Economy

Game Over, Austerity—Obama's Speech Clinches the Case Against Right-Wing Economics

Can Grover Norquist and his congressional cronies just go away now?

Photo Credit: 1000 words/Shutterstock.com

 

If you need any further evidence of the stark ideological divide that separates progressives from conservatives, you can find it by contrasting President Barack Obama’s speech on the economy with the response of the House Republicans.

In his speech, the president provided a capsule summary of the mainstream progressive narrative about the U.S. economy from 1945 to 2009:

In the period after World War II, a growing middle class was the engine of our prosperity. Whether you owned a company, swept its floors, or worked anywhere in between, this country offered you a basic bargain – a sense that your hard work would be rewarded with fair wages and benefits, the chance to buy a home, to save for retirement, and, above all, to hand down a better life for your kids.

But over time, that engine began to stall. That bargain began to fray. Technology made some jobs obsolete. Global competition sent others overseas. It became harder for unions to fight for the middle class. Washington doled out bigger tax cuts to the rich and smaller minimum wage increases for the working poor. The link between higher productivity and people’s wages and salaries was severed – the income of the top 1% nearly quadrupled from 1979 to 2007, while the typical family’s barely budged.

Towards the end of those three decades, a housing bubble, credit cards, and a churning financial sector kept the economy artificially juiced up.

That’s an excellent statement of the progressive theory of the case. What collapsed in 2008 was not merely the lesser stock and real estate bubble of the 2000s, but the larger Bubble Economy which had been “artificially juiced up” since the 1980s.

If you accept this thesis, as most progressives do, there can be no going to back to pre-2008 “normality”— because from Reagan to George W. Bush the “normal” was abnormal and sustained only by the Keynesian stimulus provided by Reagan’s and George W. Bush’s military build-ups and the stock market and real estate bubbles fueled by tax cuts for the rich. (Conservatives oppose Keynesian stimulus in the form of productive infrastructure investment, but support Keynesian stimulus if it benefits rentiers, defense contractors, real estate speculators and money managers).

 

In the progressive view, rebuilding a broken economy requires productivity-enhancing investment in manufacturing, innovation, infrastructure and education. In his speech, the president called for federal action in all four areas.

Manufacturing:  “The first cornerstone of a strong and growing middle class has to be an economy that generates more good jobs in durable, growing industries. Over the past four years, for the first time since the 1990s, the number of American manufacturing jobs hasn’t gone down; they’ve gone up. But we can do more. So I’ll push new initiatives to help more manufacturers bring more jobs back to America.”

Innovation:  “And I’ll push to open more manufacturing innovation institutes that turn regions left behind by global competition into global centers of cutting-edge jobs.”

Infrastructure:  “We’ve got ports that aren’t ready for the new supertankers that will begin passing through the new Panama Canal in two years’ time. We’ve got more than 100,000 bridges that are old enough to qualify for Medicare. Businesses depend on our transportation systems, our power grids, our communications networks – and rebuilding them creates good-paying jobs that can’t be outsourced. And yet, as a share of our economy, we invest less in our infrastructure than we did two decades ago.”

Turning to education, the president set forth a vision of comprehensive reforms from preschool to college:

If we don’t make this investment, we’ll put our kids, our workers, and our country at a competitive disadvantage for decades. So we must begin in the earliest years. That’s why I’ll keep pushing to make high-quality preschool available to every four-year-old in America – not just because we know it works for our kids, but because it provides a vital support system for working parents. I’ll also take action to spur innovations in our schools that don’t require Congress. Today, for example, federal agencies are moving on my plan to connect 99% of America’s students to high-speed internet over the next five years. And we’ve begun meeting with business leaders, tech entrepreneurs, and innovative educators to identify the best ideas for redesigning our high schools so that they teach the skills required for a high-tech economy.

We’ll also keep pushing new efforts to train workers for changing jobs….

Families and taxpayers can’t just keep paying more and more into an undisciplined [higher education] system; we’ve got to get more out of what we pay for… And in the coming months, I will lay out an aggressive strategy to shake up the system, tackle rising costs, and improve value for middle-class students and their families.

The president completed his vision for rebuilding “an economy that grows from the middle out” by calling for increased access to affordable health care and retirement security and a minimum wage that is a living wage: “And because no one who works full-time in America should have to live in poverty, I will keep making the case that we need to raise a minimum wage that in real terms is lower than it was when Ronald Reagan took office.”

The one subject on which Obama sounded more like a conservative than a progressive was retirement security. “Today, a rising stock market has millions of retirement balances rising. But we still live with an upside-down system where those at the top get generous tax incentives to save, while tens of millions of hardworking Americans get none at all.”

But “millions of retirement balances are rising” in a “rising stock market” only because the Fed Reserve’s policy of quantitative easing has “artificially juiced up” an asset bubble. Is the same president, who earlier in the speech criticized the pre-2008 bubble economy, now taking credit for the bubble-like reflation of the stock market? Alas, it appears so.

Instead of expanding the successful Social Security program, President Obama echoes the Wall Street wing of the Right with a call to expand the failed, inefficient system of private savings accounts like 401(k)s and IRAs. “As we work to reform our tax code, we should find new ways to make it easier for workers to put money away, and free middle-class families from the fear that they’ll never be able to retire.”

No, Mr. President, we don’t need to “find new ways to make it easier for workers to put money away” in volatile private retirement savings accounts, with banks or money managers skimming exorbitant fees. We need to expand Social Security.

With the lamentable exception of his right-leaning, Wall Street-friendly approach to retirement security, the president has provided a road map that most progressives can endorse.

For a radical contrast, we can turn to the “House Republican Plan for Economic Growth and Jobs” that was publicized as an alternative to Obama’s speech. Unlike Obama, the House Republican leadership does not bother to set forth a historical narrative about the de-linking of productivity growth and income for most Americans in the last generation. But then, we already know the conservative Republican historical narrative — the U.S. economy was just fine in the age of the Robber Barons between the 1870s and the 1920s, with even more concentrated wealth and even more extreme inequality, before Franklin Roosevelt screwed everything up. Reform for today’s radicalized right means undoing almost every reform enacted since the New Deal, if not the Progressive era, and trying to restore the savage, unregulated capitalism of the late nineteenth century.

Short on vision, the House Republican plan is short on specifics, too. It proposes “3 ways to immediately grow jobs and strengthen the middle class”— approve the Keystone pipeline, pass the SKILLS Act to reform job training, and expand offshore domestic energy production.

Neo-New Deal liberal that I am, I would support these proposals, including more offshore energy production with adequate environmental protection. But the jobs that pipeline construction or offshore drilling create, though helpful, cannot compensate for the artificially high unemployment that Republican-backed austerity policies needlessly have inflicted on the U.S., by means of the sequester and lay-offs of public sector workers during the Great Recession.

The editorial board of USA Today — hardly a bastion of left-liberal orthodoxy — agrees. In a rebuke of conservative economic dogma, USA Today dismissed the conservative claimthat excessive government regulation is a major cause of the weak recovery, compared to austerity:

But the biggest factor is the most obvious: austerity…. In the public sector, 629,000 government jobs have been axed since December 2009, mostly at the state and local level, putting a further damper on demand. On top of that, the federal government has aggressively cut spending and hiked taxes as the result of budget deals in 2011 and early 2013, and the automatic cuts known as the sequestration….[C]oming as the economy was struggling to regain some momentum, austerity has taken its toll. Economists estimate that the government cuts alone have kept the unemployment rate at 7.6% when it would otherwise be about 6.5%.

When even USA Today goes all Keynesian instead of going Galt, the Right is clearly losing the argument about the economy. Conservative Republicans have enough power in Congress to block most of the progressive agenda. But they do not have a plausible alternative to the progressive vision of the past, present and future of the U.S. economy that President Obama has set forth.