That’s the title of my most recent Fin column, over the fold
Responding to US President Obama’s announcement of his proposed American Jobs Act, Republican Presidential candidate Mitt Romney tartly observed that it was ‘960 days late’ (referring to Obama’s time in office so far). This was rather unfair – Obama introduced a major fiscal stimulus immediately after taking office, and followed up with a temporary payroll tax cut and extension of unemployment insurance benefits at the end of 2010. His new jobs plan is, in large measure an extension of these earlier initiatives.
Nevertheless, like all effective political rhetoric, Romney’s jibe had an element of truth. Having passed the stimulus bill, Obama’s political team made the judgement that there were no votes in talking about jobs. Instead, they decided to bet that the economy would recover in time for Obama’s re-election campaign, and to focus instead on health care reform.
This seemed like a bad call at the time, and with the benefit of hindsight it looks positively catastrophic. Obama had the chance to cast himself as Franklin D. Roosevelt with George W. Bush consigned to the role of Herbert Hoover. If additional effort on the jobs front had been rewarded with even a reduction of a few percentage points in unemployment, his first term could have gone down as one of the great successes in US Presidential histories.
Instead, the 2012 Presidential campaign has started with unemployment rates above 9 per cent, higher than when Obama took office in the midst of the Global Financial Crisis. Moreover, the strategy of waiting for recovery predictably entailed a Republican victory in the 2010 elections for the House of Representatives.
Obama and his team apparently believed they could fashion a ‘grand bargain’ with the Republicans. The core idea was that Democrats would accept unpalatable cuts in Social Security pensions and health care for the elderly and poor, while Republicans would allow some increases in tax revenue, thereby restoring the long-term sustainability of US fiscal policy.
These illusions were shattered in the recent debate over the debt ceiling. Not only did the Republicans line up solidly behind the threat to default on US government debt if they could not extract massive cuts in spending, but they showed no interest in any kind of grand bargain. Even when the terms were tilted massively in their favour, they insisted that any kind of tax increase was out of the question.
Ironically, while many Republicans want to allow the payroll tax cuts for low and middle income earners and their employers to expire, they resolutely oppose doing the same thing with the (supposedly temporary) tax cuts for top income earners introduced under Bush. Their commitment to low taxes only extends to the 1 per cent of the population who now command 25 per cent of all income in the US.
The debt ceiling fiasco finally awakened both the Obama Administration and significant sections of the US public to the extent to which the Republican party has solidified at a position well to the right of centre on the US political spectrum.
Rejecting those of his advisors who wanted a small-scale bill that Republicans would (or at least might) pass, Obama went for something much more substantial, although still modest relative to the scale of the problem. At around $450 billion in total, it is around half the size of the 2009 stimulus package, which has now largely expired.
In addition to extension of the payroll cuts and unemployment benefits, he proposed a range of measures including an initiative to repair decaying US infrastructure and to rehire teachers dismissed as a result of budget cuts at the state and local levels. These measures are unlikely to get even the handful of Republican votes they need to pass, but they help to set the terms of debate for the election campaign.
More striking than the policy measures announced in the speech was Obama’s abandonment of the rhetoric of austerity that has dominated the US debate, particularly since the 2010 election. Obama gave a powerful endorsement of the view that government has an important and positive role to play in the economy.
As the disastrous impact of austerity at the state and local level becomes more evident, Obama’s proposals will contrast ever more sharply with the contractionist policies proposed by the Republicans. Even so, winning re-election with unemployment rates near 9 per cent will be an uphill battle. But now, at least, he offers his supporters some hope of victory, and, more importantly, some hope that he will make good use of it.
John Quiggin is currently the Hinkley visiting professor at Johns Hopkins University, Baltimore.
John Quiggin 
If low income workers lose their jobs on Obama’s watch, it is probably Obama who they blame – not the republicans who may have fought against stimulus spending, tax reforms, etc. My memory is a bit hazy now, but I think Obama’s stimulus packages were at the limit of what the Republican team would tolerate, and even with those packages significant compromises were made.
I suppose the Democrat team wanted to avoid the Australian scenario of having a “Whitlam” moment, where the Liberal party opposition rather successfully painted the government as one of largesse, spending like there is no tomorrow; and, in the Australian scenario, the opposition successfully caused an election spill by blocking supply, which toppled the Whitlam ALP government. Fear to spend freely, especially when two wars + NATO committments are draining the coffers, might that be a factor in the stubbornly high unemployment? Once people lose their homes and their jobs, it isn’t too likely that they’ll be spending domestically on made-in-USA product. They’ll only spend the minimum to buy the necessities and bugger where they come from or who makes it. Any support of business is presumably then up to the government (obviously military-based business is booming, so to speak, but there are a lot of non-military businesses left to feel the pain).
The USA is in terminal decline and cannot save itself now. There are no intellectual movements and no popular movements of any force or impact in the USA with the slightest hope of affecting their trajectory. The USA will collapse. Admittedly, this collapse is from a high base and may take fifty years or more. But it is pretty well written in stone, given the political and thermodynamic corner the US has painted itself into.
I’m not so sure anything can be done to pump life back into the American economy but I guess for the sake of the unemployed and the people swimming in debt it’s worth a try.
(What follows is not original to me but follows the thinking of M. King Hubbert)
The real problem with our economy is the incompatibility between the “money system” which has to grow by means of compound interest and the “natural resources system” which can’t grow beyond its natural limits. The two systems were complimentary as long as they could grow at the same rate. That has changed now. The money system has become unstable because it can’t grow (i.e., it can’t get sufficient return on investment) and that is due to natural resources having leveled off – and has for some time now. Being unable to further exploit natural resources, the money system turned to the next best thing – people, although some will say that’s what the big money has been doing for centuries (and they are correct).
The money system is like an old, immense, unruly, ugly dog, that eats too much, craps all over the place, and attacks the children – now it is wheeled into the emergency room and Dr. Obama must jolt it back to life because that’s his job – and that’s what most Americans want him to do.
When you think about it, Nature, not the Banking industry, gives us everything we need to live. What America and the world needs desperately is an alternative to the money system. The notion of a Steady State Economy and the many advantages it promises is well worth looking into –
Ikonoclast, having seen fragments of a Republican Presidential ‘debate’ where the Tea Party Mad Hatters cheered madly as Perry boasted of his record as a judicial killer as Texas Governor, and where the audience yelled ‘Yes’ to a question whether the uninsured should be left to die, I think that the collapse will be much quicker than you expect. The total triumph of the inhuman Right over the last forty years, in the US particularly, but also in the Anglosphere and throughout the West to lesser degrees, has seen their ‘values’ of acute antipathy towards and hatred of the Other become social norms. We see this attitude echoed and cultivated here in the Murdoch media in particular, ‘The Fundament’ (aka The Australian) in my opinion being the most poisonous example. They’ve taken time out today from their usual diversity of hate campaigns, against Greens, Moslems, climate scientists, unionists, gays, ‘feminazis’, ‘do-gooders’, ‘nanny-state latte sippers’ etc, to concentrate all their pathological venom on one individual, Robert Manne. It must be the finest testament to their good character and moral uprightness that any Australian, living or dead, has ever received. How long, do you think, before we hear of Manne’s ‘secret Order of Lenin’ a la Manning Clarke?
Walt, the Babylonians, who, I believe, invented interest, soon realised that the amounts owing quickly became unrepayable, so they instituted periodic debt forgiveness, at regular intervals of a score years or more, that became known later as Jubilees. Unfortunately today, the bankster parasites, although rich beyond the dreams of Croesus, refuse to take a hair-cut, as they say, and demand, instead, the liquidation of society to pay their insatiable impositions. Across much of the rich world societies are facing just that sort of massive social retrenchment that was imposed on the Third World in the 1980s, by the IMF and World Bank, through their ‘Structural Adjustment policies’. These austerity policies only deepen the budgetary crises, but that’s the very idea. As David Stockman revealed thirty years ago under Reagan, massive tax cuts for the rich are intended to worsen deficits, which in turn is used as a rationale for the destruction of social welfare and public services. The policy is clearly not ‘neo-liberalism’ but neo-feudalism, with 90% of the public marked down to live as serfs and villeins, mired deep in debt peonage, if they’re lucky. In the USA now household indebtedness is near record levels, inequality is unprecedented (the richest 400 families control as much wealth as the bottom 50%, ie 150 million people) black and Hispanic households have lost 55% and 66% of their wealth, little as it was, since 2005, and median incomes have stagnated for forty years. That’s a failed state, with only one strength left, that of military muscle to attack, pillage and intimidate.
There is one thing, in my mind, that the US must do if it is to restart its economy, and it’s already doing it rather quietly: drop the notion of exceptionalism. No, America is not a unique snowflake, they’re just another flag of convenience in the globalised economy. Specifically, the US dollar is not handed down by God to be the world’s default currency. Of course, the move away from exceptionalism has already started, in that the USD has been significantly diluted through rounds of QE and other measures, which is already leading to a resurgence in US manufacturing exports.
Dropping exceptionalism also means withdrawing its expensive troops from farflung regions. The US government doesn’t need to protect its interests using military might in the modern era – or at least, it can’t afford it anyway, so ways will be found to justify cutting spending on bases.
An America which does not foot the bill for being the world’s policeman, and still builds its wealth on the back of “illegal” immigrants, can keep on being an economic superpower, even if it is supplanted by China as the top political dog. Let Beijing handle all the pissant bullshit that Washington has had to deal with for decades from every regional warlord. Communism is dead, globalisation is every country’s philosophy now. Multinational corporations will learn how to operate in the Chinese century without missing a beat.
@Walt
The problem is not “the money system” as such, but the underlying political economy.
A feudal or socialist system, both, use money without necessarily ratcheting up per-capita debt.
Money is fine – increasing per-capita debt is the key problem. This is independent of money.
Monty, I doubt if anyone in the US would be sad to see the $US dropped as the global currency however evidence that it has been remains scant.
I think one can argue that Labor flicked the switch to job growth too soon. It would seem a bit of pain is required for Keynesian economics to be appreciated.
@Chris Warren
Walt referred to “money system”, not ‘money’ per se. IMHO, we don’t have an adequate concept of ‘money’ which allows a description of ‘monetary objects’ within a unified framework. IMHO, Walt makes the point that the net creation (growth) of future obligations, denominated in currency units, is incompatible with an economy that has reached (or exceeded) its the natural (including environmental) resource constraint.
Re: “But now, at least, he offers his supporters some hope of victory, and, more importantly, some hope that he will make good use of it.”
It seems there are two Obamas: Election Campaign Obama and In Office Obama. The former is a Democrat and the latter is somewhat to the right of Nixon, and seems to follow the Republican agenda, but slowly.
Right now we are seeing the return of Election Campaign Obama. But if the US voting public votes for him again, they will again get In Office Obama.
If you’re going to have your fingernails pulled out, ’twere best done quickly.
@Ernestine Gross
That sounds right to me. But I do not think the natural resource constraint is the pivot on which inadequacies in economic systems turn.
As the money system reaches constraints, so does the natural system. But the real “because” is an underlying cause – the structural contradiction in capitalism (observable from 1900 in USA as ratcheting debt).
In theory, the capitalist “money” system will end up in crisis – even if the natural environment system remains untouched (and vice versa).
OT, but a little related. ABC news showed a graph mid week showing the graph of Greek government expenditure vs income, and how it had been narrowing, but was now widening again.
Then independently (I can’t remember where) I heard that the reason for this was that their economy had contracted more than expected following their budget cut backs.
Does this indicate a failure of economic models? Or were their other factors that weren’t taken into account when the modelling for the budget cuts was done?
@John Brookes
I think it indicates the failure of neoclassical economics. Neoclassical economics is the mainstream of economics today (in business and government circles at least) and it has been falsified (over and over) by empirical events. Keynes criticised classical economics when he developed his general theory. Neoclassical (micro-)economics is a development of classical economics which ignores or “mal-incorporates” Keynesian macroeconomics depending on the particular school.
The predictions of heterodox economists like Hyman Minsky, Steve Keen and Bill Mitchell have been far closer to being vindicated by empirical events than the nonsense that comes out the neoclassical school.
John Brookes, it indicates the success of the policy. It was dubbed ‘disaster capitalism’ by Naomi Klein because the aim is to destroy economies and use that destruction as an excuse to institute neo-feudal policies to immiserate the population and open the economy up to privatisation and other forms of neo-colonial looting. In Iraq the process was facilitated by military aggression and the totally illegal Bremer laws that privatised everything, and a similar process will now occur in Libya. Disaster capitalism was inflicted on Latin America in the 1980s thanks to the deliberately engineered ‘debt crisis’ followed by the Structural Adjustment Policies of Washington’s bullying thugs at the IMF, World Bank, and, later, the WTO. The current pin-up boy of the economic disaster-mongers is Latvia, where the country is actually being de-populated, as hundreds of thousands flee the land of their birth, and an election victory based on crude anti-Russian chauvinism is falsely presented as consent for the economic destruction of their country.
Another factor to bear in mind is that the US elite wishes the euro destroyed, as it represents a potential threat to US dollar hegemony as de facto global reserve currency. The US wealth and hedge funds, abetted by the unspeakable ‘ratings agencies’ are picking off one European country after another with speculative raids, ‘whispering campaigns’ and every other dirty tactic you can imagine. China, of course, which has not been so suicidal as to allow these economic saboteurs free rein in its economy, will need to be dealt with by more direct measures.
@Ikonoclast
This is a misunderstanding. Marxism is essentially a continuation of classical economics (albeit to its inevitable conclusion – under capitalism).
If there is no capitalism, what is the problem with classical text-book economics. Obviously all competitive growth-based economies will have environmental problems.
Isn’t “neoclassical” economics just the capitalist form of classical economics?
Or do you conceive of “neoclassical” as a synonym for modern capitalism?
Hyman Minsky was a capitalist-economist.
Why not just reject capitalism, full stop. All this targeting of other themes seems to just blur the issue.
@Chris Warren
I’m a bit rusty on this now but here goes. My understanding is that Marx developed his theories as a set criticisms of classical economics. According to Wikipedia;
“The term “classical economics” was coined by Karl Marx to refer to Ricardian economics – the economics of David Ricardo and James Mill and their predecessors – but usage was subsequently extended to include the followers of Ricardo.”
So I wouldn’t think Marxism was a continuation of Classical Economics but rather a thorough-going and even revolutionary over-throw of it. We have to remember that Marx never saw “economics” as a pure discipline as such. He saw it all as political economy in which view he was clearly correct. Anyway have to go now, might write more later.
Interesting reading.
http://www.globalresearch.ca/index.php?context=va&aid=26639
Mind you, saying that Obama in office is “somewhat to the right of Nixon” isn’t that much of a criticism today; Nixon was, by Tea Party standards, a raving socialist who ran higher tax rates than anybody would now consider, favoured social security, and never attempted to roll back Johnson’s Medicare and Medicaid programs.
@Ikonoclast
I suppose Marx may have coined the term ‘classical economics’, and he developed his theory as a review and criticism of all economic writers of note. This was Marx’s method, and he also propounded the need to “ruthlessly criticise all that exists”.
However a critical analysis is not a negation. And his program in the Communist Manifesto is within a classical framework but without capitalism.
Marx more than criticised capitalism – he negated it. He also negated some classical theories such as the marginal and subjective theories of value.
So I suppose – Marxism is a continuation of that part of classical economics that serves humanity – value, rents, natural profits, wages, prices, supply and demand, interest, taxation, tariffs, competition etc etc. These all continue after capitalism.
However at some additional point Marx conceived that even these may be redundant, but only in “conditions of abundance”. Here the classical precepts are finally negated. But he died before developing this thought much further and anyway it was not on any plausible agenda.