David Coates

Republican Politics and the Unemployment Conundrum

 

In Lewis Carroll’s Alice’s Adventures in Wonderland, the world discovered by Alice was one in which every aspect of reality was inverted. Big things were small. Small things grew big. The Cheshire cat faded into a grin.One side of a mushroom made you grow. The other made you shrink. It was also a world in which the Queen of Hearts had a simple solution to everything. “Off with his head!” Likewise in the world currently being created by the incessant chatter of Republican presidential wannabes, small characters want to be large, grinning is a substitute for substance, and all solutions are simple.  In the inverted world of Republican primaries, our present scale of unemployment is entirely Obama’s fault. Through the looking glass on offer from Romney and company, there was no unemployment before Obama shrank the economy by excessive spending, burdensome taxation and intrusive business regulation. Down the rabbit hole into which they would have us fall, a Republican Queen of Hearts can end unemployment at a stroke by taking those three evils away.

Oh that life was that simple, but it is not.

The Obama record on job-creation, spending, taxation and business regulation is not as the Republicans describe it. Nor are the causes of unemployment as straightforwardly remediable as they suppose. The clash on the record is well documented.[1] That on the underlying causes of unemployment is less so.  So instead of judging the job plans of any of the leading Republican candidates against a mythology of their own making, let’s instead examine them against the real causes of American job loss since 2008. Let’s set the tax-cutting, program-pruning, de-regulatory aspirations of Romney, Gingrich, Santorum and Paul against the full story of why this economy is no longer the job-creating machine it was in the 1990s.  That story is multi-layered and interconnected. The Republican policy proposals are not; and in that gap between story and solution lie all the reasons why a Republican victory in November’s general election can only make the unemployment problem in America significantly worse.

1. On the surface and in the most immediate sense, we face an unemployment problem that is cyclical rather than structural. People have lost their jobs and their homes because of a recession triggered by inadequately regulated housing and financial markets.[2] The resulting attempt to slow the recession by public spending added significantly to a federal deficit already large because of earlier tax cuts and an unfunded war; and the depth of the recession was such as to take that federal deficit to a level unprecedented in modern peace-time. If our current political debate engages adequately with any layer of our present difficulties, it does so with this one. Republicans endlessly deny that unregulated markets caused this crisis and are forever attempting to label the recession as Obama’s own, the better to obscure the degree to which the recession began when a Republican was in the White House and was brought on by an ill-regulated financial system. The Democrats have the better of the argument here. It is not difficult to demonstrate that this was a recession inherited by Obama rather than created by him, that it was a recession rooted in deregulation rather than over-regulation, and it was a recession eased rather than deepened by a Keynesian response.[3] Unfortunately for Obama, however, it is also easy to demonstrate that the modesty of his Administration’s policies[4] – his failure to simulate enough or to reform housing policy sufficiently radically – has indeed helped to prolong unemployment and weaken consumer demand.[5] And if that is so, the immediate restoration of American employment would appear to require an increase in the very federal spending and Fed largesse that existing levels of public debt make it ever harder to justify and to finance.[6] Level 1 of a four level conundrum.

 2. What then compounds the continuing weakness of the American labor market is unemployment of a structural kind. The United States faces a global economic order that is undergoing rapid change. The much-vaunted strengths of the Anglo-Saxon model of capitalism – with its low levels of state regulation of business on the one side, and its thin layer of job protection on the other – have left more and more Americans vulnerable to unemployment, and more and more American industries vulnerable to foreign competition. That competition has come from low wage economies in which state direction of industry is more prevalent and from welfare-based capitalisms with established track records on skill enhancement and high value-added manufacturing excellence. American jobs have gone off-shore.[7] American wages have stagnated under the weight of foreign competition; and American living standards have been maintained only by (and to the degree that) America’s overseas competitors have been prepared to reinsert their trade surpluses back into circuits of American finance. The long-term recreation of American prosperity requires, therefore, the regeneration of well-paying manufacturing jobs here in the United States, a recreation made more difficult by the weight of financial interests in the contemporary US economy, and the propensity of US-based corporations to outsource more and more of their basic production to state-guaranteed low wage labor markets overseas. Level 2 of the conundrum.

3. If that were not enough, the search for renewed and sustained American employment has to operate against the backdrop of two previous searches – two previous social compacts between capital and labor – each of which was temporarily successful but both of which have now failed. American prosperity in the immediate post-war period was generated by a compact between highly-productive American manufacturing firms and well-unionized semi-skilled American labor, a compact which raised working class wages in the United States to unprecedented (and globally unmatched) levels for a generation. In that first growth period, generalized prosperity trickled up, not down. The second, triggered by the Reagan Revolution, turned the U.S. economy into a job-creating machine by combining business-sector deregulation with a state-led weakening of American labor. Profits soared, wages stagnated, low-wage work proliferated, and American living standards were protected only by the vast majority of adult Americans working longer hours, regularly refinancing their homes, and relying on the general availability of cheap credit. In that second growth period, generalized prosperity trickled down, not up. Inequalities in the distribution of income and wealth increased. Rates of upward social mobility declined, and eventually the pace of job creation slowed to a trickle.[8] The oil crisis and productivity slowdown of the 1970s ended the first growth period and laid the grounds for the second. The collapse of the housing bubble and the credit-crunch of 2008 ended the second, and made vital the search for a third. Any serious political project to renew American prosperity, therefore, has to do more than generate short-term employment growth. It has to find a way out of the wreckage of the Reagan Revolution, a route to a new social compact between capital and labor in America. Level 3 of the conundrum.

4. Any serious political project to renew American prosperity has also to recognize, and retreat from, the huge costs of empire. We are not simply at the end of a growth period. We are also fast approaching a moment – seen in every major imperial system since at least the Romans – at which imperial overreach generates unacceptable levels of resistance abroad and unacceptable levels of economic and social distress at home. In the last seven decades, the United States has spent vast treasure abroad: wars in Europe, Korea, Vietnam, Iraq and Afghanistan; and bases established and maintained in every area of the global system outside the communist bloc. Policing the capitalist half of the cold war global system cost vast quantities of American resource, human and material.[9] Policing it created spaces in which competitor economies could and did grow. Policing it distorted and weakened the structures of the economy at home. Policing it generated a domestic culture vulnerable to hubris, accustomed to greatness, and prone to self-delusion. The costs of empire are now everywhere visible in post 9/11 America, but cannot yet easily be conceded by the vast bulk of a political class (and an electorate) whose political memory is far shorter than the seven decades of American global leadership. Ron Paul always strikes a chord with his audience when he speaks of this need to draw back troops and commitments, but is just as regularly and immediately dismissed as a serious political contender by the media and the Republican leadership because he does so. Finding a route out of empire into a post-imperial security and prosperity is America’s most basic long-term need.[10] It is also the one that an imperial political system of the kind that has built up in Washington since 1941 is least equipped adequately to address.

Even with a Democrat in the White House, politics in Washington now has the feel of Nero fiddling while Rome burnt.[11] Alienation from the superficiality of the daily political circus, combined with the inability/unwillingness of that circus to address some/all of the layered issues within which we all are obliged to live, is likely – unless Barack Obama lifts his game – to lock America into a series of one term presidents. For in such circumstances of political denial, campaigning is so much easier than governing. As Mario Cuomo once said, the first is poetry, the second is prose.[12] When those in power will not address the totality of the problems which surround them, then those out of power are easily able to point to the surface manifestations of the underlying problems, offer a superficial analysis of their cause, and win easy and brief power themselves: before inevitably falling victim to the next wave of cheap critics set in motion by their own failures to deliver when in office.

The only politics that will eventually sustain itself is one that is willing to go the full nine yards, and tackle all four levels of the conundrum simultaneously. That quality of politics is not on offer anywhere in the Republican Party these days[13] – even Ron Paul hits Level 4 but has nothing sensible to offer on the other three.[14] Maybe on the liberal wing of the Democratic Party, there are stirrings. But we are still waiting, even from them, for a genuine New Deal. We are waiting, and time is running out.

 

For a fuller outline of this argument, see

David Coates, Making the Progressive Case: Towards a Stronger U.S. Economy.

 



[1] Paul Krugman, Obama, Romney, Jobs posted on the New York Times website, “The Conscience of a Liberal,” January 3, 2012: available at http://krugman.blogs.nytimes.com/2012/01/03/obama-romney-jobs/

 

[2] The case is made more fully in Appendix 1 of David Coates, Making the Progressive Case: Towards a Stronger U.S. Economy. New York, Continuum Books, 2011; and at http://www.davidcoates.net/2011/11/18/banker-power-trumping-democratic-power-the-crisis-on-two-continents/

 

[3] See the July 2010 Blinder-Zandi Report: available at http://mydd.com/2010/7/28/the-blinder-zandi-report

And the later Congressional Budget Office, Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from January 2011through March 2011. Washington DC, available at http://www.cbo.gov/doc.cfm?index=12185. Also James Freyer and Bruce Sacerdote, Did the Stimulus Stimulate: Real Time Estimates of the Effects of the American Recovery and Reinvestment Act, NBER Working Paper No. 16759, February 2011: available at http://www.nber.org/authors/bruce_sacerdote

 

[4] Ezra Klein, Economists Scoff at Obama, Romney Myths, posted on Bloomberg January 11, 2012: available at http://www.bloomberg.com/news/2012-01-12/economists-scoff-at-obama-romney-job-creation-commentary-by-ezra-klein.html

 

[5] See http://www.davidcoates.net/2011/09/14/doing-two-things-at-once-jobs-and-housing-as-routes-out-of-recession/  Also Making the Progressive Case, op.cit, pp. 29-32; and David Coates, “Dire consequences: the conservative recapture of America’s political narrative,” Cambridge Journal of Economics, 36, January 2012, pp. 145-153

 

[6] As advocated inside the Fed by Federal Reserve Bank of Chicago President, Charles Evans. See http://blogs.wsj.com/economics/2012/01/11/feds-evans-still-wants-more-central-bank-action/?wpisrc=nl_wonk

 

[8] 23 million under Clinton, 3 million under Bush II. See WSJ Staff, ‘Bush on Jobs: The Worst Record on Record,” The Wall Street Journal, January 9, 2009: available at

http://blogs.wsj.com/economics/2009/01/09/bush-on-jobs-the-worst-track-record-on-record/

 

[9] The numbers here are enormous. See for example, War Resisters’ League, How Your Income Tax Money Really Goes, available at https://www.warresisters.org/store/federal-budget-pie-chart/2012. I am grateful to MB Morrissey for this source.

 

[10] If cutting military spending is not simply to generate yet more unemployment, an active civilian industrial policy will be required to effect any transition from a military-industrial complex to a civilian-industrial one. Neither the academic nor the political conversation on that crucial transition have not yet got fully under way. The development of that conversation is urgently needed. See Lawrence Korb and Alex Rothman, Nation Building at Home, Center for American Progress, September 26, 2011: available at http://www.americanprogress.org/newsletters/ip/2011/09.30.11.html

 

[14] See Paul Krugman, “G.O.P. Monetary Madness,” The New York Times, December 15, 2011: available at

http://www.nytimes.com/2011/12/16/opinion/gop-monetary-madness.html

 

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David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.

He writes here in a personal capacity.

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