In the ongoing American and British debates on the financial crisis and the best ways to bring the economy out of the woods, two opposite views repeatedly collide – the one represented by those who prioritize deficit reduction, the other by those who argue for recapitalizing the economy. The case of the United Kingdom shows that drastic cuts – if not supported by stimulus packages – instead of tackling the debt may actually inflate it. The American policy record on the other hand, proves that even substantial stimulus packages do not always lead to economic revival. It’s not enough to throw some extra money into the pool – equally important is what these resources actually fund and whether they are accompanied by structural reforms.

British clamps

Moody’s decision to downgrade UK’s rating from AAA to AA1 announced at the end of February was a serious blow to David Cameron’s government as it undermined the whole austerity program Conservatives embarked on precisely to regain the trust of both financial markets and rating agencies. Nonetheless, in a speech delivered on March 7th Prime Minister announced he would keep on the chosen course since – as his famous predecessor once asserted – for this policy “there is no alternative.”

Many British economists do, however, see an alternative, and their number grows as it becomes clear that the spending cuts introduced so far, instead of reducing the debt, have increased it (from 600 billion in 2008 to 1.1 trillion four years later to be precise). How is it possible to cut down on expenses and inflate the debt at the same time? Excessive savings lead to economic contraction, which in turn reduces state revenues and forces the government to continue on borrowing. “What truly is incredible” – argued Martin Wolf in his “Financial Times” column – “is that Mr. Cameron cannot understand that, if an entity that spends close to half of gross domestic product retrenches as the private sector is also retrenching, the decline in overall output may be so large that its finances end up worse than when it started”.

Even The Economist magazine, known for its “favorable neutrality” towards the Conservative Party, criticized the government’s policies and encouraged chancellor George Osborne to dig out some additional funds for infrastructure investments, which could boost the economic growth (compared to 2009 such investments were reduced from £48.5 billion to £28 billion). But where to get the money from?

At least some of the needed sum can be obtained by reducing expenses on civil service. Those – despite all the austerity rhetoric – not only were not diminished but increased in the past decade by £300 billion. However, in case these savings are not sufficient, should the government borrow the missing funds? “Economist’s” editors reply in the positive, but on the condition that these resources are spent on infrastructure – roads, bridges, railways, broadband, etc. – thus contributing to long-term economic growth and improvement of the competitiveness of the British economy. Then, the increase in debt will be offset by rising state revenues, and – thanks to the improving condition of the economy – interest rates should stay at their current low level. As a result, debt service costs will also remain low.

American stimulators

If, however, the money is spent on immediate tax cuts and exemptions, it will simply be wasted. The economy might benefit from such policies in the short run, due to the increase in personal consumption, but as soon as the money is gone, we will go back to square one. This is an argument Jeffrey Sachs makes in yesterday’s New York Times, thus criticizing anti-crisis remedies applied by President Barack Obama’s administration so far. According to Sachs, stimulus packages signed into law first by George W. Bush and then by Obama failed not because they were too small – as for example “The New York Times” columnist, Paul Krugman has long maintained – or too high – as the entire American right seems to believe – but because they have been poorly targeted.

“The original stimulus legislation” – Sachs wrote in another of his articles – “was overwhelmingly of the form of temporary tax cuts and temporary transfer payments, the kind of deficit spending especially likely to have little effect on aggregate demand. Only $88 billion of the $787 billion stimulus-package was in direct purchases of goods and services by the federal government. The rest was temporary transfers and tax cuts.” To make matters worse, in the debt ceiling deal signed by Democrats and Republicans on January 1, many of these cuts became permanent, which will further inflate American national debt. Currently it amounts to 15.5 trillion, which is about 105% of GDP.

According to Krugman – whose views Sachs openly challenged – we should not be particularly worried by these numbers. On the contrary, in order to succeed in reviving the economy, stimulus packages should be enlarged. To introduce any major savings at this stage would throw American economy back into recession, cause economic contraction and decrease government revenues, thus leading to a predicament roughly similar to the one British economy has found itself in. Following the advice of John Maynard Keynes, Krugman argues that the secret of managing the state economy lies in saving the money in times of prosperity, while spending surpluses in the time of crisis, when the economy needs a push.

The trouble is, replies Sachs, that American decision-makers have long spent much more than they should, both in times of economic prosperity under President Bush, and at the time of the current crisis. Besides, once they have decided to stimulate the economy, they chose wrong targets. The same dollar invested well can bring substantial return, but if invested badly, will either bring loses or have no effect at all. According to Sachs Krugman and other “crude Keynesians” – unlike Keynes himself – seem to have forgotten this simple truth. Sachs repeats in the U.S. the same arguments, which in Britain were put forward by The Economist. In his view American economy needs long-term investments in infrastructure (similar to those administered by the Federal Aid Highway Act of 1956 or the moon program launched a few years later), not short-term incentives and benefits. How to get the money for these investments? Part of it can be borrowed. The rest may be obtained by curbing short-term tax-relief programs and finally introducing significant spending cuts, chiefly in the defense budget, which consumes more than $700 billion a year, or in other words more than 20 percent of all the federal resources.

Is it then better to tighten or stimulate the economy in crisis? Challenges faced by the United States and the United Kingdom make it quite clear – the best solution is to do both these things at the same time.

Łukasz Pawłowski is a managing editor at ‘Kultura Liberalna’ and a PhD candidate at the Institute of Sociology, University of Warsaw.

The subsequent general elections of June 17 led to a flood of attention in the international media and blatant foreign intervention due to their potential economic implications for the Euro currency zone and the global economy. Observers were concerned that a Greek exit from the Euro would have a catastrophic impact on other ailing European states, damaging the US and the entire global economy. There was an unprecedented campaign orchestrated by the Eurocrats, the German government and the German media, which amounted to the blackmailing of the Greek electorate to vote against the parties that want to end the draconian austerity and neoliberal policies.

E.U. officials disregarded the norm of neutrality concerning an independent national election and expressed their opinion about their preferred outcome of Greeks’ vote, threatening “Grexit,” i.e., forcing Greece out of Euro zone, if the radical left wins. The intervention crescendo came on the eve of the election with an open letter of Germany’s Bild newspaper to Greek voters. The tabloid warned:

“Tomorrow you have elections but you do not have any choices….If you don’t want our billions, you are free to elect any left- or right-wing clowns that you want…For more than two years, though, your ATMs are only issuing euros because we put them there. If the parties that want to end austerity and reforms win the elections, they will be breaching all agreements and we will stop paying.”

But it was not only threats by the media and the Euro-area governments. After the May election results, part of Greece’s next aid payment (1billion Euros) was postponed as a warning to Greek politicians and voters to stick to the austerity program.

Repeated Eurocratic interventions over the month before the election of June 17 implied a deep disapproval of potential choices by free citizens. This began in February, when German Finance Minister Wolfgang Schaeuble made the incredible suggestion that Greece should hold off the election and allow the interim government led by the banker Lucas Papademos to stay in power. This revealed a neoliberal German and European Union leadership that has become scared of democracy, unable to deal with the uncomfortable realities that elections can produce.

The foreign led “Grexit” campaign was combined with a domestic “Drachmageddon” terrorist campaign that propagated the notion of total catastrophe if Greece were to go back to the Greek national currency the Drachma, orchestrated by the media with close relations with the corrupt ruling parties of New Democracy and PASOK.

Those of us who have studied foreign interventions in Greece in the past can’t recall such a blatant foreign interference, with its effective co-ordinated scaremongering. As a result, the elections on June 17^th produced a vote of fear to avert a bleak Greek future, superseding the vote of anger against the corrupted political system of the elections of May 6^th.

It is also crucial to note that the great majority of Greeks has repeatedly expressed in polls and also on May 6^th elections in favor of the Euro, though clearly against the  “memorandum,” i.e., the draconian austerity bailout program, enforced by the troika, EU, IMF and ECB. That is why the Eurocrats and the Greek ruling forces tried and succeeded to transform the elections of June 17 into a referendum about Euro and not about the memorandum. Angela Merkel herself had called the Greek President to suggest the official transformation of the election into a referendum in favor of the currency. Hence, scaremongering campaigns for “Grexit” and “Drachmageddon” defined the June 17^th elections to be a de facto referendum on Greece’s future with the Euro, between leftist Alexis Tsipras’s Syriza Party, which opposes the terms of the country’s latest bailout, and its conservative rival, Antonis Samaras’s New Democracy party, which largely supports the bailout program, the ND with PASOK together are the “ancient regime.” Nonetheless, while the June election amounted to a referendum on whether Greece would become the first country to be forced out of Euro, it is quite certain that if a real referendum about the austerity bailout program, the vast majority of suffering Greeks would have voted against it.

The elections results

After all these orchestrated campaigns, on June 17, the conservative New Democracy (ND) came in the first place with 29.66%, from 18.9% in the previous vote, getting 129 seats in the parliament, including 50-seat bonus that goes to the leading party. The leftist SYRIZA jumped to 26.89% from 16.8%, holding 71 seats. It is followed in third place by the socialist PASOK, which fell to 12.28% from 13.2%, now holding only 33 seats, down from 157 in 2009.  The newly formed nationalist populist party of Independent Greeks which managed to get 10.6% in May is now in fourth place with 7.51% votes and 20 seats. Unfortunately for the Greek democracy, Golden Dawn came in fifth. This extreme neo-fascist party, with members who have been linked with violent attacks on African and Asian immigrants, maintained its power 6.92% (7%) and occupies 18 seats, down from the 21 it elected in May. The moderate “Democratic Left” came in sixth, with 6.26% (from 6.11%) and 17 seats. Last, in seventh, was the Greek Communist party KKE, which only got 4.50% (down from 8.5% in May) and 12 seats, refusing  any cooperation with SYRIZA.

The polarization of voting between ND and SYRIZA squeezed small parties like the Ecologist Greens, Popular Orthodox Rally (LAOS) and “Drasi,” which this time all fell well short of the 3 percent threshold needed for them to enter Parliament. A new abstention record was reached, 37.53%, higher than the 34.9% in May. About half of the young voters between 18-29, suffering from 50% unemployment, voted for SYRIZA, and those over 60, fearful pensioners and women over 55, voted ND for staying with the Euro.

Hence, Greece’s second national elections produced a narrow victory for the conservative New Democracy by 2.4 percentage points over leftist SYRIZA. However, Mr. Samaras of the New Democracy party, who declared that “Athens would honor its commitments” made in exchange for rescue loans from the EU and IMF, has only 129 of Parliament’s 300 seats, and lacks enough MPs to govern alone. He sought allies among his traditional rival, the pro-bailout PASOK, which came third, and the small Democratic Left party, which, while opposing the country’s harsh austerity program, has declared it will help to form a strong government. So, these three parties managed to forge a pro-euro and pro-bailout coalition government, backed by 179 out of 300 MPs.

The ND narrow victory, the coalition government and the real winner

Antonis Samaras was sworn in as prime minister of a three-party coalition government promising to uphold Greece’s international bailout commitments. Samaras two coalition partners, PASOK leader Evangelos Venizelos and Fotis Kouvelis of Democratic Left, have decided not to provide MPs for cabinet positions.

The real election winner is, though, in my judgment, SYRIZA, which saw its percentage of the vote rocket from less than 5 percent in 2009 to 17 percent in May to 27 percent in June. SYRIZA has made clear that it will not take part in any government or national negotiation team for a better memorandum. SYRIZA, with the anti-austerity wind in its sails, will be a powerful opposition force, insisting that the memorandum lacks popular legitimacy, having been effectively annulled by the strong anti-austerity vote in May. Mr. Tsipras, campaigning to reject the bailout terms and yet keep Greece in the euro, repeatedly stressed his party’s commitment to the common currency. To defend against the conservative pro-Euro arsenal, he eschewed any reference to radical positions the party holds on repudiating the national debt or nationalizing the banks.

In my view, unlike its name as a Coalition of Radical Left, SYRIZA is by no means  a communist radical movement; this is clear to the well informed American administration and media, which were not polemically against its leader Alexis Tsipras. SYRIZA, like the initial PASOK in the 80s under Andreas Papandreou, is a leftist reformist, multi-group coalition, attracting  mostly young people, the leftist intelligentsia, and the now state dependent middle strata, which has been disappointed by PASOK.  SYRIZA can play a modernizing role against the corrupted political system, similar to the role played by PASOK in 1981 against the prolong right wing rule. In its effort to be able to form the next government after a predicted failure of the present pro-bail out government, SYRIZA will be transformed into a governmental party, obliged to abandon its leftist radicalism, and gradually, like the PASOK governments, will disappoint its leftist followers. Rather than victory now, 38 year old Tsipras very well may be happier to emerge as a formidable and strengthened opposition leader, waiting for his leftist movement to become mature as a governmental party in order to succeed the coalition government’s predestined failure and short life.

Post elections assessments and prospects

The June elections has temporarily enabled Greece to avoid “Grexit” and “Drachmageddon,” and relieved the EU leaders with the formation of a pro-austerity government. One could argue that it is another temporary win for the Ancien Regime, which will just encourage Greece overlords to be more draconian. A government made up of the same political parties carrying the burden of the same old sins is incapable of resolving the Greek crisis. Without substantial European help, it will collapse soon.

In my judgment, if SYRIZA had won, it by no means would have resulted in a Armageddon for Greece and EU; because such a victory would have triggered drastic economic and political changes in Greece and in Europe more broadly. Europe’ s leaders, and Germany’s in particular, would have been forced to find the resources and imagination to reform the euro zone and advance the European integration.

Unfortunately to this point, following the election, Germany, IMF and the EU continue to demand that Greece honors the terms of the crucifying bailout that unrealistically assumes a quick economic recovery despite draconian austerity and crushing debts. Germans sadistically insist that Greece must continue take its disciplinary medicine – a 25% fall in GDP, collapse in living standards and youth unemployment of 50% – and pursue a neoliberal reform of its economic structures. For Germany, Greece’s draconian disciplinary austerity experiment is providing important lessons for other southern European “PIIGS.” But even if Grexit and losses  of the Greek debt might be containable, what would not be containable is the fear among member states  such as Ireland, Portugal, Spain and Italy that their countries could suffer the same fate as Greece.

After the financial problems in Portugal, Ireland and now in Spain, it is obvious that  the Greek crisis is not endemic and its cause is not the unruly Greeks. We have seen how many weak links there are in the European chain, which have nothing to do with Greece. As famous American economists, notably including Paul Krugman and Joseph Stiglitz, have argued, the origins of crisis that is tearing Greece apart, and threatens to spread across Europe, can be found in the deeply flawed European monetary system. There must be a wholesale redesign of the EU economic structure. This and not the destruction of the Greek economy is the answer to the crisis.

Will the new Greek government be offered further forgiveness of its foreign debts, a moratorium on further cuts in the social wage and an opportunity to stimulate the economy with a range of infrastructure projects financed by European funds? Greece and Southern Europe need something closer to a Marshall Plan than more austerity, but the German neoliberal government and its northern partners refuse to acknowledge this. Instead, they will continue half-measures and moralistic lessons that have resulted in the destruction of the Greek economy and society, and which have grown to present a threat to EU as a whole.

The revival of the parliamentary left in France, Italy and Greece, plus the sorely needed, from the point of view of Greece and Europe, re-election of President Obama in the U.S., bring some hope for a developmental turn against the irrationality of austerity in the European crisis and democratic reforms in the European Union. The concept of a unified Europe has been shaken to the core. If the Greek election serves as a wake up call and has promoted a recognition of a necessary change of course, it will be a real democratic win for the people of Europe, and beyond.

The jobs report on Friday was bad, as David Howell analyzed here. This immediately was interpreted across the board as good news for Mitt Romney and his party, bad news for President Obama and his. It’s the economy stupid, and bad news about employment means that Obama’s chance for reelection has declined precipitously. And things are worse then that. It’s now or never. It is in the summer that the public’s perception of the economy is locked in for Election Day. Even if things improve in the fall, there won’t be enough lead-time to change the public’s perception.

I know that this is based on solid evidence. Considerable scholarly research has demonstrated the strong correlation between the state of the economy and election results.  But the way this research has been directly applied in daily political commentary is troubling, especially because it can become a political factor itself. As the “Thomas Theorem” posits: If people define situations as real, they are real in their consequences.  I add, especially when they are doing the defining on television.

This concerns me as a scholar and as a partisan. As a scholar, I worry about the philosophic anthropology of this. The voting public is being depicted as simpletons, not capable of critical thought, of the most basic examination of the facts. There is a kind of economic determinism involved and the determinism is quite mechanical. People vote their pocketbooks and they don’t think critically about it. They don’t wonder about the causes of their economic woes and just vote the bums out. It amazes me how in the same broadcasts talking heads suggest both that the job numbers are a result of long-term trends beyond the control of the President and that Obama’s chances of victory have greatly diminished because of the state of the economy as indicated by the latest job report. They propose a simple Pavlovian stimulus and response vision of voters, never inquiring about how they may interpret the news.

Thinking comparatively, in this way, it’s not the austerity policies, along with other non-economic issues, that is leading to a left political shift in Greece, France and Germany, as we have reported in Deliberately Considered. It’s just a turn against incumbents, and the U.S. will make a right turn for the same economic reason. Might it not be a little more complicated that this?

As a partisan, I wonder are Americans capable of noticing that the persistent unemployment is the result of both the rise in employment in the private sector, and radical cuts in the public sector, including masses of teachers? They surely are capable of noticing that the Republican policies in Congress led the U.S. to the brink of default last summer, and that Romney is offering more of the same, with economic proposals that look a lot like those of George W. Bush and have about as much chance of success as those of David Cameron in Great Britain. Americans also are capable of noticing that in fact Congress is a co-equal branch of government and has moved economic decisions in the direction of austerity, and that state and local governments have been cutting jobs very rapidly during the recession. In effect, Obama is continuing to push in the opposite direction, while a national austerity policy is in place because of the Republicans, as Paul Krugman argued in his piece “This Republican Economy” in today’s New York Times. I know not everyone is going to agree with this Keynesian economist’s political assessment, though I do. What disturbs me is that many posit that argument doesn’t matter. Gross economic statistics, they assume, is political destiny. Following this logic, FDR would have been a one-term president.

And while economics are important in deciding Presidential elections, it is not the only thing. The Republicans, especially as they appeared in the primary elections and in Congress, state legislatures and state houses, are fighting a rearguard action against major social trends in America.

They became the reactionary party when it came to the issues of race and racism, when Nixon adopted his infamous southern strategy. This approach was continued by Bush the elder with his Willie Horton ad and his nomination to the Supreme Court of Clarence Thomas as the most qualified jurist in the land (a strained anti-racism). And the reaction is alive and well in the Birther movement of Donald Trump and company, and the crazy wing of the Tea Party, with which the Republican establishment has toyed, and the Islamophobia to which many Republicans are deeply committed, fighting against Islamofascism and Sharia law in Oklahoma and beyond. Yet, America is a much more diverse, much more tolerant society. The American Dream more and more looks like the one depicted and embodied by Barack Obama.

And there is much more, concerning the rights of women to equal pay for equal work, immigrant rights, equal rights for gays to serve in the military and to marriage, full healthcare rights for women, including access to contraception and abortion, and much more. For significant segments of the population these are not just social issues, a euphemism that disguises the degree to which survival and fundamental dignity are at issue.

I know that the studies that predict election results take all this into account. They assume that people do vote on these issues, but that the turn of the election to the Republicans or the Democrats is decided by the state of the economy with a high degree of accuracy. Yet, it will matter who people hold accountable for their economic woes, and it will matter which candidate appears to make sense about the economy, often as this is related to other issues.

Perhaps when the economy went into deep crisis, McCain lost the last presidential election. But certainly when he declared in the face of the crisis that the economy was fundamentally sound, he put the nail in his election coffin. For the young, people of color, women and members of the LGBT community, his cluelessness on issues of their special concern magnified his apparent economic ignorance. Across the board, he didn’t make sense about the pressing issues of the day.

I believe this is the central factor: the struggle to make sense to the public about our problems, economic and non-economic, indeed as they are related. As a partisan, I think and I believe Obama still has an advantage in this regard over Romney and the Republican Party, which over the past year has revealed its radicalism. My next post: more reflections on the issue of making sense and communicating it. How it relates to the question in American identities and the issue of America’s place in the new global order.

I welcome Will Milberg’s response to my book and was pleased with his appreciation of how the case of Argentina challenges conventional wisdom in economics. His review adds to the debate about Argentina, highlighting one of my motivations for writing the book: to show how the Argentine experience since 2001 flies in the face of economic pundits, both in the academy and in the financial press, and that it is important to pay attention. Milberg’s message was seconded by Paul Krugman in a NY Times blog posting in which he directly identifies “conventional wisdom” as obscuring accurate perception of strong Argentine recent economic performance.

I would carry this further to the case of the recent re-nationalization of the Argentine oil company, YPF. The exaggerated external critique and prediction of economic doom once again for Argentina fails to see that this decision makes sense if the government is able to achieve its own institutional objective of making YPF a well-run enterprise serving the national interest by expanding energy production. Commentaries by The Financial Times and The New York Times, with the exception of Krugman, sound eerily similar to their alarmist predictions in 2002 that Argentina would fall off the tip of South America after the default on its debt. Conventional wisdom, I believe, as Milberg notes, is sorely in need to revision.

And while I very much agree with most of Milberg’s observations about the Argentine case, and accept his friendly critique of some parts of my book, I think that he is too easily accepting some external views, from the U.S. and Europe, that “the country is once more on the edge.” This is not true in terms of its growth, balance of payments, fiscal deficit, growing investments in infrastructure, and most importantly reduced poverty and inequality. Low unemployment continues despite some slowdown in the construction sector.

Recent policy decisions and major legislative victories by President Cristina Fernandez de Kirchner on critical issues of social policy and the reorganization of the Central Bank demonstrate continued governmental momentum in strengthening “the model.” GDP growth in 2011 was 8.9%, an outstanding performance, particularly in a context of global economic uncertainty in Europe and the United States.

The YPF decision is supported by more than 75% of the Argentine population and is again an example where the logic of giving priority to domestic interests above foreign obligations makes good political sense and has brought clearly identifiable economic benefits to the country.

The issue of inflation remains a major concern, as real inflation is probably close to 25%, and deserves government attention. The unresolved issue of the controversial  calculation of inflation by INDEC, the government’s statistical office, probably itself contributes to uncertainty and thus itself fuels inflationary expectations.

The continuing drama of Argentine expectations deserves deeper historical analysis. Expectations play a major role in behavior and for different reasons, both the government and external observers should be careful in fueling negative expectations. Global capital will not benefit if Argentina’s economy fails to grow or worse still, falls into recession. Smart investors should study the Argentine case in detail to learn that there are lessons which should be considered, as solutions are suggested for Greece, Spain, and the rest of Europe, not to speak of a still sputtering US economy. Argentina’s government has learned that it must chart its own path, listening to the world at large, but in the end, make its own decisions in the interests of its people. That, after all, is part of the meaning of sovereignty and democracy, both of which cannot be taken for granted in a period of globalization.

It’s sometimes said that presidents don’t control the economic weather but rather it controls them. We have reached the moment, however, when magical powers are going to be attributed to the presidency, and the current incumbent, like the sorcerer’s apprentice, will be charged with incompetence in using them. One manifestation of this thinking is the Romney campaign’s recent claim that women have suffered more than 90 percent of the jobs lost since Obama became president, a blatant attempt to undermine his lead among women voters. This claim involves two distortions; and most of the mainstream media have caught what I view as the smaller one—namely, that the claim ignores the full history of the recession and the huge job losses borne by men when George Bush was president.

The larger distortion has generally gone unnoticed, indeed, it has been mostly accepted. According to it, some 740 thousand jobs have been lost on Obama’s watch. This claim is another expression of the Republican mantra about a “failed” presidency.  And it involves some statistical crafting to fit the data to the argument, manipulating data in a way that we are likely to see a lot more of as the campaign proceeds, especially given the huge amounts of money available to hire “researchers” to come up with “facts.”

The Romney campaign arrives at the estimate by attributing to Obama all of the job losses since February 1, 2009, even though he had barely taken office at that point and there was not enough time for any of the new administration’s policies to have an impact. To understand how much timing matters in this case, recall that Obama entered the White House when the labor market was already in a swoon, and the number of jobs lost that February was more than 700 thousand, on a par with the losses for the final months of Bush’s second term. If we tally the jobs record of the current administration from March 1 instead of February 1, then the jobs deficit under Obama shrinks dramatically to 16,000 and, with any luck, will be erased in coming months.

This dependence of any jobs statistics to the choice of a starting point obviously leaves the question of how best to characterize the Obama administration’s record, which has been challenged not just from Republican ranks but also from the left, by Paul Krugman and Noam Scheiber (in his book, The Escape Artists: How Obama’s Team Fumbled the Recovery), among others. There can be no doubt (see chart below) that the job market has been largely stagnant since the end of the Clinton years, except for the run-up that started in late 2003, fueled at least partly by the bubble that collapsed with the onset of the deep recession in December, 2007. Today, the total number of jobs in the U.S. economy is a mere 350 thousand higher than it was in February, 2001, when George W. Bush assumed office.

It’s not my place to assess the economic policies pursued by these two administrations and their role in this stagnation, and in the event, I lack the competence for such a task. Rather, in light of the consistent Republican charges of a “failed” President, especially because of high unemployment, I am looking for an empirical standard by which to assess labor-market changes while Obama has been President. The record under George W. Bush is an obvious reference point, since both presidents have had to face similar structural forces determining their economic weather, such as the growing impacts of globalization and computer-driven automation on the labor market, exemplified by accelerated off-shoring of jobs and the emergence of manufacturing jobs that cannot be filled because they require technical skills possessed by few in the U.S. workforce. Moreover, like Mitt Romney, George Bush is a Harvard MBA who worked in the private sector before entering politics and depended on tax cuts tilted toward the affluent to stimulate the economy.

There is also the issue of how to temporally calibrate the comparison, especially because the early months of the Obama presidency were affected by the precipitous economic slide that he was not responsible for. Starting the comparison therefore with the end of the recession, designated as June, 2009, by the official arbiter of economic cycles, the National Bureau of Economic Research, seems appropriate. The much shallower recession that took place during Bush’s first year gives us an equivalent starting point for him.

This calibrated comparison clearly turns out in favor of Obama. As the chart shows, some 2.3 million jobs have been created since the end of the most recent recession, while in the equivalent period after the end of the earlier one, about 700 thousand jobs were added to payrolls. There is, as noted, still a jobs deficit for the entire period Obama has been president, but that was also true for George W. Bush throughout his first term. In fact, the jobs market was still in negative territory when his second term began.

So, when the mantra of the “failed” presidency starts humming, and Mitt Romney characterizes Obama as one of the most “ineffective” presidents of all time, be wary when jobs statistics are hauled out to support these charges. The “data” are likely to be phony, to have been contrived to match the claims. They shouldn’t be allowed to enter public discourse unchallenged.

Ideological clichés are deadly. In 1989, the end of the short twentieth century (1917 – 1989) with all its horrors, I thought this simple proposition was something that had been learned, broadly across the political spectrum . I was wrong, and the evidence has been overwhelming. This was my biggest mistake as a sociologist of the politics and culture.

When Soviet Communism collapsed, I thought it had come to be generally understood that simple ideological explanations that purported to provide complete understanding of past, present and future, and the grounds for solving the problems of the human condition, were destined for the dustbin of history. The fantasies of race and class theory resulted in profound human suffering. I thought there was global awareness that modern magical thinking about human affairs should and would come to an end.

My first indication I had that I was mistaken came quickly, December 31, 1989, to be precise. It came in the form of an op ed. piece by Milton Friedman. While celebrating the demise of socialism in the Soviet bloc, he called for its demise in the United States, which he asserted was forty-five per cent socialist, highlighting the post office, the military (a necessary evil to his mind) and education. He called for a domestic roll back of the socialist threat now that the foreign threat had been vanquished. Friedman knew with absolute certainty that only capitalism promoted freedom, and he consequentially promoted radical privatization as a solution to all social problems. This was an early battle cry for the neo-liberal assault of the post-cold war era.

The assault seemed particularly silly to me, and hit close to home, since I heard Friedman lecture when I was a graduate student at the University of Chicago, and even taught one of his true-believing graduate students when I gave a summer school course there on social problems in American society. Friedman and his student’s absolute conviction that the market is the source of all good perfectly mirrored my Marxist friends’ convictions that it was the root of all evil.

Today neo-liberalism and anti neo-liberalism are in an ideological dance. The Republican positions on taxation of the job creators, deregulation and the denunciation of standard social programs as socialism constitute one sort of magical thinking. Newt Gingrich is particularly proficient in spinning the language of this political fantasy and developing its newspeak (with his concerns about the United States becoming a “secular, atheist” country promoting sharia law, and the like). The criticism of neo-liberalism from the left too often present magic: dismantle capitalism and all will be well. As I see it, both propose a future based on a failed past, often with a certitude that is disarming and dangerous.

I wonder how people can imagine a systemic alternative to capitalism, when there is overwhelming evidence that it has never worked, in Europe or Asia, in Africa or Latin America. I wonder how Republicans can ignore the evidence that the market does not solve all economic challenges and social problems, and that sometimes, indeed, it is the primary cause of our problems, particularly evident in the shadow of the world financial crisis and the great recession.

Friends in the academic ghetto, on the cultural grounds of lower Manhattan and Brooklyn, Berkeley, Ann Arbor and Austin, imagine revolution with little serious consequences. On the other hand, the Republican market fundamentalists pose a clear and present danger. On the right, there is ideological tragedy. On the left, there’s farce, except to the extent that they enable the right.

I didn’t anticipate that market and anti-capitalist fundamentalism would have such a role in the twenty-first century. I also did not anticipate or understand the possibility of the replacement of the secular totalitarian imagination by religious ones, Islamic, but also Hindu, Jewish and Christian. “Religionism” is replacing “Scientism.” I didn’t see what was brewing on the religious/political front. The attacks of 9/11 and the American fundamentalist response forced me to pay attention, which I attempted to deliberately consider in The Politics of Small Things.

Chastened, I have become accustomed to the persistence of modern magic, of ideological thinking and its appeal, but quite uncomfortable. How can a thinking person accept and actually support the Bolivarian Revolution of Chavez? It and he are so transparently manipulative and fantasy based, so clearly squandering Venezuelan resources and not really addressing the problems of the poor. Yet, many critical people in the American left can’t bring themselves to observe that this king of the ideological left, this revolutionary hero, is naked. How can the sober Republicans believe what Gingrich and company say about the economy and also about international affairs? If they do so and prevail electorally, I am pretty convinced that they will preside over the decline and fall of the American Empire, what they claim to be most against. Perhaps that is reason for true-believing anti-globalists to support the Republicans.

P.S. As it turns out since 1989, I have been bombarded with evidence that ideological thinking is a persistent component of modern politics. It seems that everywhere I look its importance and its dangers are to be observed, but so are its limits. I am thinking again about my big mistake as I reflect on Occupy Wall Street and its prospects, and its extension to the New School. As Andrew Arato pointed out in his critique of the idea of occupation, there is a danger that when people, who speak ideologically for the 99%, will turn themselves into the 1%.  True-believers are convinced, but the rest of us in the end aren’t. Sooner or later the insights of ’89 prevail. On the bright side, from my political point of view, I think this is likely to apply to the Republican Party, with its true-believing, fact-free ideology. This is the major reason why I think that the Republicans will fail in the upcoming elections. I think this is why the Republican field is so dismal, as Paul Krugman has cogently observed. But I am trusting that ideology will end again.

Figure 1 shows the extraordinary reallocation of national resources from the bottom 80 percent of the population to the top 1 percent, while those in between (81^st-99^th) have, as a group, shown no change in their share of total income.

FIGURE 1

Source: CBO Report “Trends in the Distribution of Household Income Between 1979 and 2007”

Not surprisingly, over the last three decades many households in the bottom 80 percent have faced sharp declines in their standard of living as the costs of health care, higher education, food and energy have risen far faster than the wage check. The result has been the accumulation of unprecedented levels of mortgage, credit card, and student debt.

I have argued that the roots of the economic crisis can be found in the shift in economic thinking and public policy toward free market fundamentalism in the 1970-80s, which fueled the rise in debt, financial instability, and extreme inequality. We’ve seen a toxic mix of financial deregulation, evisceration of protective labor market institutions (like collective bargaining and the minimum wage), a political system corrupted by campaign contributions, and an increasingly polarized education system that performs poorly for most of those in the 80 percent and terribly for the most disadvantaged communities.

But this is not at all the conventional wisdom. Rather, it has become widely accepted that the government is the root cause of the economic crisis of 2008-11 and the decline in living standards for the vast majority. The problem in this conservative vision is too much regulation, too much taxation, too much encouragement of home ownership for low-income families, and government workers (who take too much for themselves in wages, benefits and job security). And worst of all is fighting the economic crisis with deficit spending. Incredibly, many leading academic economists have lent support to this free market fantasy, which of course has the causation between unemployment and government spending exactly backwards.

In the free market vision, extreme inequality is not the real problem. It is government spending and regulations, and reducing both would induce employers to generate jobs, workers to get off unemployment benefits, and students to invest in their own education (as public spending for education is cut back). Mainstream economists have long been fixated on supply side solutions to inequality and low pay. It is a natural part of the package of free market orthodoxy: more education makes people more productive and in competitive labor markets workers get paid what they’re worth (otherwise known as their “marginal product”).

A good example of this free market vision can be seen in David Brooks’ recent column in which he argued that the “right” inequality to worry about is not what’s going to the top 1 percent, but instead it is the “chasm between college and high school grads.” And we get much more than just higher incomes from more higher education. As he put it: “Today, college grads are much less likely to smoke than high school grads, they are less likely to be obese, they are more likely to be active in their communities, they have much more social trust, they speak many more words to their children at home.”

Unfortunately, while college grads may, on average, have higher scores on all these good outcomes, it seems unlikely that an increase in college degrees would have any effect on any of them. Let’s say we increase in the 6-year graduation rate for Bachelor’s degrees from about the current abysmal level of 55% (see below). Should we really expect to see less smoking, less obesity, more social trust and more words spoken to children?  Actually, given the costs and benefits of college attendance spelled out below, we might reasonably expect these outcomes to worsen, as recent graduates with modest incomes realize that they are unable to pay off their  mountainous student debt.

So what is the payoff to getting a college degree? We can start with Figure 1. Since 30 percent of the population over age 25 had college degrees in 2010 (Department of Education, Digest of Education Statistics: 2010, table 8), not many college graduates could have been among the top 1 percent of winners.

Figure 2 provides a view of the timing of the growth in inequality at the top. Saez shows that all the action at the top has taken place within the top 1%, whose share of total income rose from about 14% in 1993 to 23% in 2007, and then declined to about 21% in 2008, as the financial system nearly collapsed.

FIGURE 2

Nothing like this sort of take-off in inequality appears in the earnings data organized by educational attainment. Figure 3 shows that real earnings for those with only a college degree rose modestly in the 1990s and not at all since (in 2007 dollars).  At the peak of the last business cycle, in 2000, the average college graduate wage was $25.86 and increased to $26.40 the next year. Six years later the college wage was $26.51. Measured from 2001 to 2007, the Bush “boom” increased the average college wage by a full 11 cents.

It is true, as Figure 3 reports, that average wages have been much higher for college than high school graduates. But while the average college graduate earns about 1.7 times more than the average high school graduate, this ratio has remained unchanged since 1998: the payoff to a college degree stopped increasing over a decade ago.

The share of young people (25-29) with a college degree rose in the 1990s, but this measure of rising educational attainment has been flat in the 2000s: 29.1% in 2000, 29.6% in 2007 and 31.7% in 2010 (Department of Education: Digest of Education Statistics: 2010, Table 8).

But while many more students have sought post-secondary degrees, the reality of low wages for recent graduates and high costs of schooling have produced dismal graduation rates. Students entering a four-year college in 2003 had a graduation rate of just 55.5% six years later. Even worse, community colleges offering a two-year Associate’s degree report a three year graduation rate of just 29.2% for the 2006 entering class (NCHEMS Information Center, from Department of Education data).

The fact is that many students do not complete college, perhaps partly because they are pretty good at weighing the benefits and costs. Figure 3 graphically illustrates the tiny payoff to going to college and not finishing a four-year college degree. On average, the wage increase from “some college” over a high school degree was $1.85 per hour in 1998, $2.03 in 2000, and $1.92 in 2007.

FIGURE 3

Real Hourly Earnings by Educational Attainment, 1979-2007 (2007 dollars)

Source: Economic Policy Institute

If we succeed in getting more students out of college with diplomas, nearly all will get paid far less than the average college graduate (since they are younger and will come from the lower part of the high school performance distribution). Figure 4 compares the median annual earnings for high school graduates in 2010 with the average annual earnings of those in the 1^st quartile of the college graduate earnings distribution (those with earnings in the bottom 25% of earnings for all college grads). The increase for undertaking an additional four years of schooling is $5,600 for women and $4,850 for men.

Ignoring the complications of discounting, let’s say it cost $10,000 per year in tuition and related costs, and opportunity costs of $25,000 (foregone earnings, at slightly below the median high school graduate rate). Let’s further assume she won’t need to bear any costs of student loans (an entirely unlikely scenario – generally only possible for those whose parents are in that top 1%…).

Under this scenario, she’s got $140,000 invested in her college degree ($35,000 x 4). If her payoff is the average one ($5,600), it will take her about 25 years to break even.

This simple example illustrates the reality that the payoff to getting a college degree isn’t so obvious, given a labor market paying low wages to almost one-third of all workers and costs of education that are rising far faster than the overall inflation rate. This helps explain not just the dismal graduation rates mentioned above, but also why the percentage of 25-29 year olds with a college degree or more has hardly budged over the last decade (29.1% in 2000, 29.6% in 2007, and 31.7% in 2010; Department of Education, (Digest of Education Statistics: 2010, table 8).

It will take some radical institutional changes before we get to a more egalitarian and productive economy, as Brooks would have us do. We would need substantial reductions in the incidence of low pay and the burden of post-secondary education costs on less well-off families. Progressive change requires reversing the inequality revealed in figure 1: let’s start by giving back those 10 percentage points of national income to the bottom 80 percent of the American people. One critical step is to reduce the incidence of low pay without reducing job opportunities. Some say this is not possible, but France has shown that it can be done. I’ll make that case in the next post.

FIGURE 4

Median Annual Earnings in 2010 for High School Graduates and Average Earnings for College Graduate in the 1^st Earnings Quartile (Usual weekly pay X 50)

Source: Bureau of Labor Statistics

]]> http://www.deliberatelyconsidered.com/2011/11/college-degrees-not-the-answer-to-extreme-inequality/feed/ 4 http://www.deliberatelyconsidered.com/2011/10/things-come-together-occupy-wall-street-solidarity-elections-and-khodorkovsky/ http://www.deliberatelyconsidered.com/2011/10/things-come-together-occupy-wall-street-solidarity-elections-and-khodorkovsky/#respond Mon, 10 Oct 2011 21:03:03 +0000 http://www.deliberatelyconsidered.com/?p=8639

I am on the road from Gdansk. It’s been an intense few days. Last Tuesday, I joined the Occupy Wall Street demonstration for a bit. By Wednesday, I was in the Gdansk shipyards, where Solidarity confronted the Party State in 1980, ultimately leading to the collapse of the Soviet Empire. I was interviewed for the Solidarity Video Archive, giving my account of the work I did with Solidarity and my understanding of the great labor movement. Immediately after which, I was taken to Gdansk University, where I gave my talk, this year’s Solidarity Lecture, “Reinventing Democratic Culture.” It opened the All About Freedom Festival. Over the weekend, I visited my family in Paris, and now I am flying over the Atlantic on my delayed flight to Newark, hoping I will get back to New York in time to teach my 4:00 class, The Politics of Everyday Life. It has been a packed week.

Unpacking my thoughts is a challenge. A new social movement is developing in the U.S., with potentially great impact. In Poland, a new generation is confronting the Solidarity legacy, trying to appreciate the accomplishments, while also needing to address new problems. Yesterday’s elections in France and especially in Poland were important. Yet, just as important for what was not on the ballot as for what was. Everywhere, there seems to be a political – society agitation and disconnect, with the politics of small things potentially contributing to a necessary reinvention of democratic culture.

I have many thoughts and will need more time to put them into a clear perspective. Here, just a start. I have a sense that things are connected: not falling apart, rather, coming together.

In the U.S., the central ideal of equality has been compromised in the last thirty years. From being a country with more equal distribution . . .

Read more: Things Come Together: Occupy Wall Street, Solidarity, Elections and Khodorkovsky

I am on the road from Gdansk. It’s been an intense few days. Last Tuesday, I joined the Occupy Wall Street demonstration for a bit. By Wednesday, I was in the Gdansk shipyards, where Solidarity confronted the Party State in 1980, ultimately leading to the collapse of the Soviet Empire. I was interviewed for the Solidarity Video Archive, giving my account of the work I did with Solidarity and my understanding of the great labor movement. Immediately after which, I was taken to Gdansk University, where I gave my talk, this year’s Solidarity Lecture, “Reinventing Democratic Culture.” It opened the All About Freedom Festival. Over the weekend, I visited my family in Paris, and now I am flying over the Atlantic on my delayed flight to Newark, hoping I will get back to New York in time to teach my 4:00 class, The Politics of Everyday Life. It has been a packed week.

Unpacking my thoughts is a challenge. A new social movement is developing in the U.S., with potentially great impact. In Poland, a new generation is confronting the Solidarity legacy, trying to appreciate the accomplishments, while also needing to address new problems. Yesterday’s elections in France and especially in Poland were important. Yet, just as important for what was not on the ballot as for what was. Everywhere, there seems to be a political – society agitation and disconnect, with the politics of small things potentially contributing to a necessary reinvention of democratic culture.

I have many thoughts and will need more time to put them into a clear perspective. Here, just a start. I have a sense that things are connected: not falling apart, rather, coming together.

In the U.S., the central ideal of equality has been compromised in the last thirty years. From being a country with more equal distribution of income, property, education and respect, than in other places, which Tocqueville took to be definitive of the American democratic condition long ago, it has become a country of gross and increasing inequalities. With dramatic flair, the Occupy Wall Street movement is making the issue visible, resetting the terms of public debate, from the conservative issue of taxes and debt to the more progressive problems of unemployment and gross inequality. There have been, of course, many individuals and groups who have been trying to bring these issues forward, from the respected Nobel Prize winning economists Joseph Stiglitz and Paul Krugman, to labor unions – transit workers, public employees, the AFL-CIO. It is intriguing that a relatively small but dramatically inventive social movement has focused the issue. Its political potential points to the importance of imaginative gestures in getting media attention and changing public debate, very similar in this regard to the Tea Party.

In Poland, Solidarity is gone and forgotten, but also constantly present. The two major parties emerged from Solidarity. The leaders have in common experience in the opposition to the Communist regime. The major parties are to the right of center, one based on patriotism, identification with Catholicism and nation and skepticism about Europe, PiS, Law and Justice. The other party is the pro-Europe, pro-business and pro-market PO, Civic Platform. The election presented a clear 19^th century choice, between Conservatives and Liberals. Only minor parties presented 20^th century social democratic alternatives.

My hosts, and the professors, students and the members of the general public in my audience repeatedly expressed dismay about their choices. It’s not that they felt that there were no differences between the parties. It’s that the differences didn’t seem to address the problems of our times.

Following my talk, during the question and answer period, a young woman expressed the problematic situation. She saw that there was a serious debate between the parties, but she couldn’t understand how the debate included her. She may have been put off by the ultra nationalism of one party and the market fundamentalism of the other, but neither party addressed her and her peers concerns. She didn’t know what to do.

I, of course, told her that I wouldn’t advise her on voting (which she actually seemed to be asking for), other than to make the general statement that I am a strong believer of choosing the bad over the worse, with the proviso that I wouldn’t choose between two competing faces of totalitarianism (two Nazi Parties, I think I said). But then I returned to the theme of my talk, linking the politics of small things to the challenge of reinventing political culture. The Solidarity movement revealed the power of the politics of small things.

I highlighted my basic theoretical position as it emerged from my observations of Solidarity.

When people meet and speak in each other’s presence, and develop a capacity to act together on the basis of shared commitments, principles or ideals, they develop political power. This power is constituted in social interaction. It is realized in the concerted action. It has its basis in the definition of the situation, the power of people to define their social reality. In the power of definition, in the politics of small things, there is the power of constituting alternatives to the existing order of things. When this power involves the meeting of equals, respectful of factual truth and open to alternative interpretations of the problems they face, it is democratic. As Arendt has theorized, such meeting, talk and action constitute political power as the opposite of coercion. As Goffman investigated, this power is constituted in the expressive life of the involved people. Power by acting together, expressively created, is a power that has been highly consequential.

My talk was about how I saw this in the 1980s, specifically when I was last in Gdansk to observe the trial of three Solidarity leaders, Bogdan Lis, Wladyslaw Frasyniuk and Adam Michnik. I used my reflections on that experience to show how such power is playing a key role in the politics in the U.S. and the Middle East today, drawing upon analysis that is systematically developed in Reinventing Political Culture.

The irony was that this applies to Poland now as well, as the population and the political leadership seem to have lost sight of what was accomplished in the Solidarity Movement. I tried to answer the Polish student’s question, and quite a few others developing this point. Actually existing democracies, such as Poland and the United States, need recurrent social movements to keep them alive. As the conflicts in Polish politics is being played out by people who were involved in the struggles of those times, the principles of those struggles provide untapped resources for those who are critical, or feel disaffected from the present political scene.

During my weekend in Paris, I thought of this as well, as I talked about the primary elections in the Socialist Party and the upcoming general elections. Politics seems inadequate, as the problems the democracies of Europe face seem quite profound. The popular movements and disruptions in Spain, Greece and England were not particularly creative, as Solidarity was, but they are a clear expression of a fundamental problem, not only economic but also political.

And in this light, from a distance, I read with appreciation Ermira Danaj’s contribution to Deliberately Considered. Here, in a most dramatic way, we see concerted action making democracy possible in a pretty extreme circumstance.

In Gdansk, I also took part in a public discussion of a brilliant documentary film, Cyril Tuschi’s Khodorkovsky. It is an excellent work. The film portrays the kind of neo-Soviet state with a democratic opposition that Russian has become. It also presents a great study of an amazing character, the richest man in Russia, turned into a prisoner, turned into a dissident, locked in battle with an equally impressive character, Vladimir Putin. The power of small gestures was remarkably revealed in the film. This power of gestures in the new media age is quite important.

Final note: the power of mediated gesture is what I saw on the first day of this intense week, in the Occupy Wall Street movement. It is in the creative gesture that the alternative to the order of things and mindless disorder is to be found. More about this in my next post. I will try to work on it after I teach in a few hours and after a good night’s sleep.

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“Power is the ultimate aphrodisiac.” Henry Kissinger, 1973

I recently returned to teaching selections from C. Wright Mills’s 1956 book, The Power Elite. The book was written in the midst of unprecedented prosperity in America, what economists Claudia Goldin and Robert Margo have called “the great compression,” when the levels of social inequality that peaked in 1929 and muddled through the next two decades were lowered and stabilized in the 1950s and 60s. It was the “good times” fifties. But Mills saw acutely that something had changed in America; that an unprecedented centralization of power “not before equaled in human history” had also been set in motion as the aftermath of World War II, whose continued development would undermine democratic institutions.

Mills claimed that “the Big Three” institutions—Corporate, Government, and Military—powered up into an interlocking directorate. Though he does not mention them, two coups of that era engineered by the CIA provide ample evidence of what Mills was describing. The overthrow of the Iranian government in 1953, which installed the Shah of Iran, was undertaken to secure British and American oil interests. Corporate oil, political, and military (particularly the burgeoning CIA) institutions realized their common interest in overthrowing the democratically elected regime of Mosaddegh. The long-term consequence was the empowerment of Islamic fundamentalism in the overthrow of the Shah in 1979.

In 1954 the CIA directed the overthrow of the democratically elected government of Guatemala, in order to keep the profits of United Fruit at their maximum. The secretary of defense, John Foster Dulles, his brother Allen Dulles, the head of the CIA, and the UN ambassador, Henry Cabot Lodge, Jr., all had investments in United Fruit, and as David Halberstam states in his book The Fifties: “The national security complex became, in the Eisenhower years, a fast-growing apparatus to allow us to do in secret what we could not do in the open. This was not just an isolated phenomenon but part of something larger going on in Washington—the transition from an isolationist America to imperial colossus. A true democracy had no need for a vast, secret security apparatus, but an imperial country did…What was evolving was a closed state within an open state” (p. 371). American power helped over one hundred thousand Guatemalans to be killed over the next decades.

Consider that the 1950s were also the years when big science jumped into center stage as the model for progress and development. Yet that process was hatched out of the secret atomic bomb Manhattan Project of the Second World War, which fostered a continuing alliance between science and the military. Science is inherently a public activity, open to the community of all possible inquirers. Secrecy is thus the enemy of science. So what do we call the military-funded, compromised activity that permeates Big Science and bequeaths its fruits to industry? Sci-tech?

When Mills published The Power Elite in 1956, the power of the powerful clearly was upsurging. But that decade also saw gains by workers as the legacy of the union struggles, and also a sense of corporate citizenship, both in levels of federal taxes paid by corporations and a commitment to long term worker employment that has been subsequently eclipsed. By the end of the 70s, newer centralizing forces began to emerge.

That power elite was eclipsed by today’s megapower corporate elite, which owes nothing to workers or locale or even production in America, even while corporations have been ruled “persons” by the Supreme Court, capable of money laundering electoral politics. The “War on Terror” has proven an excellent replacement for the Cold War as a source of funding for the military-industrial complex (the term first used by President Eisenhower a few years after Mills’s book). The post 1979 period is what Paul Krugman has called “the great divergence,” where, between 1980 and 2005, “more than 80 percent of total increase in Americans’ income went to the top 1 percent,” as Timothy Noah has noted in Slate Magazine. Corporate profits have soared in the 2007-2009 period, rising 720 percent, despite the great Recession!

The report, “The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009,” by Andrew Sum, Ishwar Khatiwada, Joseph McLaughlin, Sheila Palma of The Center for Labor Market Studies, Northeastern University, gives a chilling view of the Megapower elite now in command of the American economy. Earlier recession recoveries in the first six quarters are telling: in 1991 50 percent of the growth in national income went to wages and salaries while corporate profits fell by 1 percent, and in 2000-1 only 15 percent went to wages and salaries with 53 percent going to corporate profits. But in the current recovery: “…corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent…Aggregate employment still has not increased above the trough quarter of 2009, and real hourly and weekly wages have been flat to modestly negative. The only major beneficiaries of the recovery have been corporate profits and the stock market and its shareholders.”

Mills’s concluding sentences strike home in today’s Megapower Elite America, where consumer identity and its values of exclusive distinction have eclipsed the broader sense of citizenship as involving inclusive commonality. “Those who sit in the seats of the high and mighty are selected and formed by the means of power, the sources of wealth, the mechanics of celebrity, which prevail in their society… They are not men shaped by nationally responsible parties that debate openly and clearly the issues this nation now so unintelligently confronts. They are not men held in responsible check by a plurality of voluntary associations which connect debating publics with the pinnacles of decision. Commanders of power unequaled in human history, they have succeeded within the American system of organized irresponsibility.”

As Will Milberg anticipated, President Obama gave a speech last night that did not just involve political positioning. It was a serious Address to a Joint Session of Congress about our economic problems, proposing significant solutions. The address was also politically astute, and will be consequential. Obama was on his game again, revealing the method to his madness.

His game is not properly appreciated, as I have argued already here. He has a long term strategy, and doesn’t allow short term tactics to get in the way. He additionally understands that politics is not only about ends, but also means.

Many of his supporters and critics from the left, including me, have been seriously concerned about how he handled himself in the debt ceiling crisis. He apparently compromised too readily, negotiated weakly, another instance of a recurring pattern. In the first stimulus, healthcare reform, and the lame duck budget agreement, it seemed that he settled for less, could have got more, was too soft. But, of course, this is not for sure. I find that my friends who supported Hillary Clinton look at me, as an early and committed Obama supporter, differently now and express more open skepticism about Obama these days. But I think, as was revealed last night, that Obama’s failures have been greatly exaggerated. (Today only about political economic issues)

A worldwide depression was averted. The principle of universal health care for all Americans is now part of our law, the most significant extension of what T. H. Marshall called social citizenship since the New Deal. And, a completely unnecessary American induced global crisis did not occur. None of this was pretty. The President had to gain the support of conservative Democrats (so called moderates) and Republicans for these achievements. But it was consequential. In my judgment, despite complete, and not really loyal, Republican opposition to every move he has made, he has governed effectively, steering the ship of state in the right direction, despite extremely difficult challenges.

And during his political battles, he has maintained a civil respect for his opponents, never treating them as enemies, his soft touch, which is greatly criticized by the base. From serious economic critics, such as Paul Krugman, to his African-American celebrity critics, such as Tavis Smiley and Cornell West, there is a sense that he has not fought hard enough.  But hard is not always the most effective. This was revealed last night.

His speech was part of his overall strategy to address the primary economic challenge of our day and to do so without abandoning a commitment to social justice. There is a broad consensus among economists and serious policy analysts that the American economy requires two things: short term stimulus and long term deficit control, and that a key to this long term goal is controlling the costs of health care in America. Sober, politically wise analysts also recognize that pursuit of perfect solutions should not get in the way of politically possible solutions. It’s better to move in the right direction than to not move at all, or to move in the wrong direction. This requires that people who don’t agree on everything to manage to act together on some things. It requires compromise, persistent effort. Obama is on to this. He does it as a matter of principle, not simply as a tactic. He clearly wants to find a common ground. Every move he makes he tries to include Republicans and their ideas, conservative as well as liberal Democrats. He is a principled centrist.

But last night he revealed that he is not pursuing a center just because he likes to be in the middle. As I have maintained before, he is a centrist working to move the center left. He understands the conservative criticism of statism, but still thinks the state has an important role to play. He is centrally focused on social justice, as he works to make a concern for social justice a matter of centrist concern.

The speech presented his American Jobs Act, a bill that utilizes the two primary means to address the great danger of a double-dip recession that Milberg highlighted in his post: payroll tax cuts for employees and employers, and an increase in infrastructure investment. There was also special focus in the speech and in the proposed legislation on those who are suffering most directly from the recession: the unemployed, the poor and the young.

And he managed to do this by proposing actions that have all had bipartisan support in the past. He is identifying a center, which will enable common action.

“Every proposal I’ve laid out tonight is the kind that’s been supported by Democrats and Republicans in the past.  Every proposal I’ve laid out tonight will be paid for.  And every proposal is designed to meet the urgent needs of our people and our communities.”

But he is still committed to central principles:

“But what we can’t do — what I will not do — is let this economic crisis be used as an excuse to wipe out the basic protections that Americans have counted on for decades.  (Applause.)  I reject the idea that we need to ask people to choose between their jobs and their safety.  I reject the argument that says for the economy to grow, we have to roll back protections that ban hidden fees by credit card companies, or rules that keep our kids from being exposed to mercury, or laws that prevent the health insurance industry from shortchanging patients.  I reject the idea that we have to strip away collective bargaining rights to compete in a global economy. “

Things are adding up. Stimulus, health care, deficit control, more stimulus. He is building on his past, even if flawed achievements. He is pushing hard for a big stimulus package. It is a package that the Republicans can refuse, but at their peril. He has taken the initiative.