In an essay on the past and future of critical theory, Raymond Geuss offers an observation that has increasing resonance across all fields of inquiry, from politics and economics to philosophy and literature: sometime around 1970, the basic 20th century consensus that democracy and capitalism would provide an eternal increase in both justice and wealth began to unravel. Thomas Piketty makes a similar point in his book Capital in the 21st Century. It is increasingly likely that the post-World War II marriage of rising equality and rising incomes was a bubble of sorts. Whether one mourns the loss of a golden age or celebrates the liberation from childish illusions, the loss of the hopeful liberal idealism of the mid-20th century is a fact still to be reckoned with. Continue reading
Walter Russell Mead is getting it right about the utter selfishness of the boomer generation and how it is bankrupting our governments, thus leaving government incapable of public services for the next generation.
This story is about more than just high gas prices or taxes. It’s yet another case of the boomer generation stealing from younger generations. Besides promising themselves fat pensions that they refused to save money or tax themselves to pay for, the boomers let the country’s infrastructure run down. The next generation is already staggering under a rising tax burden, student loan debt, and retirees’ massive health care bills. On top of all this, they now have to pay through the nose just to keep the roads, bridges, and tunnels in good repair after years of neglect and deferred maintenance.
When people talk about the cost of entitlements or pensions, there is often a whiff of condescension, as if government employees don’t deserve their benefits. Often forgotten is the fact that private pensions are underfunded as well, and they are insured by the federal government. And now we are told that the military may have the biggest pension problem of all. Here is what the Financial Times reports:
Of all the politically difficult budget issues that Mr Hagel will face, few are more charged than the question of military entitlements which have risen sharply over the past decade. A report last year by the Center for Strategic and Budgetary Assessments concluded that at current rates, “military personnel costs will consume the entire defence budget by 2039”. Robert Gates, Mr Obama’s first defence secretary, once warned that these expenses were “eating us alive”.
Just as pensions and entitlements will soon crowd out all other government spending, so too will military pensions crowd out all military spending.
No one today can responsibly argue against pensions and health care. And no one can call the soldiers lazy burdens on the public weal. But neither can we fail to recognize that our addiction to entitlements is destroying our politics and our public spirit. We are sacrificing public action—be it the pursuit of scientific knowledge, the erecting of monuments, the education of our young, the building of infrastructure, and even a well-outfitted military—for the private comfort of individuals. It is no wonder that our political system is broken at a time when all incentives in the country lead interest groups to focus on parochial interests above the common good. It is inconceivable that this situation is not in some way related to the emergence of entitlements as the central function of government.
The question is one of principle. We have gone from a common sense that people are responsible for themselves and the government provides a safety net to a common sense that everyone should receive an education, everyone should receive healthcare, and everyone should receive pension benefits for as long as they live. It is possible to embrace the latter common sense, but with it comes a significantly higher tax burden and a much more communal ethic than has typically reigned in America. This is not a problem that hits only public employees. It is endemic throughout society. And our military.
We face a challenge of leadership; there is a void in our body politics that remains to be filled. First, expectations of the president need to re-evaluated. The public’s perception of the president is unrealistic and inflated. A CBS News/New York Times poll in March 2012 reported that 54% of people believe the president “can do a lot” about gas prices.
Our economic recession adds another dimension to the public’s bloated expectations. In the wake of the 2008 economic recession all eyes turned on what the President-elect would do once in office. People believed and still do that the President had the ability to fix the global economic meltdown. The public expected the President to solve our economic problem without understanding that in the globalized neo-liberal regime markets are highly connected. It is no longer possible for a single country to ameliorate the effects of an economic meltdown.
The president will only matter in this century if it is first addressed how we perceive the president. He is neither a deity nor a dictator. His actions in an increasingly filibuster-happy congress are limited. The public’s expectations must be re-evaluated and shaped to accept reality. The president cannot solve all our problems; the very fabric of the American constitution prohibits the president from securing more powers. The justified fear of an autocrat prohibits action. This tradeoff was accepted by the founding fathers and it must now be accepted again.
Once expectations are adjusted, how then does the president matter? The president will matter as long as he can engage citizens in our democratic process. The pervasive idea that democracy is simply voting has filled the minds of millions. The civic and democratic institutions lie asleep in times where the market prevails. People have given up on government; they see it as an artifact to be studied in history books. The president must see his role as protector of our democracy; he must be its biggest champion. This cannot only be done through rhetoric alone. The president must help foster an engaged citizenry that actively participates in our democracy.
The danger to our politics does not come from terrorist it comes from a citizenry that is not informed, does not participate, and could care less. When the media suggests the president must rise above politics the only way that can be done is to address the inherent problems in our current political system. It is to remind citizens of the price paid by their forefathers for political rights. The president must become the chief persuader thereby helping bring citizens into the political fold. The only way for the president to matter in this century is for people to see him as a protector of this great experiment and not merely as passerby.
These leaders will come from the left and the right alike, engaging citizens should not be a partisan issue. They must also come with a historical understanding of our democracy and American institutions. This does not mean they will rise from academia, but that their understanding cannot be informed by current political debates but rather by history. New political leaders must accept a non-politicized history that seeks truth.
Facts have become politicized, each side molding it to their own advantage. Objective truths are irrelevant because each side has been allowed to massage it. On August 28, 2012 New Jersey Governor Chris Christie lied by omission. He gave the keynote address at the Republican National Convention claiming that there has been a New Jersey come back. That his policies have worked and all it takes is serious leaders to tackle our problem. He claims he cut the state deficit while decreasing taxes. The governor forgets to mention he also cut pensions, teachers, firefighters, and many others. What is more glaring is New Jersey’s unemployment rate at over 9%. The myth is created allowing Governor Christie to become a hero in the Republican Party. The truth does not lie with either party. A new leader must inform citizens of the reality rather than try to score political points. This may be impossible but it is the only way that the president will matter.
People are tired of the partisan bickering; Obama’s unemployment rate is just as bad as Governor Christie’s and yet both sides claim victory. A president will not matter until he can acknowledge the fundamental problems at hand. For a leader to matter he must stand for something greater than his own party. He must stand for citizen participation and access to information. A leader would not claim victory but would relate to citizens the problems we face and the solutions they believe will solve it. They must acknowledge when those solutions do not work. It is a pragmatic president that will matter in this century, one who is willing to suffer the consequences of failed policies for democracies sake.
The Millennial generation will inherit a troubled world by the year 2040. Their ability to lead will prove extremely important. They will be the heirs to the American dilemma. The hope is that they rise and fill the leadership void not as past generations have done, but as new leaders different and emboldened by a fight for a vibrant participatory democracy. It is John Dewey that should inform what a new president needs to fight for. “[T]he task of democracy is forever that of creation of a freer and more humane experience in which all share and to which all contribute.”
 John Dewey, “Creative Democracy—The Task before US
Readers of the Hannah Arendt Center blog are well acquainted with the pension train wreck that is heading our way. It is not only public union pensions but also those corporate pensions that still guarantee defined benefits that are radically underfunded. And what hides the immensity of the problem is continued unrealistic assumptions about long-term future returns.
As was reported recently, Maryland—to take just one example—continues to assume a 7.75% annual return on its public pensions, which is even higher than the 6.6% 100 year historical average on stock returns.
While there is blame to go around—including feckless politicians and Wall Street hucksterism—the root of the problem may be a general unwillingness on all sides to realize that the last 100 years may have been an aberration. This is the argument that legendary investor Bill Gross makes in a report he sent to PIMCO clients this week.
Gross takes aim at the oft-repeated “truth” that over time stocks will return a real return of 6.6%. He argues that the returns over the last century were predicated on a Ponzi scheme, giving extra returns to shareholders at the expense of laborers (declining real wages) and government (declining real taxes). As those trends reach their limits, it is inevitable, Gross writes, that real returns must decline as well:
The legitimate question that market analysts, government forecasters and pension consultants should answer is how that 6.6% real return can possibly be duplicated in the future given today’s initial conditions which historically have never been more favorable for corporate profits. If labor and indeed government must demand some recompense for the four decade’s long downward tilting teeter-totter of wealth creation, and if GDP growth itself is slowing significantly due to deleveraging in a New Normal economy, then how can stocks appreciate at 6.6% real? They cannot, absent a productivity miracle that resembles Apple’s wizardry.
And it is not only stocks that will suffer. With treasuries yielding 2.55% (less than inflation), it is increasingly unlikely that long term bonds will provide meaningful returns. The sad result:
Together then, a presumed 2% return for bonds and an historically low percentage nominal return for stocks – call it 4%, when combined in a diversified portfolio produce a nominal return of 3% and an expected inflation adjusted return near zero. The Siegel constant of 6.6% real appreciation, therefore, is an historical freak, a mutation likely never to be seen again as far as we mortals are concerned.
The consequence of these reduced expectations for public and private pension funds (and also for retirees with 401k plans that assume healthy investment returns) are dire. Simply put, throughout society, we are living beyond our means. We are in denial and continuing to make unrealistic investment assumptions. Gross draws the inevitable lesson for pension plans:
Private pension funds, government budgets and household savings balances have in many cases been predicated and justified on the basis of 7–8% minimum asset appreciation annually. One of the country’s largest state pension funds for instance recently assumed that its diversified portfolio would appreciate at a real rate of 4.75%. Assuming a goodly portion of that is in bonds yielding at 1–2% real, then stocks must do some very heavy lifting at 7–8% after adjusting for inflation. That is unlikely. If/when that does not happen, then the economy’s wheels start spinning like a two-wheel-drive sedan on a sandy beach. Instead of thrusting forward, spending patterns flatline or reverse; instead of thriving, a growing number of households and corporations experience a haircut of wealth and/or default; instead of returning to old norms, economies begin to resemble the lost decades of Japan.
We should applaud Gross for saying what many of us suspect: that the efforts of technocrats who populate pension plans to predict future returns is unpredictable at best and more likely subject to rosy biases. And yet even Gross then goes on to assume the tone of an all-knowing sage, something that seems de rigueur for public commentators today. We will solve the problem, Gross assures us, by turning to inflation.
Maybe Gross is right. But whatever the future holds, we must first confront the fact that as things now stand, we face a collective reduction in our wealth. How we respond to the reality of that threat will define the United States in coming generations. Either we can continue to insist that we are a wealthy nation and go on spending and living as if nothing had changed, or we can adjust our expectations downward.
Or we can somehow seek to unleash new forces of wealth creation that would generate the kind of economic growth and social and economic change that will lead to unexpected transformations in who we are.
We should neither take Bill Gross’ prognostications as prophecy nor deny the reality he describes. Gross offers merely a hypothesis about the future, something far different from a fact. We do not have an adequate understanding of human nature and human economy to predict the GDP for this year, let alone for 2030. Human spontaneity, chance, and freedom mean that predictions of the future are simply calculations based upon the assumption that such and such will happen if men act rationally and nothing unexpected happens. In such cases it is helpful to recall Pierre-Joseph Proudhon’s remark (loved by Hannah Arendt) that “the fecundity of the unexpected far exceeds the statesman’s prudence.”
*This post originally appeared yesterday on Via Media.
Occupy Wall Street focused attention on one conception of class conflict-the super wealthy against the 99%. As successful as OWS was in spreading its message, almost no legislative agenda emerged.
The Tea Party focused its attention on the tax burdens faced by the middle classes and the upper middle classes. The villain for the Tea Party is not the .5% who earn over $3 Million every year, but the firefighters and policemen and teachers who protect us and educate our children. The battle the Tea Party is fighting is against a vision of big government that is part reality and part fantasy.
The Tea Party’s battle goes to the heart of who we are as a nation and it is less a battle between rich and poor than between progressives and conservatives. The Tea Party has given laser-like focus to what will now be a defining battle of the decade: Is the government going to continue to play a leading role in providing our health care, protecting the environment, and supporting our industries.
After Tuesday, one must face the facts that the Tea Party is winning in the democratic forum. Four votes Tuesday make this clear.
•Scott Walker’s victory in the recall election in Wisconsin proves that even in democratic states with a historically pro-union electorate, the anger against public unions is palpable.
•Voters in San Diego and San Jose approved referendum that not only cut future pension benefits for public workers but more radically cut pensions for current workers as well.
•The City Council in Stockton, California granted the City Manager authority to declare bankruptcy—Stockton would be the largest city ever in the US to have done so.
It is important to note that the battle is not over welfare or even over healthcare. Scratch beneath the surface and the Tea Party is not anti-welfare. In The Tea Party and the Remaking of Republican Conservatism, Theda Skocpol and Vanessa Williamson, Harvard scholars who have interviewed adherents of the new insurgency in different regions of the country, report that:
83% of South Dakota Tea Party supporters said they would prefer to “leave alone” or “increase” Social Security benefits, while 78% opposed cuts to Medicare prescription drug coverage, and 79% opposed cuts in Medicare payments to physicians and hospitals…. 56% of the Tea Party supporters surveyed did express support for “raising income taxes by 5% for everyone whose income is over a million dollars a year.
While the Tea Party activists are eager to shrink government, they do not seem to welcome a decimation of the welfare state. If the battle is not over a minimal welfare state, it is a battle over public sector unions.
Why are public sector unions so important?
My colleague and Arendt Center friend, Walter Russell Mead, articulates an answer. At the core of the democratic left for decades has been the “belief in a strong, well-funded state.” The many diverse environmentalists, egalitarians, and progressives have various agendas, but all depend on a vibrant bureaucracy to guide and rationalize public and private life. Some want government to fund schools and universities; other want government to save the environment; another group wants government to guarantee racial, sexual, gender, and religious equality; many want government to provide universal healthcare or guarantee a college education to anyone who wants it. In all these cases, what progressives want, in Mead’s words:
Is control of the progressive, bureaucratic government machinery of the 21st century [which] is both the prize for whose control they struggle and the agent they hope will make their dreams real.
Mead encapsulates why the battle over public sector unions is so crucial at this juncture:
A Democratic Party dominated by its public sector unions is a party married to government and to bureaucracy. To the degree that the public unions shape its agenda, the Democrats become a lobby for the servants of the state. For the unions who represent its employees, the bureaucratic, civil service state is a solution permanently in search of new problems to solve and new worlds to conquer. The power of the public unions within the party pulls Democrats much farther to the left than they would otherwise go.
This is one reason the Wisconsin reforms stimulated such a powerful and united emotional wave of push back from virtually every section of the left. The threat to the public unions isn’t just a threat to a powerful source of funding for left-liberal candidates and to strong organizations with political experience and muscle; it’s a threat to the heart of the left coalition and to the structures that give the left much of its power in Democratic and therefore in national politics.
But the dominance of the public unions in the left had consequences for the left itself — bad ones. In contemporary America, the public sector unions are essentially a conservative constituency. That is, their core goal is to get more resources in order to fight all but superficial change in the structures their members inhabit. They want ever growing subsidies to the postal service, the public school system, the colleges and universities, even to health care — but they do not want the kind of reforms that could make these institutions more efficient, more productive, more serviceable.
Mead offers wise counsel. One can of course believe that the reason for the victories in Wisconsin, San Jose, Stockton, and San Diego is simply the deep pockets of the Koch brothers. And those pockets are deep and deceptive. But money alone does not explain the voters’ abandonment of public unions and the progressive model. The nation is seriously rethinking the role of the state and the public in our lives. We should be thinking with them. You can read more of Mead’s post here.