March 29, 2005

Democrats, Republicans and Class Interest

From Kudlow's blog:

    But color me happy that U.S. business is fighting back and standing up for its interests, which, by the way, I believe, is consistent with all our economic interests.
An interesting issue that's fallen into the background the last century of politics or so is the question of class interest. Do labor and capital have different interests? Do rich and poor have a fundamentally different - and irreconcilable - interest in government policy?

The basic answer from the left and the Democrats is yes. Don't believe me? Just ask John Edwards: "Because the truth is, we still live in two different Americas: one for people who have lived the American Dream and don't have to worry, and another for most Americans who work hard and still struggle to make ends meet." Of course, he immediately wimps out of the Marxist rhetoric and lapses back into what is essentially a liberal-capitalist belief: "We can build one America."

But this attempt to divide us into labor-capital, proletariat-bourgeoisie, or rich-poor is hardly new. Actually, it's old that it's been widely discredited for many decades. The fact is, labor and capital, rich and poor, they all have the same basic interests. They both have an interest in property, in liberty, in freedom, in mutually voluntary contracts, and in capitalism itself.

It's a fundamental question of economics. Democrats tend to believe that it's more or less impossible for the poor to improve while the rich are rich - they have irreoncilable interests, to Democrats. Therefore, the salvation of the poor comes at the loss and pain of the rich. The Republicans tend to believe - and I should stress, believed this in the 1850s and in the tumultuous Gilded Age and Progressive Era - that labor and capital have the same interests. That doesn't mean that they act the same or have the same assets, but it means they need the same economic system and that it ultimately works to the benefit of everyone.

That's the basic question of political economy: is capitalism basically in everyone's interest or is capitalism predicated on a portion of society exploiting the other?

The socialists giving the latter answer do so today only in softened tones or on the fringe of politics. Although Democrats regularly suggest that corporations are predatory or that the rich are parasitic, they do not often explicitly indict capitalism as an economic system. They criticizie capitalism and its process, but they don't call for an end to capitalism itself. They essentially want a managed capitalism to fix their complaints.

Republicans, and moreso libertarians, believe that the free market system increases efficiency to benefit all of us and that a rising tide lifts all boats. This belief that the market can best provide for the needs and desires of both rich and poor is increasingly accepted in a moderate form. Even the center-left in Europe accepts the basic utility of market economics, and have been shedding their burdensome regulatory schemes. Of course, they're still held back by feudalistic and socialistic policies - not the least of which is labor unions in Europe that act as a huge roadblock to dynamic labor and to economic progress.

Of course, it's still popular to bash businesses and rich people. Why is that so? 1) Because we're Americans, and we tend to be skeptical of perceived closed-group behavior. In history, Americans didn't like the Royal Charter Companies, the Masonic lodges, the Catholic Church, and of course government bureaucracies. There were reasons for all of these, but in every case the idea of a closed group, immune to change or reason, played a major role in the stereotype. This is a healthy skepticism, but it hardly explains the bashing and demagoguery that seems to follow leftist critiques of business.

2) People always like to blame someone who has more, but who doesn't have a special exemption. In feudal times, this meant the uber-rich nobles and clerics were exempt from criticism (because they were "divinely" selected) but the middle-class merchants and financiers were open game. The reason was simple: they weren't somehow special; they were just like the rest of us. If these average people could succeed, it showed how the unsuccessful people were losing. Rather than accept their own faults and resolve to try harder, they bashed the successful people. They accused them of being liars, cheats or thieves - anything but successful businessmen.

This translates today, as well. The left loves to bash the rich and the business world, but somehow the fabulous wealth of athletes, actors and musicians rarely draws more than a peep. What's funny is that the oil executive, auto manufacturer and the fast food magnate all provide us with products that we want and/or need and they do so (usually) at a profit to themselves. They add to the economy when they are efficient, and they increase our satisfaction and standard of living by giving us durable, affordable, useful goods. For this, they get criticized and mocked as the merchants and financiers did in the feudal times - called thieves and liars, crooks and cheats, and the scandals of a few are insinuated to represent all of the community. If only Martha Stewart had been a braindead actress instead of a competent, ambitious businesswoman, then some people wouldn't have perversely enjoyed her imprisonment.

Now, yes, I am exaggerating of course. I am also leaving out something important: practically everyone is a capitalist today, in ideology if not in economics. Moreover, unlike the feudal ages when merchants and financiers could be stripped of all assets (especially if Jewish) for no more reason than the King's desire to find a scapegoat or a red herring, today they actually do need charges to prosecute you and take away your assets. Overall, I'd say we've made wonderful leaps and bounds in economic progress and free market values.

But I use hyperbole to illustrate the core of the left's view on economics. Ultimately, they think that a rich person being rich makes someone else poor. This relates back to the idea of a zero-sum game (economics is a positive-sum game). But it also goes back to the pre-Industrialization peasant mentality that a successful middle class person reflects poorly on those less successful. Overall, it's really the divergent interests, though; they can't see how businesses doing well is a boon to employees, so they think the only just economic policy is one that tilts the scale against producers.

A complex, interesting and almost totally irrelevant part of political economy.

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