Article 43


Thursday, May 24, 2012

Fixing The Depression


“An unconscious people, an indoctrinated people, a people fed only partisan information and opinion that confirm their own bias, a people made morbidly obese in mind and spirit by the junk food of propaganda, is less inclined to put up a fight, ask questions and be skeptical. That kind of orthodoxy can kill a democracy - or worse.”
- Bill Moyers

“The propagandist’s purpose is to make one set of people forget that certain other sets of people are human”
- Aldous Huxley

“Not everything that is faced can be changed. But nothing can be changed until it is faced.”
- James Baldwin

“Solidarity has always been key to political and economic advance by working families, and it is key to mastering the politics of globalization.”
- Thomas Palley


I’m not a politician or genius.  But I’m smart enough to see that what’s on going on this country with it’s DIVIDED PEOPLE, increasing poverty, increasing inequality, unabated outsourcing, endless wars, long-term unemployment, and an oligarchy of Wall Street banks, mega-corporations, media, and puppet politicians running the show - is real bad.

What scares me more than whose right on how to fix things - is how insensitive some of us are BECOMING towards our neighbors.  For whatever reason it’s mostly a CONSERVATIVE THING.

The POOR are becoming second class citizens on the road to SERFDOM, demonized by the political right.

What my tea party friends don’t get - is the system that’s CRUSHING THE MIDDLE CLASS and poor - is out to get THEM TOO and that we’re ALL IN THIS together.

Our BEST HOPE is sticking together and REVOLTING.


We Could End This Depression Right Now
The Nobel laureate talks about Washington, Europe and the bizarre alternate universe inhabited by deficit fear-mongering media and political elites.

By Joshua Holland
May 22, 2012

The central message of Paul Krugman’s new book, END THIS DEPRESSION NOW! is simple: It doesn’t have to be like this. No external dynamic is keeping unemployment at more than 8 percent and consigning a generation of young workers to an economy in which risk is plentiful and opportunities scarce. It is only a failure of political will—and an almost universal embrace of conservative voodoo economics that is keeping us mired in this dark economic moment.

Of the 2009 stimulus, Krugman writes, “Those who had more or less the right ideas about what the economy needed, including President Obama, were timid, never willing either to acknowledge just how much action was required or to admit later on that what they did in the first round was inadequate. Instead of treating the dismal jobs picture as a crisis requiring their full attention, Washington “pivoted to talking about the deficit - a phantom menace—at precisely the wrong time. People with the wrong ideas,” Krugman writes, “were vehement and untroubled by self-doubt.”

This week, Paul Krugman appeared on the AlterNet Radio Hour to discuss his book. Below is a lightly edited transcriptof the conversation (you can listen to the entire show HERE)

Joshua Holland: Let me ask you first about a somewhat provocative word in your title, the D-word. What makes this a depression rather than a so-called “Great Recession” that weve heard so much about?

Paul Krugman: A recession is when things are going down, when the economy is heading down. A depression is when THE ECONOMY IS DOWN, AND STAYS DOWN for a long time. We have the Great Depression, which was more than a decade. There were two recessions in there and there were two periods that were recoveries in the sense that things were getting better, but not much better. The whole period was a period that was really terrible for America and for the world. We’re in a period like that right now. Not as bad as the Great Depression, but that’s not much to recommend it. It’s a sustained thing. Were now in year five of very high unemployment with terrible prospects for young people. It’s a depression.

JH: I wonder if its similar to the so-called Long Depression in the late 19th century. It was kind of two recessions sandwiched around a period of growth. The reason I ask that is because median wages really did not recover after the so-called tech bubble burst in 2000 before we hit this crash. Isn’t that right?

PK: There is an argument that even the so-called “Bush boom” that period of the middle years of the last decade - was still not very good for most Americans. There is that, but clearly things got an order of magnitude worse after 2007. That’s mostly what I’m focusing on in End This Depression Now.

JH: I want to encourage people to read the book, but can you just give readers a sense of what you think is the most important thing policy makers should be thinking about doing right now?

PK: The moral of the book is: this doesnt have to be happening. This is essentially a technical process; it’s a small thing. Its like having a dead battery in a car, and while there may be a lot wrong with the car, you can get the car going remarkably easily, if you’re willing to accept thats what the problem really is.

First and foremost, what we have is an economy that just doesn’t have enough spending. Consumers are hobbled by debt, corporations dont want to spend if they don’t see consumer demand. Somebody has to step in and spend, and that somebody is the government. THE GOVERNMENT could and by all means let’s talk about forward-looking, big projects—right away get a big boost in the economy just by reversing the big cutbacks that have taken place in state and local governments these past three years. Get the schoolteachers rehired and get the policemen and firefighters back on the beat. Fill those potholes that have been developing in New Jersey and I believe all over America. We’d then be most of the way back to a decent economy again.

JH: It seems like we take two steps forward with private sector hiring, and then one step back as we’re laying off public sector employees at the state and local levels. Do you have a sense of where the unemployment rate would be had we not been beset by this austerity madness?

PK: If we had had state and local governments expanding at the rate they normally do, which is by population—which is also by the way the rate in which it expanded in Bush’s first term - then right there wed have 1.3 million jobs more than we do right now. That’s just the public sector jobs. There’d be indirect effects. People would have more spending power and there would be private sector jobs as well. That’s something like 2 million jobs right there. When you PUT IT ALL TOGETHER my back of the envelope says if we weren’t doing this austerity, GDP would be around 3 percentage points higher right now, the unemployment rate would be at least 1.5 points lower, which means we’d be at 6.5 percent unemployment. That’s not great, but it’s not a depression. We’d be in vastly better shape than we are right now.

JH: I have to ask if you’re constantly banging your head against the table. Everything you writein the book strikes me as so much common sense, and yet even Democrats say the government has to pull in spending when families do. Isn’t that the reverse of the truth? Isn’t it the fact that when families are tightening their belts the government needs to loosen its belt to make up for that loss of demand?

PK: That’s right. The whole mistake that people make is that we’re all like a family. We’re not because we’re interdependent. Your spending is my income and my spending is your income. If we both tighten our belts at the same time thinking thats going to make us better off, it actually makes us worse off. This is a fundamental fallacy.

I’m not going to complain about being me. I’ve got a good job. I’ve got a solid income. It is frustrating, but its frustrating because there are 4 million Americans who have been OUT OF WORK for more than a year. There’s a whole generation of students who are graduating who cant find jobs, or can’t find jobs that are making use of the education that theyve acquired at great expense. Those are the people to be concerned about.

JH: I find it frustrating that there is such a concerted effort to create this alternative reality where Keynesian economics has failed and giving tax cuts to the wealthy will create jobs. It’s a parallel universe. Let me ask you for responses to a couple of common talking points. We hear these again and again. Speaking of wealthy people, are they job creators?

PK: No more than anyone else. In general, anyone who spends money is going to be helping to create jobs, but no more so if its coming from a rich person. This notion that we have to have extreme income inequality in order to have a successful, growing economy requires that you forget history that’s live in the minds of everybody over the age of 50. The best generation of economic growth we’ve ever had in America was the generation right after World War II. That was a society in which the rich were not even remotely as rich as they are now. How come we created all those jobs—all those good jobs—at a time when the top tax rate was as high sometimes as 90 percent? So no, this just flies in the face of all the experience we’ve had in the last half-century.

JH: It seems like humans are supposed to accumulate knowledge, but we haven’t done a very good job in this respect. Is there any chance that we might come to look like Greece?

PK: It’s pretty hard for us to look like Greece. The thing about Greece is that they dont have their own currency. That makes you vulnerable to a lot of stuff in a way that having your own currency insulates you. Now what we could have is political dysfunction, and we’re working on that, but the people who are working on that are the ones who say because of Greece we must not only slash spending and cut social programs, but also for some reason we must slash taxes on rich and the corporations.

We are nowhere near having a Greek scenario. Its much more likely that weҒre going to find ourselves looking like ourselves in the 1930s or Japan. Were actually well on our way to a Japan-type long-term stagnation. Greece is the wrong country to be afraid of. They are not a model for us.

JH: It’s the politics. Last year when our credit was downgraded it wasnt downgraded because of any economic reality, but because Congress couldn’t get it together to lift the debt ceiling.

What about the bond markets? Were hearing again and again that theyҒll punish us if we dont cut Social Security or if we donҒt transfer healthcare costs onto elderly retirees. Have we seen any evidence for this? Is there anything behind this assertion?

PK: Gosh, if you believe the people saying that you would have lost a lot of money. I know people have lost a lot of money doing that. The bond markets are willing to lend America—the US government—long-term money at about 1.7 percent as of right now. Thats ridiculously low. The index bonds that are protected from inflation actually have a negative interest rate. The bond markets are saying they’re worried about economic stagnation. Theyre worried there aren’t going to be investment opportunities because the demand is so weak. So theyre going to park their money in US government debt, which is considered safe. The last thing you should be worrying about, at least according to the bond market, is those deficits. Those are not the problem right now.

JH: We’re not the only ones who have been afflicted by this scourge of irrational deficit hysteria—the idea that we should cut spending when private sector demand is deep in a hole. Lets talk about Europe. Are we headed toward the end of the European economic union? Basically, as I understand it when you look at the very heavily indebted countries, they’ve essentially created a gold standard. They cant devalue their currencies and canҒt do any of the monetary tricks that one would logically pursue in these circumstances.

PK: They created something thats actually worse than the gold standard. If you’re serious about economic history then you know the gold standard was a major reason that the Great Depression got as bad as it did. But at least countries had their own currencies. All they had to do was say all right, enough of this gold standard business, and they could escape. Now its much harder.

I don’t see how Greece stays in the euro. Leaving will be terrible, but staying is a no-hope situation. They will leave. Once people see that can happen, there will be in effect bank runs in Spain and Italy, which are much bigger players. That can only be contained if European elites start to behave very differently. They have to say, wait a second—punishing people for their alleged fiscal sins is not the priority now—saving the euro is. That means open-ended lending to the banks and the governments of those countries. It means having a much more expansionary and somewhat inflationary monetary policy. Maybe that will offer enough hope to save the system. Its moved pretty fast now. I think you can see that there’s quite a large chance that there will be no euro a year from now.

JH: Let me turn you to another topic. Weve seen stagnant middle-class wage growth for basically a generation. There are all sorts of theories popular in conservative think tanks about why this is either a myth or a really good thing. You wrote a piece recently about how income inequality is driving what one might call “political inequality”—one follows the other. Can you unpack that idea for us?

PK: First it starts with an observation. Inequality has had its ups and downs. We were a very unequal society before the Great Depression. We became a much more equal society during the 1930s and especially during the 1940s. We stayed middle-class for a while, then became unequal again. Political polarization, which you can actually measure using various statistical things on congressional voting, also has had its ups and downs. They track each other perfectly. Political polarization and income inequality march hand in hand. ThereԒs every reason to believe that relationship is not an accident.

What happens is when the wealthy are very wealthy they can in effect buy political support. The way thats worked in practice in the United States is that the Republican party moves with the interests of the super elite. Not the 1 percent, but the .01 percent. So the extraordinary explosion in incomes of the .01 percent relative to everybody else has pulled the Republican party far to the right to the point where there is no center. The center did not hold, it dissolved and turned into a chasm. ThatҒs not because Democrats moved to the left, because they didnt; they moved right. It’s because the Republicans moved off into the Gamma quadrant. That is at the root of our political paralysis right now.

JH: They not only spend money directly on campaigns, but they also fund these networks of what I call alternative information infrastructure. If you look at for example billionaire Pete Peterson hes put $1 billion of his own money into a network of think tanks and media projects to help us understand that the greatest threat that we face are deficits, far-off deficits projected 30 or 40 years out.

I just want to turn quickly to trade. You won your Nobel Prize for your new trade theory. You were a vocal free trader in the 1990s. You got the New York Times column and I think you started to think more about politics. It’s my long-held belief that the purely economic arguments about the benefits of trade are somewhat irrelevant in the real world, because when they go to negotiate these trade deals the US trade representative—like its counterparts in Europe and Japan—is heavily influenced by corporate lobbying. So while we may have a theoretical idea of the benefits of trade, when we’re talking about the actual treaties being negotiated behind closed doors under a barrage of lobbying, can they actually yield those theoretical benefits?

PK: I would say that the first 50 years of post-war trade negotiations were a good thing because they produced a world with relatively LOW BARRIERS, especially to EXPORTS OF MANUFACTURED GOODS FROM POOR COUNTRIES. Thats really important because you have success stories, countries that have moved their way up into becoming decent places to live through those exports, and countries that keep their heads above water through exports. If Bangladesh couldn’t sell their exports of cheap clothing through the world market they would be a disaster area.

A lot of trade agreements in the last couple of decades haven’t really been trade agreements. They’ve been agreements about protecting various kinds of interests. I teach a course on and off about this stuff. You look at something like the Central America Free Trade Agreement and that wasnt really a trade agreement. That was actually an intellectual property agreement largely about making sure our PHARMACETICAL COMPANIES had their monopoly power. So that’s the sense in which youre right. A lot of what passes under the banner of free trade is actually something else and is often detrimental to the interests of workers both here and abroad.

JH: That was actually a trade protectionism agreement then?

PK: It was in effect. If you really look through it you found out that basically workers in those countries were gaining only a little bit more market access, but pharma companies here and in Europe were gaining a lot more in the ability to basically enforce their monopoly position.

JH: Now you have this elite discourse about the deficit and that elides the success that we’ve seen over generations in terms of Keynesian economics. Do you think the fact that we have a half-dozen countries in Europe have gone back into recession—and a couple more are teetering on the brink of going back in recession as a result of this austerity madness—is that changing peoples minds in terms of policy makers?

PK: Well, some. Not enough, but I think we’re making progress. Ive been writing columns for a dozen years and my first principle is that to a first approximation nobody ever admits that they were wrong about anything. But you can see that, clearly, the tone of the discussion has changed quite a lot over the last six months—that we are moving back towards sanity. Whether it’ll be time enough to avoid catastrophe I dont know. I think hammering on these points and pointing to the evidence does seem to work, which is why I published the book. It’s in the hope we can get the debate to move a little bit further in the direction of doing the right thing.

JH: Its been interesting to watch your progression as a blogger. You’re obviously a leading public intellectual, but you’re not above posting silly cat videos, are you?

PK: Well, that’s what youve got to do. That’s a great medium for somebody who thinks the way I do. Its kind of a scratch pad for things that end being in columns and books. I find it an all-around fulfilling exercise, although it’s taking up too much time everyday.



Who Will Save the Middle Class?

By Jeff Faux
American Prospect
May 23, 2012

Liberals must face the stark truth: Both parties have agreed to sacrifice the middle.

In the eyes of most of the world and in our own, to be an American is to be an optimist, entrepreneurial, positive-thinking, and future-oriented. It is not surprising, then, that our politics has not come to grips with the question of national decline. Yes, our governing elites have long debated America’s power in the world and whether its eroding. But about the future of Americans, as opposed to the future of the geopolitical hegemon, America, our most important politicians and pundits have much less to say. Despite the bitter public arguments over tax and budget policies, they share the implicit assumption that even harder times are ahead for the majority of Americans - if not 99 percent, then at least 75 percent to 80 percent. But doom and gloom does not play well in American politics. So, whenever our policymakers cannot avoid the word “sacrifice,” it is gingerly presented as a temporary inconvenience, to someone other than the listener, necessary to rebalance the governments books and return us to pre-crash prosperity in some unspecified, but surely near-term, future.

The evidence in front of our eyes is that on our current economic trajectory, the American middle class is headed for a further fall in its living standards, and the probability that the country’s two-party governing class will change course is close to zero.

The conventional chatter from the nation’s punditry declares that Washington has been made dysfunctional by excessive partisanship and incivility. A day does not go by without prominent editorialists, talking heads, and bloggers calling for Democrats and Republicans to come together in a “grand bargain” over budget policy. Yet from the point of view of its most influential clients, Washington is actually functioning quite well. Indeed, the most important grand bargain has already been consummated.

After three decades of policies that have undermined the country’s global competitiveness and the bargaining position of its workers, the United States economy can no longer provide the means to support its three most politically important American dreams: Wall Streets dream of subsidized limitless profits; the military-industrial complex’s dream of global supremacy; and the middle classs dream of rising incomes.

One out of three? Certainly. Two out of three? Perhaps. All three? No way.

The deal is done. The middle class will be sacrificed. The partisan disagreement is now over the details: how much pain there will be and how fast it will come.

The deal was not negotiated in some smoke-filled back room. It is the accumulation of decisions made and not made since 1981, when the Age of Ronald Reagan replaced the Age of Franklin Roosevelt. The 1970s had brought the first signs that America’s postWorld War II global economic dominance was shrinking - an oil-price crisis and the appearance of our now-chronic trade deficit. One response was Jimmy Carter’s plan to wean us from dependence on imported oil. Another was a call by prominent business and political figures for a government-led strategy to respond to rising competition from a recovering Europe and Japan. But these efforts stopped dead with Reagan’s election; our collective economic future would be left to the market.

We remain in Reagans shadow. As Republicans Dwight Eisenhower and Richard Nixon governed within the New Deal framework established by FDR, so Democrats Bill Clinton and Barack Obama have governed within Reagan’s vision of a deregulated and privatized America. As the upbeat Reagan demonstrated in his victory over the dour Carter, placing ourselves at the mercy of inherently unstable global markets requires even more optimistic faith in Americans privileged destiny. The point was not lost on the Democrats: Clinton proclaimed that he was the “man from Hope;” Obama, that he had the “Audacity of Hope.”

Appropriate enough to an era brought to us from Hollywood, the economy enjoyed 30 years of illusionary prosperity. In 2007, the year before the financial crash, a typical worker was making roughly the same hourly earnings - adjusted for inflation, that his or her counterpart had been making in 1979. Yet over those three decades, Americans bought more and bigger houses, crowded into shopping centers, paid for college educations, and retired better off than their parents. They did it in two ways. First, families responded in the 1980s by sending more people - typically wives - to work. Second, they borrowed, almost doubling the amount of consumer debt relative to income over three decades - with money lent to our banks by the Chinese.

Both of these financial cushions have deflated. There are now as many women in the workforce as men, and some 70 percent of married women with children have a job. The credit crash, which left millions bankrupt and insolvent, demonstrated that spending more than you are earning is not sustainable. So, unless a resurgence of real wages occurs over the next decade or so, most American families will be less able to maintain a middle-class income.

In his first few months as president, Barack Obama defined the central question. Borrowing a metaphor from the Sermon on the Mount, he told Americans, We cannot rebuild this economy on the same pile of sand. We must build our house upon a rock a foundation that will move us from an era of borrow and spend to one where we save and invest, where we consume less at home and send more exports abroad.

Rebuilding our economic foundation is no easy task. But neither is it beyond our technical capacity. For years now, center-left economists have been piling up various plans for a “high road strategy” toward raising future living standards. Progressives may differ over the precise blueprint, but the main elements are clear. They include massive investment in infrastructure, education, and research; trade, tax, and regulatory policies to support domestic production; a universal, efficient health-care system; incentives for corporations to pursue longer-term investment horizons; restored collective-bargaining rights; and a large and sustained increase in the minimum wage. The problem, as these plans and manifestos typically conclude, is not in the economics but in the politics.

The financial crisis was thus a historic opportunity: We could pump up the economy today with massive government investments that would renew America’s competitiveness tomorrow. As we know, the opportunity was blown. Three years later, the economy remains stuck on the sandpile. Indeed, it has arguably sunk deeper.

Wall Street, which drove us over the cliff by systematically diverting the nations capital from long-term productive investment to its own speculative excesses - in which the future can now be defined in a nanosecond - remains untamed. Profits and bonuses in the financial sector have roared back thanks to the munificent government bailout and continued interest-rate subsidies. Bankers and brokers are busily exploiting the regulatory loopholes that their lobbyists drilled into the Dodd-Frank reform law. As their financial power has become more concentrated, the assumption that the largest are too big for the government to let them fail is even more enshrined.

Nor have the trade policies that have systematically undermined American competitiveness since the 1980s changed. Just as Bill Clinton drove the Reagan/George H.W. Bush trade agenda through Congress, so Obama collaborated with Republicans to pass George W. Bush’s trade deals with Korea, Panama, and Colombia and is now promoting a similar pact with at least eight more nations of the PACIFIC RIM. After each trade agreement, imports have risen faster than exports, cutting jobs and putting downward pressure on wages. FIRST the lower-paid work - clothing, shoes, and TOYS - was offshored. THEN the high-paid factory jobs - autos, steel, electronics. Then the call centers and computerized services jobs. Then engineering and systems design. NOW accountant, research, and legal work are moving out. In response, for all but the most talented and well-connected, workers at virtually every level are taking lower salaries and accepting less job security and DETERIATED WORKING CONDITIONS.

Not to worry, replies the governing class. We are, it is claimed, on the cusp of a revival in American manufacturing. GENERAL ELECTRIC, for example, recently brought back the production of a water heater from China to a facility in Kentucky. Missing from the press release is the fact that the GE workers who used to make $22 an hour now make $13 an hour. AMERICAN WORKERS HAVE ONLY ONE OPTION for meeting the competition: reduced wages.

Yet the happy face remains. Like George W. Bush and Bill Clinton before him, Barack Obama tells us that Americans will somehow become smarter than everyone else. Last year he pledged that by 2020, the United States would have the highest proportion of college graduates in the world. “That’s our goal,” he announced in a Miami high-school auditorium. “That’s how well out-educate other countries. ThatҒs how well out-compete with other countries tomorrow. That’s how well win the future for the United States of America.”

Little evidence exists, however, that inadequate education and training are primarily responsible for stagnant wages. Even if you believe that, the proposition that we will solve the problem for the future by sending more kids to college is not credible.

As Obama spoke, we ranked 12th among advanced nations in the share of younger workers with a two-year associate degree or better. As for the next generation, public universities and community colleges have been in a free fall of shrinking departments and cutting programs since the onslaught of the Great Recession. Primary and secondary schools have been shutting down, teachers laid off, classrooms overcrowded, and school years shortened. To top it off, the education system is engulfed in a civil war over privatization, whose champions include Obamas own education secretary.

The central problem is not an inadequate supply of educated workers; it is inadequate demand. The Bureau of Labor Statistics now PROJECTS that of the ten occupational groups that will add the MOST JOBS between 2010 and 2020, five do not even require a high-school education. Three require high school, and one category requires a two-year associate degree. The tenth, Educational, Training and Library Jobs, requires a doctorate or a professional degree but is largely in sectors that depend on government funds; as a result, it is much less likely to be a major source of growth in an age of public-sector austerity.

As economist and former Federal Reserve Vice Chairman Alan Blinder himself a free-trader - acknowledged six years ago, globalization is leaving American workers to compete in - personal service jobs that require human contact and thus cannot be offshored. These include jobs like housecleaning, sports trainers, massage therapists, and pet handlers. An economy dominated by personal services is an economy of low productivity and therefore low wages.

Even with optimistic assumptions unemployment reduced, Europe recovered, no new warmost Americans will have to sell their labor for less, whether they are industrial or service workers. The political mantra of both Obama and Mitt Romney is - jobs, jobs, jobs, but the subtext is “lower wages, lower wages, lower wages.”

Whatever your view of the president (is he a compromising wimp? A closet conservative? A brave liberal mauled by a vicious GOP political mob?), he was arguably the best that the political system could have produced in its hour of crisis. The Republican candidates were in way over their head. The only alternative, Hillary Clinton, would have hired the same Wall Street economic advisers from the Bill Clinton administration. So the important lesson of the last three and a half years is not about Obama; it is about the narrow and corrupted values that prevent our politics from grappling with the reality facing the average American.

Rebuilding our economic foundation to support a brighter future for the average American is beyond the capacity of our political class. The problem is not just Tea Party reactionaries or business conservatives - but liberal Democrats as well. “It is clear we must enter an era of austerity,” said Nancy Pelosi last July when she agreed to support Senate Majority Leader Harry Reid’s budget proposal for deep spending cuts and no tax increases.

In effect, Democrats have trapped themselves into accepting the Republican view that deficits are the cause, rather than the result, of the slowdown in incomes. Grappling with the roots of our crisis - financial speculation, offshoring, a deteriorated infrastructure, the bloated health-care system - has been excluded from the economic-policy debate. Decisions about the future are now centered on how to cut the deficit. Given an economy plagued by anemic spending growth, this will make our sick economy sicker.

In our economic-policy calendar, the future is next December. As per the agreement after the breakdown in budget talks last summer, Republicans and Democrats will have to negotiate some new combination of less spending and higher taxes over the next ten years or accept $1.2 trillion of automatic across-the-board cuts. The two parties budget negotiators insist that everything is on the table. For liberals, “everything” means military spending.

Many areas could be sharp-penciled out in that budget, but the fact that the Pentagon has never allowed a comprehensive audit of its books suggests that the chances are slim. The left wing of the Democratic Party and the libertarian right of the Republican Party may dissent, but the vast majority, and certainly the most influential, of the country’s politicians and pundits insist on maintaining a large, aggressive military presence around the world. Until that changes, no meaningful budgetary relief will come from the Pentagon.

The debacles in Afghanistan and Iraq have not led to a serious rethinking of the country’s role in the world any more than the debacles of the financial crash have led to a rethinking of Wall Street’s role in the economy. Nor, despite the predictable election-year return of populism, have three and a half years of high unemployment and shrinking incomes led the leadership of the Democratic Party to rethink its policies of accommodating both Wall Street and the Pentagon. In the absence of a fundamental shift in strategy, we are left with - hope.

The country’s policy intelligentsia tells us that the future will be more or less like the past. The economic forecasts of the Congressional Budget Office routinely predict a recovery based on the assumptions that the U.S. economy in the 2010s will resemble the economy of the 1980s or 1990s. The Budget Office is silent on the question of wages. The economist Robert Hall summarized the catechism: “In America, the bet is still that we will somehow find ways to get people spending and investing again.”

Somehow something will come up. Perhaps Apple will invent a device that can only be made in America, or CEOs will stop resisting labor unions, or the Chinese will decide to finance our trade deficits forever. Perhaps. But one thing is clear: There is no plan to reverse the middle-class slide.

The public’s view of the future is a bit more complex but, in the end, not less hopeful. People are worried about their jobs and income, and majorities think that the next generation will be worse off than this one. Yet polls show that they have faith that they, personally, and their kids will be OK, which reinforces the belief that government is irrelevant to the future.

On our present trajectory, though, they will not be OK. Debt-burdened, college-educated 20-somethings working as waiters, office temps, and SAT tutors will become 30-somethings still stuck in jobs that did not require a college degree. Most of those lucky enough to find professional work will be in pitiless competition with people all over the world who are just as smart and trained as they are but willing to live and work for much less. Among nonprofessionals, the bottom of the two-tier wage system will expand. As older workers retire, the average compensation throughout a range of industries will gradually be lowered. Jobs that used to pay $22 an hour and now pay $13 an hour will ratchet down to $11.

The pain of rising inequality will not just show up in the paycheck; it will also show up in the spirit. An extended era of low wages and austerity will continue to undercut the New Deal institutions trade unions and public-safety nets that provide American workers with protection from assaults on personal dignity from dog-eat-dog job competition. A union contract, or the threat that they might demand one, gives workers a voice in the small things that make up a person’s self-esteem: the right to go to the bathroom without asking permission, a lunchtime to yourself, a paid vacation. Seniority means that older and younger workers are not in mortal combat for daily survival on the job and that older workers will not be laid off just because younger workers can be hired for lower pay.

With these protections gone or greatly diminished, CLASS LINES will harden and social mobility in America - already below that of many other advanced nations - will decrease further. The humiliations of working life under raw capitalism before the New Deal will return. BOSSES will be more arrogant and demanding. Overworked bureaucrats at shrunken government agencies will be less responsive. The distinction between service and servitude will blur.

This scenario or something like it will have a profound impact on our politics. Given the lessons of history, no progressive should harbor the illusion that a frustrated, angry working middle class will respond by moving left.

James Baldwin once wrote, “Not everything that is faced can be changed. But nothing can be changed until it is faced.” For progressives, facing up to economic reality and ridding ourselves of false hope is a prerequisite for a politics that might give us some real hope of changing our otherwise depressedand depressing - future.

First, we should stop lying to ourselves. The re-election of Barack Obama is a defensive imperative. But there will be no transformational second term. Any bargains between the Republican Party, owned by corporate America, and the Democratic Party, which merely rents itself out, will not reverse the existing grand bargain that preserves prosperity for Wall Street, power at the Pentagon, and austerity for the rest of us.

Second, we should stop lying to the people. Given the economic outlook, baby steps in a progressive direction will not lead to bigger steps later. Thus, for example, progressives by and large stood by while the Obama administration trashed efforts to debate a single-payer health plan. Now we are left defending a sordid deal that forces young workers to pay for the profits of private insurance and pharmaceutical companies and does little to reduce the wasteful systems burden on the country’s competitiveness.

Third, inasmuch as the central obstacle to policies that would promote a high-wage path to the future is the infestation of our political system with corporate money, it follows that getting that money out of politics should be a strategic priority.

Campaign-spending reform has rarely energized voters. But it has been primarily argued as a high-minded issue of democratic procedure rather than the central cause of citizens economic distress. As the noose of austerity tightens, the issue can now be cast as an indispensible step to avoiding the destruction of the American dream.

The obstacle is the Supreme Court’s bizarre interpretation of the Constitution as a documentequating spending money with free speech and corporations with people. This can only be overcome with a constitutional amendment. The route to amending the Constitution will be hard. But the benefits could arrive before any final enactmentnamely in mobilizing against corporate power and blunting the right-wing campaign to convince the public that government, labor unions, and other institutions of the liberal left are to blame for the coming age of austerity.

A 2011 survey reported that 79 percent of all voters - and 68 percent of Republicans - favor a constitutional amendment - to overturn the Citizens United decision and make clear that corporations do not have the same rights as people, and this, with no visible campaign to persuade them.

Campaign financing is not the only way in which money corrupts government, of course. The hint of a future job, the chance to socialize with the rich, the hiring of a relative or a friend, are among others. But nothing matches raising large amounts of money to get you re-elected.

The odds in favor of driving corporate money out of elections may be long. But the odds of securing our future are even longer if we don’t do it. Unless we can confront the root cause of our national paralysis, future historians will look back at this generation and conclude that our failure was not that we didnt know what was coming; it was that we didn’t act on what we knew.



Did New Deal end Depression?
History says deficit spending works

By Joseph Lazzaro
March 7, 2009

You know, there have been so many errors—in some cases they’ve been deliberate distortions—about the impact of President Franklin D. Roosevelt’s innovative NEW DEAL policies on the U.S. economy, that we should take a moment to analyze the facts of history.

Accordingly, we cite the late, great Governor of the State of New York, Al Smith, who frequently said, “Let’s look at the record.” Did FDR’s New Deal end the Depression?

October 1929: U.S. stock market crashes

In October 1929, the U.S. stock market crashed. It was a cataclysmic, life-altering, bearish event that contracted the U.S. economy and ushered in the Great Depression. The U.S. president at the time was Herbert Hoover (R-California).

None of the policies Hoover undertook produced economic recovery during his term. The Depression spiraled deeper and deeper, and the unemployment rate reached a staggering 23.5% by the end of 1932. It was the worst economic period in the United States in the modern era.

Further, it’s important to underscore that Hoover was president of the United States for three years after the Great Depression started, and U.S. GDP declined every year, from $865 billion in 1929 to $643 billion in 1932. The U.S. unemployment rate also increased every year under Hoover after the stock market crashed, from 3.1% in 1929 to 23.5% in 1932.

In sum, Hoover’s inaction, inadequate policies, and grave mis-steps led to massive suffering, misery, unemployment and destitution in the United States—and many economists would argue that most of the suffering and unemployment was needless: they could have been avoided with the correct public policies. Hoover’s strategies were an economic disaster for the American people and for the United States.

Hoover’s failed policies and the Great Depression led to the election of President Roosevelt (D-New York), who implemented the New Deal; fiscal stimulus to jump-start the economy; and other reforms, including programs to address the enormous poverty and destitution taking place in the country.

FDR’s New Deal, during which Social Security was started, transformed the United States’ often harsh and sometimes brutal pure capitalist system into what we call today mixed capitalism—capitalism with a social safety net—and it was then, and remains today, an economic and civilizational advance.

Further, AS WITH President Obama’s ascendancy, FDR’s strong-handed leadership and New Deal policies represented a ‘“safety value” that saved corporate capitalism in the United States: it gave policymakers a chance to reform and save the corporate capitalist system. FDR’s New Deal relieved economic and social pressures that, if not addressed, would have increased, and led to the election of candidates seeking even bigger changes to the system in the 1930s. Nearly every American has hope that President Obama’s policies and reforms will, similarly, relieve our modern economic pressures in the years ahead.

New Deal, 1933-37: Large GDP growth

During the initial phase of the New Deal (1933-37), the U.S. economy GREW at a compound annual rate of about 9%, with GDP rising from $635 billion in 1933 to $911 billion in 1937.

We’ll repeat that so that FDR naysayers—including certain U.S. Senators—can identify the statistic: During the New Deal’s initial phase, U.S. GDP increased from $635 billion in 1933 to $911 billion in 1937.

In late 1937, FDR felt pressured from Republicans to balance the budget for fiscal 1938, so he attempted to do so—reducing fiscal stimulus elements and making other changes to the New Deal. And guess what happened in 1938? That’s correct: the economy contracted, with GDP falling to $879 billion in 1938.

FDR returns to New Deal philosophy

In late 1938, FDR then was able to turn back Republican pressures, and returned to his fiscal stimulus instincts, newly confident that it was working and had expanded GDP, and rigorous GDP GROWTH RESUMES through 1940.

Federal government spending for World War II (1941-45) then drove U.S. unemployment down to as low as 1.5%, as the nation mobilized to defeat the Axis threat of Nazi Germany, Fascist Italy, and Imperialist Japan.

The record, specifically U.S. unemployment rates for the period, clearly shows the positive impact of FDR’s New Deal policies on the U.S. economy:

1929: 3.1% (Hoover is president; U.S. stock market crashes, October 1929)
1930: 8.7%
1931: 15.8%
1932: 23.5%
1933: 24.8%, (FDR becomes president, New Deal begins)
1934: 21.6%
1935: 19.9%
1936: 16.8%
1937: 14.2% (Republican Party pressures to balance federal budget; FDR decreases New Deal spending.)
1938: 18.9% (U.S. economy contracts after New Deal spending was reduced and taxes were raised. FDR subsequently encouraged—and succeeded in securing—resumption of the New Deal.)
1939: 17.1%
1940: 14.5%
1941: 9.7% (World War II spending begins.)

Fiscal Stimulus/Economic Analysis: The New Deal increased U.S. GDP and resulted in a substantial decrease in U.S. unemployment, both during its initial phase (1933-37) and after FDR turned back 1937-38 Republican pressure to balance the budget (1939-41). The fiscal stimulus provided by the New Deal worked. That’s the record, and don’t let anyone tell you otherwise.

If anything, FDR’s New Deal spending was too small in the early years: had a larger stimulus been passed, U.S. GDP would have increased more and unemployment would have declined to lower levels.

Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.


Posted by Elvis on 05/24/12 •
Section American Solidarity • Section Dying America
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