Martin Carnoy, Derek Shearer, and Russell Rumberger: A New Social Contract: The Economy and Government After Reagan; Harper & Row; New York.

Richard Cornuelle: Healing American: What Can Be Done About the Continuing Economic Crisis; G. P. Putnam’s Sons; New York.

Each of these books purports to dis­cuss economics, hence the direct ref­erence to “the economy” and “economic crisis” in the titles. Yet, for both, eco­nomics is a cover masking the real issue. This is not an uncommon practice. Eco­ nomics gives an image of positive science. There may be disputes about how best to implement economic policy, but these are technical points which can presum­ably be settled by research and reason. The goals, essentially established by the 1946 Employment Act, are not con­sidered to be in dispute: stable prices, full employment, and economic growth. Who would dispute that an economy which could produce all three simul­taneously is an ideal one?

But behind the mask of scientific in­quiry lurks the real substance of debate, the stuff of political philosophy and normative values–the issues that make for passionate conflicts and which can­not be settled by any appeal to statistics. The issue is social policy, not economic policy: How will people live and relate to each other? What values will form the foundations of society? It is a sign of the times that the vehicle by which social policy is conveyed is economics, the most materialistic of the social sciences. A New Social Contract is the most di­rect of the two. The core of this contract is “a social consensus around equality and democracy for all Americans.” The term “economics” hardly ever appears without the adjective “democratic” be­fore it. And while growth, jobs, and prices are mentioned often enough, it is clear that the real goal is equality. If economic efficiency should conflict with equality (or, indeed, if anything should conflict with equality), then equality is to win without question.

Democracy itself is valuable chiefly because it fosters equality. As Aristotle observed: “Democracy … arises out of the notion that those who are equal in any respect are equal in all respects; be­cause men are equally free, they claim to be absolutely equal.” The plan is formid­able. Democracy based on one-man, one-vote–regardless of any modifying characteristics of education, accomplish­ment, or position–is the most perfect form of secular equality. The natural in­ equalities of humans, whether physical or intellectual, have vexed egalitarians for centuries, but political equality via the voting booth was devilishly easy to institute: it was merely legislated. The dream of legislating equality in other areas has been at the forefront of liberal­ism ever since. Once equality is the basis of the state, state power can be used to impose equality on society at large. In past eras, the organization of the state re­flected the organization of society, but in today’s liberal democracies, the organization of the state is meant to be opposed to the organization of society. Equality versus hierarchy, rights versus achievement.

Conservatives once worried about this, but recently the fight seems to have gone out of them. Michael Novak, a man of considerable intellectual gifts, has gained great influence for his theory of “democratic capitalism,” even though the term is a virtual oxymoron. That is, democracy and capitalism may coexist for awhile, but they cannot form a sys­tem. President Reagan has proclaimed that the aim of U.S. foreign policy is to expand democracy throughout the world. One is considered beyond the pale to question whether freedom, prog­ress, and democracy are not equivalent terms in all times and places. As Paul Gottfried, founder of the Conservative Historians Forum, recently asked: “Why do conservatives raise their banners on abandoned leftist positions?”

Perhaps reading what democracy means to Camoy, Shearer, and Rumberger will rekindle some fire. For example, they maintain that the public sector is to be expanded, financed by cuts in defense and an increase in taxes on business and the “rich.” They present figures showing that government has already grown from 19.5 percent of GNP in 1946 to 35.5 percent in 1982. They also admit that most of this growth has gone to welfare programs. But it just is not enough.They divide the budget into two broad groups of programs:

social welfare spending, which in­ cludes education, social security, health care, unemployment, welfare and housing; and nonsocial welfare, which includes military spending, policeandprisons,highwayconstruc­ tion,interestonthenationaldebtand subsidies to agriculture.

In doing this, they make some interesting distinctions. Why do not subsidies to agriculture count with other subsidies as social welfare? They are, after all, transfer payments meant to preserve the family farm. However, farmers are not part of the welfare coalition. They are in­dependent and capitalistic with old­-fashioned values. This liberal trio is not interested in such people. The same at­titude comes through in references to reindustrialization. The authors would like to cash in on the widespread con­cern over the decline in the country’s industrial base by blaming business and by arguing that government planning would be more effective. But their pro­gram is aimed at something different. They do not wish to advance industry or technology since these sectors employ “skilled white male workers already in great demand and earning highwages.” They envision expanding social services to fulfill “unmet needs” (one of those listed in their Economic Bill of Rights is cable TV at rates the poor can afford) and to provide jobs filled disproportion­ately by women and minority-group members. The consumers of such services are the poor; thus affirmative action meets redistribution under central planning.

The authors turn the definition of public goods on its head. Those programs which benefit society as a whole, the true public goods, are consigned to the “nonsocial welfare” category. Apparently, defending the nation against crime or in­vasion provides little utilty, nor does the provision of capital infrastructure. Only education counts, which testifies to the extent that the education establish­ment has become a tool of liberalism. The legitimate functions of government are to be curtailed. Only programs for the correct special interests are true public goods? And redistribution is only part of the program: democracy is to be extended throughout the economy. Democratic planning means:

that investment policy at the local and national level will no longer be domi­nated by a few concentrated industries that control vast sums of capital ,nor solely byprivate banks and insurance companies. There will be more empha­sis on democratic participation–at the community level, the plant level, at the level of national economic policy.

Carnoy, Shearer, and Rumberger do not hesitate to call for the nationaliza­tion of pension funds, major banks, and insurance companies; nor do they shrink from advocating worker ownership and management of industry, consumer con­trol of production, and community con­trol of business. Capitalism would be es­sentially dead because private capital would cease to exist. What was not taxed away or borrowed to finance budget deficits (already, deficits absorb half of all private savings) would be controlled directly by government planners. Demo­cratic planning is to control local and state governments as well as the national government. At the local level, legisla­tion would be aimed at preventing busi­ness mobility and enforcing full employ­ment by fiat.

There is a certain internal logic to this program. The massive redistribution program would almost assuredly cause the collapse of the private sector. One need only consider how much the economy has already been weakened by redistribution programs. To control the consequences of this, government would be compelled to expand its control over the entire system. Efficiency, productiv­ity, and growth would be jettisoned as goals, but full employment and equality could be mandated with a lower overall standard of living. Since this would all be done by “democratic” means, who could argue that the revolution was illegitimate? Vax populi, vox Dei!

The authors base their electoral hopes on a “rainbow coalition” of minorities, women, poor and low-income workers, unions, and the “new class” of service professionals. Since half of the popula­tion is, by definition, below average in income, and many of the top half are en­thralled by liberal ideology, there is a potential majority in such a coalition. They cite a handful of victories in the 1970’s as harbingers of the new age which will follow the defeat of Ronald Reagan. They tie their plans to the suc­cess of the Democratic Party through grass-roots organizing and voter-registra­tion drives among the poor, the unem­ployed, and minorities. This strategy re­sembles that used by the far left within the British Labour Party, as does their use of the term “social contract.” Perhaps they will be just as successful. Then this book, instead of being a manifesto for a new regime, will become, like its Labour counterpart, referred to by many as “the longest suicide note in history.”

Richard Cornuelle is repulsed by the schemes of liberals like Carnoy, Shearer, and Rumberger. To Cornuelle, past pro­grams that have expanded the public sector are responsible for the continu­ing economic crisis. He defines the crisis in both social  and economic terms, though he devotes most of his space to the latter. The policies that were origi­nally sold as measures to increase stabil­ity have actually produced the instabilities of inflation and unemployment.

The Great Depression ushered in the age of the economist, perhaps because it made it clear to all that disruptions in the economy could create widespread and persistent hardship on a massive scale. Thus the prevention of such dis­ruptions became a major goal of govern­ment policy. Voters demanded it. With the classical economists in eclipse, the new theories of Lord Keynes moved into the vacuum. Cornuelle does a good job of demolishing the specifics of Keynesian theory, particularly the notion that modern capitalist economies generate excessive savings. Keynes, disheartened by the depression, came to believe that economic progress was at an end, that there would be no new investment op­portunities. And this on the eve of the greatest age of technological and in­dustrial advances in human history! Keynes converted a temporary problem into a General Theory.


Once the government moved into the relief of unemployment, the pres­sure to move beyond, into other forms of hardship relief, was powerful. It was not inevitable. The attempt to provide stability can be considered in the same category as other public goods; the idea of redistribution to promote equality is logically and philosophically quite dif­ferent. Keynesian theory made it easier to make that jump, which explains its continued popularity among liberals despite its flaws. As Keynes him self asserted:

our argument leads toward the con­clusion that in contemporary condi­tions the growth of wealth so far from being dependent on the abstinence of the rich, as is commonly supposed, is more likely impeded by it. One of the chief social justifications of great inequality of wealth is, therefore, removed.

This gave the egalitarians an opening which other methods of stabilization, such as monetary policy, did not provide. Unfortunately, Comuelle does not come fully to grips with this.

Cornuelle proposes a return to pri­vate efforts to replace government programs. The idea of privatization of government service is popular in many cir­cles, but it avoids the main issue. In the larger scheme of things, it matters little whether the garbage is picked up by a truck owned by a municipality or a pri­vate firm. Liberals do not really care very much for services like this, anyway. Their thrust is towards redistribution, not public goods. Reagan has cut many services, including quite a few which would normally be considered legiti­mate government projects. But the “safety net” of welfare continues to ex­pand and with it all of the dangerous consequences.

For the relief of hardship, Comuelle recommends a return to private charity and volunteer social work. The Ameri­can people are the most generous in the world. Prior to the 1930’s, poor relief was a matter of charity and local efforts. Yet no one can seriously maintain that these efforts would produce the same level of funding as does the current wel­fare state. Charity is meant to help the poor within the framework of traditional society. It is a moral act of the donor, not a right of the recipient. It does not change the social relationship. Redistribution is meant to revolutionize society in the name of equality. Traditional distinctions are to be overturned and branded as un­just. The gulf between these two views of the social order make their respective advocates into deadly adversaries.

Cornuelle argues that government policy disintegrates society, but the bulk of his case is still made on the economic costs of that policy. This can be a suc­cessful tactic, but conservatism can never be secure within such a limitation. Conservatives must return to the posi­tion that certain things are immune to determination by majority vote. The government does not have the right to reorder people’s property, wealth, or in­come at will or to restructure societyt o fit some subjective ideal. The govern­ment’s duty is to protect the right of people to be unequal, as long as the methods they use are not themselves illegal within the traditional framework of law. The scope of politics must be limited if the reach of government is to be limited.