“The Story Of Our Time”: The Most Crucial Thing To Understand Is The Economy Is Not Like An Individual Family.
Those of us who have spent years arguing against premature fiscal austerity have just had a good two weeks. Academic studies that supposedly justified austerity have lost credibility; hard-liners in the European Commission and elsewhere have softened their rhetoric. The tone of the conversation has definitely changed.
My sense, however, is that many people still don’t understand what this is all about. So this seems like a good time to offer a sort of refresher on the nature of our economic woes, and why this remains a very bad time for spending cuts.
Let’s start with what may be the most crucial thing to understand: the economy is not like an individual family.
Families earn what they can, and spend as much as they think prudent; spending and earning opportunities are two different things. In the economy as a whole, however, income and spending are interdependent: my spending is your income, and your spending is my income. If both of us slash spending at the same time, both of our incomes will fall too.
And that’s what happened after the financial crisis of 2008. Many people suddenly cut spending, either because they chose to or because their creditors forced them to; meanwhile, not many people were able or willing to spend more. The result was a plunge in incomes that also caused a plunge in employment, creating the depression that persists to this day.
Why did spending plunge? Mainly because of a burst housing bubble and an overhang of private-sector debt — but if you ask me, people talk too much about what went wrong during the boom years and not enough about what we should be doing now. For no matter how lurid the excesses of the past, there’s no good reason that we should pay for them with year after year of mass unemployment.
So what could we do to reduce unemployment? The answer is, this is a time for above-normal government spending, to sustain the economy until the private sector is willing to spend again. The crucial point is that under current conditions, the government is not, repeat not, in competition with the private sector. Government spending doesn’t divert resources away from private uses; it puts unemployed resources to work. Government borrowing doesn’t crowd out private investment; it mobilizes funds that would otherwise go unused.
Now, just to be clear, this is not a case for more government spending and larger budget deficits under all circumstances — and the claim that people like me always want bigger deficits is just false. For the economy isn’t always like this — in fact, situations like the one we’re in are fairly rare. By all means let’s try to reduce deficits and bring down government indebtedness once normal conditions return and the economy is no longer depressed. But right now we’re still dealing with the aftermath of a once-in-three-generations financial crisis. This is no time for austerity.
O.K., I’ve just given you a story, but why should you believe it? There are, after all, people who insist that the real problem is on the economy’s supply side: that workers lack the skills they need, or that unemployment insurance has destroyed the incentive to work, or that the looming menace of universal health care is preventing hiring, or whatever. How do we know that they’re wrong?
Well, I could go on at length on this topic, but just look at the predictions the two sides in this debate have made. People like me predicted right from the start that large budget deficits would have little effect on interest rates, that large-scale “money printing” by the Fed (not a good description of actual Fed policy, but never mind) wouldn’t be inflationary, that austerity policies would lead to terrible economic downturns. The other side jeered, insisting that interest rates would skyrocket and that austerity would actually lead to economic expansion. Ask bond traders, or the suffering populations of Spain, Portugal and so on, how it actually turned out.
Is the story really that simple, and would it really be that easy to end the scourge of unemployment? Yes — but powerful people don’t want to believe it. Some of them have a visceral sense that suffering is good, that we must pay a price for past sins (even if the sinners then and the sufferers now are very different groups of people). Some of them see the crisis as an opportunity to dismantle the social safety net. And just about everyone in the policy elite takes cues from a wealthy minority that isn’t actually feeling much pain.
What has happened now, however, is that the drive for austerity has lost its intellectual fig leaf, and stands exposed as the expression of prejudice, opportunism and class interest it always was. And maybe, just maybe, that sudden exposure will give us a chance to start doing something about the depression we’re in.
By: Paul Krugman, Op-Ed Columnist, The New York Times, April 28, 2013
“Today’s Conventional Wisdom”: It’s Not The Left That’s Changed, It’s The Economy
Have American liberals moved too far to the left? That’s long been the contention of conservatives contemplating liberal positions on a host of social issues, such as gay marriage and the legalization of undocumented immigrants. But opinion polls on these issues show that yesterday’s far-out liberal positions are quickly becoming today’s conventional wisdom.
A more nuanced conservative critique focuses on liberals’ support for a greater government role in the economy. To be sure, New York Times columnist David Brooks argued in a recent column, liberals have traditionally urged government to take up the slack in economic activity during recessions, but now, as the budget proposal of the Congressional Progressive Caucus shows, liberals believe that “government is the source of growth, job creation and prosperity” even when the economy has righted itself. The progressives’ budget, Brooks complains, proposes spending $450 billion on public works and sending $179 billion to the states so they, too, can provide more services and pave more roads. All this and more would be financed by increases in progressive taxation — draining the private sector of the capital it needs to grow, hire and produce prosperity.
Not surprisingly, liberal economists have jumped on Brooks’s arguments. Lawrence Mishel of the Economic Policy Institute argues that the economy is still performing so under par — $985 billion below its potential output if all our factories were going full tilt — that it needs a major boost from government-financed economic activity to increase production, employment and consumption. Coincidentally, the day after Brooks’s column was published, Gallup released a poll showing that 72 percent of Americans, including a majority of Republicans, would support a major federally financed infrastructure repair program and a federal program creating 1 million jobs. Nearly 80 years after Franklin Roosevelt created the Works Progress Administration, it seems the American people would like the government to re-create it.
But there’s a bigger problem with the conservative contention that government stands athwart the private sector’s capacity to create jobs and prosperity: It fails to acknowledge that the private sector no longer creates jobs and prosperity like it used to, completely apart from whatever effects governmental policy may have on job creation. Entirely on their own and well before Obamacare was a gleam in anyone’s eye, employers began cutting back or altogether dropping health coverage and retirement benefits for employees. Nor have government regulations compelled employers to increase the share of company revenue going to profits (which is at its highest level in decades) and reduce the share going to wages (which is at its lowest level in decades).
The U.S. corporations that make up the Standard & Poor’s index of the 500 largest publicly traded companies get almost half their revenue from sales abroad, according to a 2011 S&P analysis, and, despite all the hoopla about bringing manufacturing back to the States, much of their production is going to remain abroad. The rise of machines has, we all know, taken its toll on employment too. U.S. corporations are sitting on $1.7 trillion in cash, with share values and profits that render most of these businesses’ leaders happy campers. Even if the U.S. economy continues to fall far short of full employment, and even if the rate of workforce participation continues to decline, these businesses can still sell their products all over the world. Unlike in the 1930s, the shortfall in domestic consumption does not present them with a crisis but with perhaps nothing worse than a missed opportunity.
In short, the economy is working for our economic elites. The massive changes they would have to make to investment strategies and the division of corporate revenue so that the economy worked for the majority of the American people are nowhere on the horizon. The great growth machine that once was the U.S. private sector ain’t what it used to be — which is one reason each recession since 1990 has been longer, deeper and more intractable than the last. That’s the new economic reality in this country, and that’s what the budget of the Congressional Progressive Caucus responds to. It’s not that liberals have been prompted to move leftward through the readings of ancient socialist gospels or by smoking some stash left over from the ’60s. It’s that the economy has reached a dismal stability far short of its full employment potential or renewing the promise of widespread prosperity, and government investment is required to make up the difference. If anyone is smoking something, it is conservatives who foresee a rebirth of prosperity if only the private sector is left alone.
By: Harold Meyerson, Opinion Writer, The Washington Post, March 21, 2013
“So Much For Economic Uncertainty”: Republicans Have Decided To Govern Through Series Of Self Imposed Crises
In 2009 and 2010, the single most common Republican talking point on economic policy included the word “uncertainty.” I did a search of House Speaker John Boehner’s (R-Ohio) site for the phrase “economic uncertainty” and found over 500 results, which shows, at a minimum, real message discipline.
The argument was never especially compelling from a substantive perspective. For Boehner and his party, President Obama was causing excessive “uncertainty” — through regulations, through the threat of tax increases, etc. — that held the recovery back. Investors were reluctant to invest, businesses were reluctant to hire, traders were reluctant to trade, all because the White House was creating conditions that made it hard for the private sector to plan ahead.
It was a dumb talking point borne of necessity — Republicans struggled to think of a way to blame Obama for a crisis that began long before the president took office — but the GOP stuck to it.
That is, Republican used to stick to it. Mysteriously, early in 2011, the “economic uncertainty” pitch slowly faded away without explanation. I have a hunch we know why: Republicans decided to govern through a series of self-imposed crises that have created more deliberate economic uncertainty than any conditions seen in the United States in recent memory.
E.J. Dionne Jr. had a great column on the larger pattern today.
Ever since they took control of the House of Representatives in 2011, Republicans have made journeys to the fiscal brink as commonplace as summertime visits to the beach or the ballpark. The country has been put through a series of destructive showdowns over budget issues we once resolved through the normal give-and-take of negotiations. [...]
The nation is exhausted with fake crises that voters thought they ended with their verdict in the last election. Those responsible for the Washington horror show should be held accountable. And only one party is using shutdowns, cliffs and debt ceilings as routine political weapons.
Quite right. Looking back over the last two years — in fact, it’s closer to 22 months — Republicans have made three shutdown threats, forced two debt-ceiling standoffs, pushed the country towards a fiscal cliff, refused to compromise on a sequester, and have lined up even more related fiscal fights in the months ahead.
So, here’s the question for GOP leaders: where did your concern about “economic uncertainty” go? Here’s the follow-up: do you think a never-ending series of hostage standoffs inspire investors, reassure “job creators,” and improve consumer confidence?
Or is it more likely Republicans are doing the very thing they said they opposed in 2010?
By: Steve Benen, The Maddow Blog, February 28, 2013
“Freedom For The Few”: Corporations, Miniature Governments With Their Own Undemocratic Governance Structures And Election Systems
We should be done by now with the idea that a corporation is a single thing. Corporations contain a multitude of conflicting interests and are much more like miniature governments with their own governance structures and election systems than is commonly recognized. While these structures are far more hierarchical and undemocratic than we require of our public institutions, Americans should not be resigned that this is the best or the only way the private sector can be structured.
The debate over corporate disclosure currently going on at the SEC exposes some important fissures within the modern American corporation. On the one hand, corporate managers and their allies have argued that corporations should be able to engage in political activities without having to disclose how much they spent or who that money went to. But there is a subtle slight-of-hand to this argument. It conflates the overall interests of the corporation with the desires of management and directors. What proponents of this view really mean is that management and directors should be able to make political expenditures without getting any input from shareholders or other constituencies within the corporation.
On the other side of the debate, shareholders and shareholder advocacy groups have been calling for greater disclosure regarding how corporate money is spent in politics. Shareholders have pointed out, rightly, that management’s political activities are not necessarily good for business. The money spent on political activity is money that shareholders might otherwise see reinvested in the company or have paid out in dividends, and it is money they have residual legal claims to. And, importantly, it often expresses political views that shareholders have no interest in supporting.
Shareholders have been introducing and voting on proposals to improve disclosure. But even when these measures pass, they are merely advisory and do not bind managers. It’s simply not the case that corporate political spending reflects the views of all the people who make up a business. Under existing corporate law, these intra-business disputes already tend to be resolved in management’s favor. And right now it is only management and directors whose views are reflected in political activity. It’s also noteworthy that employees’ interests aren’t even a part of this picture.
In spite of all that, management continues to push back against shareholders. Likely emboldened by Citizens United, proponents of management-dominated corporate speech have begun to claim First Amendment freedoms against their own shareholders. Consider this rather surprising statement from former SEC Commissioner Paul Atkins:
shareholder activists, including unions, state pension funds, and ‘socially responsible investors,’ have increasingly turned to shareholder proposals to selectively burden American businesses exercising their First Amendment rights.
Leaving aside the fact that nobody has First Amendment rights against other private actors, this is an extremely bold assertion. This is tantamount to saying that the interests of management should trump all others and that neither private nor public actors should be permitted to interfere.
Frighteningly, recent developments have begun to enshrine this pro-boss, pro-management bias elsewhere in the law as well. This trend can be seen in a number of settings. During the last election cycle, a number of journalists were reporting that employers were asserting a First Amendment right to trample on the voting rights of their employees. In the ongoing fights over the Affordable Care Act, a number of employers have asserted a constitutional right not to pay for employees’ access to birth control and reproductive health services. (And in the religious non-profit setting, the Obama administration appears prepared to give them the exemption they were seeking.)
Corporations are a “they,” not an “it.” And it’s vitally important that this “they” doesn’t only mean corporate management. More democratic private sector institutions would be an important start. But we need a new constitutional framework for understanding people’s positive rights in the private sector as well. Freedom under the First Amendment doesn’t simply mean, as Paul Atkins might like, protecting bosses from public and private accountability. It means empowering a variety of people, shareholders, workers, communities, and the broader public, to shape the political conditions they live in.
By: Anthony Kammer, The American Prospect, February 6, 2013
“Stuck On A Plateau”: Progress For Women Continues Flatlining At Top Ranks Of The Private Sector
After the election, word was that we had just lived through another Year of the Woman. After all, a record twenty women will now be serving in the US Senate next term, representing a fifth of all seats. We had previously failed to breach the 18 percent mark in that legislative body.
But women’s progress has stalled out somewhere else: the top of the private sector. The research organization Catalyst released its 2012 Census today, which tracks the number of women in executive officer and board director positions. Women held just over 14 percent of executive officer positions at Fortune 500 companies this year and 16.6 percent of board seats at the same. Adding insult to injury, an even smaller percent of those female executive officers are counted among the highest earners—less than 8 percent of the top earner positions were held by women. Meanwhile, a full quarter of these companies simply had no women executive officers at all and one-tenth had no women directors on their boards.
But as in the Senate, progress may be slow and even small percentages can be victories. Did this year represent a step forward? Not even close. Women’s share of these positions went up by a mere half of a percentage point or less last year. Even worse, 2012 was the seventh consecutive year in which we haven’t seen any growth in board seats and the third year of stagnation in the C-suite. Meanwhile, women may hold the majority of the jobs in growing sectors such as retail, healthcare and food service, but of the executive officers in those industries they represent less than 18 percent, under 16 percent and just 15.5 percent, respectively.
If this is the sign of the end of men or the richer sex, I fail to see how. Reversing these numbers may take time. But we’re not even on a steady uptick—we’re stuck on a plateau. Fortune tellers who tell us women are on track to dominate the economy need to explain how that can be if we aren’t seeing any movement in these top indicators. Representing half the workforce can still mean inequality if we aren’t breaking through to the top jobs.
By: Bryce Covert, The Nation, December 11, 2012
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