I suspect I’m not the only nerd who loves The Man in the High Castle or The Plot Against America. Generally, these are billed as ‘What if the Nazi’s had won the war?” stories. It’s telling that both novels start with the premise of no FDR, and thus no New Deal, as the starting point. In the wake of this manufactured ‘debt crisis’, and the policies our country was just extorted into by the most reactionary sliver of society, I’m re-reading them both.
Welcome to the Old Deal—a world where FDR never was.
To understand the core idiocy of what just happened, we must take a moment to understand why the economy has not recovered from the 2008 (real) crisis.
In the three decades since conservative republican economic policies have reigned in the United States, wages of workers—just about anyone who does anything of value, from sweeping floors to surgery—have barely increased. (In real dollar terms, adjusting for inflation.) At the same time, worker productivity—the value of the work each useful person can do—has dramatically increased. A split emerged—between what our society could produce (productivity) and consume (wages).1
For some time, this split was covered by debt. Most of us simply continued to make up the gap between what our wages afforded us, and what we reasonably could consider our share of the nation’s production, by borrowing money. Since 2008, credit and the willingness to continue to borrow on the part of ‘consumers’ (you and I, and everyone you know) has dried up. This gap, hidden before, now is apparent.
Recessions, and depressions, happen when an economy’s productive capacity is greater than its demand. Putting this even more directly: It’s been so long since anyone who works for a living has gotten their fare share of the fruits of their labor, there is not enough spending money in the private sector to buy everything we can make. In its place, we have created massive idle wealth. Our situation today is quite analogous to our situation in the late 1920’s, early 1930s—immediately pre-New Deal
There is a solution, as old as FDR: If the people don’t have money to spent, and labor to spare, the government should hire them and put them to work. The best way would be by tapping into all that idle wealth—by taxing the ultra wealthy. If that isn’t politically feasible, the next best thing is for the government to borrow money (from the cowardly idle wealth) to hire the idle workers. This is the most basic—and well proven—concept in macroeconomics: During an economic crisis, when the private sector fails to keep up demand, the government must step in and put people to work.
The New Deal, and FDR, was just this. Tax the wealthy, borrow money, hire workers idled the flailing private sector and match demand to productivity. It worked, and set the United States into a leadership position in the world. The Marshall Plan (post WWII) was essentially the same game plan, and set up long lasting peace and prosperity in Europe.
The lunatics that manufactured this (fake) 2011 debt crisis don’t believe this. Against all logic, all evidence, and our own recent history, the Tea Party (aka neo-Hooverites) have forced us to cut, drastically, governmental spending right as the private sector continues to flail aimlessly. It’s a recipe for a disaster—ripped right from the pages of some of the darkest SciFi novels ever written. Enjoy your ringside seat.
1. Really think about this. Since 1980, wages in real dollar terms have barely increased. Put another way: The fruits of the entire personal computer and internet industries have entirely gone into the pockets of a superwealthy, super idle elite. Nuts.
@41: “YOU pay 7.75 percent of your FICA tax. The remaining half your employer pays.”
7.75+0.5=1? You went full leotard, man. Never go full leotard.
@42: Afghanistan wasn’t unjustified; it was just horribly botched in its implementation. Bush got us in there, and rather than making a clean deal of it and getting out right sharpish, he went gallivanting off to Iraq. He could have nailed Osama bin Laden at Tora Bora, but he had other plans, and so it was Barack Obama who ended up getting the bastard. (Of course, the bigger issue is that Bush could have prevented 9/11 if only he’d taken the Clinton-era intel seriously, but his focus was on Iraq, not on actually preventing real threats to our nation.)
@50: What, Bush didn’t stall or stutter in response to 9/11? Fifteen minutes after the attacks hit the airwaves, Bush went and had a nice photo-op reading to some second graders, despite already having been briefed on the hijackings. He stayed there for at least ten minutes after being told of the second tower being hit.
A Gore would have listened to the huge amount of intelligence from Clinton officials warning of an imminent attack by Al Qaeda, a good portion of it even predicting hijacking attempts in order to use airliners as missiles. If Gore had won the election, the Twin Towers would probably still be standing.
@51: The Clinton budget surplus was the result of a tax increase at the very beginning of his presidency (when the Democrats controlled Congress). What do you know? It was mostly a tax hike on the rich!
“The wages of “productive people” cannot gain relative to inflation. If they did, inflation would have been higher. That’s the point. If you pay everyone more, you devalue the currency. If the average wage rises, everyone’s value falls to compensate.”
One of the stupidest, most trite things I’ve read on Slog. This, of course, falls apart when you measure productivity against work force utilization. Inflation isn’t a problem until you’re closer to full employment and we have 15-20% real unemployment.
I wouldn’t mind giving money to people to work if the government did this. So far it hasn’t, so far the idle wealth has be taken from the rich by the govenmet printing new money and devaluing the dollar. If, from the start the government would have made new jobs to repair americas crumbling infrastructure I think we would be in a much better situation right now.
@53
Fica is 15.5 percent of earnings. Hence, you pay 7.75, your employer the remaining 7.75.
I expect you think the government knew about Pearl Harbor in advance, and cynically gave up an obsolete fleet to gain a causus belli, as well.
Truth is, Clinton didn’t take Al Queda seriously either. And the truth is Gore is hapless at best, idiotic more likely. Historical second guessing doesn’t serve anyone. But knowing that Kerry went to Congress to lie about his fellow soldiers, that he’s been a gasbag without any substance for his entire career and that Gore is essentially the same made choosing George Bush easy, if not particularly happily.
@54
I don’t think the ‘average liberal’ does. It’s the problem the far left fringe has, that mainstream democrats are their best option but still far from ideologically congenial.
@57: That’s not what you said about FICA. You said that you pay 7.75% of it[the tax itself] and that your employer pays the other half.
Pearl Harbor was an attack planned by a sovereign nation which we had little to no intelligence against, due to not yet being at war with them. The attacks of 9/11 were planned by a ragtag group of outlaws, a group that was already known to be our enemy, and which our intelligence community had been following closely for quite some time. Our intelligence community under Clinton had been gathering information of Al Qaeda’s activities with the blessings of administration officials. However, the Bush administration higher-ups were happy to remain ignorant of Al Qaeda’s plans, refusing to give our intelligence officers the time of day on that subject and thus preventing the FBI and CIA from working together effectively. Richard A. Clarke was quite clear, in his testimony on the subject, that Bush cared more about the false threat of Iraq than the very real threat of Al Qaeda. Clinton and Gore had no such distraction, but sadly they were not the ones calling the shots when the shit hit the fan.
With regard to your comments about the left fringe with regard to the average liberal:
If you don’t lump us in with the communists, we won’t lumo you in with the fascists and the Ku Klux Klan. Deal?
@42, I have been more than civil to you as we discuss other issues. But when you accuse me of hating this country and thinking bin Laden is a hero, then all bets are off.
Where do you get off, saying that people on the left hate America? We love this country, we love its ideals. I want the US to live up to its ideals more often. We see things differently from you, yes. Only natural that people will have differences of opinion, large and small.
It is the laziest argument, the cheapest insult, to state that anyone who doesn’t agree with you must hate their country. Patriotism may be the last refuge of the scoundrel, but you are no scoundrel. You’re just a sad, pathetic little man cringing at shadows, fearing change and difference. Logic doesn’t work with you; reason doesn’t work with you. I’ve tried that after others gave up.
I don’t know what you get out of coming here, but I’m no longer even vaguely curious. Get lost.
So I started writing this and realized I’d need a whole textbook to make my point coherently. So I’m going to limit myself to two points and then I’ll answer any SPECIFIC questions anyone has, as I just can’t fit the general idea in anything short of a thesis…
Jonathan may not have a degree in economics, but I do. Two of them, in fact (although my MA is in international trade & financial systems, and that expertise comes in a bit later).
POINT A: While he’s not saying it the way an economist would, he’s right about the New Deal. Demand fell, production was cut (although not as much as the decline in demand would imply, but that’s a topic – fixed costs – that is only sort of relevant to this thread). Many workers were idled in this process. The government put people to work to pump up demand for privately-produced goods and ultimately increase employment in the private sector. This is not a 2 or 3 year endeavor, so those whining that the stimulus failed are only right in so far as it wasn’t big enough (and thus will NOT work). No stimulus would have worked this quickly, so the permanent flaw is size and not 2-ish year returns.
Now, more to the point, the whole New Deal success is much more difficult to apply in other times because of, obviously, WWII. We had both massive government payment of idled workers, first on public works projects and then as members of the military and employees in the military industrial complex, and then massive government demand for military goods that were – by and large – produced by the private sector. Another caveat is that government employed people in building infrastructure which produced several additional beneficial effects. First, it provided a service to businesses. It became easier to move goods and their inputs from point A to point B because of better infrastructure. Second, it made the movement of people easier. Trains and roads allowed people to travel like they never had before…like to where the jobs were (and, firsthand experience, my family moved to a major industrial production area during the pre-war period in order to take advantage of the increase in jobs, after being employed building the roads and railroads that ended up carrying them there).
POINT B: Jonathan is also right that inflation-adjusted wages are about the same as they were in 1980, excluding the upper echelons of society. But the average person IS a little better off…or, at least WAS until the lie was uncovered so thoroughly in 2008. Part of that “better off” is that things are cheaper now than they used to be, and that is 100% the result of international trade. See, I SAID my expertise would come in! The other part of that “better off” is the movement of “paper wealth” to the general public. The stock market has been ON FIRE since the 1980’s. Home values have been SKYROCKETING. That was, until 2008. And that “paper wealth” made people spend more than they were bringing in, enabled by cheap credit predicated, ostensibly, on “paper wealth.” As a child, I lived in an upper-middle-class single-earner family (not that common in the 1980’s) and we did, indeed, have a credit card. ONE. That was hardly ever used. I have 5 in my wallet right now, that I use at least once a month lest the companies drop me for lack of use. My parents shit a brick when I got a 30-year fixed mortgage on a home that was costing me about 27% of my income at the time I bought it. My grandparents nearly disowned me over the 5% downpayment. And that was a more conservative move than most of my friends. My banker laughed at me for sweating a mortgage over 25% of my income, kindly informing me that they could approve anything up to 45%! So, cheaper products + paper wealth + increasing productivity both here and abroad (another driver of cheaper goods that has already been touched on) + easy credit = same income, slightly better off. So, it wouldn’t be a huge issue that wages have stagnated if the upper tiers weren’t making so DAMN. MUCH. MORE. than they were last year, and 10 years ago, and particularly 30-40 years ago. If everything stagnated with the same conditions besides that, we would be fine. Because it was all predicated on a lie, we’re in deep shit.
Sigh…I didn’t even get into the sources of income for the rich people, which I believe is one of the biggest problems in our economy. Okay…going to bed and will address THAT subject in the morning…
@60
Preach it Ms. D.
As for those who think like Seattle Blues, which is far too common, how many times can economists say this? Government is not the same as a business, let alone a family.
If I charge too much on my credit card, I should restrict my spending until I pay it off. Governments’ involvement with the economy is completely different. It is not in any way an accurate analogy.
“Borrow money we don’t have.” Just for a second, go do some research on exactly wtf a liquidity trap is. Krugman explains it beautifully, including why the whole idea of deficits being this abstract evil in a liquidity trap is simply stupid. Remember the whole reason we have to be so worried is because of inflation and interest rates (according to right wingers). You see any inflation around here? How about those sky rocketing interest rates? Anywhere that isn’t commodities (which aren’t included in the CPI for a reason – they aren’t in anyway a good measure of what’s going on with the money supply)? Nope. You haven’t. And you won’t. Because that’s not how things work. People like SB have to stop thinking that they can super impose their tiny little lives as guides to macroeconomics. They won’t. But they should.
What will it take for this stupidity to end? 30% real unemployment? 40%? Let me know. Because as you watch your neighbor struggle to find work and feed his family and think to yourself ‘I’m so much better than they,” know that it can happen to you next. Who will you look to then? Probably the government because you’re a hypocritical coward. “I pay my unemployment/state taxes, I deserve this. It’s only those other people who aren’t working who deserve to suffer,” you’ll rationalize to yourself. The mind boggles with the lengths selfish pricks like yourselves will go to justify your false sense of superiority.
And yes, I’m in a mood because I pretty much had the above conversation earlier tonight.