Navigating the Jobs Crisis: Old Mistakes Die Hard
Monday, 11/23/2009 - 9:18 am by James K. Galbraith | 6 Comments
In the wake of the highest unemployment rate in 25 years, the Roosevelt Institute asked historians, economists and other public thinkers to reflect on the lessons of the New Deal and explore new, big ideas for how to get America back to work. James K. Galbraith warns that without a bold change in course, the jobs problem won’t go away.
I’m tempted to say that the United States is plainly unable to cope with the economic crisis in a serious way. The barriers are philosophical, procedural, and constitutional. So long as economic thinking is mired in a world that disappeared with the collapse of the Bretton Woods system in 1971, so long as any action requires 60 Senate votes, and so long as political capital erodes from the start of a fixed four-year presidential term, we’re stuck.
Technically it would have been fairly easy, 10 months ago, to get this bus back on the road. There could have been open-ended fiscal assistance to stop the budget hemorrhage of the states and cities. There could have been a jobs program and effective foreclosure relief. There could have been a payroll tax holiday. There could have been a strategy for sustained massive effort on infrastructure, energy and climate. There could have been prompt corrective action to resolve, instead of coddle, the worst of the banks.
I mostly don’t blame President Obama; he and his team went as far as they felt they could. I blame the head-in-the-sand politicians in Congress, the over-optimistic forecasters, the half-educated press, and the power of the financial lobby. I blame the avatars of fiscal virtue, the public debt scare-mongerers, the astrologers for whom thirteen significant digits (a trillion) for the stimulus package was just too much. I blame the Senate, which hands the balance of power to small states at the expense of disaster areas like California, Florida and New York. I do blame the Bush-Obama financial policy team, who either believed that “credit would flow again” if you stuffed the banks with money, or knew that it wouldn’t.
The Bretton Woods point deserves another word. According to the system established in 1944, the U.S. current account deficit — and by extension our public budget deficit — was limited by an obligation to exchange foreign-held dollars for gold. Richard Nixon abolished that arrangement. Since the early 1980s, the world has held the Treasury bonds that the U.S. chose to issue. The system is fragile. But so long as it lasts, it doesn’t discipline our budget (and if it broke, we could replace it). Low interest rates prove this: despite all the dire predictions, there is no difficulty in placing Treasury debt. Hence, we are free to pursue high employment, if we choose to do it.
Can anything be done now? Well yes, technically: the same steps that could have been taken in January 2009 could be taken in January 2010. But they won’t be, because for the moment we are seeing the inventory bounce, a productivity surge, real GDP growth, and other “good signs.” So we’ll be told to wait, to be patient, and to make sure we don’t buy what we can’t afford. And double-digit joblessness will linger on, breeding frustration and anger — perhaps all the way through to the mid-term elections. After which, what will be possible is anyone’s guess.
Sorry to be defeatist - it’s the way I feel. Prove me wrong.
James K. Galbraith is the author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should.
Perhaps the battle between conventional Republicans and teabaggers will limit the political damage in 2010. As for the long term, it looks like another crisis is very likely. I once thought it impossible that fascism could arise in the U.S. I am not so sure now. Look at the violent tendencies of the tea protestors. Couple that with another oil shock and high unemployment and slogans like “drill baby drill” and “end the Fed” could become a reality.
Posted by kevin | November 23rd, 2009 at 10:05 am
It happened in Rome, no reason it shouldn’t happen here (and that’s my broad generalization for the day).
Posted by James Call | November 23rd, 2009 at 11:07 am
I’m surprised that Jamie’s remarks haven’t captured more attention. He cut to the chase.
Posted by Movie Guy | November 23rd, 2009 at 11:22 pm
Seventy-six years ago a Senator from Alabama — yes, Jamie, Alabama — proposed a solution to an earlier unemployment crisis. And you know what? The Senate approved it 53-30. But the Big Boys objected and we got the NRA instead. “It will be remembered,” wrote brain truster Rexford Tugwell, “that one of the reasons why NRA was sponsored by Roosevelt, and why the act was passed in the special session of spring, was the threat of a thirty-hour law being pushed by Senator Hugo Black.” Tugwell was wrong. It has not been remembered. It is forgotten that Roosevelt only acted in the face of a more radical mobilization.
The problem with the solutions you propose, Jamie, is that they are the kind of moderate, respectable responses that might be forthcoming from an Obama administration if (and only if) there was momentum building for a more radical response to the jobs crisis.
There is a 240-year arc to this crisis, a 60-year arc and a 30-year arc. The 240-year arc is “capitalism”. The 60-year arc is “the cold war” and the 30-year arc is “neo-liberalism”. Until enough people understand how those three arcs relate to each other, there’s not going to be any resolution of this crisis. Moving beyond the neo-liberalism of the last 30 years cannot mean restoring some solution from a more distant past. What is most frightening about the present crisis is that its resolution has the potential for a previously inconceivable degree of emancipation. It is precisely the THREAT of freedom that is evoking such great resistance.
“Civilization has to defend itself against the specter of a world which could be free. If society cannot use its growing productivity for reducing repression (because such usage would upset the hierarchy of the status quo), productivity must be turned against the individuals; it becomes itself an instrument of universal control.”
Posted by Tom Walker | November 24th, 2009 at 2:14 am
You’re wrong, Jimmy. There is not enough dollars in the world to address the sinkhole glut of goods China will be exporting in the next few years. The American system - the dollar system - is dead. The US will not be able to absorb the surplus that China will produce.
Get your galoshes, it’s gonna get deep, baby.
Posted by charley | November 24th, 2009 at 9:06 pm
Well said Movie Guy.
Are you quoting someone else in the last paragraph? If so, could you provide a reference to the discussion?
Thanks,
Posted by Wireless Guy | November 25th, 2009 at 4:28 pm