Who Is Obama's "Forgotten Man?"

WHO IS OBAMA’S “FORGOTTEN MAN?”
(FIELD NOTES FROM THE “LAGGING INDICATORS”)

These unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power…that put their faith once more in the forgotten man at the bottom of the economic pyramid…No Nation can long endure half bankrupt. Main Street, Broadway, the mills, the mines will close if half the buyers are broke…Closely associated with this first objective is the problem of keeping the home-owner and the farm-owner where he is, without being dispossessed through the foreclosure of his mortgage. His relationship to the great banks of Chicago and New York is pretty remote…Here should be an objective of Government itself, to provide at least as much assistance to the little fellow as it now giving to the large banks and corporations. That is another example of building from the bottom up. The Forgotten Man Speech, Franklin D. Roosevelt, April 7, 1932, Radio Address from Albany, New York.

A basic shift in economic philosophy is needed. The freedoms of the market are not ends in themselves. They are expedients, devices contrived by human beings for human purposes. Markets are made to serve man, not man the market. In the global free market the instruments of economic life have become dangerously emancipated from social control and political governance. John Gray, False Dawn, 1998, Page 234.

The right economic objectives are to meet real problems, not those conjured from thin air by economists. Bringing about a rapid end to unemployment, caring properly for an aging population, cleaning up the Gulf of Mexico, coping with our energy insecurity and with climate change are all far more important objectives than reducing a projection of future budget deficits. From James K. Galbraith’s Statement to the Commission on Deficit Reduction, June 30, 2010, on behalf of Americans for Democratic Action.

August 8, 2010

Dear Citizens and Elected Officials:

Introduction:

There is a lot of ground to cover in this summer of political discontent, and so we are pleased to bring our readers an essay which consists of two major parts, but which we hope you will find has integrated themes. Part I is our answer to the question we posed in the Email subject line and title: Who is President Obama’s “Forgotten Man,” a term which will carry you back not just to the presidential campaign speech where it gained fame, in April of 1932, but also to the very core of the current economic policy debate over what to do about our deflationary economy, whose tepid recovery is on the verge of stalling out as we write in August of 2010. The term will also take you to a conservative-libertarian’s (Amity Shlaes) revisionist history of the New Deal which appeared in 2007, which also carried that title, and reminded its readers that FDR was not the one who invented the term. It was actually the title of an essay written by the philosopher and leading American Social Darwinist of his day, William Graham Sumner, in 1883. (New Jersey readers will have to decide if they want to reclaim him as a “native son.”) Thus in the space of four decades, the identity of society’s “Forgotten Man,” was transformed entirely in meaning from the allegedly burdened middle class taxpayer of the Gilded Age, Sumner’s invention, to the citizen “at the bottom of the economic pyramid” of the 1930’s Great Depression, which was Roosevelt’s, and now, “courtesy” of Shlaes, back to a more Darwinian view – although she seems to have managed to leave the formal Darwinian ties unmentioned. And at the core of the Democratic Party’s – and President Obama’s - troubles today lies their conflicted if not contradictory response as to just whom has been cast in that role now, and what policies would best aid them. The stakes are high with the troubles of the American economy. Should Obama fail in the eyes of the public, a new age of Social Darwinism awaits us, right around the corner in 2012.

Part I concludes with our own personal resignation letter – from our high office in the Democratic Party – Precinct Vice-Chair - sent to the Montgomery County (Maryland) Democratic Central Committee Members and dated June 18th, a letter which was Emailed to some readers under the subject line “Not A Party Packhorse This Year.” It acknowledges the attempts Democrats have made to solve the nation’s problems, but calls attention to the very narrow range of policy options that Democratic office holders at all levels believe they must adhere to, a range which leaves out the best of their own party’s traditions in helping FDR’s Forgotten Man. The letter speaks to the policy boundaries party leaders won’t cross and domestic interventions they won’t undertake, in contrast to the ones they have launched abroad. It asks how it was possible, under a Democratic President and under the economic conditions of 2008-2010, for a great nation to undertake its 2010 Census without a single question on unemployment, underemployment, mortgages under-water, foreclosures, health insurance, food adequacy or child care availability. In brief, it wonders about the great disconnect portrayed in that strange Census form, one indicative of deeper political troubles.

In Part II we recognize that when the ideas and politics of an “extreme” age – The Age of Market Utopianism we like to call it, but others just call it neoliberalism - so narrow the range of public policy options that tens of millions are left stranded as “surplus labor” – – the only way to break the spell is to shatter the self protective time horizons that pretend that this is the only political economy we’ve ever had – or can have in the future. Thus a determining theme of the books we have chosen to review is that they reach back in time to show you the origins of the terrible ideas that now have us by the throat, that have helped set up the rigid boundaries that our public officials will not cross. And they also share another trait, although they approach the topic from various angles and give it different emphases: all raise the question as to whether our current economic system is at the service of our broader public good – and needs – or whether it has instead bent most of us to be the servants of its ends, so aptly put by the epigraph from False Dawn quoted above: “Markets are made to serve man, not man the market.” The fact that the author of that book, and that sentence, was once a member of Prime Minister Margaret Thatcher’s “informal brain trust,” should tell you something about how far we have traveled down the road to pursue the second of the twentieth century’s great utopian illusions. And John Gray’s book, False Dawn (1998), will tell what the other one was, if you haven’t guessed it already.

The three other books which we review in detail, with running commentary on contemporary applications, are: Hellfire Nation by James Morone (2003); Arrogant Capital by Kevin Phillips (1995); and Keynes: The Return of the Master by Robert Skidelsky (2009).

And in a summer bonus, in Part I, in getting to these books, we also cover Nick Taylor’s American Made: The Enduring Legacy of the WPA, When FDR Put the Nation to Work, where citizens can learn about devoted public servants like “social worker” Harry Hopkins, who instead of agonizing over balanced budgets and national debt, worried about how the tens of millions of unemployed folks were going to make it through the winter of 1934. We contrast Mr. Hopkins’ role with that of another social worker, this one on the Montgomery County Council, whose current duties include preaching the merits of austerity to all levels of government, as if Mr. Keynes had never lived, and as if Mr. Krugman and Lord Skidelsky, among many others, were not vigorously warning of the risks of repeating the mistakes of 1929-1932.

As we have done in the past, we are enclosing the entire essay as an attachment in MS-Word, and pasted in the text from Part I below; the book review section will be sent out separately in about a week’s time under the Email subject line: Summer Reading for When Markets Rule

PART I

Democrats Reach for the Austerity “Brand”
It’s been a remarkable couple of months since our last two postings at the end of April, 2010. If you read just the Introductions of Debt, Deficits and Balanced Budget Bull, and Austerity, Courtesy of the ‘Best Men’ then you were well prepared to greet Paul Krugman’s columns of June 28th and July 2nd: “The Third Depression” and “Myths of Austerity.”

Two of his previous columns, “The Pain Caucus” (May 31st) and “That 30s Feeling” (June 17th), employed language which carried his readers back to a 19th century vocabulary of “hard money” and “balanced budget orthodoxy,” and also some phrases suggestive of the cruel days of laissez-faire - “punish the unemployed” and “inflict more suffering.” Although Krugman neither mentioned the 19th century nor the similarities between religious fundamentalism and economic fundamentalism, his columns nonetheless pointed back even further in time to the origins of the Protestant Work Ethic and extreme economic individualism. These ideas hung over Krugman’s writings like the mood at a collective funeral, and we felt that we had made the right decision back in the later part of 2009 to press ahead with the long essay Sinners in the Hands of an Angry Market, which appeared in January of 2010.

Krugman’s not the only one; a fellow “Keynesian,” in fact the biographer of Keynes, Robert Skidelsky, who also serves in the House of Lords, is busy writing columns and giving speeches on similar themes. On June 2nd, in the “Queen’s Speech, House of Lords Debate,” he asked, about the new government’s race to cut government spending: “Why this stampede to austerity?” And he answered, one sentence later, “The basic reason is a visceral, if vestigial, puritanism. We feel that more spending cannot be the answer to having spent too much already.” In a later column, from June 16th, he noted that in 1974, Labor Prime Minister Edward Heath asked: “‘Who governs – government or trade unions?’ Five years later British voters delivered a final verdict by electing Margaret Thatcher. The equivalent today would be: ‘Who governs – government or financial markets...the question may well define the political battleground for the next five years.”

In his concluding paragraph, Lord Skidelsky has a succinct summary of the debate we’re about to bring center stage, performed this hot summer of 2010 in the USA, one that raises issues for President Obama as well as state and local government officials, like Montgomery County (Maryland) Councilwoman Duchy Trachtenberg, who noted in her July 7 Management and Fiscal Policy Update Email that “As governments at every level – national, state, county and municipality – struggle to rein in spending and find a way to maintain essential services, the urgency of sober and serious fiscal planning is inescapable.” Here’s how Lord Skidelsky posed this great question of political economy:

We are about to embark on a momentous experiment to discover which of the two stories about the economy is true. If, in fact, fiscal consolidation proves to be the royal road to recovery and fast growth then we might as well bury Keynes once and for all. If however, the financial markets and their political fuglemen turn out to be as ‘super-asinine’ as Keynes thought they were, then the challenge that financial power poses to good government has to be squarely faced. (At
http://www.skidelskyr.com/site/article/once-again-we-must-ask-who-govern... )

Galbraith’s Critique of Obama’s Austerity Commission
The question we have for the Councilwoman, and we make no judgements on her difficult work on the county’s budget problems, and it could be asked of state elected officials, and governors around this country, who must, usually by law buttressed by constitutional stricture, see that their budgets are balanced, is this: do you really mean that same logic to apply to the federal government under these deflationary conditions, or is there a footnote or asterisk that we missed in the update, indicating that it was very necessary, and appropriate that the federal government not follow the same advice? If you did mean that austerity to apply as well, without reservation, to the federal government, then we strongly recommend that you consider the following statement given by economist James Galbraith on June 30, 2010 to President Obama’s Commission on Deficit Reduction at
http://www.newdeal20.org/2010/06/30/why-the-fiscal-commission-does-not-s... .

The statement is eight pages long, and loaded with analysis that Democratic candidates, at all levels, as well as the America people, need to hear. We’ll give you just two samples, but trust you’ll get the drift. In addressing just what signal the markets are sending now about the question of government debt and deficits, he sounds like Paul Krugman, noting that the key 10 and 30 year U.S. Treasury Bond interest rates have fallen, not risen as the bond vigilantes were predicting (hoping?). More abstractly, Galbraith asks “if bond markets are fickle and arbitrary, who is to say what they will do in response to any particular policy? In the face of irrational markets, the sensible policy is to borrow heavily for so long as they are offering a good deal.” Looking at the current evidence, he wryly notes that “either the markets are rationally unworried about deficits, or they are acting irrationally right now, in which case they can hardly ‘insist’ on anything.” On the concluding page of his statement, he goes right at the very mission and assumptions of the Obama commission:

You are plainly not equipped by disposition or resources to take on the true cause of deficits now and in the future: the financial crisis. Recommendations based on CBO’s unrealistic budget and economic outlooks are destined to collapse in failure. Specifically, if cuts are proposed and enacted in Social Security and Medicare, they will hurt millions, weaken the economy, and the deficits will not decline. It’s a lose-lose proposition, with no gainers except a few predatory funds, insurance companies and such who would profit, for some time, from a chaotic private marketplace. Thus the interesting twist in your situation is that the Republic would be better served by advancing no proposals at all.

Rediscovering the “Political Economy”
As we worked on that long essay, Sinners in the Hands of an Angry Market in the late fall of 2009, we were conscious of making a difficult choice: to forgo covering every major economic policy initiative and “breaking story” in a news reporter/blogger fashion, and instead, aiming for the longer reach of the historical roots of our current economic predicament. That choice was made a little easier by the stop-go motion of the financial reform legislation, clearing the House as it did back in December of 2009, still largely obscured by the smoke and flames of the health care debate, which drifted over into the winter of 2010, making it very unlikely that citizens could focus closely on what the Senate was going to do when its turn came. Those circumstances, among others, led to very different bills and, for citizens, a harder-to-reach reconciliation process, despite the attempts to make it “transparent.” And then there were periodic reminders punctuating the press coverage that a simultaneous investigation by the Financial Crisis Inquiry Commission was in motion, one which would unfortunately deliver its final report quite out of step with the Congressional reform work, in December of 2010, just about the time the President’s Deficit Commission would be delivering its recommendation. It all seems quite out of phase, out of kilter, to us.

We had low expectations during the early Senate dynamics on financial reform, but thanks to the SEC suit filed against Goldman Sachs on April 16th (now settled) and the growing effectiveness of newly arisen citizen groups, and an unexpected amendment from an unlikely source on derivatives reform – Senator Blanche Lincoln of Arkansas, of all people, whom the left strove mightily but unsuccessfully to defeat in her June primary – hopes were raised.

But right now the nation is snarled up in a surly mood over the Obama administration’s shortcomings, real and imagined, and the criticism is issuing forth from both the left and the Right. At its root, it’s really a long-running historical dispute about the shape of our national “political economy,” even if the term is barely “employed” in the commentary.

We say political economy because we think that’s the correct term, and concept, that’s needed to make sense out of the crisis, and the summer of our American discontent, as the summer of 2010 is coming to be called. And by political economy we mean the balance of power that emerges from the social and economic forces active in society – and its dependence on the ideas held about what governments may and may not do to affect, and direct, the private economy. To put the concept in blunter terms, it’s about the ingredients that go into the economic pie, who does the cooking, and the size of the portions distributed to the various diners jostling for a place at the societal table. We suppose it says something about the status of “political economy” in the realm of politics that while the great financial crisis, or the “Third Depression” was simmering, first on the back burners in the press, and then boiling over onto the nation at large, the Montgomery County Council was getting us healthier diets and informative menus at public restaurants.

In one sense, just “reviving” the term serves as a standing rebuke to those conservatives who felt, like George Will did, that the “economic question has been settled” for all time. It is also a rebuke to liberals and progressives of “The Third Way,” the Clintonians and Blairites, who James Galbraith writes so scathingly about in his book The Predator State, where, echoing Wills, the conventional wisdom is that “the market system is not open to fundamental reform; power relations cannot be changed. The system is already engineered for the best; new architects and new planners are not required.” But that was written in 2007-2008, before the full impact from the economic collapse had boiled over those once confident existing assumptions. “Political economy” also has, to recommend it further, just a little bit of that “old time religion” flavoring that the theological Right has been sifting onto the public since the mid-1970’s – only this time the “accent” is coming from the economic left.

There is no better reminder of the intellectual back burners, or worse, that the term “political economy” had been relegated to, than Simon Johnson’s mention of it in his new book, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown. And just reflect for a moment upon who is reminding us of its importance; Johnson is not a University of Wisconsin lefty, he’s a professor of “Entrepreneurship” at MIT’s Sloan School of Management and a senior fellow of the Peterson Institute for International Economics. Johnson is here setting the stage for the 2008-2009 crash in a Chapter entitled “Other People’s Oligarchs:”

the idea that a major financial crisis of the type that ravaged emerging markets in the 1990’s could originate in the United States was too preposterous to even be conceived of…More fundamentally, political economy – the study of interactions between the political and economic systems – was only appropriate for developing and emerging market countries. In countries that had already ‘emerged,’ like the United States, economic questions could be studied without reference to politics. Instead, economic and financial policy presented only technocratic questions, which Summers (Larry) compared to regulation of air travel… (Page 55, our emphasis.)

And for readers not following financial reform closely, we should add, just to extend the point a bit further, Simon Johnson represents the “left wing” of banking reform: the political power of the large banks is so great, and the distortions they have radiated to the overall economy so damaging, he believes that they must be broken up.

While we’re pleased to reacquaint our readers with the concept of political economy, and its premonition of broader and more fundamental debates, Congress is having none of it, and is content to stay within what it incorrectly believes to be the safe budgetary boundaries of the old neoliberal model. After all, Congress has been hesitant to even extend unemployment benefits to the already long-term unemployed. Doing that and filling the $150-$200 billion dollar hole in state revenues to prevent further layoffs is the obvious decent minimum; after all, doing so would be merely stemming the deflationary hemorrhaging, not addressing the job creation cure. And some of the old “individual character” killing warnings from the laissez faire days of the 19th century and the early Great Depression are reappearing, right on cue from this neoliberal mindset. In the winter of 2010, one U.S. representative from Nevada, Dean Heller, raised the issue of the unemployed devolving into “hobos,” even if there are, sadly, far fewer trains for them to ride today than in the 1930’s.

You can imagine, once one adopts this perspective, that if unemployment benefits help destroy individual character and initiative, what a government created job might do…why it becomes a veritable “falling dominos” theory for further government aid; that’s why most of even the progressive proposals to remedy the unemployment crisis take the form of some financial inducement to get the private sector to do what it doesn’t seemed to be inclined to be doing under existing conditions: investing and spending. Of course, the Keynes who might well be re-buried for good today by the current austerity thinking, wrote in the 1930’s about why businesses looking at the depressed state of consumer finance and spending might be reluctant to display those famous animal spirits, and Paul Krugman has delivered a closer look at “what’s causing low business spending” in his July 9th column, “Pity The Poor C.E.O.’s” at http://www.nytimes.com/2010/07/09/opinion/09krugman.html

And, if our readers will recall, for a good part of 2009-2010, the administration’s defenders kept emphasizing the point that “unemployment” has always been a “lagging indicator” in recession statistics, downplaying the growing evidence that as the neoliberal model has matured (decayed?), the lagging has grown longer and longer, with fewer and fewer manufacturing jobs created – or retained in recoveries. And treating the horrible unemployment numbers, and the projections as to when they might get better, as just a bad case of “lagging indicators” serves to mask just how severe the financial crisis and panic was, and also, which gets almost no notice, to mask deeper structural changes in capitalism which give the concept of “full employment” and a greater workers’ share of income not much more than a “footnote’s notice” in the broader economic considerations.

Just How “Progressive is Obama’s Agenda?
It doesn’t take a John Maynard Keynes to see the deflationary impact of cutting tens of billions of dollars of state spending, leading to further layoffs and pay cuts for the surviving workforce, but hey, from the Right this looks like opportunity knocking to put state government into its rightful “shrunken state” once and for all. If that means putting thousand of teachers out of their jobs, well, they’re union members, usually, aren’t they? And the Right has the magic market answer for all those protected instructors and their failing students: Charter School competition, with the idea getting a recent nudge from President Obama himself, creating a link between stimulus funds and more Charter friendly state rules. Or so we’re told by David Leonhardt’s article from the May 22nd edition of the New York Times, “A Progressive Agenda to Remake Washington,” (at http://www.nytimes.com/2010/05/22/business/economy/22leonhardt.html ).

Although the title of that article didn’t have a question mark after it, we’re going to add one, because the question of just what the President has tried to accomplish, his faltering standing in the polls, and the current summer discontents from all shades of the political spectrum, appear so perplexing that they deserve a closer look. President Obama’s seeming legislative triumphs have translated into the following rather paltry public poll numbers on the health care bill, oil spill and unemployment crises: The New York Times/CBS News poll from the week of June 16 through June 20 showed only 45% approving of the President’s “handling” of the economy, 43% on the oil spill; only 34% that he had a “clear plan” for creating jobs and just 32% on a “clear plan” for dealing with the spill. (From “Even on Gulf Coast, Energy and Economy Surpass Spill Concerns, Poll Finds,” by John M. Broder and Marjorie Connelly, June 22, 2010, page 10.) On the health care legislation, a May CBS survey showed “that the public remains confused and deeply split over the health law,” with 43 percent approving and 47% opposed. That’s led to the roll-out of a very large public relations campaign to “sell the public on the law, including a new tax-exempt group that will spend millions of dollars on advertising to beat back attacks on the measure and Democrats who voted for it.” (“White House and Allies Set to Build Up Health Law and Democrats Who Backed It,” by Sheryl Gay Stolberg, NY Times, June 7, 2010, Page A10.)

Let’s give President Obama and the Democratic Party the initial benefit of the doubt, and put their legislative accomplishments into historical perspective, starting with the comments contained in that David Leonhardt article from May 22nd. An initially very skeptical Harvard political scientist, Theda Skocpol, says “now it could easily be one of the pivotal periods in domestic policy…But it will depend on what happens in the next two elections.” David M. Kennedy, the well known historian that we’ve quoted from before in our postings, says the changes don’t match the New Deal’s “foundational moments…but they’re significant changes.” Alan Brinkley, another major historian, agrees with Kennedy: “‘This is not the New Deal, but it’s a significant series of achievements. And given the difficulty of getting anything done under the gridlock of congress, it’s pretty surprising.’”

Our gut level reaction to the article, stemming from the title, was to say that if it were in fact a “progressive agenda,” it was one that left a good number of progressives feeling left out of the legislative dynamics with single payer health care ruled “out of bounds” right from the start, and Medicare for all (or even for more) and the public option sent to the sidelines a bit later. Paul Krugman made the best pragmatic case for passage and its progressive features, echoed by Leonhardt, but nonetheless it’s a fair call to say it’s very close to Mitt Romney’s plan for Massachusetts, and leaves the major corporate players in place with many, many more potential customers. It’s still trying to be a market-based plan where a good portion of the left doesn’t believe the market is appropriate – or will work.

Therefore Leonhardt accurately comments that Obama and “today’s Democrats” are still being influenced by the Reagan Revolution in their stressing the role of markets and competition in the proposed health care and education system changes, and while noting some progressive taxation features, he recognizes that Obama has not taken us anywhere near the pre-1980 tax rates, nor put major progressive tax reforms on the table, especially in the case of a financial transactions tax as part of the financial reform bill.

We think that Leonhardt, despite this acknowledgement of some influence, still understates the impact that the Right has had in economic thought, policy and the role of government, and in making an enormous change in the way people think of the “political economy” of the nation. It was so great that they were able to make that term virtually disappear, and not apply to the Utopian Project of the Right: to place “free markets” and financial considerations at the crossroads of nearly every human exchange, every activity. Sound like an exaggeration? Try this book title out, readers, one sitting in my religious history library section: The Churching of America 1776-1990: Winners and Losers in our Religious Economy (1992), where the authors, Roger Finke and Rodney Stark explain, that “some readers may shudder at the use of ‘market’ terminology in discussions of religion. But we see nothing inappropriate in acknowledging that where religious affiliation is a matter of choice, religious organizations must compete for members and that the ‘invisible hand’ of the marketplace is as unforgiving of ineffective religious firms as it is of their commercial counterparts.”

We think that is why Obama has done so poorly in meeting the unemployment crisis – his willingness to go further than the inadequate first stimulus and employ many of the logically necessary New Deal methods for doing so, has been removed from the most meaningful of starting places: the very realm of intellectual possibility. Mr. Leonhardt notes how badly Obama is suffering with the public reaction to this failure, but he doesn’t link it to the decades’ long erosion in progressive thought on full employment issues. He notes the progressivity of Obama’s longer term investment directions - education and scientific research - areas where we think the Right’s dominant ideology can’t be brought to bear nearly as effectively, and the immediate political stakes don’t loom as large.

How Truman Dealt with Obstructionist Republicans
So why if, as Leonhardt asserts, “every major piece of the Obama agenda is meant, in part, to push back against inequality,” doesn’t the left, at least, seem to appreciate the direction? Could it be that these efforts, while trending in the proper compass direction, are deliberately side-stepping the more head-on conflict potential of the unemployment and foreclosure crises? Yes, the oppositional passions would run high, but what Obama has put on the table so far is simply not going to get the job done. We don’t for a minute doubt that the Republicans would respond with all the blocking maneuvers and Tea Party demonstrations of the health care debate.

But such a situation is not unprecedented. We learn in James T. Patterson’s Bancroft Prize winning history of the United States, (1945-1974), Grand Expectations, that President Truman faced a similar situation in 1947-1948. But Truman got a 43 page memo from his advisors in November of 1947 laying out a basic strategy that would seem to fit pretty well for a bolder Obama agenda, especially on these two key issues. It had very real electoral value because a major part of its intent was educational, to explain the political economy of the time to citizens, something that Robert Kuttner says Obama is failing at (see “My Private Obama,” from early July at http://chelseagreen.com/blogs/robertkuttner/2010/07/06/my-private-obama/ . Indeed, a good part of Kuttner’s posting sounds like it is reading from the original memo to Truman, which Patterson quotes directly from:

The Administration should select the issues upon which there will be conflict with the majority in Congress. It can assume it will get no major part of its own program approved. Its tactics must, therefore, be entirely different than (sic) if there were any real point to bargaining and compromise. Its recommendations – in the State of the Union message and elsewhere – must be tailored for the voter, not the Congressman; they must display a label which reads ‘no compromises.’ (Page 149.)

True, readers, what you’re thinking, and just as Kuttner has reluctantly and far too belatedly finally acknowledged: it just isn’t in Obama to employ these tactics, nor recommend the policies we are advocating.

Once Again, Labor Left Waiting
Entirely left out of not only this “A Progressive Agenda” article but the others we’re going to take a look at, is a seemingly centrally important progressive policy initiative, which some might argue should have logically, along with reform of lobbying and the pay-to-play election fundraising system, gone prior to everything except the stimulus bill: labor law reform, to make it easier to join a union, and thus strengthening a crucial part of the grass roots base. This issue, formerly labor’s highest priority, was apparently shifted to another burner while health care was simmering, but we don’t think it got shifted to just a back burner: it got the deep freeze instead, maybe even got the deep-six. And that would make sense to us, with the Centrist, non-ideological Obama, and the Obama temperament, and choice of appointments and advisors.

No issue, however, is more central to the balance of power in today’s political economy than the current imbalance between labor and management. Readers will recall in our last two major postings at the end of April that we stressed the insights found in Thomas Palley’s excellent essay about “America’s Exhausted (Economic) Paradigm,” which placed a beleaguered “labor” in the Neo-Liberal Policy Box (the “penalty box,” might be a better term), surrounded and squeezed on four sides by: Globalization, Less Than Full Employment (!), Small(er) Government, and the “gold standard” for judging worker pay, attitudes and perks, “Labor Market Flexibility.” That last concept has moved front and center in the European “sovereign debt” crisis as workers are asked to give back or weaken a whole variety of pension and job security benefits they have previously won – all justified by the new “Age of Austerity.” Funny how one of the major New Deal accomplishments – recognition of newly won labor rights – and one of the key progressive agenda topics heading into January of 2009, just managed to slip out of all the evaluations of the Obama performance. Oversight, no doubt. (And here’s the link to Palley’s fine essay, just a year old and just in case you missed it in April: at http://www.newamerica.net/publications/policy/america_s_exhausted_paradi... )

(Editor’s note: President Obama did act during the March Congressional recess to appoint two pro-labor lawyers, Craig Becker and Mark Pearce, to the National Labor Relations Board, which had seen 26 months of near paralysis because only two of its five seats were filled. In June, a Republican, Brian Hayes, was confirmed, so the Board now stands 3-2, leaning in labor’s direction. While the rulings of the Board are very important, it’s an open, if not dubious premise that its rulings can make up for fundamental legislative reform of the union election process. And then we would be careless not to take note of the rescue of portions of the American auto industry, and their heavily unionized labor force, a full discussion of which would need its own essay. We would be a lot happier if some of that old industrial potential were to make American trains: high speed, light rail and trolleys.)

Michael Steele and the Asian Land War
Also missing entirely from Leonhardt’s piece, besides the labor law reform, and it’s no small oversight, is consideration of the remarkable decision by President Obama, after his careful and deliberate evaluation over three months in the fall of 2009, to send additional troops to the AF-PAK war zone. This might have won him votes from the Americans for Democratic Action, c.1949, but among progressives today who didn’t think Iraq was a great idea this was a major cause for disillusionment, despite Obama campaign pledges to shift resources to the theatre of what is now our longest running war, 2001-2010. How can we say that, given the President’s open signal and pledge during the campaign?

Well, in our view, it shows the President just didn’t understand how serious the economic situation was, even when it was glaringly apparent in that fall of 2009, and this view is buttressed by the failure on the employment and foreclosure fronts: the damage to the economy was deeper, and more structural than conventional wisdom would have it. Had the President fully realized the economic maelstrom he was about to be spun around in , he would have used that long review period to gracefully detach our countrymen from the losing proposition of AF-PAK, a war that doesn’t seem very popular in the public’s mind right now, as polls indicate. When the Republican National Committee Chairman Michael Steele has to be the one who states the folly of AF-PAK clearly, as he did in early July when he said, based on 1,000 years of history that it was not winnable and that it was now “Obama’s War,” and added the historically haunting warning (documented by the Korean and Vietnam experiences) about “a land war in Asia,” then we have to attach even bigger qualifiers to that “A Progressive Agenda to Remake Washington” argument. Once again, President Obama is splitting the difference, sending mixed signals even in matters of war, between his escalation and the beginning withdrawal date in the summer of 2011. Something tells us that realities “over there” might not be as understanding, or cooperative, of the Presidential preferences and nuances.

Yet President Obama does not seem to be greatly distressed by his standing in the summer of 2010, and is once again sending very mixed signals on the great economic questions of the day. On the home front, debt and deficit fears have tempered what he is asking of Congress, and willing to go to the mat for, but the message to Europe from key economic advisor Larry Summers and Treasury Secretary Geithner is not to go too fiscally conservative for fear of triggering another recession, or worse. Back home, there is no great effort to educate the public on matters of political economy, at a time when the stakes are as great as they ever have been since 1937-38, and the debate is fully engaged in the newspaper columns and on the editorial pages. Unless, of course, you consider Secretary Geithner’s efforts in early August to cheerlead the recovery an adequate course in political economy.

Upon reflection, it would be pretty difficult to carry out the role of a good educator when there is such internal liberal confusion between being fiscally responsible on deficits and being good Keynesians to hold up sagging private demand. Paul Krugman says it need not be, the resolution of the dilemma is clear: spend in the short run, address fiscal deficits in the medium and long run. But if one looks at the polling results, confusion reigns. The public is very unhappy on the lack of jobs, but says it is greatly worried about deficits, and in the historical balance, this is where the left’s yawning chasm, its intellectual vacuum on the political economy over the past 30 years really hurts. We’re back to the internal conflict visible in FDR himself, which we wrote about in April, between job creation and balanced budgets/deficit control. It’s readily apparent in the full “Forgotten Man” speech from 1932; he admits that given the massive numbers of unemployed people that government jobs could never make up enough of the difference, given how small the federal budget of the time was. Of course, he would reverse himself once in office, thanks to advisors like Harry Hopkins, and it was good for the country that he did. When he slowed the public works spending in 1937-38, the economy collapsed again. Roosevelt, also in that famous 1932 speech, gave clear recognition to the impaired demand from the nation’s impoverished farmers, who represented “nearly one-half our whole population.” At least FDR, when he acted, directly created jobs and took the most sweeping measures in the nation’s history to boost farm prices and incomes. Today, the argument of the moment in Congress is merely whether to extend unemployment benefits and fiscal bandages to bleeding state budgets.

Voters Still Frame with Conservative Economic Timber
There is not much equivocation, however, on what this summer means for liberals and the President over on the Right. Ross Douthat (NY Times) wrote in “The Agony of the Liberals” on June 22nd that “from the West Coast to Western Europe, the welfare state is in crisis everywhere they look. The future suddenly seems to belong to austerity and retrenchment…liberalism itself may be running out of time.” David Brooks, same paper, same day, tells of an imaginary wager that Mephistopheles hatched with liberals in a remake of the Dr. Faustus tale, back in 2007. (“Faustus Makes A Deal,” June 22). The devil, in this retelling, is happy to help the liberals in exile out, taking a break from duties as “provost at his college,” and, it almost goes without saying in this script, “sipping a double mocha frapppucino,” and isn’t that just how and where the heartland imagines such things are dreamed up? This is Brooks’ way of saying: could the Democrats have built a better set stage, of Wall Street and Oil company villainy, economic distress, to try to reshape American politics? No, they couldn’t, “yet the country wasn’t swinging to the left; it was swinging to the right…instead of building faith in government, the events of 2009 and 2010 further undermined it. An absurdly low 6 percent of Americans acknowledge that the stimulus package created jobs…” That leads to what has to be acknowledged as a painful but truthful conclusion: “…liberals have failed to create a governing center-left majority. If they can’t do it in circumstances like these, when will they ever?”

Fair enough. It seems clear that the left has failed to pull in the center, the independents, in anything resembling a governing Center-Left coalition. But should we be surprised at this, after the preview failures of Carter and Clinton to do the same? How many times do we need to take a ride on this line before we conclude it doesn’t reach a progressive destination? Clinton indeed did achieve short-term success in the middle of the political spectrum, and got a second term because of it in 1996, and helped deliver the all-too-brief golden days of his “Third Way,” 1997-2000, but he couldn’t pass the “coalition” on to “poor” Al Gore. And we hope that by now our readers understand just how much those golden days conceded to the Right in economic regulatory matters, which helped usher in the calamity of 2007-2009, and shape the deflationary trough we’re still in.

What the conservative obituaries for Obama and the left leave out is that the basic economic frame in the mind of the voters is still built with quite conservative economic timber, denying the public any logical progression, or progressive answer to the question of what happens when the private sector fails. That’s because, in theory, it couldn’t fail, recessions were eliminated, the business cycles were banished, even if that notion was already passing away with the jobless recovery after the 2000-2001 recession. And the memory of the New Deal seems to have been erased, as we noted two years ago, with the absolute failure of the press to mention, much less cover, its 75th anniversary celebration held in Washington, DC on April 9, 2008.

Rewriting the History of the New Deal
And what hasn’t been erased, has been greatly revised, for example, by the work of the very capable conservative-libertarian economic writer, Amity Shlaes, whose June, 2007 revisionist book, The Forgotten Man: A New History of the Great Depression, was a pre-emptive strike, beating liberals and progressives to the debate now underway. Shlaes, who wrote for the Financial Times for five years, was an editorial writer at the Wall Street Journal and is a senior fellow in economic history at the Council on Foreign Relations, and has been collecting conservative/libertarian prizes for her work, like the 2002 Frederic Bastiat Prize (yes, the obscure 19th century French economist which we told you about in our April essays, where we learned that one of his books was riding in the back seat of Tea Party cars) and the 2009 “Hayek Prize” from the Manhattan Institute. We hope to say more about her in future writings, yet it’s already preliminary evidence for what we just said about conservatives dominating the deep framing of economic issues, to see that her book is far outselling, Nick Taylor’s book, American Made: The Enduring Legacy of the WPA: When FDR Put the Nation to Work,” at least according to Amazon.com statistics.

And that “Forgotten Man” in her title is not, we learn, the man at the bottom of the 1933 economic pecking order, the unemployed worker, the hobo riding the trains, the Dust Bowl farm family in exodus to California, but the taxpayer and small businessman who will have to carry the burden for the New Deal and other liberal programs to come. We learn that the famous term appeared in a speech written for FDR in 1932 by Raymond Moley, a phrase which was “in the air” of the time, but which originally came from a 1883 essay of that title by William Graham Sumner, America’s famous, or infamous, Social Darwinist, who was busy writing about the futility of reforms and reformers, social and economic. Sumner is himself a central figure in Richard Hofstatder’s 1944 American history classic, Social Darwinism in American Thought, where we see that he played a key role in our nation’s intellectual history: “Sumner’s synthesis brought together three great traditions of western capitalist culture: the Protestant ethic, the doctrines of classical economics, and Darwinian natural selection.” (Page 51.)

W.G. Sumner: A Social Darwinist with Religious Zeal
Like Amity Shlaes herself, he was a graduate of Yale University, but with a degree in theology, and he ended up in 1872 being raised to “Professor of Political and Social Sciences in Yale College.” Our readers, knowing our New Jersey background and the current tribulations of the old home state under the iron fiscal fist of Republican Governor Chris Christie, can appreciate our curiosity over Ms. Shlaes interest in Sumner, because he was born in Paterson, New Jersey in 1840, and returned, in a break from his Yale teaching duties, to become an “editor of a religious newspaper and rector of the Episcopal Church in Morristown, New Jersey.” What’s so fascinating about Sumner is his combination of religious training and zeal, focused on the greatest threat Christianity faced in theological terms in the 19th century, the rise of evolutionary science; yet his resolution of the tension is to justify the rapacious new industrial order of the Gilded Age in terms which Hofstadter doesn’t mince words over: “Competition was glorious. Just as survival was the result of strength, success was the reward of virtue. Sumner had no patience with those who would lavish compensations upon the virtueless.”

Since we’re very interested in the history of political economy, and the lack of a vital, systematic concept of it today on the left, it’s fascinating to see how Sumner learned the harsh doctrines of classical economics, what currently we call neo-liberalism (written both with and without the hyphen), still at the center of the conservative world view. It reveals just how pervasive the indoctrination “system” of the mid-nineteenth century citizen was: “At fourteen (Editor’s note: so in 1854) he had read Harriet Martineau’s popular little volumes, Illustrations of Political Economy, whose purpose was to acquaint the multitude with the merits of laissez faire through a series of parables illustrating Ricardian principles.” Ms. Martineau was a firm teacher of harsh theories: even “charities, whether public or private…would never reduce the number of the indigent, but would only encourage improvidence and nourish ‘peculation, tyranny, and fraud.’” (Pages 52-53.)

Sumner would also seem to be a direct ancestor of what we have written about for some time now: the near religious intensity of free market “fundamentalists” on the Right, and a bridge between the ferocious aspects of the Protestant Ethic towards work in the economic fields of this earth, and the rise of giant industrial and banking firms in the laissez faire mood of the 19th century, and indeed, the growing secularism of modern life. Although Hofstadter tells us that “the deep ethical feelings of Sumner’s youth gave way to the sophisticated moral relativism of his social-science period, his underlying philosophy remained the same…he might insist that political economy was a descriptive science divorced from ethics, but his strictures on protectionists and socialists resounded with moral overtones. His popular articles read like sermons.” (Pages 54-55.)

Readers who think this is all in the past for us in the very advanced year of 2010 got a loud echo of both Sumner’s and Ms. Martineau’s Protestant Ethic morality when conservative David Brooks wrote in that “Faustus Makes a Deal” column “that economic policies are about values. If your policies undermine personal responsibility by separating the link between effort and reward, voters will punish you for it,” although Brooks didn’t make it clear whether he was talking about the backlash against the bank “bailouts” or against the private sector mortgage machinery which became a giant “pass the buck” evasion of responsibility for the fraudulent and near fraudulent mortgages that were written. If that’s Brook’s value system, then he’s had his head in the sand for most of the 1980’s and 1990’s, because whether you preferred Liar’s Poker or FIASCO the name of the game of Wall Street trading was hide the risk and pass it along to the unknowing customer. Wonder what Sumner and his teacher would say today about the evolution of Wall Street into a giant derivatives casino, a pretty fair approximation to Ms. Martineau’s “peculation, tyranny, and fraud,” to borrow from the moralizing tones of 1854.

The Alliance Once Again: Conservative Religion and Conservative Economics
Although we don’t want to elevate Glen Beck to the level of Sumner’s work, especially his later sociological works from the 1890’s and the complexities and troubles that some of his independent stands got him into (“Sumner was always suspect to a large part of the community of wealth and orthodoxy because of his independence”), it’s hard not to see some of Beck’s blend of conservative religion and conservative economics – and his intensity – in this fascinating figure. Nor do we want to overlook the parallels between the indoctrinations into laissez faire from 19th century writers like Ms. Martineau, and the economic dosing the public gets from Right wing talk radio, especially folks like Limbaugh, Hannity and Levin. We know that the Right has softened just a bit in the intervening century and a half, speaking favorably of private charities today, but it is just as ferocious against any ambitious role for the state in economic matters, especially any attempt at public job creation, as any self respecting Social Darwinist from the Gilded Age would be.

Yes, and just one more thing: despite eight references to William Graham Sumner in her book, and the reviews and interviews we’ve seen, Ms. Shlaes does not seem to have told her readers that he was indeed America’s most famous Social Darwinist of the 19th century.
As we explain in our June 18th, 2010 resignation letter to local Democratic officials which follows at the end of Part I of this essay (Not a Party Packhorse This Year), the conservative domination of the framing on the political economy means that they control the “boundaries” in the discussions of what is possible in the imagination and therefore in the potential policies, especially the public-private borders on job creation, crossed now in favor of public jobs only by a growing, but still far too limited “coalition” of the head of the AFL-CIO, Richard Trumka, Paul Krugman, James Galbraith and later in the summer, Alan Blinder of Princeton. Yet it’s not easy to find AFL-CIO direct calls for public jobs, even for something as seemingly apple pie as a new Civilian Conservation Corps. The closest we could find was this paragraph, No. 4 from the “AFL-CIO Jobs Agenda” which does not exactly set our hearts fluttering: “Put People to work doing work that needs to be done. If the private sector can’t or won’t provide the needed jobs, the government should step up to the plate, putting people who need jobs together with work that needs to be done. These should never be replacements for existing public jobs. They must pay competitive wages and should target distressed communities.”
The New Deal’s Work History
The current situation abounds in cruel historical ironies. At the heart of New Deal domestic job creation, and close to the ear of FDR himself, was a social worker named Harry Hopkins, surely one of the most unsung figures in the history of American politics. When the nation’s unemployed were in the gutter, sleeping in shacks, in the public parks and under bridges, and riding the trains as hobos, and therefore when FDR needed immediate action most urgently, it was to Harry Hopkins he turned to set up the Civil Works Administration (CWA) not the more methodical Harold Ickes over at the Department of the Interior, who also ran the longer time horizon Public Works Administration (PWA). For further cruel irony, consider, despite Hopkins jumping ahead of Ickes, a comparison of the still sterling Ickes’ performance at Interior compared to….what’s his name….Ken Salazar…today… see Tim Dickinson’s eye-opening piece at Rolling Stone: “The Spill, The Scandal & The President,” from June 24th, at
http://www.rollingstone.com/politics/news/17390/111965?RS_show_page=0#us...

Harold Meyerson, writing in The American Prospect in May, 2010, has an article bringing Hopkins back to public awareness in “Work History,” (at http://www.prospect.org/cs/articles?article=work_history ). It’s a needed update, because he helps explain why the under sized, under funded current stimulus can’t act as quickly or as effectively today as some of Hopkins’ programs could in 1933-1934. In 2010, again with deep irony, there are greater legal and financial hurdles, like environmental reviews (except if you’re a deep-sea drilling oil company) and more elaborate competitive bidding processes than those in 1933, in part to reassure the public that their government is being honest and protective with their tax money, as the New Deal programs were, overwhelmingly. Meyerson’s aim is to steer public job creation today towards the fast and effective CWA of the 1930’s. So he wants the current administration to “create them (jobs) in the home-care, child-care and preschool industries.” He also calls for tax credits for domestic manufacturing and infrastructure spending, but does not mention the New Deal’s Civilian Conservation Corps and all our nation’s current unmet environmental remediation needs, or the vast potential in energy efficiency retrofits, except for a discussion of how slowly the $620 million California received for those purposes has been spent: only $6.7 million by the end of 2009.

Local Governments Not Stepping Up
Missing too – and we have to think Meyerson knows better, but was constrained by space limitations, is the crucial advance preparation that needs to be done by local, county and state governments to have ready to go, on-the-shelf projects waiting to meet just such employment emergencies like the current one. In other words, to have ready all the studies and permit approvals for the project (rail transportation, for example), that can’t be funded currently or in ordinary times by just local financing. Scandinavian social democracies have some long-standing experience in this policy area. But to do this type of thinking in the existing U.S. neo-liberal conceptual universe enforced by the Right and acquiesced in by the Center, you have to be able to do two things: to acknowledge periodic breakdowns, cyclical or worse, in the private sector, and to have the intellectual and political freedom to plan for public spending and projects, including infrastructure, to fill the gap. Both notions are near to secular economic heresy for much of the Democratic Party today, and certainly are clearly heretical for the Right.

Harry Hopkins: When a “Social Worker” Met the Payrolls
That’s why we recommend Nick Taylor’s ably written and informative book from 2008, American Made: The Enduring Legacy of the WPA: When FDR Put the Nation to Work. It’s the deeper version of Meyerson’s brief “Work History,” and it’s worth putting on the summer reading list we’re going to recommend later in this essay. For now, here’s just a sample of the writing which Taylor rewards readers with, and a reminder of the vast difference between progressives like Hopkins in the 1930’s and today, especially those serving close to President Obama, but also those serving at all levels as public officials. Taylor says that “even in this era of remarkable characters, Hopkins stood out…He was a lightning rod for action, fiercely honest, hated by conservatives, reviled by the anti-New Deal press, and adored by the people who worked for him.” It was not until 1935 that Hopkins really reached a full head of steam at the Works Progress Administration, when “jobs became the focus of relief and gave genuine hope to formerly jobless workers.”

We think, in the hot, brutal summer 2010, one of fiscal austerity and austere polls for the President, and social workers busy “clearing a path towards balanced budgets,” it might be well to remind our readers, and elected officials, what an nation with its back to the economic wall once could do for its people, inspired by FDR and a “mere” social worker (was there to become any more maligned, mocked profession under Ronald Reagan, and since?) who managed to meet the biggest payrolls in the nation’s history, short of the armed forces in World War II - to answer that often hurled business charge that this or that government bureaucrat or advising academic “never met a payroll.” Here’s what the downtrodden and dispirited workers accomplished under the WPA:

They built roads and schools and bridges and dams. The Cow Palace in San Francisco, La Guardia Airport in New York city and National (now Reagan) Airport in Washington, D.C., the Timberline Lodge in Oregon, the Outer Drive Bridge on Chicago’s Lake Shore Drive, the River Walk in San Antonio...sewed clothes and stuffed mattresses and repaired toys; served hot lunches to schoolchildren; ministered to the sick; delivered library books to remote hamlets by horseback; rescued flood victims; painted giant murals on the walls of hospitals, high schools, courthouses, and city halls (Editors note: and painted a mural of Sugar Loaf Mountain inside the tiny Rockville, Maryland, Post Office) performed plays and played music before eager audiences; and wrote guides to the forty-eight states that even today remain models for what such books should be…The WPA lasted for eight years. Its accomplishments were enormous, yet during its lifetime it was the most excoriated program of the entire New Deal. (Taylor, Page 2.)

If Only Liberals Had a Theory
As we reflect upon what the conservative columnists have been saying over the past several months, one has to admire their determination, and the skill with which they attempt to shift the blame for the nation’s continuing economic troubles, and the deficits, not onto the failures of private markets, especially in the financial system – but onto the entire liberal, allegedly Keynesian repertoire of responses attributed to the Obama administration. It’s an amazing performance on a number of counts. Consider the nerve it takes for Ross Douthat to write in “The Agony of Liberals” that their second great vice of “is an overweening faith in theory.” Coming from the age of Reagan Conservatism, of Market Utopianism, from the ten word summary of Republican catechism that George Lakoff has given us (free markets, lower taxes, smaller government, strong defense, family values) and the attempt by the World Bank and the IMF to apply “the Washington Consensus” as universal values (still going on, as we pointed out, in the strings attached to loans to rescue troubled periphery nations in Europe), this is really an eye opener. It’s as if the Right’s Universal Project to remake the world, and its many societies, over into market exchanges in all phases of human interaction was never attempted, never contained: its own version of grand “social engineering” - like breaking labor, undermining public schools, (public water supply systems?), inventing a grand speculative casino to displace “long-term, patient investing,” and triggering in part, the great immigration problem from Mexico, thanks to NAFTA’s disruption of Mexican agriculture via cheaper American imports, especially corn…and substituting “the Great Incarceration,” (and getting Democrats like Bill Clinton to heartily endorse the effort) for a national industrial policy and Urban Marshall Plan in the late 1960’s and through the 1970’s.

And this conservative charge of “overweening faith in theory” is especially audacious since Obama won’t go anywhere near what we just listed above in terms of public employment from the New Deal, and given all his other “straddling”positions on debt and deficit spending. And let us break the news to Ross Douthat, and David Brooks: most thinkers on the left who have studied the New Deal have come to the conclusion that it was experimentally , not theoretically, driven, that measured by what it spent versus the drop in GNP, it could not possibly have “cured” the Great Depression, and the New Deal did not do that, nor generate full employment, which was only done with the great societal mobilization that occurred with the run-up to and entry into World War II. But people knew it was on their side, that it made a difference in their lives, which is why we suppose that the great chronicler of American suburban affluence and its discontents, John Updike (who died on January 27, 2009), was asked to write the review of Amity Shlaes revisionist history, reflecting on his parents’ experience of the Great Depression, and the New Deal, in a New Yorker article in 1997, here at http://www.newyorker.com/arts/critics/books/2007/07/02/070702crbo_books_...

The Great “Deficit” Debate: Short on Confidence, or Short on Demand?
To fully appreciate the American nation’s Right-framed political economy here in the hothouse summer of 2010, and to answer the question posed in this essay’s title, “Who is Obama’s “Forgotten Man,” let’s take a closer look at the worldview as expressed in two David Brook’s column’s, “A Little Economic Realism,” from July 6th, and one week later, “An Economy of Grinds” both found at his Op-Ed home at the New York Times.
“A Little Economic Realism” appeared near the apex of Congressional and economic debate over whether a second stimulus was needed for all the now familiar stumbling economic indicators pointing towards at best, a slowdown, and at worst, a double-dip recession, if not a more pronounced deflation. Brooks clearly was attacking Paul Krugman’s increasingly bold calls for greater Keynesian measures to match his growing fears of a looming “Third Depression,” although Krugman is not named. (It wasn’t hard, though, to fill in the prime suspect from this sentence: “These Demand Siders have very high I.Q.’s, but they seem to be strangers to doubt and modesty. They have total faith in their models.”)

Now there is some truth to the arrogant charge about Krugman, we’ve seen it first hand the only time our paths crossed in person at the Center for American Progress, but we’ve added up and taken into account the arrogance we’ve seen from Princeton University teachers and graduates over the years – nothing new there. And from top ranking economists from other schools as well. But we’re talking about the integrity of the Keynesian analysis here, the argument on its merits, and Keynesian remedies, not the curve of Ivy League rankings and the more-than-a-touch of arrogance that came to be attached to the whole mathematically driven economics profession since the pioneering days of Paul Samuelson and Robert Solow, going back to the 1950’s and early 1960’s. And since it has been the Right’s dominance, and arrogant faith in de-regulated free markets (and in it’s search for a “single global market”) and Wall Street inventions over the past 30 years – in what we will soon see historian and philosopher, and former Margaret Thatcher advisor John Gray calls the second great Enlightenment Utopian experiment, after the failure of the first, the former Soviet Union, it would seem more than a bit cheeky to hurl the charges of arrogance around so easily. And to proclaim, further, as Brooks does “that the Demand Siders don’t have a good explanation for the past two years,” and that, despite the high I.Q.’s, “they don’t seem to know much psychology,” because unlike their intellectual father, Lord Keynes, they don’t appreciate “that the state of confidence ‘is a matter to which practical men pay the closest and most anxious attention’” – well then, Brooks is looking for the street corner version of an intellectual brawl.

Furthermore, the entrepreneurs, the practical, not theoretical men, are saying, according to Brooks, that the higher deficits, a future fiscal crisis – and – it almost goes without saying – the fear of future tax increases – are making them “more insecure and more risk-averse.” Why doesn’t he just come out and say it: this sounds like all the excuses we heard in the 1930’s as to why recovery was delayed. It’s just so fascinating to watch, having been driven into a very deep economic ditch by the Right’s projects since the mid-1970’s, by following a road where entrepreneurs have been given the right of way, no speed limits, and dare we say, the highest evolutionary perch, that is to say, the pole position, and been enticed and feted with nearly every tax incentive they could dream up (we better be careful with that one…a further future list is as endless as the number of stars in the universe) that now, struggling to get the rest of society out of the 10-17% unemployment and sagging demand, the moderate conservative Mr. Brooks now decides it’s time for moderation in progressive remedies, and “a little economic realism.”

Well three cheers for moderation, it’s an ancient prescription for leading a balanced life, but what does it have to do with the economic prescriptions sold over the past 30 years by the Right and bought by much of the middle in economic policy? The nation’s economic engine is in the repair shop with bent valves, a broken water pump and failed carburetor; Brooks tells the mechanics to give him a moderate diagnosis and moderate repair bill….go figure…it’s about as useful as the old cliché….trying to “jump start” an economy…with that set of problems.

As infuriating as Brooks was in this column, he tops it a week later in “An Economy of Grinds,” where he revisits every Right wing entrepreneurial flattering trope of these past decades, the ones that Thomas Frank wrote so scathingly about in One Market Under God. Brooks favorably contrasts the geeky, social skills budget deficits of our truly driven, inventive entrepreneurs with the “princely” dining and companionship charms of the top corporate leaders, including Wall Street, and manages to bring the hedge fund folks in under the safety umbrella of the good geeks who brought us the Silicon Valley miracles. (Let’s hope it’s not under the Citigroup red umbrella) Spinning out his tale of good entrepreneurs versus the Wall Street Princes who “can thrive in a period of slow, steady growth,” he then is back to the special requirements of inventive capitalism, “where the grinds need a certain sort of psychological atmosphere. They need a wide-open economy with plenty of creative destruction. They need an atmosphere of general confidence…”

And what about the K-Street-Congressional syndrome, the one so ably portrayed by Kevin Phillips in his book Arrogant Capital? The grinds, Brooks tells us, “try to stay far away and regard the interlocking network of corporate-government schmoozing with undisguised contempt.” Well, that shows considerable sense on their part, doesn’t it, sense we on the left wish the Obama administration had displayed more of in their key Treasury and economic advisory appointments, their failure to clear out, and clean up the old crew, standard mess, at the Department of the Interior. But what this stance leaves begging is the great theoretical problem of government’s relation to the interests and powers of the private sector, which has always been, going back centuries, one of the great problems for democracy in “free market societies.” For a philosophical movement which denounces government at every turn, the Right sure is interested in getting elected to it and running it, and making certain once ensconced there that they can hand out economic goodies and favors, via the wonderful cover story of “contracting out” (to the private sector) and do it so prodigiously, that they come to rival what the great Democratic urban machines were so infamous for in the 19th century, although the social standing of many of the recipients differs in very noticeable respects. Certain authors that we like also have given the process a different name: Tom Frank called it The Wrecking Crew and James Galbraith The Predator State. But there is a deeper explanation for the phenomenon of supposedly laissez faire conservatives fishing for favors at the theoretically scorned governmental pond: Karl Polanyi’s famous work, The Great Transformation, makes the case that no one, left, right or center, can live with the rigid cruelties of the “pure” free market for long (exhibit No.1: the hypocrisy over tariffs and free trade) , and he brilliantly demonstrates what a grand project government setting up those markets is, how much “social engineering” was involved, a theme carried forward into this current age of the further globalization of markets by John Gray’s False Dawn.

Brooks finishes this July 13th column by making a slight gesture of apology to his previous, provoking column on “economic realism” by noting that “we’ve been mired in debates over macroeconomic models recently. But maybe the real issue is how we are going to light a fire under the country’s loners, its contrarians and its narrow, ambitious outsiders.” We were almost braced for, having just finished Rick Perlstein’s Nixonland, for Brooks to add “Orthogonians” to this list of worthy outcasts, but we guess he just decided he better not go there, to “Nixonland,” but we’re more than happy to finish the list, and the destination, for him. Is anyone yet ready to nominate these grinds, our driven small entrepreneurs and hedge fund geniuses, for the 2010 “Forgotten Man” award?

Brooks vs. Krugman & Baker on the Causes of Business “Uncertainty”
It’s some measure of just how outrageous Brooks has been in these columns that it led to Dean Baker issuing a scathing rebuttal, the very same day that “A Little Economic Realism” came out, which almost never happens in op-ed/column land, except in the new world of blogging. Baker did it with the none-too-subtly titled “The Arrogant David Brooks Tells Readers That Stimulus Will Risk National Insolvency.” Baker’s economic pen was red hot in reply, defending the good grasp that Keynesians have of the numbers on how much GDP/demand fell, and how little the first stimulus replaced, and writing clearly just how well “demand siders” can explain the economic calamities of the past two years. He sounds very much like James Galbraith on the debt-deficit scare tactics, and points out that once again, the bond markets don’t seem inclined to don the white robes just yet. And he catches Brooks wandering in the dark forest of investor uncertainties over future taxes, and their investment expectations, because the state of the professional judgement in this area remains pretty solid that it is lack of demand that has the greatest depressing factor on future investment decisions.

Of course, you could have guessed that Krugman would not stay out of these exchanges, even though he and Brooks seem to have agreed that neither will mention the other by name as they exchange broadsides in close column proximity. The central theme of their dispute in mid-July is another one which famously goes back to the 1930’s debate over the New Deal’s actions: how it was affecting the general psychological climate and thus expectations. Notice please that when an economic debate takes this turn the worry is not, in the case of Conservatives, with the psychological state of the unemployed, the hobos or the “Forgotten Man” at the bottom of the economic pyramid, it’s about the mental state of those small entrepreneurial grinds, in the case of Brooks, who wants to distance himself from the other conservative commentators who are worried about the mental stress higher up in the food chain at places like the Business Roundtable and the Chamber of Commerce. Brooks rightfully pointed out that Keynes himself was concerned with the importance of business psychology, which, he implies, Krugman is not. Krugman in turn replied, in “Pity the Poor C.E.O.’s,” that it wasn’t the uncertainties of government policy or future tax changes that had them holding back, it was the “reality of a poor economy” – that is, lack of demand.

But Brooks isn’t giving readers the full complexity on Keynes’ work on psychology. It’s a shame he didn’t mention Robert Skidelsky’s latest book, the version intended for the general reader, Keynes: The Return of the Master, because it devotes considerable time to what Keynes had to say about the psychology of markets and investors, and especially about the distinction between risk and uncertainty. And if Brooks had bothered to read it, he could have found quotes, which he could have pulled out of context, just slightly, to make a stronger case for what he’s been arguing for in his columns. But when you put all the Keynesian complexity together, one comes to the realization that Keynes most likely would be dealing with today’s unemployment horror story directly, by public job creation, just as he tried to do in England in the 1930’s, and the proof is the case that Lord Skidelsky is actually making in Parliament this year, which this essay has earlier directed readers to.

The Structural Crises of Capitalism
But the best economic analysis today goes beyond the Keynesian vs. “Self Healing Markets” debates which lies at the center of the Brooks-Krugman dispute over the appropriateness of another round of stimulus, and what form it should take. It goes to the deeper matters of the great structural problems of contemporary capitalism, domestic and international, which have evolved over the last 45 years under the intellectual auspices of the Right’s Great Project, also known as Neoliberalism. Thus Lord Skidelsky is, besides his writing and work in Parliament, participating in a new undertaking called the Institute for New Economic Thinking, which is just getting off the ground as you can see from their website at http://ineteconomics.org/ . Back in April, we featured some videos from their “launch conference,” held in England, which accurately placed the Euro crisis in front of citizens as the beginning of “Phase II” of the still ongoing great financial crisis. That seems now, in the brutal summer of 2010, to be where we are headed.

What are the outlines of this structural crisis? Well, let’s start with the great denial, the great lunge for wishful thinking, whichever you prefer, of the Right, extreme and moderate, which David Brooks is a good example of. If only, he is really pleading, we would do more to create a good business climate, a more upbeat psychology, then the investors and entrepreneurs could resume supplying us with the good life, along with that “wide-open economy with plenty of creative destruction.” Now it’s one of the truly remarkable things about “our” Right to be able, while we are still trying to climb out of the deep trough of the Great Recession, to prescribe exactly a larger dose of “that wide-open economy with plenty of creative destruction” that got us in the ditch in the first place. Certainly this stance is aided by Obama’s poll troubles and the data on where the public stands on conservative/liberal, Democratic/Republican commitment readings, and can be marshaled to show how liberalism and government have once again failed to convince a basically Center-Right nation. And sure enough, there’s a certain plausibility to seeing it that way. But we don’t buy it. Here’s how we differ.

So what, exactly, is the Right’s remedy? More tax breaks for the arrogant and ambitious? How will that help with the great maldistribution of wealth we have now, or the stagnant or declining median wage level and family income – grazing out there amidst the great spaces of Brooks “wide open economy with plenty of creative destruction,” kind of a Darwinian image of people as bisons on the Great Plains, waiting for modernity’s next wave of innovation to hit them. Another round of Bush-Reagan tax cuts? Scrap the very problematic Financial Reforms? Does the Right ever proscribe anything else? In fairness there are milder versions, shared with the center, and very unlikely to work: all sorts of hiring incentives and tax forbearances, as on the payroll tax for Social Security, about as good and pragmatic as the Right ever gets. But never direct job creation, just as with far too many Democrats. But what if business, because of its evolution over 40 years, is able to supply everything the current world can consume, and more, with far fewer people than it ever needed and has structured itself so that both in the realm of thinking and in practice, job creation and the broader needs of society, and before that, people, just don’t enter its basic operational framework? This is our revival of the themes of Jeremy Rifkin’s book The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era. It’s a line of reasoning that goes beyond the current Keynesian “lack of demand” debate, without disputing its validity for the short, and probably, the medium term.

“…Their labor simply isn’t worth very much…”
We maintain that there is something else going on that must be taken into consideration. We can catch a glimpse of this, from an unlikely but candid source, Tyler Cowen, an economics professor at George Mason University, who was answering the call in a “Room for Debate” blog at the NY Times, answering the question put to the commentators, “Can Obama Create More Jobs Soon?” He makes some interesting short-term recommendations, including “cutting the minimum wage,” to go along with “an accelerated investment tax credit, and “a cut in the payroll tax,” but what caught our attention was his statement that a lot of the unemployment problem was “probably long-run in nature. One simple hypothesis is that a lot of workers weren’t producing much value, but firms were willing to carry them in good times. When bad times came, firms cut them loose and also took greater trouble to identify them in the first place. Stimulus alone won’t give those workers jobs because, as it stands now, their labor simply isn’t worth very much.” Brutal, but candid; thank you Tyler Cowen for cutting through so much rhetoric and thank you Amity Shlaes for taking us back to William Graham Sumner and the days of Social Darwinism, which lurk just beneath the surface of a lot of contemporary Conservative thinking, usually in a sublimated version, but which occasionally break through to the surface. The very next line from Cowen veers off into “how to improve the American educational system,” something we hope to write about in future days, but not just now, as tempting as President Obama’s genuflection to the Right on Charter schools is.

Grading Financial Reform: C-
But labor not being “worth very much” isn’t the whole problem facing citizens today. The still intact casino nature of the too-big-to-fail banks and Wall Street’s relationship to the rest of the economy has not changed greatly despite the 2,300 plus page legislative attempt to better regulate it. Which is why we’re leaning to a C- minus grade right now, compared to Paul Volcker’s “B.” One of our reasons for not giving a higher grade is the bill’s postponement of remedies years into the future, left in the hands of the regulators (new and old), partly based on the not fully understood interconnectedness of our major banks with the global financial system. That means that the effective setting of capital reserves and leverage limits must be international in scope, and it doesn’t look like, based on the recent outcomes of G-20 meetings, that we are going to put together anything even approaching the stability of our long lost Bretton Woods arrangements from 1944. The fate of even a modest domestic version of a Financial Transactions Tax (completely left off the financial bill negotiating table) speaks volumes to the broader parameters of these issues. Floating in the air over the conversations about these international troubles is the open recognition of the need to “rebalance” the wildly imbalanced trade flows, famously between China and the US, but also and less famously between Germany and the periphery in Europe. We would guess that this need to “rebalance” has supplied some of the inspiration for President Obama’s use of the term, mocked on Right talk radio, to “rebalance the economy” domestically. About the last thing you will hear discussed on Right wing talk radio – we’ve never heard it – is the unstable nature of the international financial system – it’s as if the U.S. were completely detached, rather than deeply connected.

Separate Treatment Under the Law: Hedge Funds and Private Equity
But there are other areas of the financial system, and the economy to worry about. One of the signature features of our Market Utopian era has been the rise of hedge funds and private equity firms, and their privileged status, being almost entirely exempt from the existing regulatory structure, such as it is. We can’t help but view this development as the near equivalent of creating a separate category of citizenship: those with financial assets over one million get special shelter from certain laws (and access to tax shelters not available to the “median” citizen or other more mundane types of businesses.) It is a worrisome, eerie “inverse image” of the long 19th century struggle to expand the voting franchise in Britain, the U.S. (and Europe at large), to give the average person, in theory at least, equal political standing. The late twentieth century, however, created a category of special financial standing with the inevitable spill-over effects into the political system. The assumption behind what amounts to a financial version of diplomatic immunity is that we want to give very smart, very secure investors (granting, just for argument’s sake, the validity of the way these folks see themselves) the greatest possible room to roam in their special “wide-open” segment of the economy, to use David Brooks’ analogy, in the hope they will be inventive risk takers who will benefit us all. But the closer one looks at the history of actions under private equity and hedge funds, the more reason we have to be dubious about their special “carve-outs.” This isn’t the place to go into great detail over private equity’s fascination with corporate mergers, and the claim that hedge funds haven’t been the cause of any of our financial troubles. What is so troubling is the special treatment and exemptions, paving the way to the very inside lane of the insider’s racetrack.

These arrangements and trends ought to upset the average small business owner a great deal, but will they? After all, they too seem to love special tax treatments whenever they can get them , so we doubt that they look at this the way we do, as a great reversal of the sweep of the 19th and 20th century towards equal standing before the law for the average citizen, and an equal place in the voting booth. But the question of who has power in the society can’t rest within these formal categories. The question of which entities in society have the advantage in the full scope of the political process is the most troubling and difficult area to assess, with the Supreme Court tilting the process ever more to the power of those with the most money, and those who can most easily mobilize it. (Well, it’s the age of capital mobility, isn’t it?)

Our understanding of the new financial reforms tells us that not much has changed, with the thrust of the law aimed at the large banks’ and brokers’ interaction with this system, not the hedge funds and private equity funds themselves. One of the worries of reformers in the legislative struggle was that by squeezing Wall Street Banks in this area, the worrisome transactions would simply migrate to these special classes of financial citizens.

The related worry that touches both hedge funds and private equity and the too big to fail banking system arises from the shadows cast by the “shadow banking system” and “off balance sheet accounting.” The problems and the structures, to the extent anyone is on top of them, were nicely outlined in Frank Partnoy and Lynn E. Turner’s paper “Bring Transparency to Off-Balance Sheet Accounting,” which appeared along with other fine presentations in March of 2010 at a conference put on by the Roosevelt Institute under the title of “Make Markets Be Markets.” (At http://www.rooseveltinstitute.org/policy-and-ideas/ideas-database/bring-... ).

The Economy: Where We Are Now
We think we are at about the1930 stage of a “third depression,” although Paul Krugman is probably right that it will resemble more the long, drawn out, less spectacular deflation that followed in the wake of the Panic of 1873 than the steeper, sharper 1929-1933 plunge, and the optimists, relatively speaking, can marshal their statistics to show that we are having an anemic recovery, with that 2.4% Gross Domestic Product increase for the second quarter of 2010 just out at the end of July. Here is an assessment from Ambrose Evans-Pritchard of the UK’s Telegraph laying out the range of opinion supporting our assessment with the depressing title of “Drip after Drip of Deflation Data,” with a powerful quote from David Rosenberg of Gluskin Sheff, that “the bond markets are telling us that we are already in a deep and intractable depression – which does not preclude Japanese-style rallies, technical recoveries, and bursts of growth, all within a Kondratieff Winter, ” at http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100007034/dr... . (Editors note: a Kondratieff Winter would be the long downside of the great 50-60 year economic cycles that were presented by the work of Russian economist Nikolai Kondratieff (1892-1938), who fell afoul of Stalin.)

Yet we are purposefully referencing the better know era of the 1930’s for twofold reasons. First, President Obama did not take office at the lowest “1933” point when FDR did; the infamous bailout of 2008 and his own follow-up stimulus (yes it was the second one to Bush’s much smaller initial one) helped mask both the steepness of the downward curve that we were threatened with and also helped deter examination of the deep structural flaws that existed before, and continue to exist, after the emergency room period of September, 2008-March, 2009.

In some ways, the state of the economy became an ideological “no man’s land” for policy makers; the Federal Reserve and figures such as Larry Summers and Timothy Geithner relied on what had been learned from the Great Depression to prevent a March 1933 scene at Obama’s Inauguration, but the President and his key advisors still remained, at the level of ideas, with one foot firmly planted in the neo-liberalism of their “inherited era.” Thus the large banks couldn’t be broken up, and their remaining veto power over foreclosures and mortgages meant that this “forgotten man” crisis could not be effectively dealt with, nor could unemployment be dealt with head-on, by public job creation. So, in the second sense, 2010 begins to resemble the 1930’s in that it is now generally conceded by scholars that FDR, for all the good he did with his jobs and reform programs, could never get the necessary scale of the “interventions” large enough to fully re-employ the nation, which is an assessment quite different than the one Amity Shlaes is delivering in her revisionist book.

Because the existing power structures of the private economy were still reigning sovereigns in their fields, in practice and “in theory,” politics as usual from “Inside the Beltway” meant that the public would hear, and see, a very mixed message, and a set of daunting, nearly impenetrable reforms, including now financial reform. These bills were so large, and so complex, dramatically so, that they could be portrayed, with some degree of fairness, as both “overreaching government” by the Right, and as more corporate genuflecting, as usual, by the left. Yet the Right’s ongoing assertion, an act of secular “catechism” surely, that President Obama’s troubles prove government is a failure – all those regulations we had, and none of them worked – fails completely to appreciate the Right’s 40 years of success in capturing the mind of regulators. Those who sat in oversight roles at the Federal Reserve, whether in Washington or in the crucial Federal Reserve Bank seats of New York, or the SEC, or the Commodities Futures Trading Commission, or the Mineral Management Service inside the Department of the Interior – all leaned towards liberating the entrepreneurs they were supposed to regulate, not protecting the broader common good. That should make greater sense once one realizes that the common good had been re-defined, since 1980 (earlier in the dominant economic school of thought) to coincide, all too closely, with the needs of entrepreneurs for “a wide-open economy with plenty of creative destruction.”

The Fractured Coalition and The Forgotten Man
As with so many other things about President Obama, there is in fact no clear answer to the question which entitled this essay: “Who is Obama’s ‘Forgotten Man?’” Had the President and his administration made the unemployed, and the foreclosed upon their answer, and matched it with more decisive policies to rescue them, he might not be looking at the poll numbers he is seeing in the late summer of 2010. But Centrist Democrats have been uncomfortable since at least Reagan’s first term with looking at those at the “bottom of the economic pyramid,” using the term FDR did in his Forgotten Man speech of April 7, 1932. Instead, they tend to look up the economic pyramid, to the “hard working families” of the middle class, with “hard working” carrying just a faint trace now of the long passé “working class,” while casting a positive, Protestant Ethic glow over what some others might view as “The Over-Worked American,” ( as in Juliet Schorr’s 1993 book of that title), and what some others might even conceivably portray as workers exploited under the vastly favorable weather conditions for management since 1980. The “hard working” logo helps signal the distance of the middle class from those others further down the racial and economic pyramid, who have been continually accused of displaying other infamous dispositions towards work, even as this seems now to belong to another time, long ago, before the enactment of Clinton’s welfare reforms in 1996. Yes, readers, all this can be glimpsed, the pointing up, and the distancing from down, in that favorite Maryland Democratic phrase, “hard working families.”

These confusions and the resulting mixed messages, stem from the burdens of a party, and a President who have to try to hold together the tattered remnants of the old, old, New Deal coalition, the younger Silicon Valley Democrats, and the impressively credentialed technocrats of the Clinton years, plus the financial wing of the party. So sorry labor, sorry urban minorities, you’re outvoted 3:1 inside the coalition, because the other constituents’ economic views are still deeply neoliberal. Obama thus can’t reach the first, plus those hardest hit in the middle class, those about to fall out of the middle class, let’s be clear, without alienating the last three, especially on the issue of direct government job creation, but also on effective foreclosure measures. So with that route seemingly shut, what’s the head of this awkward coalition to do? The answer emerging in the summer of 2010 is to turn to the small entrepreneur, the small businesses of America, which as we are all supposed to believe, and know by rote by now, are both very innovative and responsible for creating most of our new jobs. You could make a case that these entrepreneurs are Obama’s true “forgotten man.” Certainly Amity Shlaes would nominate them, along with the allegedly overburdened taxpayer, a perennial nominee for the award, given Republican Right ideology.

Everyone’s Nominee: Small Businesses
To illustrate this turn of events, consider the invitation we received from John Podesta’s Center for American Progress on July 19th, to hear Majority Leader Steny Hoyer on “Job Creation” on July 23rd. The Email stated that “…Hoyer will discuss the policies that have pulled our country back from the brink of a Second Great Depression – and, at a time when too many Americans are still out of work, the policy our middle class still needs. These include a focus on entrepreneurship, more lending for small businesses, the extension of unemployment insurance and the Make it in America agenda, a new push to strengthen American manufacturing.” (Our emphasis.)

It’s good to see the last item on manufacturing, but please observe the order of listing and the emphasis. President Obama got into the act on July 19th with a Rose Garden speech, urging the Senate to act “on a package of tax cuts and expanded lending for small businesses, where most of America’s jobs are created.” Senator Mary Landrieu of Louisiana is leading the Democratic charge, chastising Republican Minority Leader Senator Mitch McConnell for obstructionism: he “… ‘knows and believes this bill could actually create millions of jobs and doesn’t want to give the president and Democrats credit for doing what we do, which is standing up for the middle class…if Democrats don’t stand for small business, I don’t know what we stand for…I don’t want to go into this election standing for Wall Street and big business.’” (From David M. Herszenhorn’s “Senate Democrats’ Plan to Aid Small Businesses Hits G.O.P. Resistance,” NY Times, Page 15, July 22, 2010.)

The bill on the table goes back to the early winter of 2010, when President Obama launched the idea of utilizing $30 billion in unused TARP funds, which would be loaned out to small banks, upon very favorable terms, if in turn they made more loans available to small businesses. According to Martha White of the Washington Independent, the Independent Community Bankers of America (ICBA) lobbied the White House for this program in December of 2009. Unfortunately for the Democratic summer policy campaign, the article is on balance quite skeptical, if not downright critical of the whole notion’s effectiveness. It quotes ICBA officials telling the Washington Post just few months before that “‘We’ve got plenty of money to lend.’ The problem…was a lack of demand from business.” Joseph Mason, an often quoted professor of finance now at Louisiana State University (that’s Senator Mary Landrieu’s home state isn’t it – ouch!) really lowers the boom on the whole idea, calling it “ a cynical political move aimed more at assuaging voter anger over big bank bailouts than actually helping small banks lend or small businesses hire… ‘if these guys are going to go to the polls having done nothing for small banks, they really can’t evade the charge that they were part of the large bank-centric policy that’s at the heart of this crisis…’ The plan is about little more than appearances, he charges.” (“Obama’s Small Business Lending Plan Meets Skepticism,” at http://washingtonindependent.com/76544/obamas-small-business-lending-pla... )

Expecting too Much from those Iconic Small Businesses
Economist Dean Bakers is highly skeptical that the cause of our economic troubles is that banks are refusing to lend, especially to small businesses. Baker is also not willing to accept those small businesses as the engine of job creation they are made out to be, pointing out that they create many jobs, but destroy them in large numbers as well, because of the high failure rate that goes with being a small business. Instead, Baker focuses on the underlying structural problem for both lending and job creation: there is not enough demand. Here’s his analysis from May 10, 2010 in the Guardian at
http://www.guardian.co.uk/commentisfree/cifamerica/2010/may/10/banks-fai...

Supporting Baker’s view of the myth of small job creation, but with a slightly different twist, is Ken Rau of the Cutter Consortium, a consulting firm in North Carolina, someone who has decades of experience in information technology firms and who has a refinement on just where innovation in the field is coming from. He confirms the high degree of “churning” that is a fact of life with the ongoing creative destruction process of small businesses, but he says they are not the greatest sources of innovation. Innovation largely comes from research at universities, some of it business supported, and from the R & D departments at large business firms. Small businesses are often launched when frustrated innovators leave University settings to take their ideas commercial, but he has found that the jobs don’t really expand at that stage. Rather, it’s when the start-up firms go full scale commercial after being gobbled up by larger companies – that’s when the jobs take off. Here’s the article at http://blog.cutter.com/2010/01/28/the-myth-of-job-creation-by-small-busi... .

Small businesses are also being enlisted in Senator Carl Levin’s (D, MI) campaign against offshore tax haven abuse, according to a July 20, 2010 article in the NY Times: “Small Businesses Go After Offshore Tax Havens,” by Lynnley Browning. The estimated taxes lost - $37 billion – from the tax evading American “multinational corporations,” could, of course, be used to support who else: “America’s small businesses – the nation’s biggest job creators – by increasing their access to capital, increasing their opportunities to invest and rewarding entrepreneurship,” according to the report released with the campaign kick-off: “Business and Investors Against Tax Haven Abuse.” The three groups mentioned as supporters all have hopeful, progressive sounding names, and we root for their cause and hope the idea spreads: the American Sustainable Business Council, Business for Shared Prosperity and Wealth for the Common Good.

Tax Havens/Tax Heavens. Tax Avoidance/Tax Evasion & Economic Nationalism
Now here’s the thing though: the number given for these three is just 400, a tiny school swimming in the big sea of millions of small businesses. And there is no mention of Senator Levin’s bill, S-506, the “Stop Tax Haven Abuse Act,” and its House companion, H.R. 1265, which we told our readers about back in early February of 2010 in our little essay about President Obama’s place on the political spectrum, called Everything a Moderate Republican Should Be. Back then, the Senate version had just five sponsors, and the House version 67. We asked where Maryland’s Senators, Ben Cardin and Barbara Mikulski stood on the bill, since their names didn’t appear. (Never did hear from them and they are still not on the bill.) We saw, though, that Representatives Cummings, Edwards and Van Hollen of Maryland were among those 67 house co-sponsors. Just before going to press with this essay, we re-visited the bills to see how they were doing, now long after their March of 2009 introductions. Well, low and behold, the bills have had no action since March of 2009; there are no new Senate co-sponsors, and only one Representative was added to the House bill in all of 2010.

So what does that mean? It means that the leadership of the Democratic Party in both Houses has not made closing these tax havens a priority, nor has the White House. Back in our February essay, we pointed out that Levin himself had commented that when the President was a Senator from Illinois, and Rahm Emanuel a Representative, they both supported earlier versions of Levin’s bill. Now it’s all about supporting small businesses, driven by their mythical status as job creators, and it threatens to eclipse Senator Levin’s good work on the issue of tax fairness, and widespread tax evasion at a very sensitive time in the nation’s economic history.

It also reminds us of the Department of Justice and IRS’s pursuit of hidden U.S. bank accounts in the vaults of Switzerland’s banks, with the case starting out leaning on UBS and an alleged 52,000 US citizen’s who sheltered with them, but neglected to tell our tax authorities. Accounts of this ongoing international legal saga appear periodically in the New York Times, but the curious thing about them is the lack of political commentary. Perhaps that’s because of the understandable confidentiality issues involved, but one would think that it could be handled in such a way as to meet that concern while conveying to the public the fairness issues involved by the perpetrators’ violation of the public good - and the Main Street taxpayer’s trust. But then again, if we’re right about where the Obama folks are in the spectrum of the political economy, then the risks are too high, and too many of the tax shelterers might just be Democrats located in the higher elevations of the great “middle class” mountain chain.

These offshore tax havens and their US citizen beneficiaries also raise another danger for Centrist Democrats. What if it turned out that some of those many Swiss bank accounts belonged to the same corporate leadership that has been promoting and justifying the off shoring of American jobs under the great umbrella rationalizations know as globalization? And what if that explosive combination also further raised the possibilities of setting loose some constructive passion along the lines of greater economic nationalism – fairer trade and tax laws to create more American jobs? Are their any two more dangerous words in the dictionary of our great champions of the international economy? So despite the constructive possibilities to use these issues to rally citizens around a more progressive tax system, and economic growth at home, we think they’re going to be buried in the secondary tier of business page news and Senator Levin won’t be having much Democratic Party company.

(Editor’s Note: as we were in the home stretch of editing these postings, news broke that the Wyly brothers, Sam and Charles of Dallas, Texas, had been charged on July 29th with securities fraud by the SEC, in a case that touches on companies and trusts that had been set up, on their behalf, as offshore havens in the Cayman Islands and the Isle of Man. The news accounts also suggested that there were major issues of tax avoidance, if not evasion, involved, just over the horizon, although the SEC action has a different legal angle. As we read further on the history of the brothers, and their heavy contributions to conservative Republican candidates, we kept waiting for some probing about whether any of their multiple U.S. companies were engaged in off shoring American jobs, but we didn’t see a single mention of it. So right now, maybe we have an illustration of political tit-for-tat, with the Wyly case offsetting Democratic tax and insider business dealings, and troubles, in the cases of Committee Chairman Charles Rangel of New York and Representative Maxine Waters of California. So far, it looks like another case of Beltway inter-party demolition derby, rather than a broader educational experience in what ails the American political economy. We’ll keep you posted.)

The Broad Vistas of our Political Economy
We’re going to close this section of the essay with some vistas of our present political economy, to place things in greater perspective for our readers. We see a by now “traditionally” conflicted and hamstrung Democratic Party, and President, who have left FDR’s “Forgotten Man” slumped in the dark alleyways of long-term unemployment and looming eviction, hoping that the proverbial heroes of our society, and job creation, the small business entrepreneurs, will come to everyone’s rescue. That less than 8% of the nation’s total population should be given this role, and that their very problematic relationship to the large firms still dug in on the commanding heights of the private sector should be largely ignored, is illustrative of just how cautious and unsatisfactory the Obama plans for the economy are. The fact that it might take greater spending and a more expansive “mixed economy” to create the missing demand that is stalling business job creation does not seem to have great traction in this administration. But beyond the now fully engaged argument over how to pull ourselves out of the ditch over the next 2-5 years looms something else, something scarier. It has three main aspects, at least. One is the likelihood that capitalism itself has evolved into a form which shuns not only loyalty to the lowly citizens still stuck within the old “geographic” idea of the nation state; and second, that its business firms have also become the dominant form of organizing economic life, ones which view employment as a very secondary consideration to profitability and the theory of “shareholder value.” And third, the means of actual physical production have become so efficient that firms can build far more than can be purchased at present levels of consumer demand, at the very same time that income distribution under this system has been shifted dramatically up the social scale.

And as for overall societal direction, it’s hard not to observe that the same celebrated economic system which has put plugs in the ears of so many citizens with its myriad new miniature electronic devices, is unable (or is it more likely - unwilling) to harness even effective private economic action against the greatest environmental challenge our planet has ever faced since humans appeared on it – global warming. At the same time, the dominant ideas of this private economic system – called neoliberalism for short – work mightily, on the whole, to prevent public actions on a scale sufficient to solve our major problems – even where, to us at least, the private sector has obviously failed to succeed or lead.

In the summer of 2010, the major ideas from the Era of Market Utopianism, as we prefer to call the decades of neoliberalism, still dominate not just the Right, but even the Democratic Center. Their demonstrable collapse in 2008-2009 has not yet changed the balance of how citizen’s think about the economy. Citizens are, on the whole, still the very subservient students of its needs and values, but in return that economy has become increasingly indifferent to theirs.

But don’t despair. We are not yet at the watershed point on the economy, or the response to it, even though the Democrats look likely to lose one if not both houses of Congress this fall. We think that the economy will continue to deteriorate, and perhaps even more rapidly if that’s the elections’ results, because surely working remedies between 2010-2012 will not be forthcoming, given the likely “balance” of forces. Yet that will give the White House another chance to reconsider just who it thinks is “The Forgotten Man” - the Right’s oppressed taxpayers and small entrepreneurs - or the growing ranks of the unemployed and foreclosed upon not just at the bottom of the economic pyramid but throughout the broader middle class as well.

And it will give another chance, perhaps, to pose a broader question to that formerly secure middle class: do you want to give the Utopian Right’s policies of the past 30 years even greater scope to destroy economic security in the name of entrepreneurial “freedom,” or do you want to help re-write the social contract to put innovation at the service of more broadly shared and less destructive economic ends? And it might even pose a necessary further question to the private sector and its vaunted “conservative” think-tanks: does the Right’s concept of “freedom” allow for a greater sharing of power with labor and a greater scope for initiative to government and the non-profit sector – a more mixed economy in other words – or are the Right’s terms for “freedom” still what the business community’s general attitude is towards labor law reform: we run the show, and intend to keep it that way.

Let’s not make this too fine an abstract matter: if even the ideas presented in the “late” Van Jones’s book The Green Collar Economy, which are highly deferential to the notion of business entrepreneurship, were so threatening that they led to his “execution,” what does this tell us about the Right’s notions of “freedom” and willingness to “share” power?

We are not going to elaborate further on the details of a way out here, because we’ve been pointing them out over the past year in other writings. Van Jones’ green jobs vision, and Harold Meyerson’s home-care, child-care and pre-school directions in his article “Work History,” cited in this essay, help point the way, but do not exhaust the possibilities. The need is great for the jobs, and there is much work in our society that the private sector will not undertake. What’s missing is a new framework for the political economy, and the political will to break out of 40 years prejudice against a greater role for the public job sector to undertake the planning, and some of the carrying out.

But we do intend to given you some tools to help prepare the way for a deeper understanding of our current moment, and what a new political economy might be built out of. Part II of this essay continues with our summer reading list and book reviews.

Before we share those tools, however, we want to close on a personal note with the text of our resignation letter from June 18th, to Montgomery County (Maryland) Democratic Central Committee officials, explaining why we couldn’t be effective advocates for the party’s candidates this fall. It was our way of saying that the party’s position, at all levels of politics, was unsatisfactory to the economic crisis, falling far short of the old ideals of the party as bequeathed to us by FDR and the New Deal, long before the Party became the near equivalent to what used to be called “progressive” or “moderate” Republicanism. It was also sent out to a subset of our readers under the Email subject line of “Not a Party Packhorse This Year.” Readers should be cautioned however, that it is not an across the board “anti-politics” message; rather we felt that it was something that had to be done to convey our unhappiness with the terribly narrow policy range with which Democrats running for office at all levels are meeting our great financial crisis. We hope that this essay and the book reviews that follow are a down payment for what we intended to deliver in lieu of knocking on doors and arguing for officials who are not delivering.

So here it is, set off in slightly smaller text size to distinguish it from the rest of our essay and the book reviews which follow.

NOT A PARTY PACKHORSE THIS YEAR

June 18, 2010

Dear Ms. Shaw-Belblidia, Ms.Britto and Mr. Fisher:

I am in receipt of your Email informing Democratic Party officials and precinct workers of the pending project.

Although I feel that I don’t owe you any response given your silence over the past three years, page five of the “Dear Friend” mailing that I just received from Congressman Van Hollen reminded me, almost point by point, that what I had already set down in writing, but hadn’t yet sent, should nonetheless be conveyed to you. I was also reminded of the policy mindset within far too much of the Democratic Party by the opening passage from Michael Lewis’ new book on the financial crisis, The Big Short. He quotes from Tolstoy, from 1897:

The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him

Because of the extraordinary conditions triggered by the near collapse of financial markets in 2008-2009, and the inadequate policies of the Democratic Party, I feel that I can no longer be an enthusiastic advocate for its candidates during this campaign year. Especially troubling are its reactions to the vast scale of unemployment and home foreclosures. Standing in stark contrast to the domestic timidity displayed towards these calamities is the President’s commitment, along with the Democratic foreign policy establishment’s, to adventures in Af-Pak and beyond, the full boundaries of which are surely not known to we mere citizens.

While the Democratic Party undeniably has tried to meet these challenges, it is limited in its effectiveness by the inherited ideas about the relationship between government and the private sector, and its continued deference to existing business models, no matter how flawed or dangerous these models have turned out to be for the broader public good.

Thus the current Democratic Party is forced to turn its back upon the best of its own New Deal accomplishments, especially in the areas of public job creation and aid to those in or approaching foreclosure. As I have stated in previous writings, a shorthand for national policy guidance might well be: horizon-less (despite the re-assurances to the contrary) interventions in "nation building" abroad; very carefully limited interventions in nation building at home, especially when it comes to achieving full employment.

In health care, despite all the ideological smoke and noise thrown up by the Right, the Democratic leadership settled for Mitt Romney's Massachusetts model, deferring to the power of the corporate business model in a place where many think it will not work, but also where it does not belong. In matters of energy policy, once again the party proved it hadn't learned from the great deregulatory run-up to the financial crisis, encouraging even the most irresponsible of oil firms by issuing fast-track, self-policing permits, the tragic consequences of which are before our eyes every day. Should we be surprised at the outcome? How different is it, really, though, than Maryland’s deference to the flawed business model of Big Chicken and its subservient contract farmers - and the failure to clean up the Chesapeake Bay – perhaps the greatest environmental policy failure ever, next to global warming. Does anyone see a pattern here?

In one sense, this is understandable: political parties facing crisis times like these tend to pick up the ideas lying close at hand, and in 2008-2010, that means the emergency room skills of the economics profession itself, and the conventional wisdom of the "wisest" business leaders. These days, it would seem, they can keep the patient alive (or at least selective patients), but not create a healthy lifestyle. And there is a yawning gap in both economic theory and the Center-Right policy mix when it comes to achieving full employment. It's gotten so bad that a Huffington Post staffer recently called our attention to business "employment ads" where the unemployed were told simply not to apply. Apparently, only the currently employed might be found satisfactory to employers. It's outrageous, but we shouldn't be surprised.

After all, 2010 was a federal census year, but a census year in the midst of a great economic crisis, with the facts of the dire situation clear to everyone by the beginning of 2009. Well perhaps not everyone: there wasn’t, on that strange census form, a single question pertaining to unemployment, underemployment, foreclosure, or upside-down mortgages. It was as if these things weren’t happening - or weren’t of any concern to the federal government.

If we face the reality of the existing corporate business model, which I have written about extensively in Sinners in the Hands of an Angry Market, as well as in other essays, in truth the very idea of job creation is far, far down on the list of priorities of business leaders. Jobs may emerge, after many other priorities are met - or they may not. And firms can continue to be quite profitable - without us. The idea that government might step in with creative programs, as under FDR in the 1930's, to help bridge the limitations of the private sector, is now called an "intervention." Domestic economic interventions are held back by powerful and somewhat mysterious, near religious even, policy “boundaries," ones that neither party today dares to cross. Thus both major parties continue to serve primarily as gatekeepers to the revolving door of access to the hoped for riches of the private sector. Just ask the dissenters at the Department of the Interior and its Minerals Management Service whether they’ve noticed a difference between 2008 and 2010 - and the supposed sea change brought in by a new administration.

In late 18th century France, as that nation struggled with its economic problems of too many wars and too little revenue, various reforms were put forth to solve the problem. When they crossed the policy "boundaries" of their day and royal prerogatives became threatened, the King would issue a stern pronouncement from the "lit de justice" to make it clear who had the final say:"'Le roi le veult' " - The King so wishes it - and that settled that, or so it seemed, until the crisis of 1787-1789. The boundary between the pre-democratic structures of 18th century France – the parlements, and the prerogatives of Le Roi, are captured nicely in Louis XV’s 1766 reply to the parlement of Paris:

‘To attempt to establish such pernicious innovations as principles is to affront the magistrature, to betray its interests and to ignore the true, fundamental laws of the state, as if it were permissible to disregard the fact that in my person alone lies that sovereign power whose very nature is the spirit of counsel, justice and reason.’ *

Today, a different band, or perhaps it might be better to say, “brand,” of royalists - the "bond vigilantes" - exercises a similar power of decree on behalf of the more expansive, nearly divine right "Market," although I do recommend that a genuinely democratic society might well search for a more appropriate metaphor for the expression of this "boundary policing power." But then again, from another perspective, perhaps it's the apt description of reality, of the current execution of power we are subject to. Far from being a broadly based, universal judgement of economic wisdom, the voice of "The Market," is likely to be a snap-shot call of a small number of market shapers and opinion leaders, whose powerful new electronic instruments give an even more irrational cast to what has always been a historical tendency to panicky herd behavior. (And whose views on political economy and the boundary questions before us, lean strongly to the right.)

In 2010, “The Market,” which far too many in the Center and nearly all on the Right want to portray as the very personification of “the spirit of counsel, justice and reason,” is busy deciding the fate of European governments and perhaps the Euro/Union itself. Conflicted members of the Union’s leadership at times dispute its claim to sovereignty and its speculative nature, yet they appear to bow to its deflationary edicts demanding balanced budgets. Other commentators, international and domestic, including some who should know better, like Alan Blinder, seem to long for the “bond vigilantes” nighttime ride across the US landscape. Others still, sadly including the President of the United States, seem all too willing to offer Social Security up as a hostage to hold them off.

In the closing weeks of April, my readers learned in Debt, Deficits and Balanced Budget Bull and Austerity, Courtesy of the Best Men that the attempt to impose austerity under today’s already depressed demand conditions was threatening to repeat the same mistakes made during the 1920’s and 1930’s, when such obsessions were driven by rigid adherence to the commands of the gold standard. Now, in the middle of June, they can read a very similar analysis coming from George Soros himself at http://preview.bloomberg.com/news/2010-06-10/soros-says-we-have-just-ent... .

My response to these times is not to explain to voters why they should elect fiscally conservative Democrats, but to put my energy into enlarging the range of ideas people currently encounter about the political economy, what new and more humane “boundaries” between the public and private sector might look like, and what economic missions are best suited to each. Democrats have failed to overthrow the inherited capture of government by all varieties of private economic powers, (in which they have been all too complicit since 1980), whether it’s by Wall Street giants, defense contractors and the new mercenaries, or the visions from the “Chicago School” of economics which have been dancing around in far too many regulators’ heads.

And I've learned by direct personal experience over the past five years, how much wisdom there was in Kevin Phillips' 1994 book, even in just its title, Arrogant Capital: Washington, Wall Street, and the Frustration of American Politics. Perhaps it's not so ironic that he wrote it while living in Bethesda, Maryland.

Now one might guess, in the eyes of some Washington insiders, including stalwarts in both parties, that Mr. Phillips, with his strange notions of "concentrating a major attack on the hired-gun culture in Washington...reigning in abusive finance and its political influence by regulating electronic speculation, curtailing the nonaccountability of the Federal Reserve Board and establishing a federal financial transactions tax..." (among other things), just had a hard time fitting in - and accepting all the subtle fringe benefits, like the genuine bonhomie, which comes with proximity to the great, compassionate heart of Beltway Culture. But sometimes you can just be too close to a wonderful thing to fully appreciate it.

Therefore, effective immediately, I resign from my position as Vice-Chair of the 04-07 Precinct (Twinbrook) in the 17th Legislative District of Montgomery County.

Sincerely,

William R. Neil
Rockville, MD

*(My thanks to Francois Furet and Simon Schama for the quotes.)

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future