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Candidate John
McCain gave a truly innovative speech last week that suffered from one fatal flaw. The innovation: cast your speech as
a fantasy, looking back from the end of your first term so you can tout all your great accomplishments without the distraction
of pesky fact-checkers. The fatal flaw: recent history has shown that his policy agenda is antithetical to his goals. His vision of the future is divorced from his roadmap to get there.
To the contrary,
anyone interested in a future that looks quite different from the present, and most Americans are leaning in precisely that direction1, needs to remember but one mantra. It's one of the most important arguments
progressives can make between now and November, and it's simple, compelling, and unarguably true: we've tried it their way,
and it hasn't worked.
Whether
it's the economy, the environment, foreign policy, fiscal policy, government competency, judicial fairness... you name it...
we've tried it their way, and it hasn't worked.
For this post,
let's focus on the economy. We're aided by the fact that we are likely at the end of the economic expansion that began in
late 2001, so we can now compare the results from this cycle to previous ones. We're additionally aided by the fact that the work2 has already been completed by my EPI colleagues Josh Bivens and John
Irons. They've done the math, comparing growth rates of all the key variables over this and past cycles.
We'll get to
those results in a minute, but consider them in this light: they are the outcome of a natural experiment, one wherein we turned
every branch of Federal government, including the judiciary, over to conservatives with a unified vision of the economy. I
describe the vision as YOYO (you're on your own) economics, though you're free to amend it to "you're on your own unless you've
got friends in high places... in that case, you can plunder the treasure." For the rest, it's "here's a tax cut, a private
program, some deregulation, and a nudge into the market place to sink or swim."
Note, for example,
that McCain's speech revives privatizing Social Security ("personal retirement accounts) as a policy goal. He reforms health
care though the injection of more "market forces," as we're all incentivized to go out and shop for health care in the open
market, a plan that has the potential to be both expensive and ineffective. And as I pointed out last week in this space, McCain's tax cuts are Bush's on steroids. He begins with extending the Bush cuts
(10-year cost: $1.7 trillion), but that's less than a third of the cuts that he's planning. And remember, in the midst of
all these cuts, he's got to pay for a lot more war.
So, what
are the economic outcomes of this great, neocon experiment? From Bivens and Irons:
- Of the 10 expansions since 1949, as measured from the end of the recession (trough) to the end of the expansion (peak),
the expansion from 2001 through last year ranks last in average growth of GDP, investment, employment growth, and employee compensation.
- Despite [supply-side] tax changes that were promoted as incentives to increase investment, average growth in total
investment over the latest expansion was less than half of the post-WWII average, and ranked last in this group. For the full
cycle (from the 2001 peak to the last quarter of 2007), investment growth was also less than half the average and worse than
all cycles in the last 50 years.
- Corporate profits were the only area of strength in the latest cycle, ranking 2nd strongest among the last the
prior 10 cycles.
- The rankings for all 10 full business cycles since WWII show that the 2000s rank eighth in GDP, ninth in consumption
spending and employment growth, and last in labor compensation and the ratio of the population employed.
Regarding
the variables that matter most to working families, the neocon experiment was a particularly dramatic failure. Employment
grew one third as fast as the average over the 2000s business cycle and the unemployment rate, though low on average, was
higher at the end of the cycle than at the beginning. Perhaps the most damning indictment is this: for the first time on record,
going back to the mid-1940s, the income of the typical, middle-income family was slightly lower last year than at the prior
peak in 2000 (see their figure A).
The reason, of
course, is that the benefits of the economy's growth flowed largely to those at the top of the scale, an outcome long associated
with YOYO'ism. In the history of income inequality data going back to 1913, income is now more concentrated among the top 1% of households
than in any other year, bar one: 1928.
So there
you have it: the great, neo-con economic experiment is over and the results are in. Outside of the top 1%, there's less income
growth than in any past business cycle. The key macro-indicators, such as employment, GDP growth, and investment
have also faired uniquely poorly. The anti-government, deregulatory agenda has led to fatal incompetence, a massive housing
bubble, ailing global credit markets, and near-recessionary growth for the US. The "ownership society" is a cruel joke: homeownership rates are falling for the first time in decades.
The defenders
of the status quo will howl in protest: the Democrats blocked us, the terrorist attacks and the war changed everything, we
must stay the course to victory! But such rhetoric should be dismissed as what it is: the last, desperate gasps of a dying
movement.
They've
had their turn and they've failed. It is our turn now.
http://www.pollingreport.com/right.htm
The Polling Report.com
Th Economic Policy Institute,
5/1/8 Briefing Paper, A feeble Recovery, the fundamental economic weaknesses
of the 2991-07 expansion, L Josh Bivens and John Irons
http://www.epi.org/briefingpapers/214/bp214.pdf
Huffington Post, 5/11/8 at http://www.huffingtonpost.com/jared-bernstein/the-most-important-piece_b_101237.html
The Most Important Piece of Paper in America
By
Jared Bernstein {bio at bottom}
I hold in my
hand one of the most important pieces of paper in America: Table T08-0071, an analysis of candidate John McCain's tax plan.
OK, it's not really in my hand because I'm typing, but I'm looking at it carefully, and you should too. It is a table
constructed by the Tax Policy Center's steely-eyed tax analysts, and it reveals nothing less than McCain's secret plan
to diminish the US government beyond recognition. If he gets his way, conservatives will finally be able to say they've achieved
the goal set out by Grover Norquist: to get government "down to the size where we can drown it in the bathtub."
The numbers in the table show the revenue loss to the Federal government from McCain's proposed tax
cuts. In the far right corner is the 10-year total: -$5.7 trillion.
People
deride the Republican candidate as "McSame," implying a continuation of Bushonomics as well as the president's foreign policy.
But from the perspective of domestic policy, it's much worse. Sure, McCain extends the Bush tax cuts but that's the least
of it. At $1.7 trillion they amount to less than a third of the damage.
Note also
that the big ticket tax cuts-eliminating the alternative minimum tax and lowering the corporate tax-both follow on another
Bush tradition of exacerbating market-driven (i.e., pre-tax) inequalities by cutting high-end taxes the most. As I stress here, McCain's plans to pay for these tax cuts amount to filling a crater with a teaspoon of
sand. Earmarks won't get you there, so he'll have to go after discretionary spending. In fact, he's already suggesting a freeze
in such spending, excluding defense, of course. Sound inoffensive until you consider that we're talking about kids' health
care, education, child care, training for displaced workers, environmental and labor protections, and dozens more programs
that lots of people actually need and care about. Plus, he can't fill the hole
he's dug with cuts in these programs either, which leads you to the inevitable punch line of all this: his target is the entitlements,
Social Security and Medicare. Those programs have always been the big enchiladas for the Norquist shock troops and they've
never recovered from their Social Security privatization defeat. Well, they're back, incognito.
McCain's top
economist, a number cruncher of great integrity named Doug Holtz-Eakin, responds to the Tax Policy's analysis here, and he makes a good point or two, especially regarding the way they score the AMT, but his counterpoints amount to little more than quibbles. In fact, one can't help
wonder if Doug, who used to inveigh against supply-side nonsense, has been drawn to the economic dark side. When recently asked about the extent to which these numbers fail to add up, his
response was: "I think what [critics] ought to do is remember that the proposals are going to engender economic growth, which
is the best thing you can do for near-term budget improvement." That's pure hand waving of the type with which the old Holtz-Eakin
had no patience.
This story
has yet to catch the fire it should, and hopefully will, once the D's get focused on McCain and his dim vision of government.
But the point born of these numbers is as simple as it is compelling: For seven
long years, we've tried entrusting our government to those who discredit it, defund it, and fundamentally disbelieve in its
role, except when they seek a lucrative contract or a bailout. We gone down the road-and it is a crumbling road, with potholes
and failing bridges -- where the solution to every problem is a tax cut, where critical agencies are staffed with cronies
at best and opposition lobbyists at worst, where secrecy trumps transparency and cynicism rules, where budget resources are
never available for expanding children's health care, but always there for war.
Table T08-0071
is a road map to taking us far, far deeper into this morass. We must not go there.
BIO:
Jared Bernstein joined
the Economic Policy Institute in 1992. His areas of research include income inequality
and mobility, trends in employment and earnings, low-wage labor markets and poverty, international comparisons, and the analysis
of federal and state economic policies. He is author of numerous books related
to these specialties. He is on the Congressional Budget Office’s advisory
committee and is a contributor to the financial news station CNBC. He holds a PhD in social welfare from Columbia University.
Grover Norquist
found Americans for Tax Reform in 1985 at the request of President Ronald Reagan, and has head the organization ever since. He is currently on the board of directors of the National Rifle Association and the
American Conservative Union. He is a member of the Council on Foreign Relations
and chairman emeritus of the Islamic Free Market Institute. He co-authored with
Newt Gingrich Contract with America. He was the prime architect behind the many Bush Tax-cuts.
FRBSF Economic Letter, 2008, 13-14, April 18, 2008 published
by the Federal Reserve Board of San Francisco
The Financial Markets, Housing and the Economy
By Janet L. Yellen, President and Chief Executive Officer
{Extracts by JK}
My basic point
is that a process of delevergaging, in which many financial intermediaries are simultaneously trying to shrink the size of
their balance sheet, has produced a situation in which the quantity of credit available in the overall economy from a wide
range of intermediaries has contracted sharply and suddenly—a credit crunch. Moreover,
concerns about credit quality and solvency for intermediaries can dissolve into liquidity problems, as in an old-fashioned bank run. Firms in the shadow
banking sector are particularly vulnerable to this because, like banks, they typically issue short-term, highly liquid debt. The fear that an institution may be unable to meet its obligations to its creditors
may trigger a withdrawal of credit—as in a bonk run. Of course, the perceived
inability of one institution to meet its obligations is likely to cast doubt on the ability of others to meet theirs, triggering
chains of distress and systemic risk.
The Federal Reserve was created precisely to stem such systemic risks by acting as a lender of last resorts, although
not since the Great Depression has the Fed acted to accomplish it by lending directly through its discount window to an entity
other than a depository institution{which it did in the case of Bear Stern--jk}
Currently, close to 20% of subprime mortgages
are delinquent or in foreclosure. The vast majority of subprime loans are recent
vintages, so only a fraction has hit reset dates as of late 2007.
In inflation-adjusted terms, spending on housing
construction fell by nearly 13% in 2006, and by nearly 19% last year—subtracting ¾ of a percentage point and a full
percentage point growth in those 2 periods. Moreover, forward-looking indicators—notable
huge inventoreies of unsold new and existing homes—suggest that the end is not yet in sight. It seems likely that residential construction will be a major drag on the overall economy through the end
of this year and into 2009.
Excerpts From 'All Together Now: Common Sense for a Fair Economy' by Jared Bernstein
http://www.nytimes.com/2006/07/19/opinion/TPRICHexcerpt.html?_r=2&pagewanted=all&oref=slogin&oref=slogin, New York Times, 7/19/06
In his book “All Together Now: Common Sense for a Fair Economy,” Jared Bernstein traces the origins and
evolution of “you’re on your own,” (YOYO) economics and articulates an alternative approach, “we’re
in this together,” (WITT).
The following excerpt is taken from the book’s introduction, “Ready or Not, You’re On Your Own,”
and from chapter 3, “The ‘All Together Now,’ Plan,” in which he analyzes various economic challenges
— including health care, globalization, income inequality — and presents a WITT approach to meeting those challenges.
(The challenges of Social Security and education are dealt with elsewhere in the book.) The excerpt focuses on two of those
areas: globalization and income inequality.
Jared Bernstein is the director of research on living standards at the Economic Policy Institute in Washington, D.C.
He holds a Ph.D in social welfare from Columbia University.
Introduction: Ready or Not, You’re On Your Own
Protecting the
rights of individuals has always been a core American value. Yet in recent years the emphasis on individualism has been pushed
to the [extreme] ... This political and social philosophy is ... paradoxically, making it harder for individuals to get a
fair shot at the American dream.
This extreme individualism
dominates the way we talk about the most important aspects of our economic lives, those that reside in the intersection of
our living standards, our government, and the future opportunities for ourselves and our children. The message, sometimes
implicit but often explicit, is, You’re on your own ... YOYO ...
... One central
goal of the YOYO movement is to continue and even accelerate the trend toward shifting economic risks from the government
and the nation’s corporations onto individuals and their families. You can see this intention beneath the surface of
almost every recent conservative initiative: Social Security privatization, personal accounts for health care (the so-called
Health Savings Accounts), attacks on labor market regulations, and the perpetual crusade to slash the government’s revenue
through regressive tax cuts — a strategy explicitly tagged as “starving the beast” — and block the
government from playing a useful role in our economic lives. ...
While this fast-moving
reassignment of economic risk would be bad news in any period, it’s particularly harmful today. As the new century unfolds,
we face prodigious economic challenges, many of which have helped to generate both greater inequalities and a higher degree
of economic insecurity in our lives. But the dominant vision has failed to develop a hopeful, positive narrative about how
these challenges can be met in a way as to uplift the majority.
Instead, messages
such as “It’s your money” (the mantra of the first George W. Bush campaign in 2000), and frames such as
“the ownership society,” stress an ever shrinking role for government and much more individual risk taking. Yet
global competition, rising health costs, longer life spans with weaker pensions, less secure employment, and unprecedented
inequalities of opportunity and wealth are calling for a much broader, more inclusive approach to helping all of us meet these
challenges, one that taps government as well as market solutions. ...
We’re In This Together
We need an alternative
vision, one that applauds individual freedom but emphasizes that such freedom is best realized with a more collaborative approach
to meeting the challenges we face. The message is simple: We’re in this together ...WITT.
Though this alternative
agenda uses the scope and breadth of the federal government to achieve its ends, this book is not a call for more government
in the sense of devoting a larger share of our economy to government spending. In fact, there is surprisingly little relationship
between the ideological agenda of those in charge and the share of the economy devoted to the federal government. To the contrary,
some of the biggest spenders of federal funds have been purveyors of hyper-individualism (with G. W. Bush at the top of the
list). But, regardless of what you feel the government’s role should be in the economy and society, an objective look
at the magnitude of the challenges we face shows we must restore the balance between individual and collective action. We
simply cannot effectively address globalization, health care, pensions, economic insecurity, and fiscal train wrecks by cutting
taxes, turning things over to the market, and telling our citizens they’re on their own, like the gold prospectors of
the 1800’s, to strike it rich or bust.
... At the heart
of the WITT agenda is the belief that we can wield the tools of government to build a more just society, one that preserves
individualist values while ensuring that the prosperity we generate is equitably shared. Importantly, under the WITT agenda,
this outcome occurs not through redistributionist Robin Hood schemes, but through creating an economic architecture that reconnects
our strong, flexible economy to the living standards of all, not just to the residents of the penthouse. As the pie grows,
all the bakers get bigger slices ...
YOYO Policies
Do Not Yield Better Outcomes
During
periods when YOYO policies have been most aggressively pursued — the administration of Ronald Reagan and George W. Bush
— economic results have been generally less impressive.
YOYO Policies
Do Not Yield Better Outcomes
During periods when YOYO policies have been most aggressively pursued
— the administration of Ronald Reagan and George W. Bush — economic results have been generally less
.
Chapter 3
The ‘All Together Now’ Plan
...Here, in broad
brush strokes, are some of the ideas I believe to be consistent with the [WITT] political philosophy. ...The intention is
not to elaborate on specific legislation ... but to sketch out a view of WITT-style policies in a number of critical areas.
Globalization
The
Problem:
While global trade
has obvious benefits (more consumer choice, lower prices and interest rates, greater interdependence), its costs are steep
and get buried in the cheerleading of public officials and the media. Most notably, our manufacturing sector, a source of
high-quality jobs for non-college-educated workers, has been decimated, though not, as is commonly thought, just by an increase
in trade. The culprit has been trade imbalances: we’ve been running big deficits in manufactured goods for over a decade,
and they’ve been setting records each quarter.
... [N]ow that
the price of transmitting information across borders is minimal, it’s happening in white-collar services as well, [with]
... the Princeton economist Alan Blinder, a former big shot at the Federal Reserve, predicting that “tens of millions
of additional workers will start to experience an element of job insecurity that has heretofore been reserved for manufacturing
workers.”
The
WITT Solution:
Start from the
proposition that if we’re having difficulty competing successfully in international markets, it’s a national problem,
not that of the individual displaced worker. Simply starting with that frame introduces a level of hope that the YOYO’s
cannot impart.
... When jobs are
outsourced ... we need a safety net for affected workers. The United States has a small program to do this, called Trade Adjustment Assistance,
but it is inadequate to the task ... with outlays of less than $1 billion in recent years ... The safety net should be comprehensive
enough to replace lost earnings and maintain health coverage.
... A much bigger
and better proactive idea is to engage in what I call “demand replacement.” We need to embark on a large-scale
national project that would generate enough demand for goods and services to replace the lost demand embedded in our persistent
trade deficits.
The best idea I’ve
seen in this regard is a long-term commitment to energy independence. As articulated by the Apollo Alliance, a coalition of
unions, environmentalists, businesses, faith groups, and others concerned about our unsustainable energy policies and the
loss of well-paying jobs, such a commitment serves many purposes. The coalition argues convincingly that the investment in
energy independence has the potential to revitalize and modernize key parts of our industrial base while diminishing our increasingly
harmful dependence on foreign oil. The idea is to initiate a large-scale public-private partnership to revitalize the sectors,
from manufacturing to information technology, that are reeling from globalization-related insecurities ...
Income Inequality
The
Problem:
According to the
U.S. Census Bureau, the real income of the typical household has been flat or has fallen in each of the past five years. ...
Meanwhile, productivity growth has been off the charts. In other words, the U.S. pie is growing, but many of those who’ve had a hand in baking
it are getting smaller slices.
The WITT Solution
... [F]ull-employment
economics is WITT economics.
... [T]he key to
appreciating full-employment economics is the notion of bargaining power, a factor that gets little play in YOYO economics.
It’s critical, however, because in periods when workers have little bargaining power, their chances of claiming a fair
share of productivity gains are diminished. ...
... How can you
channel the economy’s growth your way under a WITT framework? One way used to be joining a union ... But unions have
been on the wane for decades, as have related government mandates and corporate norms like the minimum wage or employer-provided
health care and pension coverage. One part of the WITT solution is thus to strengthen these mandates and rebuild those norms,
but in the absence of such pressures, we need a tight labor market, one where employers are compelled to more broadly share
the fruits of productivity growth to keep the workers they need.
... So what’s
the WITT plan to get there? It has two components...[T]he [Federal Reserve] in recent decades has tilted against price increases
more than it has against sluggish job growth. (To give credit where it’s due, Greenspan and company let the unemployment
rate in the latter 1990’s slide to levels that economists were sure would drive inflation up, but inflation remained
quiescent and the benefits of growth began to be shared.) ... The Full Employment and Balanced Growth Act of 1978 ... requires
the Fed to maintain full employment and even goes so far as to define [it]... But parts of the legislation have expired. ...
Congress needs
to enact a new, pumped-up, muscular version of [the law] with tough language about full employment . ... [with reports to
Congress by] the chairperson of the Fed ...
... When all else
fails, as Steve Savner and I argue in an American Prospect article, direct public-sector job creation is warranted. This is
a tried-and-true way to absorb excess labor supply and provide decent jobs to those stuck in areas with zero labor demand
and those blocked by barriers like discrimination.
Along with full
employment, unions and higher minimum wages can help too. One of the main reasons for declining union membership lies in power
dynamics. The cards are stacked so high against those who try to organize their workplaces that most campaigns never get off
the ground. ... There’s a neat piece of legislation called the Employee Free Choice Act that would help a lot in this
regard. ...
Higher minimum
wages are one of the most direct ways to diminish the wage gap between the lowest earners and the rest of the workforce ...
... I’m not
talking about bigger government. Apart from health care, which we can deliver much more efficiently, we don’t need to,
nor should we, crank federal outlays much above 20 percent of GDP, the recent historical average ...
But ... most of
us need more security in our economic lives. ...
It’s not
that much to ask for. But you can’t get there on your own.
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