Using Historical Analysis to Understand America Today

Here is an excellent, thought-provoking essay by David Cay Johnston that explores why we are living in politically tumultuous times, how these relate to previous similiar episodes, and an attempt to understand how to master the current situation and extract ourselves from it:

America is in the grip of a full-blown societal panic. Crazy, irrational, contradictory ideas about tax policy are just the most obvious symptom.

Societal panics occur when the expectations and rules everyone has been accustomed to living under no longer work. They occur when some new force changes the rules of the game -- a force that may be easy to identify or invisible, but whose effects are far-reaching and unstoppable.

Sometimes that force comes from nature, sometimes from a discovery, sometimes from inventions of the human mind. But in every case throughout history, that force, like the waters pouring over Niagara Falls, cannot be stopped, although sometimes it can harnessed.

Because no one knows quite what to do when the old ways stop working, panic sets in, replacing reason. Crazy responses spread until an idea or a leader emerges, a new way to make sense of the change. The new leader is often the one who persuades people that it is better to live by new rules.

Humans have experienced societal panics time and time again. Sometimes they end in tragedy, sometimes in triumph. And those unexpected accidents of history often play a huge role in the outcome.

Consider what happened to the Greeks 2,700 years ago. Greek settlers in Lydia, what is now the Mediterranean coast of Turkey, found a mine rich with electrum, a naturally occurring alloy of gold and silver. This find resulted in the invention of coinage, an invention so revolutionary that it launched the ancient Greeks into a societal panic that lasted two centuries, but at its end gave us two of the most powerful, intertwined, and enduring principles of Western Civilization -- the moral basis for progressive taxation and democracy.

America was in the grip of a societal panic from the end of the Civil War until 1893, an era historians call the Gilded Age, but that could just as easily be called the Agrarian Death or the Industrial Triumph as America the land of yeoman farmers became America the land of industrial might. It was an era of turmoil and conflict -- gilded mansion ceilings and a famous speech about oppressive debt and a gold cross; the invention of the electric light and violent night-time attacks on workers seeking more pay; and our first encounter with a politician who lost the popular vote but became president anyway.

Our current societal panic began almost four decades ago, when the economic glow created by emerging from World War II with half the world's industrial capacity wore off and President Nixon went to Beijing, opening the door to the transfer of that manufacturing capacity to China.

The long-term effects of this, and the faux "free trade" policies adopted at the behest of our financier class, took time to affect society, just as the invention of coinage did not instantly disrupt ancient Greek social and commercial relations.

Our panic turned into wildly unthinking behavior at the end of the last century, with taxes as the first sign that reason was giving way to belief, that dogma was trumping empirical evidence.

But while the symptoms we see are crazy tax policies, crazy borrowing, and neglect of the commonwealth property and policies that are the foundation for private wealth creation, our panic is about something much deeper.

Our societal panic is about what we as a nation fear almost as much as death itself -- the end of American abundance, the death of the idea that each generation would do better than the last, the end of the notion that everyone who works hard and plays by the rules will at least prosper in the sense of having a roof over their heads and enough to eat. Our societal panic is about a new world of mind-numbing complexity where speculation with algorithms and borrowed money pays more in a day than thoughtful investment may return in a lifetime, where jobs pay less tomorrow than yesterday, and where loyalty is something we associate with frequent flier programs rather than careers.

There is a lot more discussion of societal panics, history, and the current situation. Go read the whole article.

Here is where Johnston gives hope:

The 20th century, what some historians will look back on as the American Century, prospered under a national, industrial-wage economy, flush with high-paying jobs and tax rules that discouraged withdrawals from operating businesses. Taxing wages was a smart way to finance government because wages were rising. But since 1973, with some brief exceptions, this has not been true for the vast majority, whose average income in 2008 was less than 1 percent greater than in 1980, while incomes at the top soared, spurred in part by rules that encourage withdrawals of capital from business for unproductive consumption because of extremely low tax rates.

The 21st century is an era of a global, digital, and asset economy with rules that favor the free flow of capital over labor, which is brutally suppressed in China and legally suppressed in America through anti-union laws, lack of enforcement of wage laws, and the dampening effects of a growing reserve army of the unemployed.

America's current societal panic is not going away soon. Tens of millions of people are out of work and tens of millions more fear their next paycheck could be their last. The temporary Bush-era tax cuts will not end next month, even though the huge deficits run up since 1980 hover over us like dark clouds of debt that could drop enough worthless government bonds to drown us all.

Yet we must deal with the circumstances we have created for ourselves. The price of self-governance and its freedoms is making wise choices and electing wise leaders or suffering the consequences.

The adoption of misguided economic policies, the election of politicians unwilling to be disciplined in opening the public purse, and the artificial deadlines imposed on us by the legislative gamesmanship used in enacting the 2001 and 2003 tax cut laws, together with our faux free trade policies, have put us in a deep hole.

In clawing our way back we must keep in mind that those Bush tax cuts were not tax cuts at all but simply loans against a future which has now arrived in giant waves of red ink.

There is talk, by very thoughtful people, that we can never recover from this hole, that our fate is sealed, and that we will descend into a future worse than the past within living memory. I believe we can go on to a richer future, but it will take a leader who synthesizes an understanding of how the old rules must be discarded and new ones adopted that flow from the changes in the world economy.

Before we get there things may get worse, much worse, as the Greek experience with Draco and his draconian laws should remind us. But we will never get on a path to sound tax policy, policy that flows from the new economic order instead of against it, until enough of us stand back from the riotous conditions and find a place where rational debate about taxes can grow into popular understanding.

Arguing from historical analogy is notoriously tricky. Johnston's analysis may be completely wrong. But it at least gives a framework to think positively about contemporary problems and use positive historical event as possible clues to dealing with the current situation. The one thing that is utterly clear: continuing on the current path gives no hope. Something new needs to be done. A kind of Constitutional Convention needs to be called to rethink the framework of governance to find a way to unshackle the politicians, the political institutions, and the economy from the power of big money.