President Clinton’s policy experts include welfarists, taxoholics, racial victimologists, central planners, tree huggers, bug worshipers, and admitted socialists. In this space, I’ve already discussed Laura Tyson, chairman of the Council of Economic Advisers, an apologist for Ceaucescu’s Romania and a critic of Tito’s Yugoslavia as too market-oriented.
The picture becomes clearer with the appointment of the Clinton Four, strategically positioned at the Department of Commerce, the Office of Management and Budget (OMB), the Treasury, and the White House.
WELFARE DUPLICITY
If Tyson represents the hard left of the administration, Isabel V. Sawhill, associate director for human resources at OMB, represents its right: mixed-economy welfarism.
For many years, Sawhill has been a senior fellow at the Urban Institute, a government-funded promoter of inner-city welfare. Her Income Transfers and Family Structure (1975) noted that the number of female-headed welfare households was zooming. Little wonder, you might say, given government subsidies to single motherhood. But her answer was to give “more money” to “husband-wife families.”
Yet such a proposal does nothing to diminish the incentives for illegitimacy. It only increases the incentives for families not on welfare to go on the dole. The net result would be more welfare recipients.
In 1982, when political trends seemed to be changing, she got a little panicky. “A counterrevolution is underway,” she wrote in Perspectives on the Reagan Experiment, and the target is “a half century of growing federal efforts to stabilize the economy, insure individuals against misfortune, redistribute income and opportunity, and respond to other perceived national needs.”
She feared that Reagan would cut welfare benefits, which would “increase vulnerability of these groups to economic dependency.” That’s the Urban Institute in a nutshell: unlike welfare, a private job makes you dependent and vulnerable. (She also worried that grants to non-profits like the Urban Institute would be cut.)
Sawhill, like many Americans, believed the Reagan administration was serious about cutting government. Instead, by 1984, she could tell relieved liberals in Economic Policy in the Reagan Years that Reaganomics posed no threat.
She had only one worry: there might be a “shift in expectations about what government should or will do,” thanks to the administration’s “rhetoric.”
So in her Challenge to Leadership(1988), she advocated that liberals disarm conservatives with rhetoric, while expanding redistribution to new and unchartered territory. For example, Sawhill said that many Americans blame urban squalor on the welfare state. So she urged that liberals concede the failures of present welfare policy, while advocating more spending on such programs as a new job corps, new affirmative action strategies, and more free college degrees. Her proposals were repeated, nearly word for word, in Clinton’s campaign book. Thus we should “end welfare as we know it,” as Clinton said during the campaign, and replace it with the provider state.
Will the Urban Institute miss Isabel Sawhill while she helps socialize America? Undoubtedly, although the organization will be comforted by its $10,635,584 in HUD grants approved by Jack Kemp.
BANKING ON PENSION TAXATION
To Sawhill’s left is the Treasury Department’s new assistant secretary for economic affairs, Alicia H. Munnell, former vice president at the Boston Federal Reserve.
For many years, Munnell’s favorite subject was pension economics. Created in the 19th century as a way of helping disabled workers, pension funds were at first concentrated in the railroad industry. Labor unions later began to agitate for them as a way of attracting new members.
Most Americans, however, still assumed responsibility for their later years. By the end of the 1920s, only 10% of workers would get deferred income in the form of pensions. Then as now, pension monies were put aside out of present wages, and workers who did not have to worry about the income tax saw no reason to put off part of their salaries.
All this changed with the New Deal. The government-caused Great Depression led to the collapse of the railroad pension fund, and the government bailed out the fund, establishing a too-big-to-fail doctrine in the area.
Pensions didn’t expand, however, until Roosevelt’s war-time wage controls prevented corporations from attracting new workers or keeping good ones through higher pay. So firms paid higher salaries in the form of tax-free fringe benefits as well as tax-deferred pensions.
In response, private pensions ballooned nearly five fold between 1940 and 1945. Union privilege and wage controls during the Korean War further boosted pension participation. Then in 1975, at the urging of Ralph Nader, the government passed the Employee Retirement Income Security Act, which forced corporations to provide bigger and more comprehensive pensions. The law also established the Pension Benefit Guaranty Corporation, which was empowered to seize 30% of corporate assets if a pension fund failed.
Before the New Deal, there was little “retirement.” People worked according to their means. Wealthy heirs worked not at all. Some people stopped working as soon as they were able to. Most Americans worked until they couldn’t, for psychic as well as financial reasons. But it was always a calculation based on individual circumstance, not government mandate. But with Social Security, a long-time socialist goal, all workers were wedded to the government’s arbitrary retirement age and a state paycheck until death.
People therefore tend to save and plan less for their older years, and grown children tend not to contribute to their aged parents’ financial wellbeing.
But that doesn’t bother Munnell. She wants to further lower the incentive to save by taxing as personal income the accumulated value of the $2.3 trillion in private pension funds. Not only will workers have to pay high taxes on money they receive today, they will also be taxed on money they won’t get until perhaps 40 years from now.
But it’s not just taxation she has in mind, as her book The Economics of Private Pensions (1982) shows. She wants an expanded Social Security program to replace private pensions altogether. She calls this “integration.” By creating the most enormous conglomeration of old-age “insurance” in the world, she would bail out Social Security and socialize private pensions.
But “integration” only puts off and therefore worsens the day when the racket of government insurance finally goes belly up. In the meantime, it could injure the private stock and bond markets. That is, Americans will be forced to fund the deficit with their retirement funds, and the government will become the big player in the stock market. Through its regulations, government already controls much of private business. But control and ownership are still separate. Pension socialism could change this.
Munnell is also the author of the Boston Fed study that purported to show that bank lending is racist. Clinton wants to further nationalize credit, and racial demagoguery will be a key tool. (Forbes senior editor Peter Brimelow pointed out that she failed to look at default rates, which prove credit markets are rational, and got her to admit that she had no proof of racial discrimination in lending.)
CENTRAL PLANNING WONK
Moving still further to the Left, we come to White House special adviser Ira G. Magaziner, formerly a Boston consultant. This is the man in charge of socializing medicine, who has advanced the fantastically stupid idea of imposing price controls on the medical industry.
But Magaziner is not a medical economist. He’s a corporate consultant who has spent the last decade flying around the world showing governments how to control business more tightly.
His most recent book The Secret War (1990) glorifies statism. He’s never seen an industrial intervention he didn’t like, from research and development consortia to outright ownership and control.
“I still hear the argument that it’s not government’s place to get so involved in business,” he writes. But “it has already begun to happen.” That doesn’t follow, of course. If we are doing something wrong, and we are, we should stop, not use it as a precedent.
His first book (co-authored with Clinton Labor Secretary Robert Reich) was the ominously titled Minding America’s Business (1982). In it, he vents four complaints about the American economy.
- we lack a “centralized government agency that is responsible for devising a rational industrial policy.” (I could point to virtually every building in Washington, D.C., but let’s go on.)
- “there is currently no agency in the U.S. that has the responsibility for sophisticated analytic or predictive work on a business or industry level.” (Every agency already performs this methodological baloney.)
- there is no agency “to evaluate the international competitive consequences of government programs and policies.” (In fact, every agency does this, and – surprise – finds that its programs are successful.)
- officials do not “have a vision of the overall structural development of the international economy” or “a thorough knowledge of the products, markets, and competitive dynamics of individual businesses.” That’s true; only God has it.
Magaziner says his opponents are “haunted by the specter of centralized bureaucrats in capital cities who engage in picking winners and losers from among various industries, or oligarchies of industrial barons who systematically exchange campaign contributions for selective government largess.” (That’s right, Ira.)
THE HARD LEFT
Moving further Left, we come to Derek Shearer, former professor of public policy at Occidental College, who has devoted his fife to advancing the theory and practice of socialism.
In the 1960s, he went to England and met Bill Clinton and Strobe Talbott, who were rooming together on a Rhodes scholarship. Today his sister Brooke is in charge of the White House fellows program. She is married to Talbott, who heads programs for the former Soviet Union for the State Department. And Derek? He is deputy undersecretary for economic affairs at the Department of Commerce. He is in charge of the chief economist and the Bureau of the Census.
In the 1970s, Shearer was a founding member of the National Conference on Alternative State and Local Public Policies, which promoted changing to “a democratic, de-centralized socialism from a corporate, monopolistic state.” Since then, he has stopped using the word socialism on grounds that it tends to scare people. At a 1981 conference organized by Ralph Nader, as reported by Barron’s, Shearer said he now used “economic democracy” as the “great euphemism” for socialism.
You “can’t use the ‘S’ word” in American politics, Shearer said, but “‘economic democracy”‘ sells. “You can take it door to door like Fuller brushes, and the doors will not be slammed in your face.”
The most publicized implementation of “economic democracy” in the U.S. was Santa Monica in the 1980s. As the city’s planning commissioner, Shearer and his wife Ruth Goldway, the mayor, sought – as he told In These Times – to use “the power of the city to control the wealth of the city.” Under Shearer-Goldway, the city earned the nickname of “People’s Republic of Santa Monica.” It’s known for its government-created housing shortage, general dilapidation, and bureaucratic oppression.
Shearer is as well known on the Left as a political strategist as much as an economic theoretician. In the introduction to The American Left: Failures and Fortunes (1982) by Mark E. Kann, Shearer argued that “the Democratic Party is not a coherent Left. It has been, since the New Deal, the party of regulated capitalism.”
His book Economic Democracy(1980, co-authored with Martin Carnoy), presents the alternative. Economic democracy “must start by dismantling, or at least restructuring, the power of these corporations.” First should come a “shift of investment control from corporate domination to the public.”
This will “transfer capital from the corporations to the public’ through the “logical vehicle..the government.” As a beginning, he thinks, government should own 10-20% of “at least one major firm in each major industy” including “the automobile, drug, chemical, and computer industries.”
“All these efforts assume that there is enough political space in American society to make change, to restrict control of capital by large private firms, and to shift that control to the public sector and to workers in individual plants and industries-or at least move in that direction.”
Many economists reject these ideas, says Shearer, because “consciously or unconsciously, they accept a set of ideological assumptions about the ‘naturalness’ and ‘perfectibility’ of capitalism as an economic order.” Is this Marxist polylogism? It wouldn’t be surprising, since Shearer calls Marxism “an attempt to humanize economic and social life” (his italics). He says this has worked in practice: “American visitors to China and Cuba, for example, will attest to the austerity of life in those countries; yet, they also comment on the spirit of cooperativeness and well-being that pervades Chinese and Cuban life.”
In a free society, people tend to get paid different wages. This must not stand. “An intrasalary adjustment is required. If low wages are to be increased, they must be raised at the expense of high wages.”
As to labor markets, he advocates “worker control of production and the accompanying alternative organizations of work (such as a greatly reduced division of labor).” This is better “than the present hierarchical arrangement.” Why? No more of Marx’s alienation: workers would “enjoy their work more if they had greater say about how it is organized and what they produce.”
Hey, Professor Shearer, isn’t this communism? Sure: “The Yugoslav version of worker self- management is the most highly developed in Eastern European socialist economies ….. Various versions of worker self-management are also found in China, Cuba, and Israel.” In China, “workers participate directly in shop floor decisions as part of the general emphasis in China on worker control” (although “Mao’s death may mean much greater hierarchy and specialization in Chinese industry). “The Yugoslav, Chinese, and Cuban cases can teach us about the possibilities and problems of worker control.”
This doesn’t mean that “workers simply buy the firm,” for that would preserve the firm’s “essentially capitalist nature.” We are talking about real collective ownership. Shearer admits that “participation itself is not easy to achieve.’ The “most important” ingredient is “the ideology and attitude toward participation of leaders in the factories, and worker ideology regarding worker control.”
But how does one turn the working class into a communist vanguard? “The centrality of ideology in participation,” Shearer admits, “suggests the difficulty of establishing successful producer cooperatives within a capitalist society, particularly the United States.” “Increased awareness must go hand in hand with the organization and articulation of a physical challenge to capitalist domination.” Translation: reeducation camps and possibly violence.
“Once all this has been said,” writes this old friend of Bill Clinton’s, “we can still see that there is one integrating factor in national politics – the presidency – an office that a movement for economic democracy should attempt to win.” “Such a critical election period focused around the issue of economic democracy could occur in the late 1980s or the 1990s.”
In his official biography, Shearer says he helped write Clinton’s economic plan in Putting People First. Yet he also claims now to be a “proponent of democratic capitalism,” he told the Orange County Register. That might be reassuring, if “democratic capitalism” were not another great euphemism.
Whatever he calls himself, however, Shearer will use his powerful post at the Commerce Department to impose more government control over the economy. He will seek, however, to “control the wealth” not of the city, but of the nation.
Put them all altogether – Tyson, Sawhill, Munnell, Magaziner, and Shearer – and you’ve got a bunch of dizzy leftists. Put them in their new roles – at the Council of Economic Advisers, the Office of Management and Budget, the Treasury Department, the White House, and the Commerce Department – and we have trouble.
