A theory of U.S. political economy

From interfluidity, making the always-virtuous argument that perhaps the powers-that-be understand their interests better than the pundits criticizing their supposed short-sidedness:

That’s true. But the revealed preference of the polity is not balanced. It is not some cartoonish capitalist-class conspiracy story, where the goal is to maximize the wealth of exploiters. The revealed preference of the polity is to resist losses for incumbent creditors much more than it is to seek gains. In a world of perfect certainty, given a choice between recession and boom, the polity would choose boom. But in the real world, the polity faces great uncertainty. The policies that might engender a boom are not guaranteed to succeed. They carry with them a short-to-medium-term risk of inflation, perhaps even a significant inflation if things don’t go as planned. The polity prefers inaction to bearing this risk.

This preference is not at all difficult to understand. The ailing developed economies are plutocratic democracies. “The people” do have power, but influence is weighted in a manner correlated with wealth. The median influencer in these economies is not a billionaire, but an older citizen of some affluence who has mostly endowed her own future consumption. She would like to be richer, of course. But she is content with her present wealth, and is terrified of becoming poorer. For such a person, the depression status quo is unfortunate but tolerable. The risks associated with expansionary policy, on the other hand, are absolutely terrifying.

There's a lot that's reasonable about this, although it fails to account for all of the changes to labor and tax laws of the past few decades that were indeed "cartoonishly" skewed towards business. Yet, the conspiracy of net creditors is a plausible candidate for the "hegemonic bloc" that pulls in a significant portion of the well-off-but-not-wealthy population (the "median influencer") under the umbrella of elite leadership. It is no accident that fighting inflation was the sign under which the original attack on employee bargaining power was carried out. Again, the never-ending hew and cry over fiscal deficits--even if it is in bad faith--is likewise pitched toward stoking fears of the undermining of savings via inflation or a fall in the value of bonds.

The beauty of this political agenda for the real elite is that by preventing the types of state interventions that would tends to tighten up the labor market--in terms of monetary policy, social programs, and direct regulation--is that the ongoing churn of improving labor productivity enables employers to continually squeeze down labor costs, securing the immense bulk of the gains as surplus of one kind or another (whether this is reinvested profits, dividends, executive pay, interest on bank loans, or whatever). The 10-20% of the population who are the de facto co-conspirators of this policy do not enjoy nearly the same benefits, as can be seen in the fact that the top quintile and decile of income have at best held their shares in place while the top percent has pulled away at the expense of the rest.

Note also, that this would account for why reductions to social security and medicare remains the horizon of the political agenda: constantly mentioned but never implemented because it would invite too much opposition.

His prescription is also interesting:

But if we want to change the behavior of the polity, it’s not enough to argue over clever policies that, if implemented, might do the trick. We’ve got to change its preferences, which means either buying off the median influencer, or changing her identity via political struggle. Alternatively, we can wait until what are now problems of aggregate demand morph into supply problems (after people become unemployable and capital decays), or into threats of political and social unrest. The median influencer may change her views if tight supply makes goods costly despite fiscomonetary conservatism. Or if her neighborhood is on fire. But I’d prefer we avoid all that, and take a more proactive route.

His "alternatively" is the functionalist hope held out so often by left and left-ish commentators: that the elite will be forced into reinflation by the profit imperative or else by the need for systemic legitimacy. What is strange, is that it is clear from his discussion that his "median influencer" is at the middle of only a highly restricted sample. Instead of "buying off" or "changing the identity" of the "median influencer," isn't the fundamental problem changing the distribution of "influencers" so that the limited interests of relatively secure asset-holders are no longer the political lowest-common-denominator?