Terms of Trade | What can the US election results teach India?

While Sanders’s statement correctly indicts the Democratic Party, and for that matter larger US polity, for being oblivious to the concerns of the working poor in the US – the previous edition of the column made exactly this argument – its characterisation and, more importantly, drawing correct political praxis from this is a much more complicated task.

Here is one example. A September 2024 report by the Economic Innovation Group (EIG) – I came across it in Adam Tooze’s excellent newsletter Chartbook – shows that government support to poor people in the US has increased significantly rather than decreased in the last five decades. This number was almost 18% of total personal income in the US and came to $3.8 trillion in 2022. On a per-person basis, it would come to $11,500, anything but an insignificant sum of money in the US. “By 2022, 53 percent of counties (in the US) were receiving a quarter or more of their income from transfers”, the report says. This number was less than one percent in 1970.

These facts question the traditional wisdom associated with the typical neoliberal critique of the state, which cuts back on state spending and presides over a dismantling of the welfare state. So, what is it that is missing here?

The EIG report gives us answers. “Aging is the factor most responsible for both the national rise and local variation in transfer dependence. Ageing remains the single strongest predictor of changes in the transfer share of total personal income… In the 2010s, each percentage point increase in the share of the population 65 and over was associated with a 0.6 percentage point increase in the transfer share of personal income, all else equal”, the report says. Older people cannot work and therefore earn and if they did not earn enough in their working lives – explaining how this became increasingly true in the US during this period deserves a column of its own – they are forced to depend on transfers.

The report also dwells on the complicated economic policy landscape for ageing countries, such as the US. “The country is on a collision course with politically fraught trade-offs. Raising revenues through significantly increased taxes (to fund more transfers) could choke off the very economic activity that finances transfers. Dramatically cutting spending on programs and benefits would unravel parts of the safety net that dignify life in the United States. Tax hikes and entitlement reform are also not enough to solve the problem, either alone or together…The age-old trade-off between guns and butter in the present is giving way to a more complex intergenerational calculus between pensions today and playgrounds tomorrow”, it says.

To say that rising transfers signify the state is not exactly neoliberal or anti-welfare is of little use in this complicated situation.

This is a problem a lot of Indians will be able to relate to. While India is significantly younger than the US or other advanced countries, we have seen a proliferation in the rise of what are often described as freebies, to supplement what are clearly inadequate incomes for a large part of our population. As our population gets older, the dependence on welfare support from the state is bound to increase. The only thing which can prevent this dependence, and its fiscal implications from overwhelming the entire macro economy, is to make sure that the working class earns enough today to be able to sustain not just its present needs but also post-work requirements.

A large part of this would have to come from new investments and additional economic activity and its nature. In India’s case, for example, one would need it to be more labour-intensive than capital-intensive to generate employment. To be sure, this does not mean that the existing economic arrangement is not without its flaws. At the same time, this does not pre-ordain how the economic factors will interact with the non-economic ones in shaping politics. For example, one of the most talked about things about the US elections has been the electoral backlash, especially by the poor, against what is broadly described as woke politics.

The Democrats would have done well to remember what the English Marxist historian E P Thompson wrote in his cult classic The Making of the English Working Class. “There is today an ever-present temptation to suppose that class is a thing. This was not Marx’s meaning, in his own historical writing, yet the error vitiates much latter-day “Marxist” writing. “It”, the working class, is assumed to have a real existence, which can be defined almost mathematically—so many men stand in a certain relation to the means of production. Once this is assumed it becomes possible to deduce the class-consciousness which “it ” ought to have (but seldom does have) if “it ” was properly aware of its own position and real interests. There is a cultural superstructure, through which this recognition dawns in inefficient ways”, he wrote. Once again, the argument is all too familiar to those who follow politics in India.

Roshan Kishore, HT’s Data and Political Economy Editor, writes a weekly column on the state of the country’s economy and its political fall out, and vice-versa

Get Current Updates on…

See more