Public ideas
Why did Americans turn their backs on their own success?
When liberals look around the world for successful models of social democracy, with an egalitarian distribution of income, they generally turn to the Nordic countries, but 100 years ago and until around 1970, they would have been just as likely to turn to the US.
We find the numbers in Thomas Piketty’s work Capital in the twenty-first Century, where he writes:
The United States, contrary to what many people think today, was not always more inegalitarian than Europe – far from it. Income inequality was actually quite high in Europe at the beginning of the 20th century. … This was true not only of Britain, France, and Germany, but also Sweden and Denmark (proof that the Nordic countries have not always been models of equality – far from it).
and
Inequality was lower, not only in the United States and Canada (where the top centile’s share of national income was roughly 16–18 percent at the beginning of the twentieth century), but especially in Australia and New Zealand (11–12 percent).
Old USA – downtown Chicago
He goes on to demonstrate that from around 1930, through the Depression, war and postwar years, both Europe and America experienced a very egalitarian distribution of income, until around 1970, from when inequality rose steeply in the US and only modestly in Europe.
Rogé Karma, writing in The Atlantic – Why America abandoned the greatest economy in history – attributes America’s success in the New Deal era to what we would identify as a typical social-democratic agenda. “Law and policy were engineered to ensure strong unions, high taxes on the rich, huge public investments, and an expanding social safety net”.
He puts forward three reasons why America abandoned this agenda: “white” backlash to civil rights legislation, the Democratic Party’s cultural elitism, and global factors.
The “white” backlash is almost a uniquely US situation: that country has never dealt with the legacy of slavery and failure of the Civil War to achieve liberation, and has used the idea of “race” to cover for a basic moral failure. In Australia we are not immune from such hypocrisy, but on a smaller scale.
There is certainly in Australia a belief that the Labor Party has abandoned the interests of the working class in the interests of elites. It’s an unfair representation of Labor, but it’s reinforced by its comparative success in dealing with gender, racial and sexual preference discrimination, environmental protection, and foreign relations, while it can make only slow progress on the economic structure that generates inequality.
On global factors, both the US and Australia were clobbered by the end of the Bretton Woods order and the associated oil crisis in the early 1970s: whatever government was in office was blamed for the disruption. Karma explains how the US eventually turned to Reagan with his small government agenda as a new path. We were spared the extreme economic idiocy of Reaganism, but we were, and to an extent still are, infected by the idea that government is an unproductive and wasteful overhead.
The McBride Trial
On November 17 David McBride pleaded guilty to an indictment charging him with breaches of national security laws.
Writing in Eureka Street – Absolute obedience: David McBride and the limits of duty – Binoy Kampmark describes the processes leading up to McBride’s prosecution. In itself it’s a story of bureaucratic bastardry and abuse of the Commonwealth’s capacity to use secrecy provisions, effectively denying McBride and his lawyers the capacity to mount their defence.
More generally, and even more seriously, the judgment solidifies the principle that an Australian soldier’s absolute duty is to obey orders “flowing from the oath sworn to the sovereign”.
To Kampmark, the judgement against McBride rests on an ancient interpretation of the law, ignoring entirely the principles of international law recognized in the charter of the Nürnberg Tribunal.[1]
1. For comparison, the Wehrmacht Oath: “Ich schwöre bei Gott diesen heiligen Eid, dass ich dem Führer des Deutschen Reiches und Volkes Adolf Hitler, dem Oberbefehlshaber der Wehrmacht, unbedingten Gehorsam leisten und als tapferer Soldat bereit sein will, jederzeit für diesen Eid mein Leben einzusetzen. ↩
Inflation as a debt-to-equity swap
Imagine if a financial whiz kid were given the task of updating The Merchant of Venice. Borrowing to finance a cargo in the Mediterranean in the sixteenth century was high risk, and as Shakespeare tells us, defaulting on debt could have serious consequences. The whiz kid’s solution: Antonio convinces Shylock to buy a share of equity in the cargo, and what was a tension-laden story becomes just another day at the trading desk.
In Shakespeare’s time people’s transactions were generally around immediate settlements: it was still a few years before there were car loans, mortgages, credit cards, and a middle class to use these loan instruments. Now however debt has become democratized, and there’s a lot of it – 300 percent of the world’s GDP , and it’s accumulating at a compound rate, according to David James of personalinvestor.com.au, writing in Eureka Street: Forgive us our debts.
He makes the obvious point that carrying such a large amount of debt is becoming unsustainable, and the almost obvious point that wholesale debt cancellation is not possible, because in wrecking the credit and finance system it would do more harm to capitalism than Lenin could have imagined in his wildest dreams.
But as some older Australians would recall, there were times when interest rates rose to double figures, and even so mortgaged baby boomers managed to keep their houses. Their saviour was inflation: their wages rose and prices rose. In other words their real incomes were pretty steady. But because their mortgages were in nominal terms, in real terms the capital burden of those mortgages was falling. Provided the baby boomers had a few bob to pay down their mortgages they came out ahead. The losers were the lenders, particularly if loans were written at fixed interest rates. On the books it wasn’t a debt-to-equity swap, but it had the same effect in that the lender was exposed to risk and was penalized for risky lending.