neoliberalism was built. They are simply not radical enough, and frankly, insufficiently informed about the realities of our financial system to challenge neoliberalism at that level.
The tyranny of disbelief is the worst in the center though. Centrists cannot believe their eyes at what is happening around them. Centrists have quietly entertained the idea of “limited government” for their entire lives and cannot accept how horribly wrong it has turned out. They furrowed their brow at the national debt while happily counting their chips in the stock market without ever taking note of the relationship between the two. Hint: they both go up together, because the money you make in the stock market comes from government deficits!
It’s not just their passive, barely-conscious acceptance of neoliberal ideas though. We also need to challenge the milquetoast, centrist idea that ideology itself is the problem. People need ideas that they can understand, articulate and even implement on their own. We can no longer afford to outsource our economic narrative to a tiny caste of academics, because those academics have discredited themselves and failed to protect us from the barbarians. Ideological trench warfare is an inescapable fact of our new reality.
The neoliberal narrative regarding the “tyranny of the majority” is one idea that we must to confront in those trenches: That the undeserving masses, voting in their own self interest, will enslave the hard-working innovators of the capital sector with excessive taxation. Economists became participants in this ideology, deploying the Macro 101 theory of loanable funds and the money multiplier to validate their own conservatism. They believed that the banking system could create its own money, thereby eliminating the need for government participation in the economy.
The class struggle narrative of the left is another, opposing narrative: The greedy capitalists will collude together to suppress wages and steal the labor product of the workers unless government acts to prevent them with more taxes and more rules about what they can do with their capital. Economists became opponents of this view, arguing that rising inequality could only be explained by differences in productivity between individuals, rather than adopting a systems perspective on the problem.
What it is interesting though, is that both narratives revolve around an accusation of theft. For the right, it is the theft of taxes and/or inflation. For the left, it’s the theft of labor products and profits. This is very good news; the left and the right agree on something. They are both opposed to theft. The differences between them only concern what they believe is being stolen and who they believe is doing the stealing. Centrists, meanwhile, are apparently fine with theft, whether it is the redistributive, socialistic kind, or the exploitative, profiteering kind. We have no plans to eliminate either form of theft because we are beneficiaries of both. That’s why they hate us. That’s why they say we are corrupt. Neither side will ally with us out of fear that we will become complicit in the theft being committed by the other. So where should we stand?
I assert that we should stand in the center and we should defend our new, alternative thesis; that capitalism and democracy can grow together and support each other WITHOUT THEFT. This is how we will bridge the gap to the left of us and to the right of us simultaneously. The problem of fair trade deserves to be taken much more seriously than it has been in the past.
To do this, we must first resist our own tyranny of disbelief. We will have to accept that the ideologies of the “lunatic fringe” have become a clear and present threat to everything we hold dear. They can no longer be dismissed with a wave of the hand. At the same time that we acknowledge this threat, we must reject our disbelief that people who hold these ideas have good intentions. As hostile as they may appear, we must admit that their anger is an ordinary human response to real acts of theft, domination, exploitation, and injustice.
We must admit that we totally misunderstood the role of the national “debt” in our economic system. We must admit that we totally misunderstood the role of the central bank in the management of the currency. We must admit that we completely underestimated the importance of government participation in the labor market of a globalized full-employment economy. We must admit that “neoliberalism” is not merely a slur or a buzzword used by angry leftists, but a real system of thought which has defined the political center for a long time, and which has now collapsed completely, leaving us defenseless and without alternatives.
In other words, much of what we thought we knew about capitalism and democracy was wrong. Much of our old knowledge was false knowledge. Let us cast off the tyranny of disbelief and go forward with new eyes, new hands and new minds.
And let us begin to develop the ideology of a new political center, today.
