Two Faces of Austerity

May 9th, 2012  |  Published in Political Economy, Politics  |  2 Comments

It’s far to soon to say what the elections in France and Greece mean for the future of austerity in Europe. François Hollande may turn out to be a meek Sarkozy-lite—or he may be pushed in that direction by the German government, the bond markets, and the European Central Bank. Greece, meanwhile, is still in a state of flux, although the rise of the radical-left Syriza is encouraging (even as the sectarianism of the Greek Communist Party is dispiriting.) Greece may be looking at another round of elections, and the rise in support for the fascist Golden Dawn party suggests that things could get dangerous if the left isn’t able to come together in coalition. In any case, I’m certainly not the one to make expert pronouncements on all this, and I’d direct you instead to my Jacobin comrade Seth Ackerman.

I hope Hollande is right, and “austerity can no longer be the only option”. Whatever else it ultimately achieves, the resurgence of the European electoral Left has provoked a defensive response from the propagandists of the austerity faction, who have raced to denounce the foolish notion that our problems can be solved in any way other than by sadistically punishing ordinary people while further enriching the financial elite. The dumbed-down mass market version of this comes, naturally, from David Brooks:

The recession grew out of and exposed long-term flaws in the economy. Fixing these structural problems should be the order of the day, not papering over them with more debt.

There are several overlapping structural problems. First, there are those surrounding globalization and technological change. Hyperefficient globalized companies need fewer workers. As a result, unemployment rises, superstar salaries surge while lower-skilled wages stagnate, the middle gets hollowed out and inequality grows.

Then there are the structural issues surrounding the decline in human capital. The United States, once the world’s educational leader, is falling back in the pack. Unemployment is high, but companies still have trouble finding skilled workers.

Singing from the same hymnal, but for the highbrow crowd, we have Raghuram Rajan:

With the aid of technology and capital, one skilled worker can displace many unskilled workers. . . .

Not all low-skilled jobs have disappeared. Nonroutine, low-paying service jobs that are hard to automate or outsource, such as taxi driving, hairdressing, or gardening, remain plentiful. So the U.S. work force has bifurcated into low-paying professions that require few skills and high-paying ones that call for creativity and credentials. Comfortable, routine jobs that require moderate skills and offer good benefits have disappeared, and the laid-off workers have had to either upgrade their skills or take lower-paying service jobs.

Unfortunately, for various reasons—inadequate early schooling, dysfunctional families and communities, the high cost of university education—far too many Americans have not gotten the education or skills they need. Others have spent too much time in shrinking industries, such as auto manufacturing, instead of acquiring skills in growing sectors, such as medical technology.

There is an odd dissonance in these accounts, however, one that’s more obvious in Rajan’s version than in Brooks’. First, we are told that the stagnation of wages and the disappearance of jobs is an unchangeable structural fact: globalization and technology dictate that the demand for labor will be split between a handful of high-skill, “superstar” jobs and a mass of menial, poverty-wage service work. Yet we are also told that we face a deficit of “human capital”, implying that adequate education is all that anyone needs to escape the trap of unemployment or low wages.

There is an odd sort of Lake Wobegonism in this prescription, in which everyone gets to be above average in the labor market. This is, perhaps, a style of argument well-suited to appeal to Americans, who believe they can all become millionaires and never get sick. But we are given no reason to suppose that an investment in education will change the sort of labor demanded by capitalist enterprises. Just because everyone is qualified for high-skill “superstar” positions doesn’t mean that we can all inhabit those positions; someone still has to fill all those “low-paying service jobs that are hard to automate or outsource”. Ceteris paribus, more education is just a recipe for more PhDs on food stamps. It’s also the setup for another round of zero-sum, beggar-thy-neighbor neoliberalism, in which countries, localities and social groups fight to take the good jobs for themselves while foisting the bad jobs off on somebody else.

A simple solution to this problem, of course, would be to compensate those forced into the bad jobs by transferring lots of money from the “superstars” to the low-waged. But I suspect that suggestion would provoke Brooks or Rajan to go all Edward Conard on us.

Philosophically, the Brooks and Rajan essays are interesting for the way they awkwardly combine an old-fashioned style of conservatism (the poor will always be with us, accept your lot) with a more modern form of inclusive neoliberalism (accept deregulation, and you too can be rich!) By itself, the first style of argument is simply intolerable to modern sensibilities, but the crisis has rendered the second increasingly implausible. Together, however, the two arguments add up to nonsense.

The simplest response is that self-styled critics of “structural” economic problems are not being structural enough. The existence of a hyper-polarized wage structure is not a fact of nature but is itself a structural problem, and one that has been facilitated by specific policy choices. What we need is not “human capital” but a shift away from protecting rentiers and toward strengthening the bargaining position of labor.