The Filter Up Effect

By John O’Kane
The “debate” about how we’re now on the slippery slope of socialism is truly a farce this time around! Virtually everything the Obama administration is doing, as Harold Meyerson said recently in the Washington Post, is about salvaging capitalism, and with mostly the same filter-down policies that got us where we are. It’s doing little more than slapping the wrists of the too-talented-to-fail bonus bankers.

But when “experts” just mention this toxic non-asset word most Americans cringe. Responding like Pavlov’s famous dog, they see badly tailored suits waiting in long lines and a government crimping their style with pap passed from that unmentionable 19th century critic. If you drop his name these days you’ll likely be labeled an ex-weatherman!

Now we certainly deserve less government in our lives. Whatever gets the licensors and bureaucrats off our backs.

But the problem with this picture is that we ignore both the public subsidies that permit private para-governments to license our lives, and how government can do so many good things: regulate trade, food production, agriculture, financial transactions; provide safety nets for people in times when the private sector can’t, or refuses to do so.

These actions make people freer. They help create a reasonably level playing field and trump the hostile takeovers in the dog-eat-dog jungle where those with bigger sticks passed down from their Neanderthal ancestors get bigger whacks at their foes. Not to mention better trust funds to get them through the inevitable recessions when those great deals pop up that will lead to the next generation of fortunes. Freedom is not just about blocking what crimps our style; it’s about creating institutions that teach us good habits to act upon.

How far we are from Socialism! We’ve never been so unequal and our habits never so bad. We accept the interests of the elite-driven system as our own. Some complain about millions in bonuses paid when so many are hurting, but most barely wince when the Treasury passes billions to AIG. As the country’s wealth is redistributed upward by public-private “partnerships,” we still believe what happens in the boardrooms is really about us. And now many say these “bailouts” equal socialism!

If we could trace these transfers we’d see that they’ve vanished into rat holes and will never return to the public purse. Bailouts occupy spaces as different from those socialism produces as apples to orangutans. Socialism is about rejecting the idea that wealth filters down as a fiction that’s closely linked to the idea that we have one economy. The nightly business reports tell us that the GNP numbers and the Dow are all we need to map our welfare. But in accepting this numerology we learn to miss other economies that make up the real social world. 

Socialism is also about the social good. The tragedy is that since market logic dominates virtually everything now, the social good has come to depend on consumerism and the habits and institutions that prop it up. What’s social gets distorted and hidden in our transactions.

We don’t see that our personal choices underwrite the power of the most visible economy, taken to be the only one. We don’t learn how freedom is denied in the way capitalism actually works. According to that unmentionable 19th century critic, any child can learn how if forced to experience it. But in neolibcon America we learn to be voyeurs. And the more distant we are from what’s happening, the more we defer to elites and embrace abstract freedom. 

Many are understandably against socialism who don’t want to see their ingenuity and labor get cramped or stolen. Their genes are soaked with memories of ordinary patriots escaping aristocratic thievery for the chance to succeed on their own.

The American way is about merging with the mass to transcend it; transporting one’s self across territories and Indian tribal nations on the wings of frontier freedom. Flowering in the era well before the rise of corporations, this idea doesn’t mix well with socialism. In fact it helps blind many to the unfreedoms that made socialism an attractive option in Europe and elsewhere. Frontier freedom, now manifested in cyberspace, is our lingering pedigree.

This is where things get confusing. Somewhere along the road to wealth, personal initiative to succeed slips into the desire to use others, continuing slavery through other means. Now most good citizens would likely say, if approached properly, that America is about fairness; that it is a country which breathes an innovative idea with respect to the ordinary person’s potential to succeed.

In other words, it’s about value. With bureaus banished to Europe, the salted of the earth can get what they deserve through hard work. Effort reasonably matches results; no one is artificially kept down.

This idea is given perfect expression by David Brooks who says that despite all the diversity of lifestyle and income we face in this country today, effort and result still fairly mesh. “We” always have the ability to travel through this or that frontier and leap across wide expanses and income barriers to arrive at a point where we deserve to be. The system is set up this way.

It encourages free movement so that persons can get their just rewards. No bump from stock options is necessary. All conflicts are resolvable. The American idols getting a vastly overinflated 15 minute salary are mere glitches in the system.

Of course questions abound: How do we know we deserve what we get? How do we know we did it on our own? Did we all start out with a reasonably equal slate? Just where the line is drawn between the internal generation of wealth and the external bumps and networking benefits is difficult to locate.

We’re so drunk on that snippet from the Declaration of Independence about being created equal that the line gets fuzzier and fuzzier. Over time the bumps and bennies get convoluted with private initiative and presto, fortunes become testaments to entrepreneurial genius. And lawmakers step in to make the imbalance true. Though not easily seen, this only proves how the power of personal striving can rarely develop in isolation.

But there’s another important point to consider. The activity of those who benefit from networks and public initiatives firms up the imbalance. The power they use and produce denies entry to others; it represses their initiatives and limits the value that accrues to their activities.

That unmentionable 19th century critic said that capitalism is both the best and the worst thing that had happened to civilization. It unleashed the power for the masses to finally lift themselves up from bondage, but unfortunately the fruits of this power get siphoned off by the elite. The value of work done by those who help create the wealth gets absorbed into this illusory bubble of activity and claimed by the hierarchy of private-public partners who control its distribution.

A real debate on socialism could clarify how value is matched to effort. The existing system is a monstrous distortion of this match. It allows assets and resources to pile up which can produce more of the same mostly on their own, leading to conditions that make it impossible for wage earners to ever catch up. This continues due to the false but seductive idea that the makers of things, the nickel and dimed, don’t create value.

It’s only the talented professionals who do that. Which is why, we’re told, the mega-salaries and ultra-bonuses have to be paid to the managerial elite. Otherwise they’ll take flight into some brain-drain-black-hole and the corporations won’t be able to get good help. Wow! What would those imbalance sheets look like if AIG hadn’t contracted to pay those bonuses?

First of all, those huge salaries don’t generate more wealth and value for the whole, as the painstaking scholarship from many attests. Why don’t they get a voice in the government? And it’s the value ordinary workers put into the creation of assets and resources, though it hasn’t come back to them as fair wages (virtually stagnant over the past 35 years or so), that’s so crucial in helping managers make things happen. We need a return to the partnership mentality, inspired by Keynesian ideas, of the extended post-WW2 era, when there was a greater sharing of wealth and return of value to workers, helped by a more progressive tax structure.

The idea by the way that there are only a limited number of highly qualified people to run the corporate system is a sham. The pool for these workers is created through membership in an exclusive club that is far from democratic. Access to the expertise and knowledge needed to do these jobs is strictly regulated.

They tend to be filled by those who have privileged backgrounds and have benefited from the connections that come with them. Slots for the “talented” preexist the people who fill them. The all-or-nothing winner-take-all mentality of the survivors who get them is the symptom of a larger problem: we have a system that prioritizes the value input of the elite disproportionally and directly usurps the value that the makers of wealth provide.

Getting more value into the bank accounts of the nickel and dimed has to be the priority so that we can begin forming a more inclusive partnership. Since their wages have remained stagnant, some form of debt cancellation would help to begin restoring this lost value.

Credit would flow, as James Galbraith contends (3/27), if the victims of the crisis had sufficient equity, not just mounds of debt, so they could borrow. This is really only the sense of fairness that resonates in our founding documents.

One of the finest tomes on socialism was penned in the early 1700s by Jean-Jacques Rousseau. His view was that industrialism violates nature by artificially creating greater inequality. Now since he wrote before capitalism became a mature system he was quite utopian.

He didn’t see the extent to which technical specialization required hierarchies and made extreme leveling a difficult if not impossible prospect. But one of his central points remains quite valid, that socialism is closer to nature and can correct imbalances from the accumulation of power and wealth that are far from natural.

This was well before Adam Smith witnessed the rise of capitalism, his corrective to repressive feudal systems. He saw the free market as the vehicle for getting back to a state of nature, empowering the individual to achieve more equality in a climate that had unleashed freedom for the masses, in theory at least.

With few centralized or corporate entities ready to siphon value from work, that infamous invisible hand of fairness, supposedly matching value to effort through some filtering down process, must’ve been a tantalizing idea indeed!

What our crisis has done is make the filter down sages, like Friedman and Hayek, look like dinosaurs. But the diatribes against creeping socialism continue! Just stabilize the banks and the economy will come back, normality will be restored. To what? It hasn’t really come back since the crisis of the early 70s when wages began their irreversible stagnation. This is because the value that filtered up to create wealth didn’t come back down.

One thing that that unmentionable 19th century critic can do for us is explain how capitalism’s dual/multiple economies are related; how the prosperity of the elite depends on the poverty of the masses. Low wages are needed to produce billionaires. And so as long as the abstraction of the one economy rules, we will never learn to make these important connections. Socialism will continue to be equated with state capitalism.

Perhaps the example that best demystifies all this is housing. While we increase spending on defense, now we’re going to help Afghanistan nation-build; as our infrastructure rots, we toss a few dollars to homeowners! Why has this policy been so feeble and slow? As we speak the Senate is still deliberating over the administration’s “cram down” proposal.

This would allow bankruptcy judges to modify mortgages if lenders refuse. According to Barbara Boxer’s staff, they want to get it right. And surely allow the lobbyists a chance to express themselves! The up-for-reelection House passed it several weeks ago! The billions pour into Afghanistan and Iraq to stimulate their markets while foreclosures continue here. President Obama assures us that more foreclosures will come, but we must bear the pain and be patient.

Why? To treat this crisis with war-policy-type initiatives would be to give credence to the filter up effect. Modification policies mostly affect the underserving, those without much equity and who tried to transcend the barriers to equality through home ownership (and many would have if not steered into sub-prime and usurious loans!).

As David Harvey claimed recently in an interview with Amy Goodman, if the policies had been adopted last year of treating the housing crisis–generally agreed to be at the source of the larger crisis–directly, that is bailing out the victims first, then there would be no toxic assets to wipe off of books, and therefore no need to subsidize the banks!

The home values would be now fostering the comeback. The wealth that wouldn’t have vanished into rat holes would be used as equity to borrow and regenerate the financial system. It would filter up. Too simple? Not for the nobel economists who’ve been excluded from Obama’s engineered “change!”

It’s a muted strain of the American way. Seed the base, the bottom rung of aspirants. This will forever prevent us from even needing a debate on “socialism.”

John O’Kane has been the editor of AMASS magazine, a publication of mass culture and society, since 1988.   

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