by David Attewell

In 1949, Germany lay in utter ruin. World War II had devastated its people and laid waste to much of the rest of Europe. The temptation among the victors was to rain down punishment on the Germans in repayment for the catastrophic violence their militarism had brought upon the continent and the rest of the world.

Instead, the Allies heeded the lessons of Versailles, and abstained from demanding excessive reparations; the U.S infused West Germany with billions of dollars in grants and low-interest loans to rebuild its industrial economy. The Marshall Plan launched a new day for the FRG and the prosperity that followed set the conditions for a democratic, prosperous Germany with a European future.

Europe would do well today to remember these lessons as they look to the ‘Greek problem’.

Germany is driving the current Eurozone crisis strategy, a role it has taken up with a troubling combination of superiority complex and historical amnesia. Italian PM Mario Monti recently remarked that “economics in Germany is a branch of moral philosophy.” Even the “economics as morality” crowd, however should recognize that the punishment imposed today upon the people of Greece is hardly proportional to the country’s transgressions.

To be sure, the Greek government has behaved in a dysfunctional and irresponsible manner since joining the Eurozone; but even here, the Troika’s diagnosis misses the mark. Open a copy of Der Spiegel today, and you’ll read that Greece’s problem is that of a welfare state run wild, and a typical southern economy characterized by long siestas and civil servants living the high life on the public dime. Economic statistics suggest otherwise: on average Greeks work longer hours, while proportionally spending far less on the welfare state than do the Germans.

Source: Paul Krugman

The principal source of runaway Greek deficits is not lavish social spending but rather the failure to collect the taxes necessary to run a modern state. Tax evasion, particularly among businesses and the wealthy, has been an endemic problem for decades that has been completely ignored by the Greek political class. With so little tax revenue coming in over a period of decades, the government borrowed more and more money – predominantly from German and French banks – so that they could run a relatively ordinary sized state.

Source: Paul Krugman

The Troika has responded to Greece’s shortfall with the harshest austerity regime ever imposed on a modern state.  The EU’s zealous insistence on mass layoffs of public workers, fire sales of Greece’s national assets, and disastrous cuts in the minimum wage bear little relation to the underlying causes of the country’s deficits. Nobody believes that such measures will do anything but shrink Greece’s economy and make it even less likely they will ever be able to pay off its long-term debt. Oddly, those who embrace the shredding of dismantling Greece’s safety net lose their affection for balanced budgets when it comes to the military budget. At twice the NATO average, Greece is putting much of its precious cash into arms imports from — you guessed it – Germany and France.

The consequences of prolonged austerity now imposed on Greece — in effect, a Versailles-esque bout of collective punishment — are frightening to contemplate. With youth unemployment at 51%, homelessness surging, and once middle class families looking to soup kitchens for their next meal, we are witness to a nigh-complete social breakdown.

The embrace by the political center of the crushing, externally-imposed austerity measures has left it discredited and delegitimized. In recent elections, the Greek mainstream parties of left and right which have controlled the country for decades received a paltry 32% of the vote combined. Meanwhile the overtly violent neo-Nazi Golden Dawn party entered parliament for the first time, amid ominous threats to cleanse the country of “traitors”. The absurdity of the situation is hard to grasp; the EU is spending €20 billion a year to prevent state failure, authoritarianism, and organized crime in the Balkans and yet is pushing a member state relentlessly toward the brink of such catastrophe.

The late, great Tony Judt captured the dilemmas faced by the Allies in the aftermath of World War II.  “It was all very well forcibly bringing Germans to a consciousness of their own defeat,” he noted, “but unless they were given some prospect of a better future the outcome might be the same as before: a resentful, humiliated nation vulnerable to demagogy from Right or Left.” That Greece has made mistakes cannot be disputed. Nonetheless, the toxic combination of state failure and depression, mixed with growing nationalism will form a political Molotov cocktail with wide-ranging consequences.

On a broader level, we need to recognize how damaging it is to frame conversations of international political economy as a morality play.  The Allies took the crimes of the Nazi regime and the complicity of the German people very seriously.  Yet from a perspective of enlightened self-interest, the U.S recognized that in an interconnected world, the prosperity of Germany had very real consequences for the rest of Europe and hence gave birth to the Marshall Plan and European integration. In today’s era of monetary union, Europe’s destiny is even more clearly interconnected; default and even prolonged recession in the PIIGS will bring down even the prosperous economies of the core sooner or later. It is neither feasible nor desirable for the U.S, China, the IMF or any other external actor to aid the countries of the European periphery when the EU and its surplus economies are perfectly capable of doing it themselves.

When the surplus economies of Europe eventually decide to actually take constructive action to solve the crisis, they could do worse than to look to the Marshall plan for guidance. A coordinated program of debt forgiveness and public investment could allow Greece to grow its way out of the crisis. Much as the Marshall Plan did, this aid could be conditioned on governance reforms which tackle the country’s real underlying problems, particularly the lack of a modern system of tax collection. Had the EU acted two years ago and paid down the country’s   sovereign debt, which was manageable at that point, this process would have been relatively inexpensive. Instead, Germany and the European Central Bank fretted about moral hazard, a consideration one notices never applies to banks (who have just been lent a trillion euros by the ECB at miniscule interest rates). The alternative is a Greek exit from the Eurozone, which economists have suggested will precipitate a crash that would make 2008 look like a picnic.

Ahead of new elections in Greece, the Troika insists that ‘there is no alternative’ to the austerity plan. The truth is that there is no alternative to rejecting austerity; the balanced budgets the Troika demands cannot be achieved without first achieving economic growth.

The truth is that the current course forced upon Greece will lead to only to further suffering, political destabilization and the rise of anti-democratic radicalism, and eventually, violence and the breakdown of democracy.

60 years after the end of WWII, it is past time for Germany to speak honestly to its citizens about its obligation of solidarity with its European partners. A country whose psyche is indelibly marked by an experience of economic crisis and political radicalization must recognize the situation replaying itself in Greece today. It was only through the understanding and support of its former enemies that Germany was able to break the cycle of economic misery and xenophobic nationalism to achieve the prosperity it enjoys today. Germany must assume its role as a leader of a united EU, not simply for the sake of economic recovery, but for a continent that cannot slide back down a dark path the country knows all too well.

Introduction:

It’s somewhat out of vogue to talk about the quality of jobs and the shape of the labor market at a time when unemployment is so high and the obvious issue is the number of jobs being created. This wasn’t the case prior to the recession, although rather specious reasons were given to justify the rapidly increasing inequality of wages as the outcome of superior education or productivity. What can’t be denied is that even before the recession, we were sliding into a highly unequal labor market in which many low-paid, insecure workers (50% of American workers made less than $26,000 or 230% of poverty in 2010) serve a small number of ever-richer elites.

This trend has only continued since the recession, and it’s a problem that has to be solved if we are to either fully recover or protect ourselves from the next recession.

Taking the Low Road:

I’ve written before about why we’ve seen a rapid acceleration of a longer-term pattern in wage deterioration for ordinary workers and the mirror-image trend among executives. The short story is that this disjuncture is basically cause by a massive and growing inequality of relative power between those who rely solely on labor and those who have access to capital, which has created a maldistribution of income and wealth, which in turns exacerbates this inequality by making the overall health of the economy more and more reliant on credit, which further enhances the value of capital and the likelihood of recessions caused by credit crunches.

In addition to the moral evil of a society that rewards wealth over work and denies millions the chance to contribute to society, there’s also the practical evil that it’s this very inequality that’s tamping down the renewal of economic demand (since more money is in the hands of those less willing to spend it, and less in the hands of those who are more willing), and allowing the debt overhang to retard economic growth (which shifts potential demand towards paying down debt rather than purchasing consumer goods). This economic effect is bolstered by a political effect outlined by Larry Bartels, Jacob Hacker, and Paul Pierson, in which the concentration of wealth concentrates political power in the hands of the wealthy, who in turn push for weakened regulations, cuts in progressive taxation, and weakening of potential threats from labor.

As I’ve argued, the weird thing is that this strategy for economic growth has been terrible both in the long and short terms. During what Paul Krugman calls the “Great Compression,” American and European economies managed an incredible feat – at the same time, they shifted from a pyramidal labor market which rewarded the wealthiest the most and kept the vast bulk of workers in poverty to a solidaristic economic in which income was more broadly distributed and income growth more evenly shared across class lines, and increased rates of economic growth and investment. While many pundits of the conventional wisdom might argue that this is the way of the past and couldn’t possibly work today, Krugman’s point that the more egalitarian countries in Europe are actually doing the best shows otherwise.

So how do we pull off an economy-wide shift in the labor market?

Bringing Up the Bottom:

Fixing the lower half of the labor market is a bit more complicated than simply raising income by increasing the minimum wage and expanding the EITC, which are necessary but not sufficient steps. While empirical research has shown that minimum wage increases have no significant impact on employment levels, part of bringing up the bottom of the labor market includes de-casualizing low-wage, insecure, temporary and part-time and replacing them with more secure living wage jobs. In our current political economy, this would be made almost impossible due to the likely eventuality that employers would respond with “increasing productivity” (the modern euphemism for speed-up and stretch-out) and automation, increasing unemployment.

However, if we can establish a job guarantee, we can make significant inroads against casualized, low-wage labor without increasing unemployment. In this new environment, wage increases can push the bottom of the labor market up and free up workers for other, more high-productivity jobs, thus improving the efficiency of the economy as a whole. Moreover, workers would be bolstered in their efforts to demand higher wage for their labor by the floor set by job insurance wages, and the lower unemployment rates created by direct job creation.

However, I think increasing worker power through the empowering of unions is probably the most crucial and indispensable step. The experience of the British Labour Party during the Blair and Brown years have shown that without counter-acting the “undertow” of neoliberal political economy, income transfers are extremely limited in their effectiveness. A combination of direct job creation in order to counter-effect this undertow and labor law reform to give unions space to run is needed to allow income transfers to live up to their potential.

Opening Up the Middle:

One of the great weaknesses of Republican class politics is their blithe assumption that the entirety of the working class can lift themselves up by their bootstraps into the middle class, that the room exists for no one to be poor; as McDonnell said “we must always be a nation of haves and soon to haves.” This is complete nonsense.

And yet for thirty years, we’ve acted as if it were possible to end poverty and inequality, simply through supply-side measures to boost the numbers of college entrants. Ironically, in combination with an absolute resistance to raising any kind of taxation, these efforts have had the opposite effect – increasing demand for higher education and decreasing resources to meet the need has greatly contributed to ever-higher tuition that increasingly boxes out working and middle class families from higher education.

A further problem is that there’s little evidence that there’s room for new entrants into the middle class. The wages of the college educated have stagnated just as much of those of high-school graduates, their “college premium” more of an artifact of previous advantage than any sign of demand for more educated workers. When law schools are admitting two times as many applicants than there are legal jobs to place them in, it’s hard to see how we cram the children of the working class into the ranks of the professional classes.

So more intervention is needed to boost the middle class than just expanding higher education. The first thing we can do is to prevent downward mobility by boosting effective income of middle class families and reducing the need for dangerous levels of debt. Progressivizing the payroll tax  could increase middle-class take-home incomes by 5-7% and create a permanent economic incentive to create middle class jobs on the employer side. Expanding access to public health insurance by raising income limits on Medicaid and lowering the age limit on Medicare could save middle class families up to 3% of their income a year in premiums alone. Finally, reducing college tuition costs via a tuition support model outlined by Speaker Perez in California or by endowment support could save up to 9% income a year during the college years. Put together, this kind of income boost would put the middle class on secure footing, and place those working class families below the line on a path upwards.

Next, we can diversify sources of middle class income for the next generation. An entirely wage-based middle class is relatively new in history, and as we’ve seen, heavily reliant on the labor demand for educated professionals that puts middle class generation at the mercy of the market. If we remove the necessity to invest in children’s education to the exclusion of all else, middle class families could invest some of the 17% of their income saved by the policies listed above in making sure that their children enter the job market without debt and holding income-generating assets. This would ensure that the next generation of the middle class have some economic security starting out in the labor force, so that a professional income is less of an all-or-nothing chance.

Finally, we can diversity the basis of middle-class employment. As has already been discussed, the middle-class has focused itself almost entirely on college-trained professional occupations despite stagnant demand and ever-expanding supply. There are alternatives. One obvious one would be to take some of the 17% of saved income and start their children out in small businesses if a professional salary isn’t forthcoming. Another would be to look to the skilled trades. As CNN points out, there are still skilled blue collar factory positions that pay solid middle class wages and few takers. A presidential initiative to invest in and raise the prestige of technical colleges and apprenticeship programs – along the lines of Germany’s successful Berufsausbildungsgesetz (vocational training program), which has resulted in 51% of German youth completing an industrial apprenticeship in 2001 – could rebuild a section of the middle class that flowered when the union movement was in full bloom.

Restraining the Top:

I’ve written extensively about ways to restrain the economic power of the wealthy, which largely point to making our tax system more progressive and harder to evade, eliminating corporate welfare, and regulating financial capital to the point where it’s “safe, stable, and boring.”  One rare area where there is widespread popular support for progressive causes is tax fairness – witness the popularity of the “Buffett Rule” in the U.S, the unpopularity of Chancellor Osborne’s decision to lower the top income bracket in the U.K, and Hollande of the French Socialists staking his platform on a top tax rate of 75% on the wealthiest.

However, there’s one additional area where we can divide the affluent from the mega-wealthy and really construct a 99% coalition – by maintaining the real income of professional incomes while decreasing their gross income through reducing professional costs and professional prices. For example, taking over the costs of medical malpractice insurance could allow doctors to save a median of $12.5k a year and pass that on to the consumer in the form of 2.5-6.7% lower prices for medical bills. Reducing the cost of going to professional schools like law and medical schools would mean that new lawyers and doctors would need about $200,000 less in earnings to break even from their debts, which would mean that their gross incomes could be significantly reduced (which in turn would lower the cost of health care and medical bills, while increasing the relative demand for their services) without affecting their take-home income.

In this fashion, for at least part of the top 20%, we can restrain the income growth of the top of the labor market pyramid without actually hurting anyone.

Conclusion:

Ironically, for all that the 1% and their allies would scream to the heavens over any of these proposals, let alone the entire package, the reality is that a more egalitarian economy is better for the rich too. The more egalitarian an economy is, the broader its economic base is – with more people with disposable income to spend and invest with, the more scope there is for increasing sales and investment, and thus the more scope there is for economic growth. We’ve seen this before in the Great Compression – while the wealthiest had a smaller share of the overall income growth than they do now, their overall rate of income growth was nearly twice as high.

In some ways, it’s the oldest lesson of capitalism – better to sell more volume at a lower margin then to sell less at a higher margin, or in other words, better a smaller slice of a bigger cake than a bigger slice of a cake that might start shrinking.

Introduction:

The internal tension within politics is the fact that politics is carried out in a language of ideological values, and values don’t really lend themselves to empirical analysis, while policy is carried out largely in a language of social science which must be. Difficulty and deception comes where the two languages either overlap or fail to find common ground. Hence the bizarre situation in which values of “fairness” and “progressiveness” were used to both attack and defend the same policies in the U.K.

However, there’s no reason why we can’t interrogate our values as closely we do our policies – to prevent values labels from turning into veils used to mislead and obfuscate. This is especially true for the label “green” where “green”-ness is used as a signifier of goodness and a way to shut down consideration of other values.

Different Shades of Green:

I’ve written already about the need for the green movement to wrestle with questions about class, which has its own set of moral questions that don’t necessarily align with environmental concerns, but today I want to drill down into some close examples in which “greenness” hides a larger ideological complexity. Note that I’m not talking about “green-washing,” the practice by which corporations present an image that’s more environmentally-friendly than really is the case, but rather cases in which “greenness” is used by different groups to present a more progressive image overall when the “greenness” is sincerely felt.

Whole Foods is a great example of why the label “green” can’t be the end of a discussion about how progressive something is. From all accounts, the Whole Foods corporation is genuinely committed to organic, non-GMI, locally-sourced and sustainable produce and products. However, Whole Foods’ environmental brand isn’t just a matter of conscience – it’s used alongside Whole Good’s expertly designed interior visuals to signal a kind of sleek, modern, and progressive values-based middle class consumerism.

This signalling is vital for Whole Foods’ brand identification in the coastal regions it clusters in, because without them, Whole Foods CEO John Mackey’s politics on health care and unions would pose the risk of tarnishing the company’s image in the same way that Walmart’s politics have made it verboten among these same affluent, progressive-identified consumers. Being green gives Whole Foods a way to spin their image and progressive-identified consumers a way to justify their patronage of a store that attracts them aesthetically despite their political commitments (although had Mackey’s politics been reactionary on race, gender, or sexuality, it’s questionable whether it would have worked).

The point here isn’t to argue that Whole Foods is duping its customers, or that Whole Foods customers are essentially throwing labor under the bus in the name of enviromentalism, but rather to argue that when the aesthetics of “greenness” are used to short-circuit a comprehensive analysis of how ethical it really is to consume there, empirical thinking falls by the wayside. However, I would argue that if progressive-identified consumers want to hang onto their chosen labels, and if organized Greens want to make and keep strong connections with other factions within the progressive movement, they need to get better (we all need to get better) at being more comprehensive. A green sweatshop in China pumping out cheap solar panels and paying its workers $141 a month can’t be seen as acceptable.

No-Impact Man, the effort to reduce one’s individual carbon footprint to “zero carbon . . . also zero waste in the ground, zero pollution in the air, zero resources sucked from the earth, zero toxins in the water,” by eliminating consumption of electricity and consumer goods like disposable diapers, coffee, toilet paper, etc. – stands at the extreme end of a broad range of activities that include using re-usable bags, urban farming, and buying carbon offsets.  The extreme nature of Colin Beavan’s quest for a zero carbon impact lifestyle nonetheless highlights a rather pernicious undercurrent within ethical consumption circles.

As critics have pointed out, no-impact lifestyles are rather easier to pull off when you live in a “ninth-floor apartment in Greenwich Village,” with two middle-class incomes, in a major city that’s highly walkable, and it helps when you can “cheat” when it comes to wireless access and home heating in the winter. Reusable, recycled, organic, and locally-sourced goods are highly expensive compared to their mass-produced equivalents, and not really practical for working-class families without much in the way of disposable income. No impact is a stunt, and a stunt reserved for the affluent at that.

And yet, all other things being equal, it’s better that middle-class and affluent folks purchase sustainably-produced goods than otherwise. What I do take exception to is the often unspoken assumption that individual behavioral choices, especially choices about consumption, are a viable model for activism, or that the kind of choices made by the middle-class protagonists of this genre of nonfiction can make that much of a difference. At the end of the day, there just aren’t enough people with the money to live this way to make much of a dent in the market. Nor does withdrawing from a commune alter practices on the factory floor; choosing cloth over plastic isn’t, on a voluntary basis, enough to impact a system shaped by the choices of hundreds of millions of developed-world and billions of developing world consumers.

Politically, as I’ve argued, good public policy includes a mechanism by which a majority constituency in favor of that policy is assembled and maintained. The green movement has unfortunately tended to neglect this by emphasizing abstract intellectual or sentimental-altruistic reasons for why people should support them, and it tends to approach self-interest from the relatively narrow perspective that climate change will be incredibly harmful – in the future. There’s nothing wrong with approaching recruitment by creating a collective ethic of reciprocal solidarity, in which majorities are assembled not because everyone cares equally about every issue, but because each group within the majority trusts that the other will have its back. Issue education is a lot easier when you start from the position of an ally than a stranger.

Conclusion:

At the end of the day, no label or claimed allegiance is so holy that we can afford to take it on faith; no goal is so good that we can shut our minds to the question of means.

Introduction:

The sad reality of the recent spate of right-to-work laws, collective bargaining bans, anti-picketing laws, and other state level anti-union legislation is that, despite our victories in Ohio and the recalls in Wisconsin, the labor movement will never begin to make progress as long as we are fighting a piecemeal defense of an industry (the public sector) that is only 37% organized and reliant on state politics for its very existence.

In short, what we need is a Wagner Act for the public sector.

I’ve written before about the need to move beyond the status quo of labor law that governs private sector unions, and at only 8% union density, private sector workers are the most immediately endangered group of union members. However, at the same time, it’s the public sector unions that will be needed to provide the organizers, resources, and political support necessary for the revitalization of private sector unions. If these unions are defeated, outlawed, or so consumed by a struggle for survival that they can lend no aid to their brothers and sisters, there is no hope for change.

History of Public Sector Unionism

Unlike their private-sector brethren, public sector unions have never had a single breakthrough moment when it comes to legitimization and legalization – no 1935 moment, as Joseph McCartin writes in “Why No Wagner Act for Public Employees.” As a result, public sector union gains especially during the salad days of the 1950s and 1960s have depended on local and state piecemeal agreements, sometimes by legislative mandate and sometimes through direct bargaining with the executive. This has ultimately proved to be problematic for three main reasons – universality, enforcement, and legitimacy.

The lack of a national statute has meant that public sector unionism has concentrated in the blue states. The same process happened with private sector unions due to the history of industrial clustering in the Midwest, and it proved to be politically disastrous when the so-called rust-belt or snow-belt states were eclipsed in population by the rising Sun Belt. It’s been doubly difficult for public sector unions in that it means that their attempts for expansion take place in a context where management literally writes the rules for how labor organizing will work, and it’s also meant that the existence of public sector unionism now depend on partisan control of office. Even before 2010, Republicans and some Democrats have forced furloughs and layoffs, pension reductions and health care cuts, not to mention proposed more nakedly partisan attacks on the right to organize via card check, bans on dues check-offs, and bans on the right to engage in the political process. Since 2010, the very existence of collective bargaining has depended on the presence of Democrats in office – and even then, we see some Democrats using the opportunity to tack to the center by bashing public employees.

In a similar vein, the lack of a national statute has made enforcement of public sector union rights difficult because ultimately union members have to appeal their grievances and unfair labor practice claims…directly to the plaintiffs in many cases, the statutes by which public sector unions exist are interpreted in state courts, and basic legal rights and agreements are open to unilateral renegotiation by public referendum. In normal times, this isn’t necessarily a problem, but when hard times come and local and state governments have to make hard decisions about budgets, even the bluest of states have been willing to break contracts.

Finally, the lack of a natural statute denied public sector unions the popular legitimacy that came with a national statute. During the great surge of organizing in the 1930s, both the CIO and the AFL made patriotism a part of their appeal to potential members, rallying with American flags and the slogan that “the President wants you to join a union.” By contrast, public sector unions have always struggled under a cloud of suspicion.

And while they’re not the only factors, I think they are a major reason why membership rates in the public sector have only reached 37 percent as opposed to the 80-odd percent that used to be the case in industry – which would have given us a floor well above the 12% of the overall workforce we have today.

Defending Everyone’s Rights

However, I don’t think that the kind of national conversation that needs to happen if national legislation is going to pass can’t ever happen until we have a conversation within the ranks of the Democratic Party and the broader progressive movement about why public sector unions should have the legal right to organize. Because it’s not because cops, firefighters, nurses and teachers are heroes and should have collective bargaining lavished on them like tributes – most public sector workers do rather mundane office work or field work, and they have the same right to join a union and have that union recognized.

As I’ve discussed in my “In Defense of Public Sector Unionism” series, all workers have the right to form and join unions, no matter how elevated or prosaic their work is. It’s an international human right set down in the UN Declaration of Human Rights set down in in 1947. It flows directly out of our 1st Amendment right to freedom of assembly and association; this is recognized explicitly in the text of the Wagner Act, which states that it is intended to redress “the inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract” and their employers by making it “the policy of the United States to [protect] the exercise by workers of full freedom of association, self- organization, and designation of representatives of their own choosing, for the purpose of negotiating the terms and conditions of their employment or other mutual aid or protection.” And as we have seen in the Wisconsin and Ohio conflicts, it’s a right that dwells in the hearts and minds of most Americans, even if they put up a storm of complaints when the exercise of those rights complicates their lives.

I think the major mental block when it comes to the public sector has to do with the fact that we think of “we, the people” as the employers and we can’t conceive of ourselves as oppressing others or even of subconsciously leaning on the inherent power differentials between workers and their bosses. However, we forget that although the people are the state as Lincoln formulated it, politicians and appointed civil servants act as the actual managers. Politicians and professional managers can, have, and do abuse and exploit their workforce. The voters of Memphis weren’t exactly rising in protest when their (poor black) garbage workers were being crushed to death in their compactors because they weren’t allowed to duck out of the rain.

The reality – which has been recognized since the time of Adam Smith – is that there’s a basic inequality of power between all workers and all bosses, no matter how enlightened or well-meaning the boss or bosses might be. At the end of the day, the worker needs to work to live and the boss doesn’t, and this creates an all-encompassing fear on the part of the worker. This fear is stoked both explicitly (when a worker is told that they will be lose their job if they vote for a union, as happens in 49% of union elections) and implicitly (when a worker is either told or believes that they will be viewed as “not a team player” if they don’t follow informal standards when it comes to things like coming into work on the weekend). And it leads to self-exploitation, where workers work more (and more) hours than they get paid for, or pick up additional duties they don’t get paid for, or increase work effort again and again to live up to some Stakhanovite ideal.

It doesn’t mean that voters or politicians or appointees are immoral employers, just that they are employers. And if voters want to prevent exploitation or even the thought that they might be complicit in exploiting workers, the best way they can do that is to bring in unions, which act as countervailing forces and allow workers and bosses to negotiate and work together as equals.

A further complicating factor in passing a Wagner Act for the public sector is that most public sector workers work for state and local governments and we’re talking about a Federal bill to secure public sector union rights and the argument that this would be a violation of Federalism and state’s rights. I would argue that it isn’t. While it’s probably a stretch to fit state and local governments into the Commerce Clause, I would argue the 14th Amendment does fit. In addition to the Equal Protection Clause and the Due Process Clause, the 14th Amendment is supposed to ensure that “no state shall abridge the privileges and immunities of citizens of the United States.” The Supreme Court may have in the past decided in all their infinite wisdom that this clause is practically void, requiring nearly a century of clumsy, partial incorporation cases through those other two clauses, but the Supreme Court deserves an opportunity to rethink its mistake (at least after Obama appoints a few more justices).

Conclusion

A Wagner Act for the public sector would be incredibly simple to draft. All it would have to do is strike out the clause in the Definitions section that states “The term “employer”…shall not include the United States or any wholly owned Government corporation, or any Federal Reserve Bank, or any State or political subdivision thereof,” and adding in the phrase “providing services to the public” to the clause in the same section on what constitutes “Commerce.” The difficulty is passing it through Congress.

But even if we could pass it through Congress, it would just be the beginning. There’s still 63% of the public sector who need to be organized, and while we’re organizing them, there’s another 92% of public sector workers waiting for their turn.

Introduction:

In the past, I’ve written about the way in which new urbanism needs to do a better job attending to issues of class. However, I want to avoid the accusation that new urbanism is classist in the same way that others have made the argument about race. The reality is that the kind of transformations that new urbanism envisions are a lot easier to do with resources, and those are easier to find in a city that’s expanding, and given the history of post-war urban development that tends to be a particular kind of city.

If we want to revive cities, and not just help cities already on the upswing, if we want to bring New Urbanism to the Detroits, Baltimores, and New Havens and not just the Seattles, Portlands, and Denvers, New Urbanists need to bring industrial policy into their worldview.

Background

To begin with, we need to recognize that all cities practice industrial policy. They don’t do it well; to begin with, cities tend to conduct industrial policy almost entirely through tax breaks and free public services. This drains the city of desperately needed revenues and puts an additional burden on the revenues that remain. It forces cities to compete in a vicious game of beggar-thy-neighbor where corporations can put the screws to everyone but the lowest moral common denominator. Next, most industrial policies are shaped in the dark and often in a disjointed fashion as opposed to as a comprehensive picture. As a result, the citizens of our municipalities rarely have the open debates and clear, democratic choices about the economic choices they are making.

And make no mistake, these decisions have consequences. As Joshua Freeman writes in Working Class New York, New York City in 1945 was a thriving manufacturing hub with over a 2.6 million workers, and a million of them were union members. Together, they built a social democratic city on a foundation of rent control, that oft maligned policy which kept a world capital a working class city for a generation, the best public housing in the country, cheap and comprehensive public mass transit, public hospitals and health services, and some of the best public schools in the world. It was a New Urbanism for its time.

Yet over the next thirty years, this all came tumbling down -  in large part because when the pressures of global competition and automation came up against the city’s disadvantages when it came to land availability, high costs, and high wages, the city failed to do anything about it – at the same time that it was encouraging the development of finance, insurance, and real estate. By 1966, the majority of manufacturing in the region was located outside the city. Thus when the financial crisis hit New York in 1975, it created an opening for business and political elites to construct a new city where Wall Street rather than unions held power. Not only did this change the physical makeup of the city, as factories are knocked down to build high-end condos and corporate office buildings, but it changed the social structure. New York City went from being a city with a roughly diamond-shaped social structure with a broad, economically secure working class into one of the most highly unequal places in America, where the mega-wealthy sit on top of a pyramid of money.

This was a decision made through action and inaction. And these decisions are happening around us all the time. The question is: how do we make decisions that make cities on the decline better places, and all cities a better place for ordinary people?

Industrial Policy for Rusting Cities

Finance – the great difficulty of municipal reform is that many cities are constrained in both the forms and levels of revenue they can raise from taxes and the bond market. There are two potential ways for cities in decline to unshackle themselves. First, Metropolitan Reserve Banks. Just as with state governments, cities can establish reserve banks that can generate large amount of finance, especially for new industries. Naturally, the more limited basis of a city’s holdings and revenue will make these reserve banks smaller than their state counterparts, but given that the size of the projects they’d deal with are smaller too, it’s not a problem. Second, Build America Bonds. The Build America Bonds established by Obama were a godsend for the cities, allowing them to invest in infrastructure at lower costs. A permanent Build America Bond program, or even a program for cities to borrow directly from the Federal Reserve would allow the cities to take advantage of the Federal government’s functionally-unlimited financial capacity while giving the Federal government yet another tool to spread demand around in the future.

Make Real Estate Work for the City – especially in the cases of cities like Baltimore and Detroit which have declined from larger populations, there is a huge untapped potential in the vacant housing and real estate for economic development. First, rehabilitation of vacant housing and real estate can be the foundation for a direct job creation program with extremely valuable production. Second, selling that housing cheaply (in the case of Baltimore for a dollar) or just giving it away to working people literally spreads the wealth while expanding the city’s tax base. As occupancy rates in these properties rise, so does the value of housing and land the city owns – building up the Metropolitan Reserve Banks in turn. Third, it can provide a real solution for homelessness by just giving people a key to an apartment and access to facilities.

High Road Economic Regulation – there also some ways that a city can promote a more egalitarian political economy that don’t involve spending money. Many of these policies – Buy Local provisions that direct purchases to local (and preferably) union vendors, Project Labor Agreements that involve unions in negotiating wages and benefits in city construction projects, and Living Wage Ordinances where cities require vendors, service providers, and businesses that receive public assistance to pay a higher than minimum wage – are already in place in many cities, but they aren’t universally and comprehensively in effect and they haven’t really been part of the New Urbanist toolbox.

They need to be. To begin with, policies that promote an egalitarian distribution of income are conducive to the kind of sustainable living we want – when working people and their families cannot afford to live close to where they work, they increasingly get pushed out into the suburbs. The demand for transportation resources and the resulting strain on our transportation network increases. As a result, the environment is degraded by ever-expanding sprawl and increased emissions from commuters, the high cost of gasoline and the hours lost to commuting exact a further burden on working people and their families, and the outward search for affordable housing continues to spiral outwards, until the fabric of our communities can no longer stretch. When workers can afford to live where they can walk or take public transit to work, not only do communities become more economically and racially diverse, but the forces that lead to sprawl begin to reverse gear, creating systemic incentives for sustainability. Moreover, advocates for social justice could use the kind of innovative, experimental approach that New Urbanists could bring to the human as well as the physical needs of the city.

Public Goods – as I’ve written before, the services that cities provide can make all the difference in livability of a city and its attractiveness to new industries and new migrants who can support a tax base. A municipal public option (building off of expanding Medicaid and SCHIP) and high-quality public hospitals and health clinics, municipal child care services and subsidies, municipal broadband wireless, high-quality social housing and housing subsidies, and yes, municipal job insurance, can transform a city into a commonwealth, where everyone is taken care of and takes care of everyone else.

If new industries and new residents with income are going to take a chance on cities that can’t offer what cities on the rise can, it will take something dramatic to attract them. However, this scale of public goods can’t be afforded by cities on their own – it needs support from state and Federal government. With loans, revenue-sharing to support new services, and Federalization of existing social services, Federal and state governments help shape the entire course of urban development.

Conclusion

It’s fashionable in “socially responsible investment circles to talk about the “triple bottom line” of social, environmental, and economic outcomes. New Urbanism has tended to focus largely on the last two, but it needs to include the first. Industrial policy will make New Urbanism better, and will bring allies that New Urbanism has not have before.

Introduction:

In my last piece, I discussed the irrational nature of how the bond markets have reacted to the financial crisis and the recession that followed, simultaneously demanding austerity and then reacting to the recessionary crises their demands have created by demanding government intervention to provide growth (as long as it doesn’t result in inflation, higher taxes, or more borrowing).

As the Greek Parliament passes the kind of austerity that makes Andrew Mellon look like a bleeding-heart and Athens burns, we see European politicians demand further austerity at the same time that everyone realizes it’s not going to work. So how do we construct a new conventional wisdom amidst the tyranny of the old, and then how do we transform understanding into action?

Promoting Intellectual Change From the Inside:

The heavy lifting of constructing a new conventional wisdom shouldn’t actually start with the creation of new think-tanks or the publication of new books or blogs or the holding of conferences promoting new ideas – as counter-intuitive as that might seem. Part of the problem right now is that progressives love to create new intellectual institutions and spaces and groups, even if they’re duplicating infrastructure that already exists. What we don’t do as well is to consolidate different issue-oriented or ideological groupings into larger and more comprehensive groups, but what we really don’t do well is ideological policing.

Ideological policing sounds nasty and scary and totalitarian, but it’s actually a normal and healthy part of politics. All political movements need to decide what they believe in, and they can’t do that or move any kind of common agenda unless they’re willing, able, and capable of declaring who is and who isn’t part of their movement. While most progressives would have no problem with running David Dukes and his ilk from the party, there’s a tendency to be unwilling to apply rigorous standards on people who fit with some part of our agenda but who flagrantly are anti-progressive on others. This “oh, but he’s good on X” syndrome pops up all the time, which leads to a progressive movement and a Democratic Party that has to fight itself all the time on education, economic policy, unions, and other issues.

This process, which does get applied to politicians in Democratic districts (the bluer they get, the less tolerant Democratic activists get about partial adherence to Democratic platforms), needs to get applied to think-tanks, experts, and political operatives, especially when it comes to staffing Democratic administrations and legislative officers.

Ultimately, it needs to be applied to our national politics to the point where (for example) it’s political suicide to run as “socially liberal but fiscally conservative.”

Idiot-Proof Regulations:

The difficulty we have is that we have to use the government to reform corporations and industries who have huge sway over the government; how do we do this? Internal politics is a huge part of it; we have to replace the scions of the financial sector within the ranks of the bureaucracy, think tanks, and the party. However, in the mean time we need policies that will restrain the bond market no matter what political party is in power, in part because no political victory, no matter how sweeping it might seem, is ever conclusive.

One of the best tools we have to ensure that the bond markets are regulated no matter what is what I have called “idiot-proof” regulation. These are simple, bright-line rules that can be understood and monitored by those outside the government, and by laymen. Importantly, they’re also extremely simple to enforce – this makes it harder for even the most determinately apathetic or ideologically opposed official to quietly get away with not doing their jobs, and it makes it easier for the political system to pressure them to do something they don’t want to do.

The Glass-Steagall Act is a great example of idiot-proof regulation. What the law did was very simple: it prohibited commercial banks from engaging in investment banking, prevented banks from selling and underwriting stocks themselves, limited the amount of the banks income that could come from ownership of stocks, and established deposit insurance. Since these laws are so simple to keep track of and to enforce, they make it much more difficult for lobbyists or neoliberal activists elected or appointed to government positions to eliminate or weaken them without major controversy. They almost enforced themselves. As a result, they stuck around; despite a steady rightward march from 1968 onwards, it took thirty years for Glass-Steagall to be eliminated.

However, we can’t simply turn back the clock by restoring Glass-Steagall; the bond markets are much more complex and have accrued a level of political power they didn’t have when those regulations were initially written. New “idiot-proof” regulations are needed:

• Tobin Tax à la Spahn – the Tobin Tax is perhaps the most well-known example of this kind of regulation, a small tax on financial transactions that reduces speculation by making the “churning” of rapid buying and selling prohibitively expensive. A Spahn variant of the tax, where the rate of taxation automatically increases with the volatility of trading and prices, is even more effective in curbing panics and bubbles – without the necessity of a well-funded, highly-motivated, and honest S.E.C to oversee financial markets. If this kind of tax was established in the E.U (and a EU-wide Tobin Tax is being pushed by the Merkel-Sarkozy duo to try to stave off defeat in their respective elections, as a kind of cover for their larger neoliberal agenda), speculative attacks on national debt (which have replaced speculative attacks on currencies that was a major Achilles heel of the previous global economic regime) would be slowed down, and panics would be much slower to spread from the specific case to entire categories of countries.
• Counter-Cyclical Taxation of Financial Reserves – following the financial crisis, the Swedish central bank in 2009 began to charge banks for putting liquid capital on reserve, which ensured that Swedish banks didn’t hoard liquid capital after being bailed out, and instead had to begin lending again to businesses, preventing the kind of credit crunch we saw here in the U.S. A permanent policy here in the U.S of the Federal Reserve counter-cyclically taxing reserves held at the Fed would provide incentives against the kind of speculative lending seen at the height of bubbles and prevent the credit crunch that makes recovery slower and harder.
• Differential Taxation Between Sectors – I’ve written before about the potential to spur shifts in our economy away from non-productive concentrations of investment, such as the FIRE (finance, insurance, and real estate) sector which has metastasized so rapidly that a major motive behind the housing bubble and the derivatives bubble was a relentless demand for more (and more profitable) investment vehicles than really existed, prompting the invention of newer and riskier financial instruments. A differential tax – increasing income, corporate income, and capital gains taxes on revenue from the FIRE sector as opposed to manufacturing, services, infrastructure, transportation, technology, etc. – is a simple way to create a systemic incentive without getting into the weeds. Similarly to the Tobin Tax and the counter-cyclical taxation of reserves, differential taxes are transparent and easily monitored; either the taxes are being collected or they aren’t.
• Yardstick Ratings Agencies and Other Institutions – one of the few silver linings in the European mess has been the move towards the creation of independent public ratings agencies, meant to counter-balance the often disruptive force of Moodys, S&P, and other private forecasters whose downgrades have in many respects created self-fulfilling prophecies of debt crises. The same thing has happened on a smaller scale in the U.S – in addition to the downgrading of U.S Treasuries, multiple states have been handled much rougher than financial instruments and Wall Street corporations, before and after the financial crash. Public ratings agencies here in the U.S could correct this market failure.

Central Bank Reforms:

While all of these policies would be quite useful, ultimately the central banks are the commanding heights that have to be seized if the bond markets are to be prevented from returning the world economy into another recession.

In the case of Europe, ultimately, the European Central Bank needs to start acting as a central bank – i.e, the Lender of Last Resort. Either by issuing Eurobonds or by lending to national governments directly, the ECB is the only source of finance out there that’s capable of financing a general recovery, which is the only way that European debt will ever be repaid. And ultimately, it’s in the ECB’s own interests to do so – in addition to the rise of hard-right (and to a lesser extent left) political parties, there’s a broad-based level of bitterness rising against European institutions that may very well wreck the EU regardless of whatever “reforms” the troika push through. And if the EU falls, the ECB falls with it.

Both the ECB and the Federal Reserve could both also bolster their foundations by democratizing their practices. Think about the sheer scale of financial power at their disposal – the Federal Reserve loaned or guaranteed seven trillion dollars in the financial rescue, all of which went into the banking system which promptly sat on the liquid reserves and largely refused to return to the kind of investment need to spur robust growth; the ECB has loaned out €489 billion just in December 2011, which could have employed thirteen million people across Europe (about 59% of the unemployed). There is no reason why central banks can’t make sweeping and dramatic change on unemployment and growth instead of limiting itself to pushing string in haut finance.

Conclusion:

As I said in the last piece, in order for any of these policies to work, we need a new politics to replace those of neoliberal deference to the bond market – even if just for a short period. Keep in mind that the New Deal’s legislative victories happened between 1933-1938, but the effects have lasted to the current day. All we need to truly liberate ourselves from the tyranny of the bond markets is an opening and an understanding of what needs to be done in that window.

Introduction:

If the slow-motion meltdown of the Euro has taught us anything in the last few months, it’s that the idea of the bond market is the most powerful force in international political economy at the moment. The idea of the bond market has so obsessed European leaders even to the point where they seem willing to throw their economy (and possibly the world’s) back into a recession for the sake of interest rates and Greek bondholders. Americans can hardly gloat; the idea of the bond market has pervaded calls for austerity in the U.S for the past three years, despite the fact that a first-ever downgrading of U.S Treasuries lead to lower, not higher interest rates on government debt.

So, how do we break our political system of the fear of the bond market bogeyman?

The Bond Market On the Couch:

The first thing we need to establish is that this current wave of magical austerity thinking isn’t purely the fault of bond traders or ratings agencies or financial journalists. It’s true that bond traders have lead speculative attacks on European government debt in the cynical hope of getting bailed out by the ECB or the Germans or the IMF. It’s also true that ratings agencies which either naively or corruptly rubber-stamped worthless financial instruments only to overreact when it came to the debt of immortal institutions which have the power to tax and print money. It’s certainly true that financial journalists and the media in general have hyped a government debt crisis without informing people about the causes or scale of the problem, while selling a false narrative about “bloated” welfare states and “overly-rigid” job protections.

However, it’s also the case that there are plenty of neoliberal politicians who have been perfectly happy to not just follow along with the bond market’s narrative, but to amplify and twist the same message to give themselves cover for making unpopular decisions they already wanted to make before the crisis, while ignoring any nuance or ambivalence on the part of the bond market.

That being said, it’s absolutely true that the bond market is a bad actor in the world economy – and not for the first time. As Karl Polayni wrote in the Great Transformation, in classical liberal political economy, the bond market (abetted by the gold standard that allowed for the easy exchange of one currency for another, and the lack of any capital controls) was supposed to act as the enforcer of capital over again any government that tried to use fiscal or monetary power to stimulate the economy in a recession, or to expand state provision of goods and services, or to use inflation to ease the burden of public and private debt. A government that violated the status quo would face a capital flight, attack on its currency, and a massive budget deficit all at the same time.

The problem with this regime was that it amplified the effects of recessions – panics could spread freely across borders, runs on banks, stock markets, and public treasuries couldn’t be halted, and there was no entity capable of pushing back against the current of fear. As Polayni recorded, the result was the Long Depression of 1873-1896, followed by the economic malaise of the 1920s, followed by the Great Depression. Overall, the hey-day of economic liberalism (roughly the period between 1854-1945) saw 32 contractions, with an average length of 20 months, as opposed to 63% fewer recessions and 55% shorter recessions since 1945.

This current wave of bond market hysteria, which looks much like our pre-1945 crashes, points to a fundamental irrationality of this supposedly hyper-rational market enforcer.

On the one hand, the market markets which ate themselves sick with CDOs and credit default swamps, are lunging for American public debt and calling for more bank bailouts and further stimulus to create the growth that they know is necessarily to produce the growth necessary for them to see any recovery of the economy, which is absolutely required for future profits.

At the same time, they want the state to devote all of its resources to repaying bondholders at 100 cents on the euro and to impose crushing austerity (as opposed to raising taxes, let alone taxes on the financial sector’s wealth) to do it – despite the fact that this austerity makes things worse for them by sapping consumer demand, increasing the difficulty of states servicing their debts, and raising the likelihood of default. They also want as close to deflation as they can get and for consumers to pay back their mortgages and credit card debts, while ignoring the fact that inflation is necessary if consumers are to increase spending and pay down their debts.

Even as bond traders argue that “politicians on the right and on the left fell short of the job by not taking measures to reduce spending,” the ratings agencies equivocate that “we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.” Essentially, the bond markets want a free lunch – they want a stimulus that someone else pays for, increased spending without higher taxes or borrowing, and austerity so that they can be repaid first without pain to the economy.

Likewise, there is a similar irrationality in the attitudes of the bond market to sovereign debt. Ratings agencies have sounded ever-more strident alarms about public sector debt, repeatedly downgrading American, state government, and European debts. And yet, unlike the financial corporations whose products and stock were rubber-stamped AAA, states are functionally immortal, given their power to tax and issue money. (ftnote 1) Hence the reason why the bond markets have gobbled up American debt despite the downgrade.

If the bond market is not all knowing, if it can’t actually prevent itself let alone governments from creating recurring economic crises, we have to stop treating it as a deus ex machina to be propitiated.

The (Neoliberal) State:

Just as there is a curious equivocation on the part of the bond market, there is an odd selective deafness on the part of politicians. They hear only those parts of the reports that call for austerity, not those calling for stimulus and growth.

Likewise, there is an irrational disconnect between the problems facing elected officials – slow growth and high unemployment, leading to reduced tax revenue and increased drain on social insurance and social welfare programs – and the solutions they propose. In the U.K, the Tory government has proposed increasing the age limit on retirement (which will actually increase costs by increasing the rate of disabilities as elderly workers push their bodies beyond what they can bear) and accelerating NHS privatization (despite the fact that the NHS is the cheapest system in the world). On the continent, the troika (the EU, IMF, and European Central Bank) are calling for Greece to reduce its public sector workforce by 150,000 people, cut supplemental pensions by 35%, and cut the minimum wage by 20% – all actions that will decimate consumer demand and growth in an economy with 19% unemployment.

It’s hard to tell how much of this is due to ideological commitment to neoliberalism, how much due to national or partisan or personal self-interest, and how much of this is due to incompetence or ignorance. In the end, it doesn’t really matter. The combination illuminates something that Richard Murphy calls the “cowardly state,” but which more accurately can be described in the style of David Harvey as a neoliberal state, a state that is weak only when it comes to restraining capital, but as we have seen since the beginning of the financial crisis, incredibly strong when it comes to rescuing and maintaining the interests of capital.

What this means is that the state itself is a battlefield in the fight for recovery and reform, and one that will have to be taken before anything else can be done.

Conclusion:

In the end, the best weapon we have against the rule of the bond market is truth and ridicule; there is nothing more subtly powerful than myth, and nothing less influential than a naked emperor. And hopefully it will also pull away the curtain on neoliberal politicians supposedly helpless before the might of the bond markets.

However, one of the major weaknesses of the progressive movement has been to think that truth is sufficient, that proving the other side wrong will do the trick. Ultimately, what we need to do is intellectual politics – replacing the conventional wisdom and the purveyors of conventional wisdom in our think tanks, in our party officers and elected officials, and in our government.

Ftnote 1 – As Krugman, Dean Baker, Brad DeLong and others have noted, the case of Greece (which largely is due to the lack of a functional taxation system and control over its monetary policy) and Ireland (where the state guaranteed bank debt at 100 cents on the euro) are being used to cover over the fact that Spain, France, and Italy were basically fine before the crisis and would be easily able to deal with their debt if the bond markets weren’t yanking interest rates into the stratosphere (or if the European Central Bank would actually start acting like a central bank).

Introduction:

The emergence of Occupy Wall Street (OWS) has, if nothing else, has led to a welcome shift in political discourse away from conflicts over what kind of austerity policy to pursue and towards important questions of inequality. Unsurprisingly, this rhetoric has revolved around demography and identity:

Who are the 99%? Who is the 1%? What the hell is the 53%? And what do these labels mean when it comes to popular and other forms of political legitimacy, or arguments about political economy? Read on for some answers.

The 53%:

Before I get to Occupy Wall Street’s ubiquitous claim that “We Are the 99%,” let’s first take a look at its opposite. In response to OWS’ mantra, conservatives attempted to retaliate by claiming the label of “the 53%” – referring to the 53% of Americans who owe a positive sum on their income taxes, as opposed to the “lucky duckies” who don’t earn enough to have to pay. In a sense, the 53% is an old form of conservative class politics – it’s the same logic that spearheaded Richard Nixon’s career, the “taxpayer’s revolt” in the 1970s, the Gingrich Revolution, and the rise of Sarah Palin and Joe the Plumber. Instead of openly posing as the defenders of corporate capitalism, conservatives pivot to portray themselves as the working class, not the left-wing view of workers as militant and organized, but rather the stoic, deferential object of “Donner Party conservatism.” Crucially, the 53% are presented as receiving no government benefits and oppressed by progressive taxation that goes to fund the idle poor (of color) and their liberal elite allies.

Part of the reason why the “53%” failed to catch on is that it’s become obsolete. As we saw with Erick Erickson’ contribution to the oeuvre (or the charming financiers who like dropping McDonalds job applications from their office buildings), the 53% identity relies on being the person who is “subsidizing you so you can hang out on Wall Street and complain” – but given the dismantling of the American welfare state over the last thirty years, virtually no one down at Z Park can actually get subsidies from the 53 percent. 70% of Occupy Wall Streeters work and precious few of the 13% who are unemployed can actually access the social insurance they have contributed to, let alone any form of welfare benefit.

Another reason why the 53% label flopped is that it reveals the limits of this conservative model. The 53% is linked to an implicit call to raise taxes on the 47% so that they have some “skin in the game.” In previous years, conservatives were able to elide the tension between their desire for tax cuts and America’s undying love for social insurance – now they’re trapped because they’ve run out of discretionary spending to cut and their Tea Party base relies on Social Security and Medicare benefits.

The only option therefore is to increase taxes on the 47%. The problem is that it’s horrible politics; it backfired splendidly when John McCain tried to frame tax cuts for the middle class as welfare, and it will continue to backfire. To begin with, the income tax liabilities of the 47% aren’t erased by fancy accounting and off-shore accounts – they’re zeroed out by the standard deduction and credits like the EITC and Child Tax benefits, benefits which many more than 50% of householders rely on. Forcing the 47% to put “skin in the game” will mean that the taxes of the 53% will go up – and that provokes a quick backlash. Finally, the reality is that 73% of the 53% who do pay income taxes owe more in payroll taxes, which limits how much they actually care about that tax.

Finally, the sheer distribution of income is against it: half of American workers earn less than $26,363.55 a year, which is why their income tax liability is zeroed out. The more conservatives try to push the income tax to the center of politics, the more public attention will focus on incomes – and that plays directly into the hands of OWS.

The 99%:

The 99% is a great label, but one that I think everyone, OWS participants, supporters, and observers, could think more deeply about. If the 53% label is an attempt to focus attention on taxes, the 99% is a marker that seeks to orient public discourse around the distribution of income, wealth, and the gains that different classes have experienced in the last forty and especially the last 10 years. In pointing to the indisputable fact that the 1% scoop up an increasing and disproportionate share of the nation’s resources at a time when the vast majority are experiencing economic decline, OWS is not merely educating the public about vital statistics but seeking to establish “maximal solidarity.” Everyone who is part of the 99%, OWS argues, shares a common interest and identity. This too has its historical roots, namely in the broad labor republican ideology of the 19^th century that claimed that “all who labor by hand or brain” were part of the same producing class who shared a common foe in the “parasite class.”

However, the 99% concept isn’t without its flaws.

On one level, I think OWS needs to address how larger forces, like the decline of unions, the weakening of labor demand by employers, changes in international trade, and so forth fit in with its narrative about the financial crisis and the political power of financial capital. However, that’s a topic for another day.

The more relevant issue is that simply put, inequality is more than just about the very top and the very bottom – it exists throughout the spectrum. The top 9% and, to a lesser extent, the top 19% have experienced a different thirty years than the rest of us.

Source: Paul Krugman

Their privilege is different in scope and degree, but not in kind from that of the top 1%. Their gains have been more modest, and they certainly haven’t experienced the runaway growth of the top 1%, but they still have done better than everyone else below them – and that poses both political and policy problems for OWS. Politically, OWS will have to figure out if and how it can get the top 19%, many of whom identify with, aspire to be, and politically align with the top 1% (especially on issues of taxation and regulation) to choose a new form of political identity. This is not easy – many of these people, on the coasts, have been content to think of themselves as progressive, because they support liberal social politics and because they’ve voted Democratic, without having to embrace truly redistributive economic policy – the natural constituency of the Chuck Shumers and Chris Dodds.

In policy terms, if OWS wants to continue its “maximum solidarity” model, it will run into problems where reforms aimed at reducing inequality and redistributing wealth will pinch the top 19% along with the top 1%. Raising marginal income tax rates or capital gains taxes or making the payroll tax progressive may only hit the top 19% for a few thousand instead of a few hundred thousand, but it’s a big material hit nonetheless.

OWS could try to keep its finely-tuned focus on the top 1% – just like Obama did in setting his floor for tax increases at $250,000 a year (or the top 1.5%). But should it, if the cost is limiting the extent to which its ideas could actually reverse inequality in America?

Occupy Wall Street doesn’t need to jettison mass appeal to achieve genuine economic reform. In a democratic policy, one that takes votes on a majoritarian basis, a strong coalition can be forged from the 80% of Americans who genuinely have seen no advances in the last decade. But it will have to declare where it stands.

Conclusion:

OWS has been accused of not having a policy proposal – a solution to the problem of inequality. At the present, this charge is unwarranted. A protest movement doesn’t need policy memos, only a sense of right and wrong. However, a social movement that wants to not merely register discontent but to actually exercise power does need an agenda. A time will come when OWS will have to choose.

However, in formulating these ideas, OWS needs to really think about how it sees the world and draw its own conclusions about what needs to be done from its own understanding. Doing the hard work of policy learning not only ensures that its solution will flow logically from its narrative but also will help to identify potential pitfalls and problems before they crop up.

It’ll have to decide whether it is willing to lose the 19% to actually make a difference for the 80%.

Introduction:

One of the oddest flaws in American public policy is our persistent belief that unemployment and poverty can be dealt with in the main by improving the “employ-ability” of potential workers – in other words, by improving the quality of labor supply.

In the 1960s and 1970s, “manpower development” and “work training” were seen as the solution to moving the poor into a labor market that would surely sweep them up. When Reagan dismantled the War on Poverty and CETA, he left in place training programs as an acceptably bootstrapping policy sufficient to deal with the 1981-1983 recession. Clinton leaned especially hard on training and education as his solution to all problems – the early 90s recession, displacement from NAFTA, welfare reform, and rising inequality. While Obama has gone a step beyond mere job training with the public works of the stimulus bill, his more recent comments about “winning the future” show the persistent strength of supply-oriented labor market policy.

What a shame that it doesn’t work.

The Flaw in Labor Supply Policy:

Gordon Lafer’s The Job Training Charade is one of the most comprehensive critiques of the labor supply paradigm. Lafer points out that the core arguments of labor supply advocates – that sufficient demand exists for all workers (and that high demand exists for skilled workers), that increasing education and skills will lower unemployment, and that job training is an effective method of improving human capital – are empirically unfounded. As longitudinal studies between 1980 and 2000 show, even in periods of low unemployment, there are 3-4 applicants for each vacancy on average, and that the situation for above-poverty wage jobs is even worse (with 22 applicants per opening). Similar studies conducted between 1967-1993 show that 66-80% of earnings are determined by factors other than education, with differences within educational groups being much larger than differences between educational groups. And given that wages for college graduates have stagnated over the last 13 years, there seems to be little evidence of labor shortages among the well-educated and skilled.

Given these factors, it’s somewhat unsurprising that the evidence on America’s longest-running jobs training program, the Job Training Partnership Act, is weak at best. The vast majority of wage increases for participants, which are generally modest, are due to increased employment rather than increased wages – but no group of participants actually succeeded in raising their income above the poverty line. At most, job training programs seem to move people from the ranks of the non-working to the working poor at great cost. Namely, for every ten dollars spent in training, workers gain one dollar in wages – meaning at least $108,000 per worker to assure an above-poverty income.

As I’ve argued before, the basic problem we have right now is a persistent weakness in labor demand in the face of growing supply. Rather than expand their permanent workforces, employers increasingly are turning to higher productivity demands, mechanization, offshoring, and casualized labor. This has in turn lead to gradually higher “floors” of unemployment, wage stagnation, and a general decline in the power of labor.

A New Strategy:

In this environment, what is needed is not more labor supply policy, but more labor demand policy, to counter-act this defect in both the short term and long term. The surprising thing is that in the last thirty years, given the negative effects that persistent weakness in labor demand has had on the Democratic Party’s base, and the effects that the inability to provide greater economic security has had on the Party’s ability to win elections, the Democratic Party has not as a whole embraced labor demand policy in the same way that it has embraced health care reform as a cause d’être.

Nor has the Democratic Party a reason to fear investing in labor demand policy. In the short-term, it provides extra bang for any jobs program without having to spend too many bucks, because financing can be re-purposed from Unemployment Insurance, Trade Adjustment Assistance, and other programs, and because much of it is regulatory as opposed to fiscal policy. Hence why Obama’s American Jobs Act includes a provides to allow states to use UI funds to finance work-sharing programs. In the long-term, labor demand policy gives the government an invaluable tool in dealing with the persistent weakness in the labor market I discussed above. It softens the blow of any future recession, which in turn reduces the cost of any future stimulus, and it allows the government to tailor anti-unemployment policies to specific firms and industries before a general recession emerges.

We can think of labor demand policy as consisting of two kinds of mechanisms – policies that create incentives for employers to hire more workers and fire fewer, and policies that create incentives for workers to offer less labor.

Employer Incentives:

The first suite of labor demand polices operate on employers to provide incentives to refrain from laying off workers and to hire more workers in good times.

The foundation of these incentives begins with an expanded WARN Act (which currently requires employers to give 60 days’ notice of layoffs, but only covers firms of 100 workers or more and only certain sizes of layoffs), covering all employers with more than 20 employees and any layoffs of 10 workers or more. This would give time for the Labor Department and state agencies and labor unions (hopefully) to coordinate with employers to find alternatives to firing large numbers of workers.

Work-Sharing: instead of a voluntary, state-run work-sharing program as envisioned by the American Jobs Act, we should establish a national program within Unemployment Insurance, providing $150/week in UI money for each 20 hour reduction in lieu of termination, for 26 weeks (with the possibility of extension along the lines of traditional UI). This method of labor demand policy has been extremely successful in Germany both at preventing layoffs and cushioning consumer spending against wage loss, thus blunting recessions from the outset.

Continuing Education and Training: to complement the work-sharing program, we should also offer an additional matching credit of $4,500 for each worker who an employer pays to continue their education or complete a vocational training course. Not only does this have the same work-saving effect as the base program, but it also boosts overall skill levels in the workforce.

Termination Disincentives: a possible stick to back up work-sharing or training before firing workers would be a mandate that penalizes employers who do not exhaust all alternatives to layoffs; a mandate that workers automatically receive an extra years salary in severance if they are terminated without attempting either work-sharing or education/training would provide leverage to ensure that employers actually make use of these policies. Just to be clear – this policy would not penalize employers who end up having to lay-off workers after trying to preserve their jobs, but rather singles out employers who treat mass layoffs as a first resort.

Payroll Tax Progressivization: the payroll tax holiday included in the American Jobs Act is a useful addition to our economic tool-box; despite what some have claimed, these things actually do have a positive impact, as Timothy Bartik has shown. At the very least, I think we can agree that the recent statistics on median incomes and poverty suggest that lowering one of the most significant regressive taxes in America would be a step forward. However, progressives aren’t wrong to worry about the long-term effects of a holiday on Social Security’s balance sheet. While this is something of a hobby-horse for me, the solution is quite simple – make the payroll tax progressive. It has the same effect as a holiday, but it does so permanently (thus helping to counter-act long-term deficient labor demand) without harming Social Security’s finances.

Restraining Labor Supply:

One of the ironies of the American labor market is that, while 9% of Americans are unemployed, and a further 7% are underemployed, large numbers of Americans (38% of professional men, 23% of middle income men, and only 8% of low-income men, with lower numbers for women work more than 50 hours a week) are overworked.

These two factors are absolutely linked – in recent years, employers have been able to reduce their labor demand in America chiefly by demanding ever higher productivity from existing workers, with productivity increasing by 2.3% a year between 1995-2005 compared to 1.3% a year between 1973-1995. Reducing the supply of labor from the overworked effectively increases demand, while likely improving the health and productivity of the already employed.

Here, there are a number of options. Establishing a shorter work week, say a maximum of 35 hours before overtime kicks in, has had a modest effect at best in many European countries; work-sharing tends to work better in temporary crises than permanently. Ironically, given the current cry for raising the retirement age and the de-investment in higher education, one of the policies that does work is early retirement for older workers and expanded access to education and training programs for younger workers.

Putting the Pieces Together:

Ultimately, these policies act as a combination of early warning system and shock absorber – allowing us to see the crash coming and cushioning the blow when they arrive. However, the strongest form of labor demand policy is direct job creation; the government providing a new source of labor demand that can soak up workers in a hurry on a scale that work-sharing programs and the like simply can’t compete with.

Long-term of course, some form of industrial policy is necessary. The public sector can’t afford to cover the labor demand gap by itself, hence we cultivate new and existing industries alike to lift labor demand above its current sorry state.

Conclusion:

One of the major roadblocks to progressive politics and policies in the U.S and in Europe is that, for the last twenty years at the very least, our major economic policy has essentially been “globalization with a human face.” A fairer distribution of laissez-faire economic growth only works as long as there is economic growth to go around – hence the peculiar phenomenon of center-left political parties being unable to connect with voters following a massive failure of the market. However subconsciously, the electorate can sense that the leaders of the center-left haven’t been offering up an alternative that could actually get the job done.

We need an alternative, and part of that has to be a recognition that, while capitalism is very good at making more widgets at a lower price, it’s not very good at making economic security for the labor force. Labor demand policy should be the foundation of a new economic toolbox for any progressive worthy of the name.

Introduction:

Franklin Delano Roosevelt’s First Inaugural Address diagnosed the essential weirdness of recessions: “our distress comes from no failure of substance,” he noted. “Plenty is at our doorstop, but a generous use of it languishes in the very sight of the supply.” The reason for this? “Primarily this is because the rulers of the exchange of mankind’s goods have failed…they have tried, but their efforts have been cast in the pattern of an outworn tradition.”

This last factor, that in the grip of a massive decline in production, employment, and consumption, the world’s leaders decided to maintain the gold standard and free exchange of currency by balancing budgets, cutting spending, and raising taxes and then to do it over and over again, despite the failure of that policy to show any positive result, is to my mind an absolutely critical one. For all that the critiques of John Maynard Keynes and other dissident economists were eloquent and correct, the reality was that they had been making their arguments for over a decade to no avail.

Today, we seem to be stuck in a similar pattern, where the conventional wisdom on economic policy fails to produce results, but retrenches even more strongly despite this.

Why is this?

A Common Madness:

Here in the U.S, we have seen a sudden lapse into irrational political behavior. Despite the manifest reality that:

• the stimulus did, in fact, have a significant, positive (but insufficient) effect on employment and economic growth
• due to the recession, we have forgone $2.8 trillion in production, and stand to lose another $2.3 trillion before full recovery takes hold
• spending cuts mandated by the debt ceiling deal will reduce growth by 17% and cost over 300,000 jobs

Not only have we turned away from any further stimulus well before the 2010 midterms and adopted a national obsession with debts and deficits. We’ve had deficit commissions, ratings agencies, and now a Super Congress pushing and pushing the same line that we must choose austerity or the bond market will retaliate against us. And yet, at no point has the economy responded in the way they have predicted: interest rates on government debt have fallen into the negative for 5 and 7 year Treasuries, and 10 year Treasuries are virtually zero-interest. To the extent that the markets have reacted at all to almost two years of Chicken Littleism on public debts, they have acted out of fear that austerity will lower economic growth.

Normally, when reality does not merely fail to match with theory but runs completely contrary to it, one adjusts theory. Instead, we seem to hold in our minds at the same time that austerity will depress economic growth but that it is necessary for growth to continue.

The same is true across the Atlantic. Despite an increase in unemployment to 2.5 million and a slump in growth to a negligible .2% a quarter, the U.K’s Chancellor George Osborne continues to insist that there is no “Plan B.” In the face of zero growth or near-zero growth in both France and Germany, the two pillars of the Eurozone have called for cuts at home and a balanced budget amendment for the E.U while the European Central Bank still persists in its course of refusing further monetary stimulus.

At every turn, economic downturn has brought calls for austerity for Ireland, Spain, Portugal, Greece, and Italy, austerity depresses expectations for growth, which makes the bond markets demand higher interest rates and lower ratings, which brings renewed calls for austerity. Never has the definition of insanity as “doing the same thing over and over again and expecting a different result” seemed more apt.

The Etiology of Magical Austerity Thinking and “Demand Denialism”

Describing the current wave of “magical austerity thinking” is not hard – and the way is made even more smooth by the yeoman work being done by Paul Krugman, Brad DeLong, Dean Baker, and other public intellectuals in documenting the rise in irrational economic logic. Their work is especially useful in pointing to another key feature of “magical austerity thinking” – not only does it include a belief that austerity must be right no matter what actually happens, but it also includes a flat rejection of the position that deficient demand is the reason for economic stagnation.

The more difficult thing is to explain why this is the case without taking the easy way out of simply asserting stupidity or simple corruption. I think the condition is more complex than that; my own attempt at a diagnosis suggests instead a confluence of four factors: solicitude of the have-muches, distaste for redistribution, fear of state capacity, and fear for the rights of the managing classes, which I’ll discuss in pairs.

Solicitude of the Haves/Distaste for Redistribution:

Part of the problem with a “vulgar Marxist” interpretation of magical austerity thinking is its vulnerability to the counter-argument that, while austerity protects the short-term interests of bond-holders, by depressing economic growth, it damages the interests of stock-holders, corporations, and ultimately bond-holders themselves. If pundits, economists, elected officials and civil servants, and other members of the conventional-wisdom-forming classes are driven by their allegiance to the wealthy, why are they acting in a way that will cause long-term harm to the fortunes of the well-to-do?

I think the explanation is that wealth is not merely material, but contains its own ideology as well – a belief in property rights as well as property itself, even when the defense of the right might hurt the property itself. Part of this ideology includes a distaste for redistribution to the non-wealthy, even when redistribution is in the long-term interest of the wealthy, because the wealthy see their wealth as making them morally or personally superior to the poor – who they see as unworthy, lazy, and dangerous.

In the Great Depression, enlightened businessmen like Edward Filene, who supported the minimum wage, Social Security, and other New Deal programs because he wanted to ensure that consumers had money to spend in his stores, were few and far between. Far more common was the attitude of Andrew Mellon, who called for the liquidation of farmers and workers along with stocks, bonds, and real estate in order to “restore business confidence.”

Today, we see the same dog in the manger attitude – wealthy people bitterly opposed to economic stimulus, foreclosure reform, the extension of unemployment insurance, and so forth, not because it wouldn’t benefit them, but because they are both afraid and outraged that it would benefit the poor.  This has to be understood not merely as class sadism, but as emerging from a world view that combines the Calvinist obsession on the parable of the talents and economic success as a market of the Elect (or the modern fundamentalist “prosperity gospel”) with a Social Darwinist conception of the marketplace. The result of this concoction – as you can see in the video clip above – is an inversion of the classic labor republican ideology of producerism, whereby the wealthy become the producing classes and workers and consumers are turned into parasites.

Fear of State Capacity/Defense of the Rights of the Managing Classes

While distaste for redistribution stems more from an individual distaste for taxes and government benefits, there is also a systemic component. Just as above, part of “magical austerity thinking” comes from an unspoken fear that Keynesian demand management might work – which would greatly expand state capacity for states that have been on the retreat on economic matters for thirty or more years. In this view, socialism follows the Keynesian flag – if people come to expect that governments can and should provide steady economic growth and low unemployment, they might demand state provision of health care, housing, or employment itself.

This anti-statist attitude also has to be understood as more than just abstract theory. Behind the rhetoric of the wealthy as the “producing classes” lies some unspoken approval of the Schumpeterian centering of the entrepreur as the “world-historical individual” of modern capitalism. If the market is self-regulating and the acme of efficiency, then the businessman is elevated as the savior of the world, the font of prosperity, both a rugged striver and a paternalist provider of work and civilization to the passive masses. What the “demand denialists” want, therefore, isn’t just profits, but the unfettered power to determine prices, wages, working conditions, economic development, and public policy – to direct the course of the world’s development.

If the government is needed and capable of providing economic prosperity, if business is ultimately dependent on the power of the exchequer and the purse, then the wealthy aren’t the heroic Atlases they want to be. And when one’s self-image is threatened, one will believe anything that wards off that threat.

Conclusion: the “Respectability Complex”

Theoretically, the “magical austerity thinking” of the center-right shouldn’t matter – the left should be able to win victory on a straightforward agenda of Keynesian stimulus, regulation of the financial sector, direct job creation, and an expansion of social protections more generally. The problem is that, following the right-ward retrenchment of “Third Way” movements in center-left parties in the 1990s, a significant fraction of center-left political parties believe in “magical austerity thinking.”

An even larger chunk don’t, but act as if they do because of an inherited belief that in order to win elections, they must pander rightward to be accepted as a “respectable” political party. This is the larger victory of the “Third Way” – because even outside of the ranks of the DLC in the United States or the arch-Blairites in the Labour Party in the U.K and their continental counterparts, there is a quiet conviction that the electorate is hostile to a forthrightly social-democratic economic program.

This might have been true in the 1990s, so close to the fall of the Soviet Union and a bubble-fueled economic boom. In the era of the Great Recession, it no longer describes reality. The problem is now that the center-left has nothing to differentiate itself from the right; neoliberalism with a human face requires economic growth to spread around, and that isn’t available now. The rising far right in Europe isn’t economically conservative; voters in the U.S approve enthusiastically of taxing the rich and direct job creation.

What’s needed is a center-left party willing to gamble on dis-reputability.

- Steven Attewell