Obama invoked that legacy repeatedly during the campaign, from the account of how his grandfather benefited from the GI Bill to his proposals to create jobs and economic growth through federal investment in education, industrial innovation and infrastructure. Such rhetoric allowed him to claim the legacy of the most popular and successful government programs in American history, but it also displayed some of the limitations of New Deal policies, particularly in their ability to address racial inequality. We can thus turn to the history of those programs for an indication of how the Obama administration will confront the interrelated problems of economic and racial inequality in the twenty-first-century United States.
Despite conservatives' alarm about "the slippery slope to socialism," Franklin Roosevelt displayed a strong aversion to direct control over the economy. Instead, his administration relied on civil society groups to implement and enforce government policies. Rather than impose wage and price regulations to stabilize the economy, for example, the National Recovery Administration allowed business associations to establish standards and then empowered unions to enforce them. That unprecedented mobilization of civil society sowed the seeds for the industrial union movement, which proved critical to Roosevelt's re-election in 1936 and deepened his commitment to social democratic reform in the late 1930s and early '40s.
...
But there is a more troubling side to the New Deal's legacy, which will not be resolved through populist appeals to the struggling middle class. A growing body of scholarly literature has shown that the same reliance on civil society that inspired the labor movement also prevented the Roosevelt administration from addressing deeply ingrained racial inequalities. While unions improved wages and conditions for industrial workers, they had little impact on the agricultural and service sectors, where the vast majority of blacks and Latinos labored for low wages without collective bargaining rights, health insurance or even Social Security. The GI Bill offered mortgage assistance and scholarships to all veterans but did nothing to ensure that African-Americans could use those benefits to attend segregated colleges or buy homes in segregated neighborhoods. Indeed, had Obama's paternal grandparents lived in the United States it is unlikely they would have shared the sepia-toned vision of the New Deal era that was so pervasive in his campaign material.
...
President-elect Obama has an opportunity to further racial and economic justice by fusing the New Deal and civil rights traditions. He expressed that link directly in Philadelphia in March, when he insisted that unless Americans confront racial inequality directly, they will "never be able to come together and solve challenges like healthcare, or education, or the need to find good jobs for every American." Such a confrontation would entail strengthening the Equal Employment Opportunity Commission and other civil rights agencies, while addressing racial inequalities in primary school funding, economic development and incarceration. Just as the GI Bill benefited white veterans more than black ones, race-neutral policies are likely to exacerbate existing inequalities.
This piece, and the thoughts behind it, have three frightening ideas. If these ideas are taken by President Obama then I believe we are headed toward economic disaster.
1) The lionization of FDR's New Deal
FDR casts a massive historical shadow, however one of the unfortunate by products of this is that he gets all sorts of economic credit he simply doesn't deserve. I say it over and over but it's worth repeating, unemployment was still more than ten percent in 1940. Of course, GDP began growing only about a year plus after he took office, however given how much he spent, it better have. Still, he didn't necessarily bring jobs back to the nation. Furthermore, the by product of FDR's New Deal is that we have a bunch of failing and flawed government programs like Social Security, Medicaid and Fannie Mae. If FDR is the model we choose, it is the wrong model.
Reagan, it could be argued, took over an economy in just as bad a shape. We not only had double digit unemployment but interest rates and inflation. Within three years though, the economy not only turned around but took off. Unlike FDR, Reagan relied on tax cuts to spur the economy. FDR relied on government spending. The results speak for themselves. If FDR is Obama's model, we may still have double digit unemployment come 2016.
2) The insistence on all or nothing socialism.
Jones uses the same M.O. as most liberals in dismissing Obama's and FDR's pseudo Socialism. Unless either is a full blown Socialist, all fears are overblown. Yes it's true, FDR didn't nationalize everything and give total control to the federal government. That doesn't mean that there wasn't plenty to fear from FDR's Socialistic tendencies. He partially socialized health care, retirement, and housing, and each of those programs (Medicare, Social Security, and Fannie Mae) are a burden on our economy to this day. He presided over the biggest expansion of government in the history of our nation and it's only gotten bigger since then. If Barack Obama expands the government as much FDR did, we will face a bureaucracy that will get in the way of everyone and everything.
3) Economic recovery isn't enough. We also need economic justice or social engineering.
We already know that Barack Obama has an affinity for economic justice or social engineering. He said as much in his infamous 2001 WBEZ inteview.
The far left isn't merely content with President Obama fixing the economy. The far left wants him to engage in social engineering through eupimisms like "social and economic justice". Jones wants Obama to create policy that will lift up African Americans, and he wants Obama to create programs that even out the playing field.
The far left will have President Obama's ear and they won't merely demand a new New Deal. Furthermore, they will demand that this version of the New Deal not only lifts our economy but creates some sort of social equality. Furthermore, unless it is entirely Socialist, we need not worry about any of the policies that get us there.
7 comments:
I truly agree with the persons mindset and thoughts for obama being president. All these things are really true and worth considering.
You're being honest and that I can respect. That said, this is boiler plate income redistribution. If you think that income redistribution is a good idea, that is a debate I am ready to have.
I'd be glad to oblige you on the Income redistribution debate. First we have to establish some basic facts, because the term is loaded with emotional meaning that upon inspection turns out to be misleading. Income redistribution, by definition, is changing the relative proportion of incomes of the existing wealth demographic groups. Instantaneously, it doesn't even change the wealth of those groups---it has to be integrated over time, as the income is accumulated into wealth. Thus, we have the first observation that redistribution doesn't mean that the taxman will take away anyone's stuff.
Secondly, if you look at historical wealth distribution patterns in the US (e.g. the CBO data http://www.cbpp.org/1-23-07inc.htm) there is an undeniable change favoring higher income groups in recent decades. Such historically skewed distribution simply do not correlates with sound economy---similar numbers occurred in the late 1920s.
I didn't hear many people complaining about the income redistribution as the fiscal and economical changes favored the top groups in the past decade or two.
I was a beneficiary, frankly, but even as it is going to affect me personally, I believe that the wealth inequality has to decrease for the long-term prosperity to continue. There is simply no existing example of a successful economy with the wealth inequality into which we are currently trending to. In other words, our long-term interest should compel us to redistribute income.
This ought be a spirited debate since our perspectives couldn't be more different.
First, you are complicating what is a simple idea. Income redistribution is exactly what the words are. It's when income is taken from one group and given to another group. Now, when Barack Obama says that 5% of the people will get a tax increase at the same time the rest get a tax cut, that is income redistribution. The tax increases of the wealthy go for tax cuts for everyone else. One group keep less of their money in order for other groups to keep more.
Your other point is more interesting. You point out that income has been skewed more and more to the wealthy. Of course, that's what makes them wealthy.
Where I have a problem, is that you think it is the government's role to even the playing field.
I couldn't disagree more. Taxes are a necessary evil. The government should figure out a way to tax everyone as little as possible. Whether you make 20k year, 50k, 100k, or you are even more successful, as you claim, the government should be trying to figure out how to allow you to keep as much of your own money as possible.
You believe that taxes should be a tool of social engineering. I think taxes are a necessary evil that should be used as little as possible. I wrote a piece about this very subject earlier...
http://theeprovocateur.blogspot.com/2008/10/fallacies-of-taxation-as-tool-of-social.html
Hi Mike,
This is an article by Robert Reich.
I was unsure where to post it. I remember reading your arguements for top-down economics.
Not trying to provoke, just interested in your view on his views. Especially the last part of the article which is about bottom-up economics.
"When Barack Obama takes office in January, he will inherit a mess. (Because I'm an informal economic adviser, I should remind anyone who reads this blog that it reflects only my thoughts and therefore should not be attributed to him or to anyone else advising him.) What to do?
First, understand that the main problem right now is not the supply of credit. Yes, Wall Street is paralyzed at the moment because the bursting of the housing and other asset bubbles means that lenders are fearful that creditors won't repay loans. But even if credit were flowing, those loans wouldn't save jobs. Businesses want to borrow now only to remain solvent and keep their creditors at bay. If they fail to do so, and creditors push them into reorganization under bankruptcy, they'll cut their payrolls, to be sure. But they're already cutting their payrolls. It's far from clear they'd cut more jobs under bankruptcy reorganization than they're already cutting under pressure to avoid bankruptcy and remain solvent.
This means bailing out Wall Street or the auto industry or the insurance industry or the housing industry may at most help satisfy creditors for a time and put off the day of reckoning, but industry bailouts won't reverse the downward cycle of job losses.
The real problem is on the demand side of the economy.
Consumers won't or can't borrow because they're at the end of their ropes. Their incomes are dropping (one of the most sobering statistics in Friday's jobs report was the continued erosion of real median earnings), they're deeply in debt, and they're afraid of losing their jobs.
Introductory economic courses explain that aggregate demand is made up of four things, expressed as C+I+G+exports. C is consumers. Consumers are cutting back on everything other than necessities. Because their spending accounts for 70 percent of the nation's economic activity and is the flywheel for the rest of the economy, the precipitous drop in consumer spending is causing the rest of the economy to shut down.
I is investment. Absent consumer spending, businesses are not going to invest.
Exports won't help much because the of the rest of the world is sliding into deep recession, too. (And as foreigners -- as well as Americans -- put their savings in dollars for safe keeping, the value of the dollar will likely continue to rise relative to other currencies. That, in turn, makes everything we might sell to the rest of the world more expensive.)
That leaves G, which, of course, is government. Government is the spender of last resort. Government spending lifted America out of the Great Depression. It may be the only instrument we have for lifting America out of the Mini Depression. Even Fed Chair Ben Bernanke is now calling for a sizable government stimulus. He knows that monetary policy won't work if there's inadequate demand.
So the crucial questions become (1) how much will the government have to spend to get the economy back on track? and (2) what sort of spending will have the biggest impact on jobs and incomes?
The answer to the first question is "a lot." Given the magnitude of the mess and the amount of underutilized capacity in the economy-- people who are or will soon be unemployed, those who are underemployed, factories shuttered, offices empty, trucks and containers idled -- government may have to spend $600 or $700 billion next year to reverse the downward cycle we're in.
The answer to the second question is mostly "infrastructure" -- repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation. Even conservative economists like Harvard's Martin Feldstein are calling for government to stimulate the economy through infrastructure spending. Infrastructure projects like these pack a double-whammy: they create lots of jobs, and they make the economy work better in the future. (Important qualification: To do this correctly and avoid pork, the federal government will need to have a capital budget that lists infrastructure projects in order of priority of public need.)
Government should also spend on health care and child care. These expenditures are also double whammies: they, too, create lots of jobs, and they fulfill vital public needs.
Expect two sorts of arguments against this. The first will come from fiscal hawks who claim that the government is already spending way too much. Even without a new stimulus package, next year's budget deficit could run over a trillion dollars, given the amounts to be spent bailing out Wall Street and perhaps the auto industry, and providing extended unemployment insurance and other measures to help those in direct need. The hawks will argue that the nation can't afford giant deficits, especially when baby boomers are only a few years away from retiring and claiming Social Security and Medicare.
They're wrong. Government spending that puts people back to work and invests in the future productivity of the nation is exactly what the economy needs right now. Deficit numbers themselves have no significance. The pertinent issue is how much underutilized capacity exists in the economy. When there's lots of idle capacity, deficit spending is entirely appropriate, as John Maynard Keynes taught us. Moving the economy to fuller capacity will of itself shrink future deficits.
The second argument will come from conservative supply-siders who will call for income-tax cuts rather than spending increases. They'll claim that individuals with more money in their pockets will get the economy moving again more readily than can government. They're wrong, for three reasons. First, income-tax cuts go mainly to upper-income people who tend to save rather than spend. Most Americans pay more in payroll taxes than in income taxes. Second, even if a rebate could be fashioned, people tend to use those extra dollars to pay off their debts rather than buy new goods and services, as we witnessed a few months ago when the government sent out rebate checks. Third, even when individuals purchase goods and services, those purchases tend not to generate as many American jobs as government spending on the same total scale because much of what consumers buy comes from abroad.
Fiscal hawks and conservative supply siders notwithstanding, a major stimulus is in order. Government is the spender of last resort, and the nation is coming close to its last resort."
When Barack Obama takes office in January, he will inherit a mess. (Because I'm an informal economic adviser, I should remind anyone who reads this blog that it reflects only my thoughts and therefore should not be attributed to him or to anyone else advising him.) What to do?
First, understand that the main problem right now is not the supply of credit. Yes, Wall Street is paralyzed at the moment because the bursting of the housing and other asset bubbles means that lenders are fearful that creditors won't repay loans. But even if credit were flowing, those loans wouldn't save jobs. Businesses want to borrow now only to remain solvent and keep their creditors at bay. If they fail to do so, and creditors push them into reorganization under bankruptcy, they'll cut their payrolls, to be sure. But they're already cutting their payrolls. It's far from clear they'd cut more jobs under bankruptcy reorganization than they're already cutting under pressure to avoid bankruptcy and remain solvent.
This means bailing out Wall Street or the auto industry or the insurance industry or the housing industry may at most help satisfy creditors for a time and put off the day of reckoning, but industry bailouts won't reverse the downward cycle of job losses.
The real problem is on the demand side of the economy.
Consumers won't or can't borrow because they're at the end of their ropes. Their incomes are dropping (one of the most sobering statistics in Friday's jobs report was the continued erosion of real median earnings), they're deeply in debt, and they're afraid of losing their jobs.
Introductory economic courses explain that aggregate demand is made up of four things, expressed as C+I+G+exports. C is consumers. Consumers are cutting back on everything other than necessities. Because their spending accounts for 70 percent of the nation's economic activity and is the flywheel for the rest of the economy, the precipitous drop in consumer spending is causing the rest of the economy to shut down.
I is investment. Absent consumer spending, businesses are not going to invest.
Exports won't help much because the of the rest of the world is sliding into deep recession, too. (And as foreigners -- as well as Americans -- put their savings in dollars for safe keeping, the value of the dollar will likely continue to rise relative to other currencies. That, in turn, makes everything we might sell to the rest of the world more expensive.)
That leaves G, which, of course, is government. Government is the spender of last resort. Government spending lifted America out of the Great Depression. It may be the only instrument we have for lifting America out of the Mini Depression. Even Fed Chair Ben Bernanke is now calling for a sizable government stimulus. He knows that monetary policy won't work if there's inadequate demand.
So the crucial questions become (1) how much will the government have to spend to get the economy back on track? and (2) what sort of spending will have the biggest impact on jobs and incomes?
The answer to the first question is "a lot." Given the magnitude of the mess and the amount of underutilized capacity in the economy-- people who are or will soon be unemployed, those who are underemployed, factories shuttered, offices empty, trucks and containers idled -- government may have to spend $600 or $700 billion next year to reverse the downward cycle we're in.
The answer to the second question is mostly "infrastructure" -- repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation. Even conservative economists like Harvard's Martin Feldstein are calling for government to stimulate the economy through infrastructure spending. Infrastructure projects like these pack a double-whammy: they create lots of jobs, and they make the economy work better in the future. (Important qualification: To do this correctly and avoid pork, the federal government will need to have a capital budget that lists infrastructure projects in order of priority of public need.)
Government should also spend on health care and child care. These expenditures are also double whammies: they, too, create lots of jobs, and they fulfill vital public needs.
Expect two sorts of arguments against this. The first will come from fiscal hawks who claim that the government is already spending way too much. Even without a new stimulus package, next year's budget deficit could run over a trillion dollars, given the amounts to be spent bailing out Wall Street and perhaps the auto industry, and providing extended unemployment insurance and other measures to help those in direct need. The hawks will argue that the nation can't afford giant deficits, especially when baby boomers are only a few years away from retiring and claiming Social Security and Medicare.
They're wrong. Government spending that puts people back to work and invests in the future productivity of the nation is exactly what the economy needs right now. Deficit numbers themselves have no significance. The pertinent issue is how much underutilized capacity exists in the economy. When there's lots of idle capacity, deficit spending is entirely appropriate, as John Maynard Keynes taught us. Moving the economy to fuller capacity will of itself shrink future deficits.
The second argument will come from conservative supply-siders who will call for income-tax cuts rather than spending increases. They'll claim that individuals with more money in their pockets will get the economy moving again more readily than can government. They're wrong, for three reasons. First, income-tax cuts go mainly to upper-income people who tend to save rather than spend. Most Americans pay more in payroll taxes than in income taxes. Second, even if a rebate could be fashioned, people tend to use those extra dollars to pay off their debts rather than buy new goods and services, as we witnessed a few months ago when the government sent out rebate checks. Third, even when individuals purchase goods and services, those purchases tend not to generate as many American jobs as government spending on the same total scale because much of what consumers buy comes from abroad.
Fiscal hawks and conservative supply siders notwithstanding, a major stimulus is in order. Government is the spender of last resort, and the nation is coming close to its last resort"
To Reich and to the last anonymous poster, I would say a much better stimulus involves across the board tax cuts including income, capital gains, and corporate tax.
The problem I have with someone like Reich and you is that for every problem there is a big government solution. Someone like Reich and Obama can't imagine the economy being stimulated without a massive expansion of government.
It can happen and it has happened under Reagan and the long term effects are significantly better than the expansion of government that Reich and Obama are proposing.
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