Contradiction in Obama's Economic Philosophy

Commenting on Obama's health care 'summit,' Krugman identifies the pattern that dominates health care and pretty much everything else in national politics: "Democrats [offer] moderate plans that draw heavily on past Republican ideas, and Republicans [respond] with slander and misdirection."

Why do we see this same pattern of compromising Dims and savage Cons year in and year out?  One theory is that the Dims are actually Cons and so by losing to the Cons can get what they secretly want.  This theory works some of the time. But it doesn't explain the Dims tolerance for highly-visible losses, which are supposedly a bad thing. 

Another theory is that the Dims are not really Cons, especially in the sense that they are basically nice, humane people unlike Cons and therefore don't fight to kill and win. They actually like compromise, believe in everyone getting along, have faith in the high road, etc.  This theory is also more than partly true.

This blog has long interested itself in what allows people to formulate a strong position and then actually achieve it. This is equivalent in our terms to avoiding the pursuit of decline and failure, which has become so common in the vast but shrinking middle rungs of American society.

One central precondition is intellectual coherence.  Obama's political weakness is related to the fact that he lacks this.  His health care proposal, weak as it is, assumes an expanded role for government in the delivery of health care.  This in turn assumes that government plays a necessary regulative role in a market-based system dominated, to majoritarian distress, by a small number of large and powerful corporations.  This regulative role further assumes that government is a positive and constructive force in negotiating society's relationships with private entities like Blue Cross.

How does this fit with Obama's overall economic approach?  In a speech to the Business Roundtable last March, Obama offered a good summary of his economic philosophy, so to speak:

I’ve always been a strong believer in the power of the free market. It has been and will remain the very engine of America’s progress — the source of a prosperity that has gone unmatched in human history. I believe that jobs are best created not by government, but by businesses and entrepreneurs like you who are willing to take risks on a good idea. And I believe that our role as lawmakers is not to disparage wealth, but to expand its reach; not to stifle the market, but to strengthen its ability to unleash the creativity and innovation that still makes this nation the envy of the world.

But I also know this: Throughout our history, there have been times when the market has fallen out of balance. There have been moments of economic transformation and upheaval when prosperity and even basic financial security have escaped far too many of our citizens. And at these moments, government has stepped in not to supplant private enterprise, but to catalyze it — to create the conditions for thousands of entrepreneurs and new businesses to adapt and ultimately to thrive.

That’s why we laid down railroads and highways to spur commerce and industry — to stitch this nation together. That’s why, even in the midst of civil war, Lincoln launched a transcontinental railroad, and Land Grant colleges and the National Academy of Sciences. That’s why we initiated universal public high schools and passed a GI bill to nurture the skills and talents of all our workers. That’s why Eisenhower built an interstate highway system, and Kennedy pointed us to the moon, knowing that the exploration would lead to unimagined innovations here on Earth.

That’s what we’ve done in the past. And that’s why I’ve chosen to address education, health care, energy and this budget — because we can’t wait to make the investments today that will lead to tomorrow’s prosperity.

Such thoughts are why Cass Sunstein called Obama a "Chicago School Democrat" - the market creates all wealth, except when the market fails, at which point government must fix the market.  This also a "public private partnership" (PPP) philosophy, similar to that espoused by Blair and Brown Labour in the UK.

Unfortunately, Obama's position -- a common one among centrist Dim and Labour elements --  makes neither political nor conceptual sense.  If the market fails with any kind of regularity, then government is also a source of wealth and value. If government is a source of wealth and value, then the market is not the dominant if not the only source of wealth and value.  In the case of health care, if the market is the very engine of American progress, then America's free market system that has placed such enormous profits in the hands of HMOs and insurance corporations has been an amazing success, and we should not now be talking about bringing government in to regulate it.  Cons take continuous advantage of Obama's awkward stance.

The political problem with Obama's position is similar. How can he rally a mass base by chiding Wall Street bankers one day and praising their wealth the next? How can he be taken seriously by saying business should run the economy and then invoking the railroads to say government should help run health care?  The scope and timing of intervention is also always at issue, and you need some coherent principles to decide when and where.

The obvious solution is for Obama to say loudly and often that "government creates wealth" - in exactly the ways he describes in his speech, with quality education being at the heart of value-creation along with universal health care.   Society creates wealth, and government is one instrument and business is another, and in a democracy society gets to decide the scale and scope of the various instruments.  Government and businesses are co-generators, which means that public investments should be both ackowledged and compensated - which would reduce profits for companies that have gotten used to getting all sorts of public stuff for next to nothing, and would challenge American capitalism as it is, which of course Obama has to do if he wants a real recovery, except he thinks we already have one.

Obama's intellectual failure to expound a coherent social-democratic vision of society, which would also be post-capitalist in the sense of being post our inefficient, wasteful, crooked, silly current version of capitalism will, if it continues,  be yet another source of his political failure.

Monopoly Endgame and Middle-Class Decline

Yesterday the NYT ran a very good piece on the rise in the long-term unemployed. One of the featured people is Jean Eisen, out of work for two years. A former comic, she's turned to Christianity because prary offers the kind of health insurance she can afford.

Twice, Ms. Eisen exhausted her unemployment benefits before her check was restored by a federal extension. Last week, her check ran out again. She and her husband now settle their bills with only his $1,595 monthly disability check. The rent on their apartment is $1,380.

“We’re looking at the very real possibility of being homeless,” she said.

The piece states the clear implication:

Every downturn pushes some people out of the middle class before the economy resumes expanding. Most recover. Many prosper. But some economists worry that this time could be different. An unusual constellation of forces — some embedded in the modern-day economy, others unique to this wrenching recession — might make it especially difficult for those out of work to find their way back to their middle-class lives.

And also offers a more candid-than-usual explanation of why:

Large companies are increasingly owned by institutional investors who crave swift profits, a feat often achieved by cutting payroll. The declining influence of unions has made it easier for employers to shift work to part-time and temporary employees. Factory work and even white-collar jobs have moved in recent years to low-cost countries in Asia and Latin America. Automation has helped manufacturing cut 5.6 million jobs since 2000 — the sort of jobs that once provided lower-skilled workers with middle-class paychecks.

“American business is about maximizing shareholder value,” said Allen Sinai, chief global economist at the research firm Decision Economics. “You basically don’t want workers. You hire less, and you try to find capital equipment to replace them.”

Jobs used to grow at a 3.5% rate each year. After 1980, they grew during expansions at under 1% a year.  To make the point as directly as possible, U.S. economic leaders shifted the conditions of revenue growth so that they depended on the reduction of employment growth.  In other words, U.S. expansions become almost-jobless recoveries by design.   The actually jobless recovery after 2003 under George W. Bush was the holy grail of this economic policy.

The Obama Administration is doing what it can to draw a somewhat bent line from Bush to Hooverization.   Its money goes to big banks not small ones, who are not lending to the small businesses that produce the vast majority of new jobs in any recovery.  (See my Capitalist Pal on this crowding out.)  Small business is not recovering, and employment will recover that much more slowly.  Strategic sectors like green energy are on the ropes.  The federal stimulus will not rebuild enough of the crumbling country by in the process hire the hundred thousand a month required just to keep unemployment in place.   Instead, its unemployment bill will mushroom, as people are paid not to work on public projects but because they can't find work. Cash-starved governments will try to contain the mushrooming bill by throwing people off of "safety-net" programs that include welfare: "as of 2006, 44 states cut off anyone with a household income totaling 75 percent of the poverty level — then limited to $1,383 a month for a family of three."  The effect here obviously is to insure that welfare leads to paralyzing, unhealthy poverty.

It's all getting to be too much even for some of the Summers-Rubin Lexus worshipping fans of unhinged business.  Tom Friedman's column is titled "The Fat Lady Has Sung," and has the quip that sums up pretty much everything.

But now it feels as if we are entering a new era, "where the great task of government and of leadership is going to be about taking things away from people," said the Johns Hopkins University foreign policy expert Michael Mandelbaum. 

Ms. Eisen's life story is a history of So. Cal deindustrialization, as she energetically jumps from one industry to the next with a cheery entrepreneurial spirit, only to see that entire industry die or get sent abroad (aerospace, a travel agency, then beauty product sales . . .)

The worst comes nearly last.  Another successfully member of the middle class who hasn't been able to find a job in two years remarks, "“What is going to happen? . . .I worry about my kids. I just don’t want them to think I’m a failure.”  The worst is that many of those on the front lines of middle-class decline don't see the structural problems.  It's hard to imagine, given the incredibly low mental level of most US media, that they ever will.  But without a reason or a will to revolt against this dead-end system, all they can do is spiral wagewise to the bottom.

There's a direct connection between the U.S.'s monopoly-prone economy and wage / employment decline.  It won't change unless members of the ex-middle class start to realize the removing jobs has for thirty years been the U.S. economy's dominant recipie for revenue success.

Obama Heart Banks

When Obama praises the spirit of piling money higher and deeper as the great Spirit of America, and absolves the bank bonusers of any wrongdoing, he makes no sense ethically or economically - finance and its grotesque incomes is grossly inefficient, really unaffordable in our struggling world. But on the level of simple tactics he makes his alleged crackdown on the banks into a joke.  Henceforth all of his stern fingerwaggings will be greeted with a wink and a nod - except in middle America, where the pitchfork crowd signs up for Tea Party populism and waits for the chance to run Obama out of town.

I never thought I'd be seeing him as simply dumb but I am starting to.

Global Hoovermania

The national debt crisis in Greece is an example of a case where a combination of Eurozone rules and financial market pressure will force huge cuts in public spending, damaging both living standards and delaying economic recovery.  On Sunday, the New York Times reported that some of Greece's hidden debt was concealed courtesy of instruments sold to it by Goldman Sachs in 2001.  In November 2009, Goldman Sachs tried to do it again. The Financial Times reported today that EU authorities have requested information about the swaps.

Greece's national debt is over 100% of its annual GDP.  But this is not so horribly out of line with other countries, as can be seen at left and here.

"High" debt is a matter of interpretation, and 40 years of attacks on the existence of government, the public sector, and public debt as a source of public investments has greatly reduced the markets' tolerance for debt levels that are still well below what seemed normal in times of crisis like World War II. Markets put up with high debt levels during war.  If we were serious about, say, decarbonization, we would run 200-300% deficits in gigantic crash programs in solar power, total transportation system reengineering, weatherproofing every building on the planet, you name it, so that there will be great-great grandchilren around to pay the debt we left them.

The interpretation of debt levels as too high is threatening the recovery, since it will force governments to cut spending when they should be increasing it.  This is the plan for Greece, the famous land of Generation 800 Euros (youth salaries per month) and meager economic development outside of coastal estates built on land removed from government protection by arson-set forest fires.

Government employment is a pillar of the middle class everywhere in the world.  It is also being squeezed everywhere: in Sacramento, California, a moron's consensus reigns on the virtues of cutting state employee salaries 5%.  In all countries, public service employment is the crucial gateway to the middle class -- as it was in the United States from the 1940s to the 1960s, for African Americans in particular who faced ongoing discrimination in the private sector. Countries like Argentina that were forced into IMF-style austerity programs that slashed the public sector have one common feature: an incredible shrinking middle class.

Most pundits seem to have learned nothing in all these years. Thomas Friedman recently contrasted two years in the Middle East. 1977 was good -- neoliberal policies implemented in Egypt by Sadat.  1979 was bad -- the Iranian revolution, Whahabi-reaction in Saudi Arabian Islam, etc.  But "liberalization" and "modernization" were themselves the source of the radicalization of mass Islam that Friedman deplores.  They impoverished the great majority in Egypt, ruined Cairo's public systems for starters (on my recent trip there an archictectural institute informed me that 60% of Cairo's housing is "informal" - built by occupants because the private and public sectors both refuse.) 


Krugman points out that the bigger debt problem in the Eurozone is Spain. But for some reason he spends his column attacking the very idea of a single currency in a variable region rather than attacking austerity politics, though he knows in the U.S. case that the focus on debt will kill the recovery.

Since the world needs both recovery and stable currency and debt arrangements across diverse national economies - both of which the financial system has not delivered - Krugman et al. need to figure out how to avoid screwing the populations of countries like Greece.  The world has to learn how Greece can have a modern, efficient, green infrastructure with its current economy, and then discover how to provide the same to about 130 other countries that are in even greater need.

If the EU can't fix Greece, it can't fix anything that needs fixing.