Interview with Hillel Ticktin

Following up on last year’s Current Moment interviews, today we are publishing an interview with Hillel Ticktin, Emeritus Professor of Marxist Studies at the University of Glasgow. An internationally renowned Marxist scholar, Professor Ticktin co-founded in the early 1970s the journal Critique.  He has published numerous books and articles over the years. In 2010, Critique published a special issue on the current crisis to which Ticktin and others contributed.

Eurozone leaders are going on record saying that the worst of the sovereign debt crisis is over. Are they right to be so optimistic?

No. But then, the Eurozone country politicians are not going to tell the truth as to what they think, as it would spook the markets. Without growth, it will be impossible to solve the indebtedness problem, and Germany is insisting on harsh terms for giving loans, so harsh that there will be negative growth. This is clear in the case of Greece, where the newspapers are talking of the need for a future Third Bailout. But in reality it is highly likely that other countries will require further substantial loans. While Portugal will not be too much of a problem, a Spanish or Italian bailout cannot be financed on present Eurozone funds.

Yields have fallen on sovereign debt as the European Central Bank (ECB) has injected over 1 trillion Euros of liquidity into the European banking system in the form of longer-term refinancing operations. How has the crisis changed the ECB and has the ECB been the saviour of the situation?

The ECB has clearly put off the day when the crisis will have to be faced down. Banks have acquired sufficient liquidity to avoid problems and have invested money in their governmental bonds. The rational solution would have been the issuance of sufficient Eurobonds which would be used to fund the various countries involved. Since the Eurobonds would be backed by the successful Eurozone countries, investors will buy them. The ECB has produced a temporary measure but the amount of money involved is insufficient. Until the ECB can act as the Central Bank of an independent country in order to issue as much liquidity as it sees fit, and can help to issue Eurobonds, it is not fit for purpose.

The European approach has combined the backdoor provision of liquidity to its banking system with a frontdoor assault on government budget deficits and on national labour markets. What is your assessment of this approach overall?

Crazy. It is not really a European approach so much as a Conservative policy supported by the UK Conservative party, the Christian Democrats and Free Democrats in Germany, the Republican Party in the USA etc. It is not supported by the social democrats in France or Germany. Hollande has made that very clear. Of course in practice the social democrats do not live up to their promises, but they would ease the situation and might be pushed further by popular pressure. The question is why such a policy is being adopted at all, given that it cannot possibly work, and indeed is not working. It looks as if a section of the bourgeoisie has decided to take the opportunity to attack the working class so far that they would end up with a 19^th century approach to social relations. That, in turn, would ultimately destroy the social democratic parties and replace them with revolutionary left wing parties. Whom the Gods would destroy they first make mad.

A feature of the politics of the Eurozone crisis has been the replacement of democratically-elected governments with technocrats. This occurred in both Italy and Greece. Does this signal a trend of some kind, that economic imperatives are being placed above political ones for instance? And does it suggest that European integration today is really about preserving the Euro?

This is an inevitable feature of the present. Once the majority of the population began to turn to the left, as in Greece, the capitalist system itself began to be threatened. The use of the army is not possible at the present time. Nor is a far right popular movement based on the so-called ‘middle class’, So they have had the ingenuity to invent a new undemocratic category of a non-political government,  which makes a mockery of the Parliamentary system.  This is much like the idea that US judges of the Supreme Court are above politics when they pronounce on political measures, even though they have been specifically appointed for political reasons. It does not fool the working class but people may be grateful that it is not worse. Since it will not work, there will have to be even more undemocratic solutions. In the UK during the Great Depression, there was a National Government. In effect a coalition of all the large parties. The fact is that the Parliamentary system was already cracking, so this is another stake in its heart.

There is no question that ‘economics is being placed above politics’. The only rational way to run a union with a common currency is to accept that the richer areas will help fund the poorer areas, in order both to help them catch up but also to maintain cohesion, based on principles of human rights. European countries usually accept such obligations, unless they accept that parts of their country will break away. After all, Germany taxed the West Germans to help the absorption of East Germany. Today, however, the ruling parties in Germany, the Netherlands and Finland appear to reject such an approach. The reason ultimately lies in the fear of instability in those countries. So, economics is not really being placed above politics, depending on one’s definitions of politics and economics. Instead one politics is replacing another. The reason is discussed in the answer to the next question.

Is there an alternative to this approach of national budgetary austerity combined with a pan-European fund intended to offset any threats to Europe’s banking system.

As the current approach is being widely applied and is widely distrusted, and can only fail, there has to be another alternative if humanity is to survive, whether in or out of the Eurozone.

We are in a downturn of depression proportions. The last Great Depression only ended with the World War. War, on that scale, is however, excluded at the present time. The only way out of the present impasse is for a rationally planned economic reconstructive process, with governments playing a leading role. As the ruling class supports small government and the extension of private enterprise, it will oppose any such move. On the contrary, it is afraid that any attempt to go for reflation with government participation will lead to a political upheaval. In my view, they are right that the population will demand increased economic and political participation under conditions of full employment. That is in effect the immediate alternative, which is why the ruling class wants to take the opportunity, instead, to achieve a defeat of the working class of epochal proportions. Looked at this way, the policy of austerity is a defensive measure to preserve capitalism. Seen this way the policy is not crazy but rational, even if its application is mad.

The future is not as apocalyptic as it might seem from that last sentence, since the most likely result for the present is that the austerity policy will be pulled back, even if only by social democrats. Growth will be low, poverty increasing and discontent rising. Ultimately there will be a denouement, but when is not yet clear.

Behind Europe’s employment figures

Recent unemployment figures released by the German and Spanish governments have bolstered the idea of a two-speed Europe. In Germany, unemployment has fallen to a 20 year low whereas in Spain it has risen relentlessly for the fifth month in a row. In Germany, there are 2.976 million people actively seeking work. In Spain, the number of jobseekers has risen to 4.42 million. Spain’s population, at 46 million, is only a little over half that of Germany’s 81 million. And yet there are almost twice as many unemployed in Spain. As a proportion of the population, German unemployment stands at 6.8% where as in Spain the rate is just below 23%.

As with the trade figures, where repeated deficits and surpluses consistently divided the Eurozone area, unemployment figures seem to tell a similar story. Those economies with the lowest levels are Germany, Austria, Luxembourg and the Netherlands. The so-called PIGS – Portugal, Ireland, Greece and Spain – have some of the highest unemployment rates.

These figures have bolstered those claiming that tough labour market reforms are the best route out of the Eurozone’s doldrums.This claim is misguided for two reasons.

The first is that the nature of the economic difficulties faced by the German and the Spanish economies are fundamentally different. They may share the same currency but they live in different worlds. For Germany, a more challenging export environment has pushed businesses to make savings in an attempt at managing the downturn. These incremendal responses are evident in the way some employers have exploited the flexible labour market, by making some workers temporarily part-time. In Spain, the experience has been one of a massive bubble followed by a crash. This has been most heavily felt in the construction industry, where a house-building boom has given way to empty, half-finished building projects. Much like in Ireland, there is no soft way out of such a crash. Without the demand for homes, construction workers are laid off. Spanish and German unemployment figures reflect not just different regulatory environments for labour but also fundamentally different national economies.

Secondly, it is far from clear, as already commented upon by The Current Moment, that Germany’s labour market reforms are the best way forward for Spain. Whilst unemployment may be low in these Northern European economies, this is because of much greater flexibility enjoyed by employers. Both Germany and the Netherlands have a very high proportion of contracted workers i.e. workers on fixed contracts that have to be renewed every 6 or 12 months. German businesses have also used various strategies – such as a reduction in working hours agreed upon by managers and workers, known as the Kurzarbeit scheme – aimed at maintaining employment levels whilst introducing savings on labour costs for businesses.

Rather than reinforcing stereotypes about successful Northern European economies and failed Southern Mediterranean economies, these figures should push to think about our goals are when we speak about employment. Is it better to maintain employment levels at all costs or should we also think about the quality of the job and the nature of the employment contract? To rely on contracted workers may provide employers with the flexility to cut working hours or shed labour when necessary and helps them escape costly social charges associated with granting indefinite contracts to workers. But if the value of work is to be judged by its connection to an idea of individual self-realisation, then the nature of the job matters enormously. The reliance on contracted labour reduces the incentive for the employer to invest in its staff. The subjective experience of overcoming difficulties, improving oneself and acquiring new skills – all of what produces the connection between work and an individual sense of freedom – is limited by more flexible kinds of working contract.

For employers, there is a downside to individuals realizing themselves through work. More confident and assertive workers are likely to be more militant and more likely to contest the authority of employers and seek better conditions and higher wages. As we have noted before, this fact help explains why jobs programmes as a way of boosting a recession-hit economy are not popular amongst many businesses and politicians. The nature of employment is therefore also a political matter, one that mediates the relationship between workers and business and that – over the medium to long term – goes a long way to shape the kind of society we live in. In the discussion about employment levels in Europe and beyond, what is important is not just jobs for all but also the kind of work that maintains a relationship between labour and freedom.

Interview with Peter Hall

Continuing the series of The Current Moment interviews, today we are publishing an interview with Peter Hall, Krupp Foundation professor of European studies at Harvard University. Peter Hall has published widely in the field of European political economy and comparative politics. His published books can be viewed here. One of his recent papers explores the political origins of the current economic crisis.

 

What are the stories right now that you think people either aren’t paying enough attention to, or about which we have the wrong view?

On this side of the Atlantic, we are mesmerized by the fiscal dimensions of the global economic crisis and not nearly attentive enough to what will be required to ensure the U.S. remains competitive and capable of robust economic growth over the longer term.  Above all, that will require large investments in human capital and public infrastructure, since these are the resources on which all kinds of businesses depend for success.  Despite the efforts of some analysts, such as Michael Spence, and of President Obama himself to argue that, by focusing on these issues, we can address the immediate problem of unemployment and long-term growth together, these issues have not yet become central to public debate.  I wish Americans could see how rapidly China is moving on these fronts and how fruitful such strategies have been in parts of Europe, such as Finland.  We are so obsessed with the short-term, on both economic and electoral fronts, that we are moving far too slowly to lay the basis for renewed growth over the long term.

In Europe, discussion of the Euro crisis is dominated by many myths.  But the one yet to be questioned at all seriously is the myth that deregulating markets in labor and goods so as to intensify competition in them will regenerate growth in the southern European economies.  Such moves are typically described as ‘structural reform’ – a term that has become the mantra of the EU and IMF.  In the long run, structural reform may make some economies more competitive, but to pretend that it will revive economic growth in the short to medium term is an illusion.  Yet this illusion is at the center of most of the plans concocted to revive the southern European economies and resolve the Euro crisis.

For obvious reasons, this is a convenient myth, but it is an empty slogan, all the more pernicious because it diverts attention from the role that government has to play in the revival of economic growth.

Let’s turn to the Eurozone debt problem. The dominant view is that Greeks and Italians are corrupt, inefficient and lazy, and that is why they find themselves in this mess. What is your view of what is going on?

For the most part, this is a canard, encouraged far too quickly by many politicians in northern Europe who reacted to the sovereign debt crisis as if it were an issue of morality rather than a crisis with economic and political foundations that threaten the viability not only of the Euro but of the EU.  Those politicians now realize the full dimensions of the crisis, but their initial reactions has made the task of persuading their electorates to accept measures that might genuinely cope with it much more difficult.

The difficulties from which Greece and Italy are suffering have something to do with problems of political, as well as economic, development.  Both countries would be better off with public institutions less prone to corruption.  But to suggest that that their people are not working hard enough or retiring too early is to misrepresent the problem altogether.  Comparative data suggest that the de facto retirement age is not very different in most of southern Europe than in northern Europe and that the southern European countries have taken just as many steps as those in the north to make their markets more competitive over the past ten years.

The roots of the Euro crisis lie, at a much more basic level, in asymmetries in the organization of the political economies in the north and south of Europe.  In general, as David Soskice and I observed in Varieties of Capitalism (2001), the organization of the political economies of northern Europe gives their firms capacities for wage coordination, skill formation and continuous innovation that suit them well to operate strategies of export-led growth, and EMU provided them with guaranteed markets in the rest of Europe.  By contrast, history has left the southern political economies with fissiparous trade unions and limited capacities for concerted skill formation or continuous innovation.  In the past, they coped with that by operating growth strategies led by domestic demand and then devaluing their currencies to offset the inflationary effects of such strategies on their external competitiveness.  In EMU, they were unable to do that.  Instead, not unreasonably, they took advantage of the cheap credit flowing from northern Europe to promote economic growth.  But, unable to offset the inflationary effects through devaluation, they lost competitive advantage to the north.  The result can be seen in the gross imbalance of payments between the two parts of the Eurozone.

The standard recipe for the recovery from the Eurozone crisis is austerity and structural reforms in the peripheries, plus some recapitalization of banks. Do you think this is the right way to go?

To appreciate the Euro crisis, we have to realize that there are two sides to it.  On the one side, there is the longer term problem of how to devise a structural adjustment path that will restore prosperity to both the south and the north.  On the other side, this is a crisis of confidence, notably in the markets for sovereign debt but spreading over time to the European financial system as a whole.  The European Union has remarkable capacities for muddling through, and, given enough time, I believe it can resolve this long-term problem adequately if not perfectly.  But it is never going to get to the long term if it does not effectively address the immediate crisis of confidence and, as everyone now acknowledges, its efforts to do that over the past year have consistently offered too little, too late.

The immediate crisis is what worries me.  With respect it, there are two issues.  Is there a way for the members of the Eurozone to restore confidence in the markets?  And, if that can be identified, will the member states and the ECB be willing to take the requisite measures.  At this point, I think, as do many others, that the only way to restore confidence in the bond markets is for the ECB to guarantee the sovereign debt of its member states against default, except perhaps for Greece where the markets have already priced in a default.  Various schemes have been mooted whereby the ECB might do this, indirectly if not directly.

The problem is that it will not be easy for the ECB or the member governments to do this.  Mario Draghi and the German government currently oppose such a step.  It is forbidden by Article 123 of the Treaty establishing EMU, and the German Constitutional Court likes to take that Treaty seriously.  The only ray of light here is that the relevant resolution passed by the German CDU at its recent conference does not entirely rule out such a step, describing it as ‘a last resort’.  I think the time for last resorts has come, and I could imagine a deal in which the member governments agree to much stricter enforcement of fiscal targets and long-term support for the ECB in return for a measure of this sort.  However, it is an entirely open question whether the Eurozone governments have the political wherewithal to make this move.  If they do not, I think the crisis of confidence is likely to persist and strengthen until an Italian, Spanish or even Belgian default looms, and then it may be too late to save the Euro.  It takes a confidence trick to resolve a crisis of confidence and the sooner one acts, the less costly the resolution.

What do you think would address the trade and debt imbalances between Northern and Southern Europe? Do you think it can be done within the European monetary order?

This is a question about whether balanced structural adjustment is feasible over the long term within the confines of EMU.  Certainly, the current approach of imposing all the costs of adjustment on southern Europe (of which Ireland can be considered an honorary member) is likely to fail.  Except possibly in Ireland where growth is gradually picking up, there is no reason to expect that rapid enough growth can emerge from such austerity to render the debt load of these countries sustainable.  At a minimum, long-term stability depends on a more coordinated set of fiscal policies in which some reflation in northern Europe is married to a softer adjustment path in southern Europe.  However, this will not be easy to secure.  In particular, as Wendy Carlin and David Soskice have observed, reflation poses risks to the wage coordination on which the northern European economies depend for their competitiveness.

Even then, for reasons I have noted, there is some question about whether the southern European economies can prosper within EMU.  Portugal and Greece, in particular, do not have especially strong export sectors and are not likely to grow them overnight.  These countries have long depended on growth strategies that are accompanied by moderate levels of inflation and, because the ECB has to pursue a monetary policy of one-size for all of Europe, it cannot always dampen down that inflation effectively.  In the wake of the sovereign debt crisis, borrowing costs are likely to remain higher in the south, which will help.  But the danger is that, if the southern European governments cannot pursue growth led by domestic demand for fear of its inflationary consequences, they may experience only low levels of growth for the foreseeable future.  Structural reform will help in the long run but likely only a little.

It may well be that Europe can live with persistent imbalances of payments at some level, but the question is whether more effective coordination of fiscal policies will be enough to allow the southern European economies to grow at rates that are politically acceptable to their electorates.

The hegemony of the demand for austerity is striking. It is offered as the solution to the Eurozone crisis, as well as to the American situation – the US Congress even created a supercommittee to find savings. Yet it seems odd to have such agreement around austerity in the midst of a potential double dip recession. What is wrong with the demand for austerity? How do you account for the strength of this common sense?

The demand for austerity can be explained to some extent by the fact that we have just lived through a period in which financial innovation married to inadequate financial regulation made possible much higher levels of leveraging of assets, leading to higher levels of debt, whether in the public or private sectors of the U.S. and Europe.  To some extent, we are paying today for what we ate yesterday.

The best way to pay back these debts, of course, is from the fruits of more rapid economic growth and that is most likely to be secured, as John Maynard Keynes argued, by reflationary policy. Thus, in the context of global recession immediate austerity does not make good economic sense.

To explain why so many are advocating it, then, we have to recognize that economic policy, whether at the national or international level, is rarely driven entirely by concerns about how to improve overall economic well-being.  It is made by actors, who may be political parties or governments, who are also seeking distributive benefits for their constituents, and, in many cases, these distributive demands are cloaked beneath calls for austerity.  Thus, the demand of several northern European governments, including the Finns and the Dutch as well as the Germans, for austerity in southern Europe is motivated, to a significant extent, by a concern to ensure that they do not pay the costs of adjustment in the wake of the Euro crisis.   I see the demands for austerity of many Republicans in the U.S. as an effort to cut public spending programs that they think serve Democratic rather than Republican constituencies.  If distributive concerns were not at the heart of those demands, those Republicans would be much less reluctant to raise taxes in order to balance the budget.

In the US, there is an influential view that we need to have continued expansionary monetary policy but contractionary fiscal policy. That seems to be the recipe of the moment, with the Fed even contemplating another round of quantitative easing. What do you think of this approach to inadequate demand and balance sheet problems?

As the French would say, I am willing to accept this for lack of something better.  Something better would be a coordinated reflation in which more expansionary fiscal policy was now playing a larger role.  We have arrived at this situation, I think, because central banks, including the Federal Reserve and the ECB, have been willing over the past three years to do what governments have been unwilling or unable to do.  For that, they deserve considerable credit.  One can reasonably ask whether the best way to respond to an era marked by a large expansion in lending is to pump even more money into the system, but, since inflation remains low in most of Europe and North America, partly because the trade unions have been so weakened and unemployment is high, this seems to be an appropriate strategy.  In the absence of a substantial fiscal stimulus to aggregate demand, however, it is unlikely to lower unemployment much.

Debt, especially mortgages and student loans, have become a major issue over the past few years. What if anything do you think should be done about it? How should we understand the growing debt of American households in the past decades?

As Ragurham Rajan and others have pointed out, in the United States, during the 1980s and 1990s, easy consumer credit and home equity loans became a substitute for social policy.  They have been the means ordinary people with little in the way of savings used to survive adverse life events and fluctuations in the economy.  Student loans can be seen, in similar terms, as a substitute for publicly-funded education.

They can also be seen as a key component of the growth model operated in the United States over that period.  Growth in this country was led by domestic demand and the only way to sustain demand in an era when disposable income for households at or below median incomes stagnated was to promote the kind of asset boom in housing that gave many the illusion that their wealth was increasing even if their income was stagnant.

In the past two years, as home prices declined and some forms of credit became harder to secure, American households increased their savings and that, in itself, is gradually reducing the debt burden of the private sector. I do not see any need to take steps to further reduce that debt.  Indeed, it is difficult to see how the American economy can continue to grow without the availability of such credit.

However, there are serious longer-term problems on the horizon.  More than half the American populace has no savings for retirement at a time when larger cohorts can be expected to retire and health-care costs continue to rise exponentially, eating into the disposable income of many families.  Part of the problem is that most of the fruits of economic growth over the past three decades have gone to people in the top 1 percent of the income distribution.  In the long run, the solution will have to entail engineering a more equitable distribution of wealth so that ordinary working families have the means to increase both their savings and their spending.

One thing that seems to tie the American and European situation together is the considerable growth of financial activity. Is there anything to the view that the last decades can be understood as a period of financialization? If so, what does it mean to say the economy has become financialized?

Seen from a long-term perspective, this does indeed look like an era of financialization.  The share of profits in the economy going to the financial sector expanded dramatically.  With the invention of new financial derivatives and the development of financial markets, many firms ostensibly devoted to manufacturing, such as General Motors, have made an increasing share of their profits from financial activities that leverage their capital.  That has contributed, in turn, to rising income inequality at the high end of the distribution, as those skilled at financial engineering generated profits large enough to allow them to demand astronomical levels of compensation.

In my view, it would be an exaggeration to say that the economy has become ‘financialized’.  There are still many productive components of the American economy that do not turn on finance.  However, it is apparent that we are all vulnerable to the systemic risks that a large financial sector, increasingly devoted to speculation, entails, and that is a serious cause for concern.  Although some of the financial innovation of recent decades has made some markets more liquid and borrowing easier for some productive firms, I doubt that this type of ‘casino capitalism’, to borrow a phrase from Susan Strange, ultimately contributes enough to economic prosperity to justify those risks.  We are currently paying serious costs for this and, unless financial regulation becomes more stringent than is currently anticipated, I think there will be more to pay.

Related to that question, what do you think accounts for the ‘bubbliness’ of the US and European economies, and especially the scale of these bubbles? We have seen a number of different bubbles and credit crises – housing bubbles in the US, UK, Ireland, and Spain; sovereign debt events in Greece, Portugal, and Italy, perhaps even France. While there was the dot come bubble in the late 90s, and the East Asian financial crisis, those don’t seem to have had the magnitude and systemic character as the latest period. What is, or isn’t, different about what we’re experiencing now?

I do not believe that any single set of factors can explain these diverse developments.  The housing bubbles can be explained, at least in basic terms, by a long period of easy credit, made possible, as I have noted by the expansion of the financial markets in various kinds of derivatives.  That was made possible, in turn, by what I consider lax financial regulation.  It is ironic that economists liked to describe this period as an era of ‘great moderation’.  In each case, however, some ancillary factors were at work.  In Spain, the cost of borrowing was greatly reduced by the confidence effect associated with entry into EMU.  In Ireland, it was encouraged by rapid rates of economic growth.

The sovereign debt crisis has more complex roots.  In Greece, which enjoyed the same easy access to credit as Spain, the fiscal fecklessness of the government is notable.  In Ireland, some of the problems can be attributed to the government’s mistaken decision to guarantee the bonds of its banks.  In different ways, Portugal, Spain and Italy remained creditworthy on the fundamentals but fell afoul of the spreading crisis of confidence in the markets, which has yet to take its last victims.  There are some parallels with the East Asian financial crisis.  The current crisis is worse partly because it has struck the major financial sectors of the western world and we now face the question of who will rescue those who normally do the rescuing.

How optimistic/pessimistic are you about the ability of national democratic procedures to provide solutions to the current economic crises in Europe and in the US? What do you think of the recent proliferation of technocratic governments in Greece and Italy? Does the current crisis expose some basic tensions between capitalism and democracy? If so, how exactly?

In this as in every other case, as Winston Churchill once said ‘democracy is the worst form of government except for all those other forms that have been tried from time to time’.  The notion that governments led by geriatric Eurocrats will resolve their countries economic problems more readily than elected governments is another of those illusions that bedevil the Eurozone.  They have legitimacy in Brussels but imposing austerity is ultimately a task that demands domestic political legitimacy.  I see this as a stop-gap solution that might, at best, persuade officials in Brussels and Berlin that everything has been tried and they must pay more heed to the pain and demands of national electorates.

It is obvious that the cumbersome decision-making procedures of the European Union are not up to the task of heading off a crisis in the financial markets.  But that is not a problem with democracy.  It is a problem of international negotiation.  Democracy enters the picture to the extent that the views of national electorates limit the willingness of their governments to share the costs of adjustment, and that is admittedly a problem for Europe.  A continent so proud of the ways in which its social policies reflect ‘social solidarity’ has been unable to summon up the sense of continental solidarity that would justify a more equitable and efficient solution to the crisis.  But social solidarity does not simply bubble up from below.  It is created by inventive political leadership and we are still waiting to see if the political leaders of Europe are capable of that.

On the larger question, my view is that the global financial crisis has thrown into stark relief the importance of the state in any democratic system.  The crisis itself is rooted in failures of financial regulation that can be linked to the unwillingness of governments to assert the authority of the state on behalf of the people against powerful financial interests.  And the inadequacy of the response to the crisis, especially in the U.S., can be attributed, in some measure, to the widespread reluctance on the part of many people to trust the state with their resources.  In many respects, that is the legacy of the neo-liberal era that followed the economic crisis of the 1970s, when many policy-makers and citizens became disillusioned with the capacity of governments to direct the economy.  Hence, the American government faces the current crisis hobbled by rising levels of distrust in government.  It is not acting more forcefully on the fiscal front partly because large segments of the American population are willing to vote for politicians who claim that government is the problem rather than the solution.

What are your views of the nascent protests (Occupy Wall Street, Indignados) developing in response to the introduction of austerity packages in Europe and the US? Are these movements a continuation of or a break with the anti-globalization movements of the past? Are they likely to fundamentally change public perceptions and government policy or will they have only a very small lasting impact?

There have been two notable political responses to the current economic crisis.  One is marked by a backlash against immigration, in both the U.S. and Europe, reflected in the growing popularity of radical right parties in Europe and the salience of immigration to national political debates in the United States.  This is a familiar feature of economic crises.  The U.S. has a long history of nativist movements.  The other is reflected in the Occupy Wall Street movement and its European analogues.  I can only hope that the former is contained and the latter encouraged.

It is difficult to see how these sporadic protests can be translated into any immediate changes in policy, not least because they have yet to articulate clear political demands.  However, I think they are having an impact.  They have struck a chord in popular opinion.  They bring issues of unemployment and inequality to the fore.  In the short term, I think that may influence voters in American elections next year, and, over the medium term, I believe that even these limited protests will help to shift political discourse in directions that favor those seeking to address issues of inequality and unemployment.

Spain: predictable results in uncertain times

The most remarkable thing about yesterday’s election results in Spain is how unremarkable and predictable they were. For weeks, the opinion polls had been predicting that the incumbent Socialist government would be trounced and it duly was. The opposition Partido Popular (PP), lead by a seasoned PP politician, Mariano Rajoy, won 186 seats in the 350 seat assembly. The Socialist Party, the PSOE, won 110 seats. In terms of percentage of the vote, the PP’s victory was all the more striking: 44.62% of the vote for the PP, 28.73% of the vote for the PSOE. The scale of the PP’s victory was no doubt a reflection of the widespread disaffection with the governing Socialists. But beyond that, there was little in the results that indicated the scale of the economic and social crisis the country is facing. No new political formations have been thrown up by the crisis. The United Left party (IU) won 11 seats and 6.2% of the vote – not an insignificant result. But generally the smattering of small parties that won altogether 54 seats were an ideological mixture: left, right, Catalan and Basque nationalist. The Indignados movement, fueled by a widespread disenchantment with the ruling political class, did not prompt any mass withdrawal from the electoral process. Their slogan – They Don’t Represent Us! – did not seem to have much impact. The abstention rate was 28.3%: higher than in the two previous elections (2008 and 2004) but lower than in 2000.

Though unemployment stands at above 20% and the country’s ability to auction its bonds on the international market is looking shakier by the day, the prevailing sentiment in the course of the campaign was that of resignation. Rajoy himself did not propose any new ideas on how to tackle the crisis. His cryptic slogan that promised to transform Spain into the “Germany of the South” could be interpreted in a multitude of ways. His promises of fiscal rectitude and public sector reform was – in the absence of specificities – no more than a vague nod in the direction of both the markets and the EU. That an election at such a crucial time should throw up so few surprises is perhaps a fair reflection of how people are responding to the crisis. But in the case of Spain, it is surprising. After all, when the global financial crisis hit in 2008 Spain was performing well. Its government did not – contrary to Greece – run up large debts in the good times. Public borrowing was low as tax receipts from high growth rates ballooned. In 2007, its debt ratio was only 36% of GDP and from 1999 through to 2008 Spain ran a balanced budget on average i.e. its borrowing was equal to zero.

Spain’s problems today are in part the result of an asset price bubble. Whilst the government did not run up debts during the boom years, private borrowing in Spain rose rapidly as individuals were able to access credit easily via national and international channels. When the downturn struck, individuals found themselves saddled with extensive debts. Regional Spanish banks have also been left with a large number of bad loans, made to finance real estate projects that will never see the light of day. Repayment of these debts has cast a long shadow over the Spanish economy as spending power is squeezed and as banks refrain from financing the private sector.

However, this does not explain why the Spanish government is today struggling to find buyers for its bonds. That is to do with the common currency union. In a downturn, governments usually run up debts in order to pay for increases in welfare payments: with +20% unemployment in Spain, those payments are large but given Spain’s position at the beginning of the crisis it should be able to weather the storm. However, because of the common currency union, the use of automatic stabilizers is limited: Spanish government borrowing is judged not on its own terms as much as in terms of the wider dynamics of the Eurozone. The fact that these automatic stabilizers would have an inflationary effect which would reduce the debt burden in the longer term is also ruled out by the currency union. The disciplinary effect of monetary union is thus not neutral but specifically kicks in to restrain some policies rather than others. As already argued on The Current Moment, the effect is to structurally lock countries into internal adaptations through domestic wages and prices instead of adapting through a mixture of internal and external measures.

A measure of success for today’s protest movements should surely be whether or not they are able to challenge ruling orthodoxies in ways that impact upon electoral outcomes. The evidence from Spain is that up until now, protests have had no such impact.

QE3 : US1

Ignored by all but market-watchers and anti-Fed types, the Fed gave tacit encouragement to a QE3 strategy this week. Stimulus in the worst possible way. In fact, for all the attention that Obama’s jobs program and proposed tax hikes have been getting, right now it seems like a lot of sound and fury. Whatever compromise is going to come out of it, it is likely to be a lot of small ideas whose whole will be less than the sum of its parts. The Fed, on the other hand, under Bernanke’s ‘leadership’ has decided to buy up $400 billion in long-term bonds and sell an equivalent amount of short-term bonds. This move, coordinated with interventions by the European Central Bank, has been dubbed ‘Operation Twist’ after a previous operation from the 1960s (explainer here). (Is there no area of social life immune from military metaphors? Though perhaps it does say something about the anti-democratic ways and means of the Fed…)

The idea seems to be that, coupled with a zero percent interest policy, this will inject liquidity into a stagnant economy on the verge of a double-dip, and stimulate employment-generating investment rather than just allowing extra cash to sit in T-bills. And it’s a politically acceptable way of injecting liquidity because it does not increase the balance sheets of the Fed, just redistributes its holdings as a way of ‘twisting’ the yield curve on bonds.

We’ve been here before. Many of the arguments (here and here) against expansionary monetary policy still apply. But it’s even more problematic than we first thought. First, it’s worth noting that, as Perry Mehrling has been tirelessly demonstrating, this is all QE3 but under the table, as it were. Just to remind ourselves, QE1 was the buying up of lots of toxic assets to try to clean up bank balance sheets, avoid an even worse credit crunch, and had some real rationale insofar as it helped avoid a panic. (Hence ‘US 1’ in our title  – we can accept this particular part as at least a necessity for the American economy). QE2 was the buying up of huge amounts of treasuries to drive down borrowing costs, and was much more dubious, not just because it increased the size of the Fed’s balance sheet but did little more than spark speculation on commodity prices.

Mehrling has identified two mechanisms through which ‘QE3’ is happening. The first, via the zero interest rate policy, is that private entities can borrow at zero and then reinvest that money in any asset with a positive return. (See, for instance, the recent rush to the Swiss franc). This is ‘privatized QE3‘ because it happens off the balance sheets of the Fed, via the expansion of private money – “private debts secured by the asset purchased.” The second mechanism, is via the expansion of eurodollars, or borrowing dollars from other banks that hold dollar reserves. Mehrling again: “The point is that QE3 is happening without any necessity for the Fed balance sheet to expand by a single dollar. It is happening on the balance sheets of other central banks.”

What’s the problem? Well, to begin with, as Mehrling himself observes, “The difference is that, since the Fed is not doing the trade on its own balance sheet, it has no control over which trades get made.” It can increase money supply, but it can’t tell people what to do with it. It certainly can’t force them to invest in creating things. And quite reasonably, given the absence of demand, corporations seem content to sit on their cash, or park it swiss francs or gold, rather than create jobs by investing in new production. As a way of dealing with unemployment, this is useless at best.

Worse yet, it seems like an aim here is to reboot the pre-crash system rather than change it. “The rationale behind lowering long-term bond yields is that it will enable homeowners to cut their borrowing costs, encourage greater borrowing and investment, while pushing more investors to leave government bonds and buy riskier assets.”

Invest in riskier assets? Cut borrowing costs for homeowners? This sounds like debt-financed asset-speculation, alongside debt-financed private consumption – ie the financial model of growth that got us into this mess. (And an incredibly inefficient and destructive way of providing people with homes, the only halfway decent thing to come out of this mess.) And, as Mehrling points out, since a lot of this QE3 mechanism is private in nature, “it looks like a repurposed shadow banking system” with the exception that the new asset on which to speculate has yet to be determined. (On shadow-banking, see this excellent piece by Kapadia and Jayadev). This is surely stimulus of the worst sort.

Finally, one defense of this kind of expansionary monetary policy is that it is a way of dealing with a balance-sheet recession in a way that also redistributes money. It helps correct balance sheets by inflating away debt, and inflating away debt helps households struggling to pay off credit cards and banks. As we’ve noted before, this narrative is decidedly flawed, because ‘debtor’ and ‘creditor’ are not uniform entities by any measure – they are certainly not the same as poor and rich, or worker and employer. But more to the point, inflating away credit is also a way of inflating away wages. The Census Bureau’s recent Income, Poverty and Health Insurance Coverage report notes that the real median household income has declined by 6.4% since 2007, and is 7.1% below its 1999 peak. Remember that is median income, with a bottom that includes many more unemployed than before – 4-10% more depending on how you measure. When you add in the unemployed and underemployed, you have a much more serious decrease in household income (nevermind wealth, which has seen even more serious declines). When there is inflation alongside wage stagnation, what are households to do? Borrow! This really does look like system reboot, except in much worse economic conditions, without an asset to speculate on (yet), and with households already deeply underwater. QE3 : US 1.

How the Other 80% Live

Class war is in the air! Well, not if Obama can help it. Apparently taxes and social policy are about ‘math.’ Nice one, Mr. President. Way to shed your image as an educated liberal, trying rise above the uneducated riff-raff – imply that your opponents don’t know how to do math. But of course, despite the new populist tone to Obama’s proposals, conflict and confrontation just don’t come naturally to this politician. The President’s willingness to invoke class differences might reach a temperature just shy of tepid before he overheats. For any serious discussion of class, it’s best to hit mute on the noise machine and think for ourselves.

At the broadest level, we can represent class in a single graphic. We’ve posted it before, and it’s based on pre-crisis numbers, but that only underestimates the divide:

The reason we like this graphic is that it captures a central feature of class: who has to work to live, and who does not. There are many ways of calculating out or measuring that dividing line, and there will always be people on the margin. But this graph gets at the important distinction. The wealth of the lower 80%, is pretty much all tied up in homes and pension plans, which have to be lived in or saved. Therefore, their wealth is not liquid, or at best, could last only a few months. They have no other reasonable option besides getting a job. The upper 20% not only possesses 85% of the wealth, but also takes in 61% of the income – income easily converted into more wealth (i.e. saved). No doubt those at the lower end of the top 20% could not consume their savings for all that long, at least not at their current rates of consumption, but they could if they lowered their consumption. And the rest could live on their savings – they have a reasonable alternative to working. So as a very rough cut, the 80/20 divide is one take on class. And, as the next graph from Mother Jones shows, it just so happens that the top 20% are the ones who have seen their fortunes improve relative to the rest (see esp. chart on right):

While there is plenty of commentary on the difference between the upper 20% and the upper 1%, and the difference between the upper 1% and the upper 0.1%, and so on, there is less of the bottom 80%. In fact, we led with the bottom 80% to emphasize a point we made last week: while mainstream debates about jobs and stimulus have focused on the unemployed, there are common challenges faced by that ‘bottom’ 80%, even if they are never, or rarely, seen for what they are, a working class.

Of course, there are reasons why it is hard to see that 80% as sharing common interests. They are economically divided, politically fragmented, socially dispersed – and thus easily pitted against each other. Consider the following:

The unemployed

It is reasonable to start with the unemployed, especially the increase in the unemployed. First, it is evident that lion’s share of this rise in unemployment is neither just structural, nor a product of over-generous unemployment benefits. As this BLS graph shows, the ratio of job seekers to job openings, though down from the crisis peak of 7:1, is still at 4:1:

Moreover, as Delong noted a while back, the civilian employment to population ratio has decreased by about 5% since the crisis.

The civilian-to-employment ratio measures the employed civilians relative to overall population. It is a ratio that can help indicate how many people dropped out of the job market altogether. If you add the 4:1 ratio of just those looking for work, and add in the difficult to measure, but clearly increased level, of those who have simply given up, you have severe unemployment. A severity undermeasured by an unemployment rate of 9%.

So what we have, first, is that the unemployed are in their condition not because they are lazy, or spending government hand-outs while they wait for something better, but because there are way too few jobs relative to job seekers. Moreover, second, the official stats very likely undercount the unemployed dramatically. Depending on the calculations one uses to include those who have given up, underemployment is around 12-15% (calculations by Allegretto put it as high as 16.5%). So far, then, something like the bottom 15% of workers are…not even working.

The employed, but poorly paid

Mass unemployment is not just bad for the unemployed. For fear of losing their job, coupled with the already weak bargaining power of labor in the United States, workers accept pay and benefits cuts, or simply don’t make new demands even as prices rise. Anyone who reads the news has seen some version of the statistics. This summer’s Hamilton Project report provided the most direct picture:

The Census Bureau’s recently released Income, Poverty, and Health Insurance Coverage report similarly showed a 6.4% decline in median household income since the recession began in 2007. The median income is now $49,445 (pre-tax), barely double the extremely stingy official American poverty threshold for a family of four of $22,314 (post-tax).

We have not yet found a single, clear graph on the overall decline in benefits. But reports over the past months have documented significant declines in retirement benefits, health coverage, family and medical leave and other benefits, for average workers.

The point of all this math is just to point out that it’s…more than just math. The fates of the employed and the unemployed are linked by their dependence on the labor market, and at the moment, by the weakness of their bargaining power. There is a serious discussion to be had about class, even if the so-called political class doesn’t want to have it.

Jobs and Benefits, Short and Long Term

Two separate points, both on problems with Obama’s jobs bill – as it stands in its yet untrimmed, ‘uncompromised’ form.

First, defenders of Obama’s jobs program are touting this report by Macroeconomic Advisors that the bill is predicted to create 2.1 million jobs over the next two years, 1.3 in the first year alone. Possibly more. That’s better than nothing. Or is it? In the short-term, it’s undoubtedly a good thing (making the bad assumption here that the bill as presented is the one that gets passed.) However, there is the question of paying for it. Obama has promised slightly higher taxes on the wealthiest, but he also called, in his speech, for “making modest adjustments to health care programs like Medicare and Medicaid.” Whether the final bill makes modest or more serious adjustments, Obama is saying he wants to trade lasting cuts to an important entitlement for a middling jobs bill that will only have short-term benefits. As the same Macroeconomic Advisors report points out, since the different bits of the jobs plan will expire by the end of 2012, “GDP and employment effects are expected to be temporary.” So a short-term bump to employment – and Obama’s electoral fortunes – facilitates an attack on a more enduring, long-term benefit. A problem that could be amplified once Republicans get down with their subtractions to the bill. One step forward two steps back?

Second, in previous posts we suggested that a problem with the jobs bill is that it will treat unemployed as a distinct interested group from the employed. More generally our point was that people who have interests in common – unemployed and the employed, low-wage work and higher-wage work, underemployed and those with two jobs – are not addressed or mobilized as if they have shared interests. We were accused in comments of focusing only on ‘labels’ or discourse, rather than actual policy. So it’s worth pointing out that some of the actual policy is more or less in line with our initial worry – dividing up the interests of the working classes.

The usually Obama-boosting Wonkblog observes that there is a potential problem with a work-sharing provision in the jobs bill. This work-sharing system, borrowed from the Germans and already picked up by some states, is a system whereby the state subsidizes an employer’s decision to keep workers on at reduced hours, rather than fire some and keep the rest on. What Wonkblog observes is that this tends to work best before workers have already been fired – ie where we are now – and what’s more, it may have “positive effect on full-time employment but doesn’t help temporary employment, which could make it harder for those who are unemployed to reenter the workplace.” This worry is taken from another paper, by Cahuc and Carillo, who point out that

“But short-time compensation programmes are no panacea. They can induce inefficient reductions in working hours. Moreover, workers in permanent jobs have incentives to support such schemes in recessions in order to protect their jobs. Employers also have incentives to support short-time compensation programmes in countries where stringent job protection induces high firing costs. Therefore, there is a risk attached with using these programmes too intensively. The benefits of insiders can be at the expense of the outsiders whose entry into employment is made even more difficult.” (our underline)

So not only might this produce an inefficient allocation of labor, but it helps protect the jobs of those who have them more than helps those who don’t have them in the first place – a double whammy, since inefficient allocation of labor will also hold down growth, which also suppresses employment. Of course, the effects, given the small size of the proposed program, are likely to be very small or unobservable, at least at first. But this does create a division of interests – the full-time employed, committed to a new program that holds their jobs in place, and which is really unconnected to serious efforts at creating jobs for those who don’t have them. Somewhere down the line, one can imagine one or the other being on the chopping block, or some trade-off needing to be made, and two segments of a group that ought to be on the same side would be put in competition with each other.

 

Who are they?

After Obama’s speech last night, Corey Robin pointed us to this article by Katha Pollit, which argues that, for the most part, liberals have given up talking about the poor. Pollit has a point. Relative to almost no discussion of poverty and unemployment, Obama’s speech said something. But it took the minimal approach of addressing the fate of the unemployed, rather than the overall structure of options available in the economy. And it is indeed noticeable that the old, diseased welfare-state liberalism has been feeble, especially relative to the politically ascendant progessive-neoliberalism of the Democratic leadership.

However, we’re not so sure ‘the poor’ is a better way talking about the relevant constituency. For one, ‘the poor’ are still a minority – a somewhat different one from the unemployed, it is true – but they are 14%. (Well, according to the official measure, which considerably undermeasures poverty). As such, it is not clear to us that talking about ‘the poor’ escapes any of the political problems we discussed in our post Tuesday. It creates a separate minority, with distinct interests from the many who might not be poor, but who ultimately would also benefit from a different economic order than this one. Why carve up an already fragmented electorate that ought to be organized on the basis of shared, majority interests? Why isolate the interests of the poor from those of the middle?

The other problem is that ‘the poor’ is a fairly passive category. To be sure, there are ‘poor people’s movements’ – though they seem pretty weak in the US. And there are those who use the category poor not because they seem as the objects of charity, but as groups that should or could act to help themselves. But for the most part, it is still a category connected to liberal charity and philanthropy. ‘They need our help.’

Why not say working class instead? It covers the unemployed, the poor, and many of those in the ‘middle’ who have a decent, if fragile and often debt-financed, standard of living. The working class is potentially a majority, not one amongst a number of minorities struggling for recognition of its interests. It is, moreover, an active political and social agent, at least in theory.

Of course, the background problem is that, no matter the category pundits use, the relevant group is more talked about – ‘the unemployed’ ‘the poor’ ‘the working class’ – than making its own claims. ‘They’ have only sporadically (i.e. Wisconsin) made their own claims – and for the most part seem to lose when they do. That real political problem is reflected in the way ‘they’ get talked about – fluid categories, specious identification of interests, and political half-measures as bribes for votes.

In advance of ‘the speech’

We plan to post tomorrow in response to Obama’s speech today. But in the meantime, we wanted to flag three small items. The first is just a statistic. Over the past three years, public employment at the state and local level has contracted by 671,000. This is further evidence for an argument we pointed to earlier: state and local level fiscal policy has worked against national policy, leaving stimulus nearly a wash. And the background political point is that federalism makes even knowing what the heck is going on in the US more obscure than it ought to be.

Second, in honor of (America’s weirdly timed) Labor Day, Mike Konczal over at Rortybomb had a very interesting discussion of the rise of free labor (second post here), including some fascinating comments by Corey Robin. The discussion was a reminder to us that the jobs issue is not just about consumption but power. A further piece of evidence for that point is that, as unemployment has risen, equally has the bargaining power of the employed fallen: the EPI briefing paper we cited earlier in the week found that 38% have seen a decline in wages, benefits or hours, and 24% lost health insurance.

Finally, we enjoyed Matt Taibbi’s entertaining account of his Sophie’s choice between screaming children and Obama’s speech Sunday, but were left with only one question: why did you ever believe Obama in the first place?

The Jobs Problem

In his wind-up for Thursday’s speech, Obama has made unemployment his theme. “Let’s put America back to work,” Obama said to union leaders. Ever the careful politician, Obama has not released details of what he will say, though it is hard to see how he can propose much given the budgetary concessions he has already made. It is tempting to prepare in advance a critique of the inevitable half-measures and technocratic manipulations that have been part-and-parcel of mainstream Democratic strategy for decades now.

However, there is a deeper problem. The problem is not with the inevitable inadequacy of what Obama will propose, but with how Obama wants to define the problem that needs to be addressed. The problem, as Obama wants to define it, is unemployment – ‘put America back to work.’ And of course, unemployment is a big problem. More specifically, persistently high levels of unemployment next to anemic job growth. (See Konczal at Rortybomb for a discussion of the recent unemployment numbers.) But so too is underemployment, crappy jobs, stagnating wages, and declining compensation figures. That is to say, what needs to be rejected is the attempt to present unemployment in isolation, as a distinct problem that can and should be addressed independent of these other economic problems.

The exclusive emphasis on unemployment lets the financial crisis, and the background growth model that produced it, off the hook. Indeed, it is a way of trying to address unemployment while leaving the background structure of society relatively untouched. Obama’s strategy also misrepresents the groups of people that have an interest in a new way of organizing the economy. It is therefore not just analytically but politically problematic, as it carves up the unemployed, the underemployed, the working poor, and everyone else struggling to get by, into different interest groups. This might make problems appear manageable, but it undermines the formation of effective and powerful political coalitions that might actually be able to change things.

Consider, for instance, the way focusing on unemployment lets the financial crisis, and the background, highly financialized, growth model of the last four decades, off the hook. One effect of this economic model was to produce a series of asset-bubbles and debt-financed consumption that, when it all burst, produced persistent and deep unemployment at all levels of society. As an EPI briefing paper points out, unemployment has risen for every skills class, and the ratio of jobs to workers seeking jobs is about 4:1 – this isn’t just some structural unemployment, or mismatch between skills and available jobs, working itself out. The following chart is clear:

The jobs problem is deep and structural. It springs from the structure of ownership, the post-bubble indebtedness, the flight to T-bills instead of productive investment. A real jobs program would have to address these issues, not just send some surplus construction works out to fix schools and highways. But connecting the current jobs problem with the financial crisis, financialization, and the structure of ownership is unimaginable to current leadership.

Moreover, any serious thinking about the economic development preceding and following the crisis, would have to admit that persistent unemployment was not the only consequence. A lot of the jobs have been pretty crappy, and nearly all of the benefits of the past decades of growth have gone to small segments of society. The EPI briefing paper is a rich source of information on these familiar trends (h/t Art Goldhammer). Consider income first. In the last ten years, real median income has declined by about $5,000:

Wage growth has been slower in the past two years than the previous thirty, and, as we have pointed out before, the previous thirty years have been pretty stagnant. If one adds in other forms of compensation, things have not been dramatically better. According to EPI, since the crahs 38% of families have been directly affected by wage, benefit, or hours reduction and 24% by loss of health insurance.

As for wealth, the top 5% took home 81.8% of all the wealth gains between 1983 and 2009, and the bottom 60% saw net declines in wealth:

A -1.7% decline in wealth for the bottom 80% of all Americans. Clearly, the problem in the United States with the economic development of the past decades, and with the post-crisis ‘recovery,’ is not just persistently high levels of unemployment. It is with the broader structure of the jobs created, their associated levels of income, overall compensation, and wealth. The jobs problem is one amongst a series of problematic features with the way jobs are and are not created. But these are not even issues Obama has wanted to mention, let alone address, in any consistent way.

Focusing on what has happened to the employed, not just the unemployed, matters not just in ‘policy’ but also ‘political’ terms. As a matter of policy, it suggests that more expansive thinking is needed than just a works program that might mop up some of the worst excess of recent events. But as a matter of politics it matters because presents a decidedly different way of thinking about the interests at stake than Obama’s focus on the unemployed. At the moment, Obama seems to be reproducing the political failure of the health care debate – where he focused on the 20% uninsured rather than the majority of the population who could benefit from a different system altogether. The more Obama appealed to the worst off, the more the rest believed – not so illegitimately – that their interests were not seriously under consideration. One just cannot build adequately strong political support for significant economic policies that way. In one sense folding a jobs program into a broader argument for improving the conditions of the already working classes might seem more of stretch, because it is more radical as an appeal. On the other hand, it appeals to shared interests of a majority of citizens – indeed, by some measures, to roughly 80% who have seen stagnating incomes and declining wealth. In that sense, it is just as viable a political strategy.

Policy and politics, interest and action, go together. One kind of politics – the appeal to the interests of unemployed and employed alike – implies a different set of policies. It is a more transformative approach. Another kind of politics, the one Obama prefers, is the strategy of division, isolation and containment. Deal with the unemployed separately from the underemployed, the uninsured separately from the underinsured, the poor separate from the middle, and so on and so forth. This suits a technocratic mindset – one lacking both a program and political imagination. It should be resisted all the more for that. The problem, in other words, is not just the ways Obama’s jobs program won’t work, but also with the ways it very well might work. It might work to even more deeply divide an already fragmented and confused body of citizens – a body whose shared interests are usually sacrificed at the altar of moderation and technocracy.