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New Ground 122

January - February, 2009

Contents

  • A Jobs Program for the U.S. by the Chicago Political Economy Group
  • FDR, Obama and Depression Economics - A Review by Bill Barclay
  • OPRFHS YDS by Natalie Greene
  • New Ground 122.1 - 02.24.2009

    A Note From the Editor
    Today's Other America
    Lobby Day to Abolish the Death Penalty
    March 14 March Against the Wars


    A Jobs Program for the U.S.

    by the Chicago Political Economy Group

    This paper proposes a jobs program to address both the chronic problems of unemployment and underemployment in the U.S. economy and the debilitating economic and political impacts of growing inequality in the U.S. The jobs program consists of three parts. First, the reduction of unemployment and underemployment by stimulating output, either under public or private auspices, of infrastructure, or social investment, in areas such as: transportation, education, health care, human services, and parks. Second, to recognize and respond to the failure of the private market to provide needed current public services, which will include a massive upgrading of pay and working conditions of these "human service" jobs by expanding public employment, sharing the costs of an enhanced and expanded social safety net. Third, to explicitly and as a matter of industrial policy, target government investment and overall job growth towards the industries of the future, particularly in the areas of energy, agriculture, and other broadly defined "green" technologies.

     

    The Failure of the Private Economy:
    Jobs and Job Growth in the U.S.

    In October 2008, 10.1 million workers were unemployed, according to official statistics, for an unemployment rate of 6.5%.1 However, the civilian labor force participation rate for individuals 16 and over has been declining over the past 7 years, falling from its post- 1948 peak of 67.1% in 1997-2000 to 66.0% in 2007.2 A slightly more than 1% decline in labor force participation rates may not, at first, sound like a lot. However, these data mean that, while the employed population grew by 9.1 million during the 2001-2007 period, the age 16 and over all population grew by 19.3 million.3 In short, only 47% of the new age 16 and over population (as compared to the 2007 labor force participation rate of 66%) was able to find employment in these 7 years of "economic recovery."4 Projections for the 2006-2016 decade are not any more positive with an expected growth in the civilian over 16 population of 30.2 million and a projected growth in the labor force of only 12.8 million. These numbers would result in a labor force participation rate only somewhat larger than 50% in 2016.5

    The overall numbers do not, however, illuminate the experience of particular groups within the population. For example, from 2001 to 2007 the white female labor force participation rates declined by 0.4%, but the white male rate declined by 1.1%, and black male and female rates by 1.7%.6

    Why is participation in the paid labor force important? In the US a job is the primary avenue by which individuals receive income. It is also an important measure perhaps the most important measure of self worth for most individuals. And over successive generations, wealth accumulation will not occur for the vast majority of people in the absence of income from employment.

    We could, of course, analyze still further the limitations of the official unemployment rate, for example, the failure to include discouraged workers who have given up looking for work, the marginalization of the young, particularly youth of color, etc. However, the point should be clear: left to its own devices, the U.S. economy is currently unable to generate sufficient new jobs to absorb our growing population, even using official employment and unemployment statistics. If we include the undocumented labor force, those working part time who want full time employment, and discouraged workers who have dropped out of the job search process, the gap between actual and full employment is considerably greater. In addition, the economic downturn that is currently in its early stages will only exacerbate the problems of unemployment and underemployment.

     

    A Political Program for Jobs Creation

    The difficulty in providing jobs for the U.S. population certainly does not arise from a lack of productive work to be done. Whether in the updating of decaying infrastructure, providing needed additional social services in health, education, and human services, or developing forward-looking industries in areas such as green technology, the gap between what the economy does produce and what it could produce and use is significant. We believe the best approach to addressing that gap is a job creation plan.

    The plan would have the goal of raising national employment growth to 4 million new jobs a year for five years. This rate is more than twice the currently projected growth of national employment.7 If successful, this program would draw into the labor force some 12.5 million of those now unemployed or underemployed.8 The additional job growth would be concentrated in publicly funded and organized enterprises, in the private economy, and in enterprises established and run by employees. At the end of five years, the federal government would be supporting some 17.5 million new jobs.9

    The jobs program would be oriented in three directions. First, there is the need to produce an increased amount of goods for social investment. This includes repairs to the infrastructure. Transportation in its myriad forms would be a significant component here highways, bridges, light rail, regional airports. But the needs for repairing US infrastructure go beyond any one sector such as transportation, e.g., many public educational and health care facilities badly need rebuilding. Parks, local, state and federal, have been under funded for some time, forcing us to draw down the social capital of the 1930s. Much of the work described under the rubric social consumption may be organized under the auspices of private industry contracting with the appropriate levels of government oversight with exceptions for activities whose basic goals conflict with private profit motives, such as park and land stewardship.

    Second, there is a broad spectrum of public employment that would be targeted to the areas of health, including elder, care and education, including pre-school. Public employment in these sectors would, of course, intersect with and draw upon the construction work that is focused on producing goods for social consumption. There is a real need for the services that are encompassed in this facet of our jobs program. However, there is an additional, political, task that we believe must be accomplished: to rebuild public sector employment as a desirable indeed preferred choice for accomplishing public goals. Thus public sector employment must be a) well paid (see below), b) accountable to those served, and c) transparent as to the quality of services provided.

    Third, the federal government, working closely with the states, should develop an explicit, forward looking, technology focused industrial policy. Our official economic ideology is that such decision making on the part of government is inferior to that of the private market on both efficiency and cost grounds. There are, it seems to us, two major flaws in this argument. First, it is clear that industrial policies work. The evidence from Scandinavian counties (or the even current economic policies of China) should leave no doubt as top effectiveness of industrial policy across a wide range of industries and levels of industrial development.

    The second flaw in this argument is that we have had a de facto industrial policy for at least the past two decades, namely, the decision to develop the financial sector as both an engine of growth and an export leader. While there have certainly been some transitory economic gains from this policy, the overall balance sheet is one of failure, resulting in panic and bordering on disaster. As in the case of the Resolution Trust Company take-over and financial support for failing Savings and Loans or the Fed's (successful) effort to have the Saudis rescue Citi in the 1990s, the finance sector is again at the center of difficult economic times and again drawing massively on the public purse in an attempt to avert a major economic crisis. The results are not yet in.

    Our preoccupation with building the financial sector has resulted in an implicit acceptance of the acceleration of deindustrialization. Manufacturing, a sector that accounted for more of the GDP than finance in the 1970s, is now a shrunken skeleton in such desperate straits that the $25 billion in loans requested by what used to be called the Big Three (GM, Ford and Chrysler) is seen as a mere bagatelle when compared to the needs of the financial sector.

    Energy, its sources, uses, and costs should be at the core of our forward-looking industrial policy. It is clear that, left to their own devices, the major private sector energy companies have little incentive to shift our energy consumption in a direction that is either more efficient or less costly to the consumer. Just as was the case in the interstate highway program of the 1950s, the space technology program of the 1960s and 1970s, and the development of the internet, only an entity charged with a public purpose can inaugurate the shift away from fossil fuels. This shift will require investment in technology, training of workers who will be working in the industries that emerge from technological developments underwritten by government, and, probably at least for some time, wage subsidies as these industries move up the productivity curve.

     

    What Kinds of Jobs Should Be Created and What Should the Wages of a Jobs Program Participant Be?

    We start from the proposition that the jobs provided would be permanent jobs with a decent wage. We define decent wage as an (inflation-indexed) minimum starting pay of $18 an hour.10 Allowing for some reductions in low wage private employment as wages rise for low wage jobs, we project a goal of 3.5 million jobs fully funded from the federal budget. At this level, the annual wage and salary cost for each cohort would be about $128.5 billion.11 In addition, there will be administrative costs. We estimate these at 5% of the total program outlays, bringing the total per cohort to $135 billion.12 After five years, the jobs program would draw about $675 billion annually.13 (About the same amount as has been provided for the recent exclusive "bail out" of the financial sector.)

    Since many of the participants in the jobs creation program would be youth and the hard-core unemployed, an intrinsic part of the proposed jobs program would consist of a major training program geared to preparing people to successfully do the jobs being created. Although defenders of the current order often misuse the lack of skills and "the right attitude" as justifications, they are real problems. Trainees would be considered as employed in trainee level jobs and would be paid somewhere between the low wage cutoff ($11.11 per hour in 2006 dollars) and a decent wage. Once they satisfactorily completed the training, they would be guaranteed jobs in the regular program.

    Finally, all employment under the jobs program would be subject to the provisions of the Employee Free Choice Act. This provision would facilitate the creation of union jobs, where the workers would form trade unions and workers associations of their choosing. Working conditions and wages increases would be determined through collective bargaining.

     

    How Do We Pay for All This?

    When we first started thinking about the question of how to pay for this program, it seemed a major impediment. After all, the program demands an increasing amount of money over time as each additional cohort of 3,500,000 jobs is added. Now, however, we understand that the money is there it is just a question of political will. And maybe not even that: to quote presidential candidate John McCain, if we need this for the American people, the money will be found. Certainly that has been the case for the small subset of the American people who have overseen the current economic disaster.

    We propose to finance our program from sources that broadly require: a) a major redistribution of income and wealth toward poorer households, b) substantial taxes on financial services and carbon emitting production, and cuts in defense spending that would support an economic restructuring away from rentier activities and environmentally unsustainable production and would reduce wasteful and destructive military spending, and c) in addition, a direct use of necessary money supply increases for public purposes that would reduce current subsidies to the private financial sector for the quintessentially public function of creating money. In addition to funding our jobs program, these policies will guide the macro economy toward greater equality of opportunity between households and toward more productive and sustainable uses of resources.

    These broad categories of revenue collection can be broken down into the following sources, many of which accomplish more than one of the three objectives above. Note that we do not include income tax and inheritance tax increases that have already been proposed for the funding of other programs, such as health care and middle tax relief. Also note that, as most of these funding sources result in effective taxes that are disproportionately targeted toward high income earners, the job creation potential of revenue raised through these programs is likely to be greater than that captured by the traditional balanced budget multiplier of one.14

    • First, the ongoing misadventure in Iraq has a current out-of-taxpayer-pocket cost of approximately $100 billion/year since the 2003 invasion. One-half of that amount would provide $50 billion for the jobs program we are proposing. Taking an additional 5% of the total war budget of approximately $1 trillion/year (all in including "intelligence," armaments, salaries, R&D, etc.) would provide another $50 billion.
    • Second, an excess profits tax on the major energy companies could conservatively raise an additional $50 billion.15 This tax may be part of a broader "carbon tax" that is offset by subsidies to low-income households that need to, at least in the short-term, rely on carbon energy sources.
    • Thirdly, a 1% "Tobin Tax" on financial transactions, which would also serve an important regulatory purpose of reigning in the volume of financial speculation, was estimated in 1996 to raise $13 billion a day or $3.25 trillion annually.16 If the tax represses financial speculation by 50% this would be cut in half. Moreover, this would have to be an international tax so that the take for the U.S. government would be limited to the U.S. share of financial transactions. However, given the many-fold increase in the level of financial transactions since 1996, a conservative estimate of $500 billion annually for the U.S. does not seem unreasonable.
    • Fourth, if necessary increases in the money supply to accommodate an expanding economy were used to fund jobs rather than pay down federal government debt, an additional approximately $42 billion of "tax free" funding would be available.17 Note that jobs financed from this source would have a multiplier larger than one as no taxes would be necessary to offset this spending.
    • Lastly, a wealth tax of 0.5% on the top 1% of households by wealth, those with more than $5.0 million in assets, would generate another $75 billion/year.

    As is evident above in our discussion of pay levels under this jobs program, the $767 billion generated by these five sources would more than cover the costs of the program, though revenue from sources that would require significant lead time for international agreement and implementation such as the Tobin tax might have to be borrowed in the short-term as has virtually all of the $700 billion allocated toward the current financial bailout.

     

    Closing Perspective

    We start from the premise that any significant attack on the growing poverty and social misery that is engulfing the lower 40% income strata must be centered on providing a massive increase in secure, decent paying jobs. Within such a program, the focus must be on opening the labor market to the hard core unemployed, who are particularly concentrated among youth of color and those youth victimized by industrial collapse of the rustbelt.

    While we certainly support enhanced welfare programs, transfer payments to the poor, and an increase in minimum wage, we do not believe that the existing U.S. labor market characteristics that reproduce and heighten inequality can be overcome by these measures. Further, such policies all too often pit against one another different sectors of low income people to battle over who gets what benefits and who pays the cost. Fort his reason, they tend to generate conflict between the hard core unemployed and the working poor who together comprise the low income strata.

    A properly crafted jobs program must aim at a fundamental restructuring of the labor market. It will by design drive up wages of the existing low paid jobs, thus uniting the interests of the hard core unemployed and the working poor. It will mean a significant transfer of income share from the wealthy and highly paid to low income strata. This transfer will necessarily generate opposition, but the conflict will have an upper versus lower class dynamic rather then a racial conflict between different sectors of the lower class.

     

    References and Technical Notes

    1. BLS based on CPS estimates of the number of seasonally adjusted unemployed, and the unemployment rate, for October, 2008.

    2. BLS based on CPS estimates of seasonally adjusted annual labor force participation rates out of 16 and over civilian population from 1948 to 2007.

    3. BLS based on CPS estimates of seasonally adjusted employment and civilian non-institutional population.

    4. BLS CES based estimates from payroll surveys of non-farm employers suggest that non-farm wage and salary jobs (rather than general employment growth) from 2000 to 2007 was 5.8 million reflecting the fact that much of the 9.1 million CPS net employment increase is estimated to be based on self-employment or wage and salary work that is not reported to Unemployment Insurance (the basis of the CES estimates). Note that every employed person must have at least one job but some may have more than one.

    5. Calculated from (October 2008) BLS labor force and Census 16 and over population projection to 2016. The estimated 2016 labor force participation rate is based on the ratio of the 2016 estimated labor force (164.2 million) divided by the total over 16 population estimate ( 328.7 million) which equals 50.0%. As this includes institutional and military population the comparable civilian non-institutional LFP would be somewhat above 50% but still well below 66.0%.

    6. BLS CPS estimates as above.

    7. BLS projects employment growth of 1.1% from 1996-2006 and 1.0% from 2006-2016. Employment growth of 1.0% from 2007 total US employment of 146.1 million would generate annual employment growth of about 1.5-1.6 million from 2008 to 2013.

    8. We assume that roughly 50 million of the 146.1 million employed in 2007 are in low wage jobs whose wages will increase as a result of the jobs program. We know that roughly half of the 146.1 million employed in 2007 are in jobs with wages below 18$ an hour (see footnote 10 below) so we are assuming that approximately 2/3rds (50/73.1=68.4%) of these below median wage jobs will be affected. If we assume that their wages will rise on average about 50%, then using a modest employer demand elasticity of 0.2 the jobs program will result in a 10% employment loss. This will lead to a loss of about 5 million in low wage employment over the five year period, or an employment loss of approximately 1.0 million per year. We also assume, based on BLS projections (see footnote 7 above), unaided employment growth of about 1.5 million jobs per year over the next five years. (Note that slower employment growth as appears increasingly likely reinforces the need for our program.) Under these assumptions, to reach our target employment growth of 4 million per year, our program would have to increase employment by 3.5 million per year as 1.5 +3.5 -1 =4.0. This implies that over five years our program will be supporting increased employment of 5 x 3.5 = 17.5 per year. Of these 3.5-1.0=2.5 million per year, or 2.5 x 5 = 12.5 after five years, will be government supported.

    9. See footnote 8, op. cite.

    10. This is equivalent to the current (2008 Q3) median usual earnings of a full-time wage and salary worker in current dollars of $720 a week ­ see: http://www.bls.gov/news.release/wkyeng.t01.htm. For 52 weeks this translates into $37,440 or $18 x 2080.

    11. A before tax income of $37,440 is estimated to provide a net after tax income of $36,726 according to BLS estimates of 2006 taxes for a weighted average of second and third quintile incomes from: http://www.bls.gov/cex/2006/Standard/quintile.pdf . The (after tax) direct cost of 3.5 million jobs is therefore 3.5 million times $36,726 = $128.5 billion. These figures assume that though this spending will be partially (see text below) offset by tax increases, it's affect on net employment growth will be captured by the traditional "balanced budget multiplier" of one. This implies that any tax increases will draw down consumption at the same rate as in the past. If as might be reasonably expected much of the increase in taxes comes from savings of wealthy households currently going into the financial sector, and if such savings have relatively modest effects on real activity in the economy, then the multiplier could be expected to be considerably higher than 1.0, perhaps as high as 1.5. Such a multiplier would considerably reduce the size of the program required to achieve the goal of 4 million new jobs per year. On the other hand, expenditures financed by the reduction of military activity or other government spending will have multipliers considerably below 1.0.

    12. $128.5 billion x 1.05 = $135.0 billion.

    13. The first year cost of the program will be $135.0 billion. The second year 2 x $135.0= $270.0 billion, and so forth. By the fifth year the cost will be $135.0 x 5 = $674.8 billion. Thereafter the annual cost will remain at this level.

    14. See footnote 11, op. cit.

    15. As of April 2008 profits for the five largest US oil companies are reported to have reached $ 123 billion, see: http://www.redgreenandblue.org/2008/04/02/the-big-oil-company-scam/

    16. See World Bank report: http://www.worldbank.org/fandd/english/0696/articles/0130696.htm

    17. The New York Federal Reserve Bank reports that as of April 2008, the US "M1" money supply was $1.4 trillion. Three percent of this is $ 42 billion. See: http://www.newyorkfed.org/aboutthefed/fedpoint/fed49.html . Currently "high powered" M1 money supply is increased primarily through Fed purchases of Treasury bills, or the retiring of government debt. If this money was allocated toward jobs programs government debt, not held by the Federal Reserve would not be retired so that federal government interest payments to outside parties would increase more rapidly. However, if economic growth and federal tax collection grows at an equal or greater rate, this should not lead to a significant additional federal budgetary burden.

     

    Editor's Note: The "Chicago Political Economy Group" consists of progressive political economists from academia, the public sector, and industry. For more information, contact Joe Persky at 312.996.2687 or jpersky@uic.edu.


    FDR, Obama and Depression Economics - A Review

    by Bill Barclay

    The Defining Moment: FDR's Hundred Days and the Triumph of Hope by Jonathan Alter (New York: Simon & Schuster, 2006)

    Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency by Robert Kuttner (White River Junction, Vt.: Chelsea Green Publishing, 2008).

    The Return of Depression Economics and the Crisis of 2008 by Paul Krugman (1999, rev. ed. New York: Norton, 2008).

    "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estatepurge the rottenness out of the system." Andrew Mellon, Secretary of the Treasury, 1930

    "We have a magneto [alternator] problem." John Maynard Keynes, December 1930

    "The central problem of depression preventionhas been solved, for all practical purposes." Robert Lucas, University of Chicago economist and Nobel Prize winner, 2003

    Even before Obama's presidency began it became a cliché to note the similarities to the situation facing Franklin Delano Roosevelt's presidency. In order to understand what may or may not be possible politically at this time, it is necessary to think clearly about both the underlying similarities and the very real differences between the two presidential moments. Although very different in focus and intent, these three books are quite useful to this task.

    Jonathan Alter's account of FDR's rise to the presidency and the accomplishments of his first 100 days in office is history written from the perspective of a journalist. FDR's sense of drama emerges clearly (for example his decision to come to Chicago from New York, becoming both the first nominee to fly and the first to accept the nomination in person) as does his realization that "action and action now" was the imperative of the times. Paul Krugman uses the financial crisis of 2008 to update his earlier book on depression economics, carrying forward the implications of that work to the problems we, and Obama, face. Krugmen is particularly good on failure of most economists to examine the implications of the series of economic crises that developed during late 1980s and through the 1990s, including Japan's "lost decade," the collapse of the Asian Tigers and the failure of the Long Term Capital Management hedge fund. Robert Kuttner's approach to the Obama presidency urges the use of the presidential podium to challenge prevailing myths about how the economy works and what the role of government can and should be. He argues that failure to do so would be to miss the opportunity of a transformational presidency that Obama's election offers.

     

    The Underlying Similarities

    As was the case for FDR, Obama enters the presidency facing the most severe economic in more than a generation. More importantly, however, the underlying dynamics of the crises are largely identical: the economic problem today, as in the 1930s, lies on the demand side. As Paul Krugman's The Return of Depression Economics and the Crisis of 2008 clearly delineates, this situation is a sharp change from the preoccupations of economists for the last several decades where the focus has been largely on the supply side. The assumption has been that un- and under-employed resources, whether of labor or capital, could always be overcome if wages and/or prices simply fall quickly enough. The possibility of an economy existing in an equilibrium state with unused resources has again seemed to the mainstream of economic analysis almost unthinkable. As Krugman notes, this conclusion is a little surprising given the long recession of Japan in the 1990s. Of course Keynes would have had no trouble recognizing the existence of this "magneto problem." He understood that, like a stalled automobile, the alternator of the 1930s economies was not generating the necessary power for a restart. In the past several decades, however, most economists have neglected the analysis of demand shortfall, that is when private spending is insufficient to utilize available resources. After all, they reasoned, surely policy makers such as central bankers know how to handle such situations?

    The similarity of the economic crises informs the most important policy similarity between FDR and Obama: the necessity of using the federal budget as a means to get the alternator working again, to restart the car. One of the most striking aspects of current policy debate is the rapid acceptance of the idea that we need to discard, at least in the short run, a concern with budget deficits. In fact the Republican house leader, Representative John Boehner of Ohio, has been reduced to using his website to fish for economists opposed to and willing to argue against the need for a stimulus. And not just any stimulus, a very large one, amounting to perhaps as mush as 5% to 6% of GDP, or $700 to $850 billion. This desperation should not be taken to suggest, however, that there will not be a fight, and I think a very large one, over the actual Obama proposal that emerges.

    How this fight over the stimulus unfolds and who gains and loses politically is another parallel between Obama and FDR. Jonathan Alter, in The Defining Moment, stresses the extent to which FDR's first 100 days redefined what it means to be a president and what we expect from the office. Presidents are to be communicators and legislators in chief, not just administrators. On June 16, 1933 FDR signed both Glass-Steagall and the National Recovery Act (NRA), completing a remarkable 100 days of action. Glass-Steagall created the Federal Deposit Insurance Corporation (the FDIC was opposed by FDR as too expensive). The NRA, in addition to providing for large scale spending on public works also included the first federal minimum wage. In Obama's Challenge, Kuttner explores the uses to which President Obama could and should put the unique podium offered to any incoming U.S. president especially one facing a three pronged economic crisis (financial panic, international imbalances, and recession).

    Obama must challenge the reigning ideology that (i) sacrifices all to budgetary correctness (balanced budgets are the sine quo non of fiscal probity), (ii) believes the fiscal budget is bare (bold social programs must be put on hold to await better times), (iii) holds that argues private markets are always better at allocating resources than governments, and (iv) assumes that governmental action is inherently incompetent. In short, if Obama is to be another FDR and to succeed with his legislative agenda, he will have to use teachable moments to change our conception of the role and this, the first president to recognize and understand the potential of new communications technology, taking advantage of radio's intimacy with his Fireside chats that always began with the words "My Friends." Obama is perhaps the first Democratic president since FDR to have both the oratorical capability and political opportunity to repeat this process.

    The similarities between the crises faced by FDR and Obama define the broad outlines of what may be possible for Obama, but the differences are of at least equal importance. There are, I think, three that are worth noting: (i) the different timing, of both the development of the crisis and the pace of events that face Obama compared to those that faced FDR; (ii) the very different composition of the U.S. working population today compared to the 1930s; and (iii) the different industrial structure of the U.S. economy and thus its very different role in the world economy.

     

    Timing and the Pace of Events

    When the Democratic Party met in Chicago during July 1932 to nominate a candidate for president, over 45% of the 1.5 million Chicagoans employed two years earlier were looking for work. By the November 1932 election, national unemployment was over 20% and non-farm unemployment was more than 30%. During the four months between FDR's election and March 1933 inauguration, more than 34 states declared bank "moratoriums" (FDR euphemized this into "bank holidays" in the first days of his presidency) including Michigan where, by March 1933, there were no functioning banks. By mid-1933, 1 in 10 home owners were in or facing foreclosure. These building pressures for change fueled FDR's 57%/40% margin in the 1932 election and the victory of 317 Democrats (plus 5 Farmer-Labor) members to the house. He also had 59 Democratic and 1 Farmer-Labor senators in a 96 person body.

    With the benefit of hindsight, we know that this was the nadir of the (first?) Great Depression. At the time, of course, that was much less clear. FDR faced the same situation as Obama today - that the U.S. has only one president at a time - and it was Hoover, not him. As a result, FDR spent most of the four months between the election and inauguration dodging Hoover's overtures to join in endorsing economic policies, partly because he did not want to get drawn into an agreement he might later need to repudiate and partly because he simply did not know what should be done. He had, after all, run on a balanced budget campaign platform, attacking Hoover for "reckless and extravagant spending" because he had increased federal outlays by more than 50%. At one point before his inauguration, FDR simply went off on a 12-day cruise on millionaire Vincent Astor's yacht. This cruise was before the never-be-out-of-touch days of blackberries, instant messaging, etc., so the decision-making process of the incoming administration slowed significantly.

    We can not say when the nadir of the current crisis will occur. It is very unlikely, however, that we have yet reached that point where there is nowhere to go but up. Job losses in November exceeded 500,000, higher than in any previous month, and house prices continued their precipitous decline. In addition, despite his protestations that Bush remains president, Obama lacks the luxury of ignoring events even in the much shorter period between election and inauguration. He has had to respond not just to these preexisting problems but to the new ones such as the potential collapse of the Big Three automakers. Obama will have working majorities in the House and Senate but not those enjoyed by FDR in his first two terms. This is one reason I believe that the fight over the stimulus package will be both intense and important, perhaps even decisive, for establishing the political dynamics of Obama's presidency. It also means that the challenge posed by Kuttner - for Obama to use his power to create a transformative presidency - is so demanding.

    There is already one aspect of Obama's approach to this challenge that is reminiscent of FDR, the emphasis on doing something, anything, to get the economy moving again. In his inaugural address FDR called for "action and action now" with the unspecified nature of the action to be (later) filled in by him. To use a word that keeps cropping up in discussions about Obama's approach to policy, FDR was a pragmatist. After all, no one knew what Keynesian economics was because it had not been written. This is, of course, a significant difference in the policy environment for Obama. FDR did know, however, that something had to be done. And if the first something did not work, discard it and try again.

     

    The Demographics of Labor

    FDR created the Civilian Conservation Corps(CCC) with little systematic thought - his initial idea was to put 500,000 to work by midsummer (he later reduced this to 250,000, a figure that was exceeded by almost 25,000 in the first 4 months of a program that, during its nine-year existence enrolled over 3,000,000). At the time the U.S. labor force was primarily male and white but still more than 20% agricultural. Only 22% of white women worked outside the home (forty percent of non-white females were employed but these were overwhelmingly - more than 60% - in "personal service," i.e. domestic work). FDR reasoned that dams, roads, and similar projects would take several months or even years to get off the ground while hiring 250,000 men to clear trails, build cabins in national parks, and plant trees could start immediately. He got his bill, an amendment that prohibited discrimination, inserted by the sole African-American member of Congress, Oscar De Priest from Chicago. Of course, the CCC was only the first program to generate employment. It largely targeted young males aged 16 - 25 while later programs such as the Public Works Administration expanded the reach of FDR's job creation efforts.

    Obama's initial proposals for creating 2.5 - 3 million jobs are larger than FDR's but not all that large in the context of 1.9 million jobs lost in 2008 alone. And, of course, the overall labor force is more than three times what it was in FDR's day. More importantly, there is the issue of significantly increased labor force diversity. Infrastructure projects will be heavy in construction employment, which means primarily male workers. To have the same impact that FDR did, the Obama program will need to include a significant focus on social services, especially education and health care including both early childhood and elder care. These occupations are heavily female and non-white. Such a focus could help accelerate the impact, because hiring new teachers and health care workers can meet already existing needs while the longer term emergence of infrastructure and green technology jobs can continue the redirection of the economy.

     

    The U.S. Economy and the World Economic Crisis

    Perhaps the most interesting and complex question facing Obama is the extent to which the economy he seeks to restart is fundamentally different than that over which FDR established new regulatory powers. Although you can not step into the same river twice, there is at least one intriguing similarity. As in the 1930s, the financial system and the lack of confidence therein are again at the heart of the crisis. FDR created a regulatory structure that restored financial confidence and provided oversight for the financial sector as it existed in his day. Sometimes this happened even against his own wishes, as was the case for the FDIC which was engineered by his Vice President Garner and Republican Senator Arthur Vandenberg, inserting this amendment into the Glass-Steagall Act and daring FDR to veto the bill. In other instances, such as the 1933 and 1934 Securities Acts, FDR was the prime mover.

    Once again, there is a significant segment of the finance industry that exists largely outside of the government's regulatory reach. Worldwide, banks were the source of 3 of every 4 dollars of credit in the 1970s; by 2007 they accounted for only 1 in 3 dollars. What has emerged to complement banks and at the same time evade much of the regulation that restrains bankers is described well by Krugman in his chapter entitled "banking in the shadows." What we have today is a gallimaufry of hedge funds, investment banks, and mortgage lenders, all of which are involved in creating credit and securitizing and selling the resulting debt. And again, as in the 1930s, the core problem appears to be leverage.

    In the 1934 Securities Act, FDR created a new agency, the Securities and Exchange Commission, to oversee Wall Street. In doing so, he established the principle that the government had at least some responsibility to protect investors from the machinations of financial sector actors. To successfully reign in the shadow banking system Obama will not only have to design policies that extend to any entity that creates credit. He will also have to use the power of the president as communicator to explain to the American people what happened, why it happened, and why regulation - a governmental role that has been under unrelenting ideological attack for several decades - is again necessary.

    There is one additional and very important difference in the economy that Obama inherits when compared to that of the 1930s. FDR gave relatively little attention to the international dimensions of the 1930s crisis. In fact, he effectively torpedoed a 1933 conference in London where European leaders and representatives of his administration were exploring possible coordinated action. FDR did not want to face the restraints of the gold standard (while roundly attacked by economic orthodoxy, he was praised as "magnificently right" by Keynes). Ignoring the international ramifications of the current crisis will not be possible for Obama. The U.S. export of securitized debt, facilitated by AAA ratings, has spread the crisis well beyond our own borders. Further, financing the significant government programs for job creation, combating foreclosures, and funding teetering financial institutions will require the ability to sell U.S. government guaranteed debt in large quantities to countries also suffering from the slowing of the world economy. China, a major buyer of U.S. debt and a major exporter to the U.S., is unlikely to be persuaded to let its currency rise in value against the dollar while simultaneously financing our recovery through additional large scale purchases of treasury bonds. Unlike the 1930s the U.S. today is the world's largest net debtor and manufacturing importer; this is likely to impose policy restraints that FDR did not face.

     

    Conclusion

    The presidential moment for Obama resembles in broad economic outlines that faced by FDR. Both inherited an economy constrained not by supply bottlenecks but by lack of demand in the private sector. Obama, like FDR, will need to use all the financial tools at his command to get the magneto going and the economy restarted. Doing so will mean rejecting much of the conventional economic wisdom. In Obama's case, it also requires a willingness to think clearly about what can and cannot be taken from the experience of the 1930s. This thinking must be guided by recognition of the significant differences in labor force composition between then and now as well as an understanding of the new role and organization of the financial sector in the U.S. economy. Finally, the linkages between the U.S. economy and the world economy pose new and distinct policy problems for an Obama presidency. As the Chinese say, "may you live in interesting times." Or perhaps the Onion's satirical post-election headline is most appro pro: "Black Man Given Nation's Worst Job."


    OPRFHS YDS

    by Natalie Greene

    The Oak Park River Forest High School chapter of Young Democratic Socialists didn't exactly start smoothly. I had the idea in May and contacted David Duhalde, the then organizer for YDS nationally. After sending me the application, he told me I needed at least three people who pay dues to DSA to be considered an official chapter. I opened a Facebook group and invited everyone I knew - after assuring them several times that you didn't need to be a socialist to join. I got a response of about twenty people, which meant either there was more interest than I expected or that some of my friends were willing to join any group that sent an invitation their way.

    As the summer passed, more and more people I didn't know started to join the group. My American History teacher from the previous year agreed to sponsor the group, and I found another teacher who has been involved with the International Socialist Organization for years. The latter has let us use her classroom for meetings but prefers to keep her name off the records because of her ideological differences. Once I felt that I had a real chance of starting a dynamic group, I sent everyone a message informing them of our first meeting, which I held at the Oak Park public library. About eight people showed, almost none of whom I knew as close friends. We decided that local issues would be the most accessible and effective to tackle.

    Then school started, and I quickly applied for recognition and rights as a school club. The administrator I dealt with directly told me that because of the nature and name of the club, it was unlikely that we could be recognized. I assured her that the club was non-partisan and we had no intention of excluding anyone, but she said there was still red tape to go through. The proposal for the club had to be taken to several different board meetings and approved by more administrators, which took about two months. Meanwhile, there was en election and a referendum that I had hoped our chapter of YDS could help pass, the Living Wage Ordinance. YDS still couldn't meet at school because we hadn't been approved. Finally, at the end of November, I got word that we could meet.

    Our ability to use the school facilities didn't mean that we were equal to all other school clubs. Our status is officially 'non-school sponsored', meaning that the teachers who oversee our meetings don't get paid extra as they would for sponsoring another club. Also, we have no access to funding.

    But what I was worried about was not money, it was student interest. I was afraid that the title of the group would scare off students who just weren't informed. I thought that people might mistake our group for some kind of anarchist communist revolutionary cult. It turns out my fears weren't totally unfounded. I've been putting our weekly Thursday meetings in the morning announcements, and the regular members of the group tell me that most students just laugh. We've had meetings where three students come and meetings where twelve come.

    Right now we are working on getting more people interested in the group so that it can keep going next year after the seniors, including myself, leave for college. Meanwhile we are working on gathering signatures to support the Living Wage Ordinance. This passed 60-40% in Oak Park but is still non-binding. We also have Tim Curtin, a United Electric organizer and part of the recent sit-down strike at Republic Windows, coming to speak to the group on January eighth. Hopefully, the recent article about us in the school newspaper will make more students aware of our real intentions: to educate ourselves and others about labor issues in the world and do our part to ensure that all workers are treated with respect and given the rights they deserve.


    New Ground #122.1

    02.24.2009

    Contents

    A Note From the Editor
    Today's Other America
    Lobby Day to Abolish the Death Penalty
    March 14 March Against the Wars

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    A Note From the Editor
    You may have noticed that New Ground, the print edition, was a bit late and you may have noticed that the email editions have simply ceased. If you were wondering, it's simply that I've been on "sick leave." In an all volunteer operation like Chicago DSA, this is not accompanied by any special benefits except maybe guilt that you're letting your comrades down. But I am getting better, and I hope New Ground will be back to it's regular schedule. And that we can develop some new features as well. One note of caution: the owner of this office building still isn't certain what he's going to do with the building, though rumor has it that turning it into a luxury botique hotel is now off the table. But we still may have to move, maybe as soon as the end of March. Or maybe not. If we do, looking for a new home and getting there is likely to be a big distraction.

    Today's Other America
    Chicago DSA is sponsoring the cablecast of Bill Donovan's 1999 documentary Michael Harrington and Today's Other America. This is available to Chicago cable subscribers only, through CANTV's Channel 19. The documentary will be shown (according to CANTV's Traffic Department) on Thursday, February 26 at 5 PM and on Friday, February 27, at 12 PM.

    Michael Harrington is probably best remembered as the author of The Other America: Poverty in the United States. Published in 1962, it documented how, after two decades of unprecidented prosperity, there were still a substantial number of Americans who were poor and that it was not simply a matter of race or rural isolation, but something that was endemic all across our country. The book was not the first to document this state of affairs. But it was eloquent, thorough, and well timed to catch a growing wave of liberalism in the early 1960s. It was, in fact, given credit for inspiring the Johnson Administration's "War on Poverty".

    This documentary by Bill Donovan retraces Harrington's original journey across America to update his expose of injustice for the millenium in light of the growing power of global corporations.

    Includes appearances by Irving Kristol, William F. Buckley Jr, Gloria Steinhem, Chancellor Willy Brandt, Rush Limbaugh, Francis Fox Piven, Bogdan Denitch, Bob Herbert, Jeff Faux, Senator Edward Kennedy, Jim Chapin, Charles Murray, Staughton Lynd, Myron Magnet, Robert Kuttner, Joanne Barkan, Robert L. Heilbroner, John Kenneth Galbraith, Congressman Bernie Sanders, Joseph Murphy, and many others.

    Music by Bruce Springsteen, Woody Guthrie, Pete Seeger, Elaine Purkey, The Adjusters. Includes original music by Jody Elff.

    Lobby Day to Abolish the Death Penalty
    Come support abolition! The Illinois Coalition to Abolish the Death Penalty will be having a lobby day at the Capitol on March 12th to support our abolition bill, HB262. We will have a bus leaving from Chicago and we are coordinating rides from other parts of the state. There will be a rally in the Capitol rotunda at 11 am and afterward we will be lobbying our legislators in favor of HB262. Please see http://www.icadp.org/civicrm/event/info?reset=1&id=5 for an itinerary of the day and for more details.

    March 14 March Against the Wars
    The Chicago DSA Executive Committee voted to endorse the March 14 March and Rally on the occasion of the 6th anniversary of the Iraq war. The good news is that this event now has a permit, the City's attempt to deny it having gotten entangled in its own red-tape. The march will begin with a rally at 12 Noon at Marshall and Cermak, two blocks away from the California stop on the CTA Pink Line. For more information, go to:
    http://www.chicagomassaction.org/


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    PLEASE FORWARD TO THOSE YOU THINK WOULD BE INTERESTED.

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    Chicago Democratic Socialists of America
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    Chicago, IL 60647
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