The Conscience of a Liberal

Despite modern liberalism’s sweeping scope, no one seems to know quite what it is. Liberalism appeared somewhere in the sixteenth century—“St. George, in the guise of Rationality,” as Kenneth Minogue puts it—to slay the dragons of despotic kingship and religious intolerance. Centuries later, liberalism slew the dragons of slavery, poverty, and later “the inert scaliness of privilege, vested interest, or patrician insolence.” When an ideology is defined by fighting for causes, however, its success is followed necessarily by its own extinction. With exceedingly few dragons remaining, then, intellectual liberalism faces some level of discomfort.

In response, liberal columnist and economist Paul Krugman proposes in his book, The Conscience of a Liberal, that liberalism be defined by a commitment to preserving and extending the objectives of the New Deal. Specifically, Krugman’s liberalism is principally concerned with the task of reducing wealth inequality. Krugman, Paul (2009). The Conscience of a Liberal (p. 267). W. W. Norton & Company. Kindle Edition. More important than liberalism’s ends, however, are the means Krugman proposes to achieve them. Neither society nor economics fit the bill, according to Krugman.  No choice is left, then, but to employ coercive government action: “Middle-class societies don’t emerge automatically as an economy matures, they have to be created through political action. . . . It took FDR and the New Deal to bring [a relatively equal] society into being.” Id. at 18.

However, Krugman fails to establish that the substantial federal government intervention of the New Deal and its legacy was or is necessary to bring about a healthy and diverse middle class. At most, he argues the New Deal accelerated those changes—not that they were otherwise impossible. In fact, although Krugman acknowledges that the New Deal could not have been successful without World War II, he fails to discuss whether World War II’s profound stimulative effect on the economy could not have been successful without the New Deal.

More importantly, Krugman also fails to establish that the animal he proposes to slay is even a dragon at all. Despite Krugman’s emphatic denunciation of the top one percent of this country’s earners, he offers no analysis of the increase in wealth and improvement in living standards in absolute terms for the rest of Americans. Krugman thus fails to establish that current wealth distribution is either procedurally unfair or substantively problematic.

Krugman’s narrative begins with what he refers to as the “Long Gilded Age” from the 1870s to the 1930s. Sorely missing from Krugman’s historical account, however, is a treatment of the Progressive era from the 1890s to 1920. The omission is conspicuous given the popular association between Progressivism and modern liberalism. To be fair, liberalism is more closely associated with the New Deal legacy than the Progressive legacy. The Progressives’ campaign against individual rights—advocating forced sterilization and eugenics, among other things—ultimately led even FDR to distance himself from the movement.  In its early stages, Progressivism was a reaction to the decline of Victorian values, sagging under the weight of an increasingly industrialized and fractured American society.  Campaigns to stem the uptick of divorce, prostitution, and drink resulted in our nation’s first flopped constitutional amendment.  Progressives also were content to use the power of their new labor unions to exclude blacks and immigrants from entire industries.

However, Progressivism and liberalism do share at least two important traits. First, Progressivism was, like liberalism, a moral movement that sought to engineer a more perfect community of man. The Progressive moral project, although conservative in its early years, became notorious for its secular objectives. Second and more importantly, Progressivism was not content to influence society at merely the state and local levels—it promoted its agenda on a national scale. In these two qualities, liberalism resumed the Progressive project: it advanced a secular agenda in conjunction with social science theory and experimentation, and made the national proliferation of these policies the bedrock of its platform.

In A Fierce Discontent: The Rise and Fall of the Progressive Movement in America, 1870-1920, Michael McGerr outlines the social, political, and economic forces giving rise to the Progressive movement.  By the late 19th century, American individualism, loosed across a vast continent connected by an unprecedented network of rail and telegraph wire, was putting unbearable strain on America’s underlying social fabric.  Divorce rates following the Civil War inclined steeply as high society became obsessed with the pursuit of wealth and self-aggrandizement.  While the Victorians had balanced individual freedom with self-control, hard work, and domesticity, the wealthy’s indulgent secular streak redefined individualism to legitimize inequality. From their perspective, their parties “helped the economy because ‘many New York shops sold out brocades and silks which had been lying in their stock-rooms for years.’”  The wealthy, however, did not seem to acknowledge the growing resentment their social inferiors felt toward them. Teddy Roosevelt tried to stave off the coming revolt, noting that social and political stability impel the wealthy to observe certain “duties toward the public.”  “Do they not realize that they are putting a very heavy burden on us who stand against socialism; against anarchic disorder?”  “I wish that capitalists would see that what I am advocating is really in the interest of property, for it will save it from the danger of revolution.”

The extravagance of the upper 10 percent during the depression years of the 1890s galvanized populist resentment. Industrial work was distantly attenuated from its product, and thus the traditional agrarian work ethic, like the traditional agrarians themselves, began to wane. Victorian individualism became impossible for the lower classes as many workers could not make enough money to support themselves or their families.

Despite all this, the spirit of equality prevailed. Those workers who could afford to save declined to do so and instead indulged in the finer things just as the wealthy did. “If my lady wears a velvet gown, put together for her in an East Side sweatshop,” a reporter in New York observed in 1898, “may not the girl whose fingers fashioned it rejoice her soul by astonishing Grand Street with a copy of it next Sunday? My lady’s in velvet, and the East Side girl’s is the cheapest, but it’s the style that counts. In this land of equality, shall not one wear what the other wears?” Booker T. Washington also documented this burgeoning sense of entitlement to material wealth, irrespective of the means to acquire it. He expressed concern that humble families who shared a single fork among four people nonetheless boasted organs and sewing machines and fine clocks purchased on installments. Shopping also became a leisure activity.

This rise of hedonistic individualism hastened the decline of Victorian values as well as marriages, as spouses began judging their mates in terms of material pleasures and the happiness of the marriage. McGerr states that “The failure to meet those increased expectations was a principal reason for the increasing breakup of Victorian marriages.”

This new form of individualism came as a result of a growingly diffuse economy in which labor and consumption had become only distantly and obliquely related.  Industrial work was attenuated from its product, and thus the traditional agrarian work ethic, like the traditional agrarians themselves, began to wane.  The American laborer no longer provided his own essentials of survival, but instead deposited his effort into a vast and complex economic machine.  His yield, his “wage,” served as the only symbol of his output, a rebuttable presumption of the value of his labor.  And, as his commercial appetites continued to increase, American workers started to rebut the presumption.  The wage system was being thrown into upheaval:  if the market would not set a wage sufficient to meet the American worker’s standard of living, he would set it himself.  “It seems to me that when a man, my father, works all day long, he ought to have a beautiful home, he ought to have good food, he too ought to get a chance to appreciate beautiful music.”  Thus formed a new basis for “individual rights” in American politics.

Industrialization drew Americans out of the farms and into cities. Though farms often provided mere subsistence living, they also gave Americans pride and fulfillment.  Cities and their factories offered a markedly different experience, however, making working class Americans increasingly discontent. Individualism became a natural target.

Conservative activists took aim. Social Gospel leader Washington Gladden, for example, traced prostitution to middle- and upper-class affluence, as young men increasingly began to put off marriage “until they are able to support a wife in good style.” When people postponed marriage, Gladden argued, “one of the inevitable consequences is the increase of social immorality.” “The morality of what we call our respectable classes needs toning up all along this line.”

It is this sentiment—that “morality . . . needs toning up”—that represents the conservative contribution to Progressivism:  as new social, political, and economic forces began to disrupt cultural and moral values, many conservatives sought to push back in kind not merely to curtail those effects, but to counteract them.  Man and his moral character were no longer something to be left to the sole province of himself and his community; they must be “toned up” and remade through the law.  Under the Progressive construction of man’s moral predicament, man was no longer accountable for his own actions.  Because people were malleable and defined by their environment, criminals were not wholly to blame, since their crimes owed in part to the sins of society.  “What we have got to have,” said Gladden, “is a different kind of men and women.”

Thus, a renewed vigor for morals legislation ensued, directed at card playing, gambling, horse racing, Sabbath breaking, pornography, dance halls, contraception, and, most famously, liquor.  Liquor, more than all other vices, was seen as the root of man’s moral decline—particularly, the breakup of the family and the degradation of women.  The infamous Carry Nation excoriated the display of a nude painting in the bar of the Carey Hotel in Wichita. “Women are stripped of everything” by saloons, Nation fumed. “Her husband is torn from her, she is robbed of her sons, her home, her food and her virtue, and then they strip her clothes off and hang her up bare in these dens of robbery and murder. Well does a saloon make a woman bare of all things!”

Yet, Progressives quickly realized that prohibition of vices was not enough:  remaking man could not be achieved by negation alone—it would require an affirmative component.  Progressives thus found “substitutes for the saloon,” such as alcohol free clubs and dance halls, libraries and gymnasiums. In short, as McGerr puts it, “the transformation of individuals required a more sweeping transformation of their environment.” Progressives began to remake rather than merely preserve society.  Law was no longer just an anchor; it was also a sail. This lesson would later be carried over into modern liberalism.

This aspect of the Progressive agenda was clear by the time of Woodrow Wilson’s presidency, who stated:  “Our problem is not merely to help the students to adjust themselves to world life. . . . Our problem is to make them as unlike their fathers as we can.”  Progressivism had by this time become a different thing entirely than the post-Victorian conservatism from which it began.  Indeed, it could be said the project never was truly conservative in the first place, and that the lament of the decline of Victorian values was merely lip service to justify brewing radicalist urges.  Thus, perhaps even the prescriptive components of the early Progressive agenda were less about preserving Victorian values than preliminary efforts at remaking all of society—the symbols of Victorianism simply served as a convenient cover of authenticity for an otherwise radical movement.

Whatever their original intentions, Progressives eventually settled on an agenda that harmed conservative values. “Ironically,” McGerr puts it, “reform could destroy what it was intended to preserve. Crusading in the name of the home, reformers were supplanting the very thing they wanted to protect.” According to E.A. Ross, the Progressive agenda eroded man’s moral fiber:  “Too much consideration for moral weakness would fill the world with moral weaklings,” he insisted. “To abolish temptation is to deprive the self-controlled of their natural right to outlive and outnumber those who have a cotton string for a backbone.” Leisure, Kate Gannett Wells contended in an 1891 essay “Why More Girls Do Not Marry,” bred discontent: “Fifty years ago the woman was too busy to stop for the morning kiss as her husband went to work.  Now she has time to think about the absence or infrequency of the greeting for half an hour before she reads the morning paper, in which she finds some fresh instance of man’s wickedness.”

American industrialization in the early 20th century, contributing to the social and political forces underlying the Progressive movement, appeared to be following the economic cycle described by Nobel laureate Simon Kuznets. “Kuznets’ Curve,” as it is known, posits that the early stages of industrial development presents increasing investment opportunities for those with capital. That industrial development forces wages down as cheap rural labor floods into the cities. Industrialization thus amplifies inequality. Eventually, however, these forces level out: “capital becomes more abundant, the flow of workers from the farms dries up, wages begin to rise, and profits level off or fall. Prosperity becomes widespread, and the economy becomes broadly middle class.” Krugman at 45.

This is not what happened in America, according to Krugman, who instead credits the New Deal with creating the modern middle class.  He explains that the rich were no less dominant in 1937 than before World War I, but that in the next ten years, top incomes sharply declined. This sudden shift, Krugman says, is more indicative of sweeping economic policies—New Deal tax policies, in particular—than with the natural progression of economic cycles. The top income tax rate rose to 63% during FDR’s first term, 79% during the second, and 91% by the mid-‘50s. Billionaires (so-defined after adjusting for inflation) declined from 32 in 1925 to 16 in 1957 and to 13 in 1968. Today, Krugman observes, there are approximately 160. Krugman at 18. Krugman boasts that “[b]y the mid-fifties the real after-tax incomes of the richest 1 percent of Americans were probably 20 or 30 percent lower than they had been a generation earlier. And the real incomes of the really rich—say, those in the top tenth of one percent—were less than half what they had been in the twenties.” Id. at 41.

FDR also dictated wages and prices to the private sector through the National War Labor Board. Employers were permitted to raise wages to 40 cents an hour without approval; wages up to 50 cents or more had to be approved by the NWLB or Washington, respectively, thus chilling highly paid employment. After the war was won, there was neither political will nor economic need to restore freedom to the private sector: as part of the successful war effort, FDR’s policies were popular, and American industries were able to make up the difference through access to new markets and economic hegemony. Thus, Dwight Eisenhower wrote in 1954 that “Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. . . . Their number is negligible and they are stupid.”

In fact, the basic egalitarianism set in motion by FDR persisted for more than 30 years. Krugman concludes this means “institutions, norms, and the political environment matter a lot more for the distribution of income—and that impersonal market forces matter less—than Economics 101 might lead you to believe.” Krugman at 8.

Of course, none of this is an argument that Kuznets was wrong—it simply explains that Kuznets’ Curve does not explain what happened in America, given the drastic economic intervention of the New Deal. Moreover, Krugman admits that prior to the New Deal, “modest moves toward a more equal society were already under way before the depression struck—not at the federal but at the state level.” Id. at 35. However, Krugman never attempts an argument that the curve would not have tended downward without the drastic and lasting measures implemented in the New Deal, even if not as quickly as Krugman might prefer. More importantly, Krugman never discusses the nature of wealth resulting from coercive national economic policy—i.e., whether and to what extent it was real or artificial, sustainable or transient.

Krugman also largely ignores the economic impact of World War II. Although he acknowledges “[t]he full transformation needed the special circumstances of World War II” (Id. at 51), he fails to discuss the effect of the heavy trend toward industrialization that persisted after the war, and the global economic hegemony American industry enjoyed following U.S. victory. The New Deal’s gamble in profligate spending ultimately paid off because of the war, but that result was by no means a foregone conclusion. In other words, it is quite likely that World War II did not simply enhance the New Deal, as Krugman suggests, but saved it altogether.

These gaps in the analysis become problematic when Krugman attempts to explain why things began falling apart by the ‘70s. Krugman hails the three decades following World War II, from the mid-forties to the mid-seventies, as “the golden age of manual labor.” A high school degree fetched as comfortable and secure a lifestyle as at any point in history. By the ‘60s, however, signs of strain began to appear. Crime more than tripled between 1957 and 1970. Welfare rolls doubled between 1956 and 1966, and more than doubled again in the “welfare explosion” of the late 1960s and early 1970s. After the New Deal saved America from the crushing income inequality of the Long Gilded Age, Krugman observes, America began to relapse.

Krugman posits two popular explanations for the growing divergence in wealth. One, economic in nature, is the rising demand for skilled labor, referred to as skill-biased technical change, or SBTC. Many economists attribute SBTC for rising income inequality, pointing to its timing with increasing computerization. The other explanation, political nature, is changes in institutions, norms, and political power.

Rejecting SBTC as an explanation, Krugman cites the insufficiency of “direct evidence” to prove its causal relationship with rising inequality. Krugman at 132-133. This is a strange objection given that “direct evidence” is rarely demanded or, indeed, available to explain macro-economic phenomena.

Nonetheless, Krugman embraces the political explanation. He emphasizes that the post-New Deal middle class largely relied upon “pattern wages” defined by wage settlements of large unions and corporations that “established norms for the economy as a whole.” Krugman at 138. Today, however, many large firms have succeeded at breaking away from pattern wages. Wal-Mart, for example, pays nonsupervisory employees about $18,000 a year, “less than half what GM workers were paid thirty-five years ago, adjusted for inflation.” Id. at 139. In contrast, by the early 2000s, U.S. CEOs’ average $9 million annual pay was 367 times the pay of the average worker, up from 40 times that pay in the 1970s. Id. at 142. This was able to occur because, as Krugman states, with apparent sincerity, “there is a vast right-wing conspiracy.” Id. at 163.

Paranoia aside, this is basically an apples-to-oranges comparison indicative of an approach to labor as fundamentally moral rather than economic. There is not necessarily any economic reason to suspect that CEO pay and average worker pay will be tightly correlated. On the other hand, Krugman contends the disconnect may owe to a defect in the process of setting CEO compensation, as “top executives in effect set their own paychecks.” Thus, “neither the quality of the executives nor the marketplace for talent has any real bearing.” This might in part explain why CEO income has risen from about 30 times the average worker in 1970 to more than 300 times today. Krugman at 136. If this is true, Krugman argues, income inequality has been able to rise “not because of an increased demand for talent but because a variety of factors caused the death of outrage.” Id. at 144-145. This “shame factor” may be more prominent in European firms. Id. at 148.

Being a defense of liberalism as a political ideology, Krugman’s argument does not condemn income inequality on economic terms. And it is only near the end of the book, at page 244 of 274, that Krugman finally offers his ideological response to the question, “Why should we care about high and rising inequality?” Krugman offers two reasons. First, he argues that there has not been “clear economic progress for lower-and middle-income families” over the past 30 years. Id. at 244-245. “The fact that we’re even arguing about whether the typical American has gotten ahead,” Krugman insists, “tells you most of what you need to know. In 1973 there wasn’t a debate about whether typical Americans were better or worse off than they had been in the 1940s.” Id. at 126. This “in itself” calls for economic redistribution, he concludes. Id. at 245.

But how can the economic progress of the past 30 years not be clear? Steve Horwitz, for example, explains that readily available data, including from the U.S. Treasury and the Census Bureau, show a significant amount of real economic improvement among the poor in the past 30 years. Between 1996 and 2005, according to U.S. Treasury figures, 58.6% of the lowest quintile moved up at least one quintile, and 29.1% moved up multiple quintiles. Horwitz concludes from this data that “income mobility in the US is still alive and well, with at least half of poor families moving up a quintile in around ten years or so, and decent number moving two or more over that same time span.”

Aside from wages, all Americans enjoy access to the significant improvements of the past 30 years in technology, medicine, communication, home appliances, entertainment, and travel.  Each of these improvements significantly improve the quality of American lives. It is not obvious why Bill Gates’ wealth is a problem, Tyler Cowen explains, when his fellow Americans “have access to penicillin, air travel, good cheap food, the Internet and virtually all of the technical innovations that Gates does.” In absolute terms, all Americans—even those below the poverty line—live markedly better lives than in the ‘70s. In fact, Horwitz explains, they live better even “than did the average US household in 1971.” And these upward trends hold true for black and Hispanic households. It seems quite possible, then, that working- and middle-class stagnation is a myth.

Tyler Cowen offers an alternative hypothesis. In his ebook, The Great Stagnation, Cowen explains that America picked all the “low hanging fruit” in the decades following World War II. While further prosperity is left to be had, it will come only with increased investments of skill, capital, risk, and innovation. No longer will a high school diploma purchase the heaping slices of American dream served up during the ‘50s and ‘60s. The value of blue collar labor has flattened, and new prosperity must come from white collar efforts.

Also ignored by Krugman is the inequality of work hours. Cowen observes that top earners in the U.S. work substantially harder today than in the Gilded Age, while the rest of Americans work less. This may be related to a phenomenon that Cowen calls “threshold earners,” that is, “someone who seeks to earn a certain amount of money and no more.” When a threshold earner’s wage goes up, he will seek less work or will work less hard or less often. Threshold earners’ behavior is based on absolute earning power since they place high value on non-monetary factors such as leisure. When an economy affords everyone the opportunity not only to earn unsightly amounts of money but also to earn just enough money in absolute terms, it is impossible to avoid income inequality other than by removing the productive incentive of non-threshold earners—in other words, by destroying value.

In this respect, we can hear echoes of the early Progressives. Recall that, as described above, Progressives attributed the breakdown in the social structure to the trend toward putting off marriage and child-rearing. Today, rising income inequality might be attributed to the same cause. Cowen observes that single-occupancy households in the U.S. are at an all-time high, and that “it seems reasonable to suppose that the more single-occupancy households there are, the more threshold earners there will be, since a major incentive for earning money is to use it to take care of other people with whom one lives.” The irony is not lost on Cowen, who explains:

For years, many cultural critics in and of the United States have been telling us that Americans should behave more like threshold earners. We should be less harried, more interested in nurturing friendships, and more interested in the non-commercial sphere of life. That may well be good advice. Many studies suggest that above a certain level more money brings only marginal increments of happiness. What isn’t so widely advertised is that those same critics have basically been telling us, without realizing it, that we should be acting in such a manner as to increase measured income inequality. Not only is high inequality an inevitable concomitant of human diversity, but growing income inequality may be, too, if lots of us take the kind of advice that will make us happier.

Income inequality results from one of two things: natural inequality or procedural injustice. Little can be done about the former, while both the left and the right rail against the latter, though for different reasons. The left fingers crony capitalism—special favors the private industries wrest for themselves through agency capture and campaign contributions—as the great evil that threatens our democracy. The right, for its part, fingers crony activism—special favors that activist groups like environmental firms and labor unions wrest for themselves by the same means. In their respective plights against these (very similar) procedural injustices, both political parties are fighting the good fight against Federalist no. 10 factions. The inequality yarn that Krugman spends 300 pages spinning, however, is a red herring.

[Cross-posted at Notes From Babel]