Why the Economic Contract is Broken

Is there such a thing as an Economic Social Contract?

Is it government’s obligation to provide for the economic security of its citizens? If we view the role of government through the lens of Maslow’s Hierarchy of Needs, then the answer must be ‘Yes!’. The contract between government and citizen is that government will be provide a framework of security in return for payment of taxes and observance of reasonable laws. What’s more, that security needs to be available to all.

The word ‘security’ derives from the Latin ‘securitas’, the basic translation of which is freedom from fear. Security in an economic sense, therefore, is being free from the fear that you can’t provide for your family, fear of homelessness, fear of being out of a job. In a functioning democracy, that means that it is government’s responsibility to create a framework or environment that provides for economic security at all levels of society. It is part of the social contract.

That contract has been broken.

There will be those who protest that, under this administration, economic security has never been higher. Unemployment was at an all-time low, the economy was in the midst of one of the longest expansions ever, and the stock market was riding at record highs. Surely, the crash occasioned by Covid-19 cannot be laid at the door of government?

Yes, it can – and it can be laid at the door of the economic philosophy that has reigned in America since the time of Reagan. That philosophy has uniformly put the interests of capital (shareholders) ahead of those of labor (you and me). Underneath the sheen of a booming economy lay a story not only of inequality but also of real fear. It is well known that 40% of this country’s wealth is owned by 1% of the population (twice the proportion found in other developed nations). Not so well known is the fact that 40% of households in the US have negative net worth – they owe more than they own. In some states, such as Mississippi, as many as one in five people are ‘food-insecure’ – the modern term for starving. With the federal minimum wage set at $7.25 an hour since 2009, working two or three jobs just to survive is reality for millions of people.

For these, there never was security and now there is just ruin. To put it another way, not only is the contract broken, in these United States it is a fiction.