Are You Being Served?

That was the title of an old British sitcom. It is also an appropriate question in today’s economy. David Cay Johnston does us all a favor by focusing our attention on the plight of our modern era domestic class.

I have written about this topic both directly and tangentially for years: inequality is the defining issue of our era. And what makes it most vexing is that we created the current situation via deliberate policy. It was not an accident. Nor was it some unfortunate unintended consequence of a mysterious force like a free market or globalization. It could have, and should have, been avoided.

As you know I place the economic schism of contemporary America in the context of what I see as the conflict between capitalism and democracy.

Capitalism, however we define it, tends to lead to significant concentrations of wealth. We know this because we have ample historic evidence of such an effect. Both our recent Gilded Ages were associated with huge and increasing disparities of income. And both were followed by massive collapses of the economy.  We know full well what a relatively unfettered capitalist economy looks like. We just lived through one.

Democracy , which ought not be conflated with freedom, has an opposite effect. It tends to result in a more even distribution of wealth because of the redistributive consequences of policies that appeal to the majority of voters. We know this too: the evidence of the post-war era throughout the western world supports it, as does the recent counter attack by plutocrats like Mitt Romney. His infamous 47% comment is hardly the stuff of a true believer in democracy. It was the rage of a plutocrat feeling put upon by the desires of the masses. He called them moochers. We call them voters.

When you get the two forces out of balance you end up damaging society. Too mush capitalism and you arrive at today’s inequality. Too much democracy and you lose the innovative edge that drives future prosperity. The trick is to find an acceptable middle ground where the pay-off to capital is still enough to boost growth, but not enough to plunge us all back to the dark ages of outright laissez-faire, exploitation, and mass hardship.

In my mind, growing up as I did in the UK, nothing more epitomizes a divided society than the Edwardian era. It was an age of huge wealth, rapid growth, great power, and a massively divided society. Domestic servants – my grandmother included – were a very large part of the economy. While on the surface society was both prosperous and successful, the imbalance caused by those deep divisions in wealth made it both fragile and unsustainable. When society came into contact with a disorienting event that fragility gave rise to a great reorganization of society, even though the reorganization took a generation to work through.

That even came in the form of the First World War, which shattered not just the prior complacency of the ruling class, but empowered the masses who bore the brunt of its suffering. Then came the Great Depression as a second and confirming shock after which democracy took hold sufficiently to lead to the rise of the modern middle class. We would all do well to remember that the modern middle class is not the natural progeny of market based economics, but is, instead, the offspring of the democratically enabled redistribution of wealth implied by the post-war social contract. The permanent and increasing integration of women in the workforce; the provision of retirement and other government backed benefits; and the acceptance of a balance between the returns to wages and the returns to capital all were political results of the tilt away from pure capitalism towards a greater balance with democracy. Those masses that the right wingers so revile asserted themselves through the ballot box and brought the often vacuous phrase “We the People” to life.

But after nearly forty years of regression, the near worship by our elite of market based solutions to each and every problem, the relentless pursuit of profit at the expense of wages, and the toxic criticism of the role of government we are back, as Johnston argues, in a neo-Edwardian era. Only this time it’s worse.

Whereas domestic servants like my grandmother were given room and board along with their pitiful pay, today’s equivalents are not. They both pay taxes – despite what the Romneys of the world say – and they pay for their own room and board. They are thus worse off than their predecessors. They are also more exposed to the neglect and exploitation of the maxims undergirding modern big business. As corporate America pursues profit at any expense, and decouple productivity growth from wages, it acts to drive down those wages and thus the ability of workers to progress. Big business has done more to destroy the concept of opportunity and to deconstruct our middle class than any other force. Companies like Walmart and MacDonald’s have made it socially acceptable to pay wages so low that many of their employees have to rely on welfare to sustain themselves.

Of course we all benefit from being able to buy incredibly cheap products. But the cost to society is huge. And, amongst other things, one major and little commented upon side effect of the low wage economy is that we, the taxpayers, end up having to provide welfare for those caught in it. So those supposed low costs, which is the big benefit society is supposed to reap from a low wage regime, is an illusion. We end up subsidizing the profits of the likes of Walmart whose workers can only work for those low wages as long as taxpayers help out and chip in welfare to top up their incomes.

This is not a sustainable balance for our society. We ought not subsidize the greed of the Walton family whose low wage policy means we have to pay extra in taxes to support their workforce via welfare. They ought to be able to pay for their own workers. And they ought to pay a living wage.

Recent rumblings and resistance amongst low wage workers suggest that we have hit a tipping point. Or that we are close to one. The business model that companies like Walmart employ, which is based on exploitive wages offset by taxpayer subsidy, is, in fact, far worse than the old Edwardian domestic service model. The older exploitation was partially offset by a paternalism that sugar coated it for a while. Now the exploitation is both unabashed and lauded by a large part of our elite who, brought up on a steady diet of market magic economic theories, see nothing wrong with lowering wages and imposing greater burdens on those least able to carry that burden. After all, as we are told, poverty is a great incentive to the poor to get to work. And to get to work at any wage they can find. Which is usually lower than a living wage.

In this vein Rand Paul, whose economic ideas are based on the fictions of Ayn Rand and the Austrian School of thought, can credibly argue that unemployment assistance hurts workers because it stops them from seeking low wage work. This is another throw back to pre-democratic days. Samuel Smiles wrote a very popular book in the Victorian era arguing exactly the same thing. It was called “Self Help” and was aimed at the poor who, Smiles argued, could help themselves by pursuing the puritan virtues of hard work and self reliance. Government aid was seen as a hindrance to self help by conservatives then as it is is now.

But in the interim, between that old era, and today’s replication of it, we experienced the alternative. An age of government assisted and democratically enabled redistribution to mitigate the many evils of capitalism without surging all the way to outright socialism.

Marx saw the emergence of modern democracy as a step along the road to socialism. He was wrong. It was a bulwark against socialism. Modern capitalists, our plutocrats and the elite that enable them, would do well, though, to recall Marx’s insights. Capitalism has within it the engine of its own destruction. This is because of its massive and destructive influence of society. In modern terms this influence is the inequality that now threatens us all. They would do equally well to recall that it was democracy that provided sufficient respite and prevented all out socialism from emerging throughout the western world.

Getting that balance correct is crucial. Right now we have it wrong.

Are you being served?

If so, think twice. You may be the one in service.

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