Third-Way Politics and Its Bitter Fruits

Posted in Politics
Wed, Mar 23 - 12:14 pm EST | 2 years ago by
Comments: 1
Be Sociable, Share!
    Use Arrow Keys (← →) to Browse

    The Good Life - Third-Way Politics and Its Bitter Fruits

    Beware the compromisers — a lesson from this generation’s history.

    In 1998, President Bill Clinton announced: “We have moved past the sterile debate between those who say Government is the problem and those who say Government is the solution. My fellow Americans, we have found a Third Way.”

    Third Way politics became popular in the 1990s after the final collapse of the Soviet Union. Socialists were feeling chastened and adrift. But middle-of-the-roaders were uncomfortable with moving further towards free-market capitalism. The fall of the Soviet Union was an indictment of socialism, but what exactly was the lesson? Two positions emerged.

    1. Socialism has failed, so free markets are the future.

    2. A certain kind of socialism has failed, but we should combine the strengths of the private sector with the virtues of government management.

    Position 2 prevailed among leading intellectuals and politicians. British Prime Minister Tony Blair joined Clinton’s call: “The Third Way stands for a modernized social democracy … it is a third way because it moves decisively beyond an Old Left preoccupied by state control, high taxation and producer interests; and a New Right treating public investment, and often the very notions of ‘society’ and collective endeavour, as evils to be undone.”

    The mixed economy would be adopted, not merely as a de facto result of faction politicking, but as the guiding ideology of a new era.

    The mixed economy had of course long been a reality in the United States and Britain in both practice and theory. The 1930s brought Franklin Delano Roosevelt’s industrial management and John Maynard Keynes’s interventionism. Thirty years later, the 1960s brought Lyndon Johnson’s Great Society and John Kenneth Galbraith’s new industrial state.

    So again thirty years later, 1990s explicit Third Way politics was to embrace co-management of the economy along these lines:

    • The Federal Reserve and Wall Street will jointly direct financial policy.

    • Fannie Mae, Freddie Mac and the real estate industry will work out housing.

    • The Department of Transportation and the major automotive and airline companies will manage the transportation sector.

    • The Department of Energy and the energy corporations will cooperate on energy policy in oil, gas, and renewables.

    • And so on.

    By their fruits shall ye know them.

    In the decade that followed President Clinton’s announcement, the regulation of business accelerated and the USA was rocked by financial crises, ethics scandals, and dog-eat-dog fights over who would get subsidies and bailouts. “Crony capitalism” became the new favorite epithet. And every major player was an enthusiastic practitioner of the Third Way.

    • The scandal-ridden Countrywide mortgage giant was tightly politically connected.

    • The energy sector’s Enron — now deservedly a classic case study of ethical failure — dined regularly on government-business partnerships and actively sought more.

    • The financial corporations that received huge bailouts, loan guarantees, and subsidies — e.g., Citibank and Goldman Sachs — had all played ball.

    • So too had the transportation sector’s General Motors, and the green-energy darling Solyndra, and many, many others.

    So not only had socialism failed everywhere it’s been tried — now the world’s leading Third-Way economies had also failed. What was the lesson for our generation? Once again, two positions have emerged:

    1. Maybe we should try free-market capitalism.

    2. This generation’s bad politicians and businessmen have corrupted the ideal of government-business partnership, but we will get it right the next time.

    We all know the line about failing to learn from history. We also know that President Clinton’s and Prime Minister Blair’s policies from a generation ago seem ancient and irrelevant history—even to the few people are aware of them.

    But there is the very difficult issue of assigning blame and praise in a mixed system. When the economy is working well, which part of the mix gets the credit? And when it’s dysfunctional, who gets the blame?

    The general pattern of argument is this:

    1. The economy is in a mess. We once had a relatively free market. Then the government increasingly regulated it. The resulting mixture led to major problems. Consequently, the solution is to get rid of the government regulations and return to a free market.

    2. The economy is a mess. The current system is a free market. Government either hasn’t regulated it much or deregulated it. The resulting chaos is capitalism in action. So the solution is to increase government control and move towards socialism

    Two particular examples:

    • After the 2008 meltdown in mortgages and Wall Street, for example, position 1’s advocates argued that the housing and financial markets were skewed by many government interventions. Position 2’s advocates disagreed and argued that those markets were mostly unregulated or deregulated and so spun out of control.

    • In the 2010 debates over health care, position 1’s advocates argued that the dysfunctions in medical services resulted from skewed incentives and obstructions created by government involvement. Position 2’s advocates disagreed and argued that the high costs and lack of access to health care demonstrated capitalism’s inability to provide.

    How do we evaluate these opposing narratives, without falling back on knee-jerk ideological prior commitments?

    It’s important to focus first on a critical prior question: To what extent is the economy capitalist or socialist? Clearly, it is a mixed economy with elements of both capitalism and socialism. But what is the degree of mixture? Is it mostly one or the other? And how do we measure this?

    I’m using capitalism and socialism as antonyms along the spectrum of economic power. Under free-market capitalism, all decisions and actions about production, trade, and consumption are individualized, i.e., made by private individuals on behalf of their own values. That is to say, economic decision and action is decentralized and voluntary. Under socialism, by contrast, all decisions and actions about production, trade, and consumption are socialized, i.e., made by the government on behalf of society as a whole. That is to say, economic decision and action are centralized and compulsory.We can measure degrees of capitalism or socialism by economic activity:

    • Taxation rates (e.g., federal, state, local)

    • Percent of overall spending (e.g., relative size of government and non-government budgets)

    • Controls on production (e.g., regulations on what, how, and when)

    • Control on trade (e.g., tariffs, contract protection, price controls)

    • Control on consumption (e.g., prohibitions)

    • Property ownership (e.g., usage restrictions, eminent domain)

    • Privacy (e.g., accounting publications, ownership disclosures, data security)

    • Money (e.g., controls on wealth and the media of exchange)

    • Human capital (e.g., barriers to entry to professions, immigration policies)

    We can also measure how free market or socialist each economic sector is, since government regulation is not equal across all sectors:

    • Manufacturing

    • Agriculture

    • Financial

    • Education

    • Research

    • Technology

    • Energy

    • Health care

    That’s a huge project, but the social science data matter critically when we ask evaluative questions about any mixed system: When the economy or economic sector is functional, which part of the mix gets the credit—the free-market aspects or the government controls? And when it’s dysfunctional, who gets the blame?

    As a start, we are now fortunate to have available several indicators with easily-available data. Here are three:

    Regulation: In every key sector of our economy, the trend is increasing regulation, and for every partial deregulation there are many new regulations.

    Money: Money is the lifeblood of a modern economy, and it’s worth dwelling on the significance of government monopolies on money. Only the government may print money. The government decides how much money will be in circulation. And the government determines the borrowing cost of money, i.e., the base interest rates.

    Ideology: We all know how politicians and bureaucrats like power and almost always want more. But we may be surprised at how few professional economists advocate free markets.

    This year we are deciding who will be the President of the United States in 2018, which will be the twentieth anniversary of Clinton’s and Blair’s proclamations. My best guess is that we should plan to stay tuned for a re-publication of this article ten years after that with only the names changed.

    Photo by dibrova/Getty Images

    Stephen Hicks is the author of Explaining Postmodernism: Skepticism and Socialism from Rousseau to Foucault and of Nietzsche and the Nazis. He blogs at StephenHicks.org. For future columns on The Good Life, feel welcome to send your philosophical questions and moral dilemmas to him at ProfessorHicks@EveryJoe.com.

    Note: If you follow the retail links in this post and make purchases on the site(s), Defy Media may receive a share of the proceeds from your sale through the retailer’s affiliate program.

    Keep up with the best of The Good Life below. Click through the gallery to read more from Stephen Hicks.


    Profit

    Nobody likes to lose money, but profit generates polarized attitudes.

    Photo by Melpomenem/Getty Images

    Money and books

    Which is more evil - loving money or books?

    Photo by Getty Images

    Campus Politics

    Universities are political places, but there’s good politics and bad.

    Photo by Getty Images

    Immigration

    Stephen Hicks discusses the limits to open immigration.

    Photo by Jordan Pix/Getty Images

    Terrorism

    Stephen Hicks explores how to tame religious terrorists.

    Photo by Thierry Chesnot/Getty Images

    Schooling

    Is education really too expensive?

    Photo: monkeybusinessimages / Getty Images

    Sexbots

    Let's discuss the ethics of having sex with robots.

    Photo by Jiri Miklo/Getty Images

    Comparing North and Latin America

    Stephen Hicks explores why there are such dramatic differences in economic performance between the two Americas?

    Photo: Anson_iStock / Getty Images

    Free College Tuition Is a Moral Issue

    Many successful people did not graduate from college and many unsuccessful people have impressive degrees. So who should go to college? And who should pay for it?

    Photo: Rawpixel Ltd / Getty Images

    Hitler

    Stephen Hicks explores answers to the question, "How smart and well-read was Adolf Hitler?"

    Microaggression

    Read Part I and Part II in this series on understanding triggers and microaggression as strategy.

    Greece

    Stephen Hicks weighs in on Greeek debts and doing what's moral.

    Free Speech

    Times are changing. Is Free Speech Dead in Universities?

    Intelligence

    Stephen Hicks talks about intelligence, freedom, and who knows what's best for you. Also don't miss his piece entitled, "Are You Smart Enough to Live in a Free Society?

    Economics

    How close is current Keynesian practice to original Keynesian theory? Can we blame Keynes for our current situation?

    Philosophy

    Philosophy has a reputation for attracting deep thinkers whose quest for wisdom can serve as a model for all of us. And since politics is a major component of the life well lived, what wisdom can philosophy bring to bear on politics? Are philosophers stupid about politics?

    Poverty

    Let us share with you the most impressive number of our generation: 600 million. That is how many people have been lifted out of extreme poverty in the last 25 years. Read more about the the problem of poverty.

    Sex

    Controversy has been running high recently over how best to lower the rape rate on campuses. Read Stephen Hicks' piece on Campus Sex and the Anti-Sexiness of the New Authoritarians.

    Money

    Stephen Hicks weighs in on the economy, deregulation, capitalism and much more.

    Power

    As with sex and money — and most of the important matters in life — many silly things are said about power. Find out why power does not corrupt, and it's character that matters most.

    Elections

    Cynicism about money in politics is a healthy response to our long history of cronyism, but does money really buy elections?

    Schizophrenic Politics

    Let’s talk about one reason why politics makes us all a little crazy — its incoherent mix of laws and regulations. So what should governments really do? Read about Our Schizophrenic Politics from Stephen Hicks.

    Lifeboat Ethics

    Don't miss this two-part series from Stephen Hicks about lifeboat ethics:

    Use Arrow Keys (← →) to Browse

    Be Sociable, Share!

      Related Posts

      • Edward Fox

        Excellent parsing of the core issues.

      Be Sociable, Share!