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New Year Reflections: The Character of the Task Before Us

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The start of a new year is always a good moment for reflection on the nature of our present condition. It is an even better moment for the adoption of resolutions designed to improve that condition. So perhaps we should try both.

Our Present Condition

Our present condition is not good. Five years on from the worse financial crisis since the start of the Great Depression, the economic consequences of the 2008 credit-crunch are still fully visible in America's labor markets. The official level of unemployment in the United States in November, though falling, remained at 7 percent, and as such is still higher than in any month of the George W. Bush presidency except for its very last one. Unemployment in December 2008 was 7.1 percent. The unemployment rate now remains particularly high among teenagers (20.8 percent) and minority populations (12.5 percent for African-Americans, 8.7 percent for Hispanic Americans), and it remains high too among older workers trapped in long-term unemployment (4.1 million such workers in November 2013) and among laid-off workers trapped in part-time employment (7.7 million). When you drill down further into the unemployment statistics and add in those Americans so discouraged by unemployment that they have stopped even looking for work, the true unemployment rate (the BLS U6 number in the official figures) starts to creep over 14 percent: in an economy where job-seekers still exceed available jobs by a ratio of 2.9:1. The medium household income in the United States has now fallen for five years in a row, and "the typical American family now earns less in real terms than in 1989." Meanwhile, income and wealth inequality has returned to a scale last seen in the 1920s, and the poverty rate remains stuck at 15 percent. Currently, one American in seven has an income at or below the official poverty level -- either because of low wages or a dependence on welfare benefits -- and as many as two Americans in three live within one tranche of the official poverty level for their size of family. In terms of average GDP/head, America may be among the richest nations on earth, but for a significant minority of our fellow-citizens that status has no meaning in the daily reality of their existence.

There is more: Our present economic conditions are not simply dire. They are also qualitatively new. We are at some kind of watershed moment in our economic history. For most adult Americans, that history does not stretch back much passed the presidency of Ronald Reagan. Older Americans might remember the pre-Vietnam War era of full employment and union-negotiated wages that created a prosperous white middle class. They might remember the days of rapidly rising labor productivity produced by a strong U.S.-based manufacturing sector, and of targeted federal spending on a new transport infrastructure. But younger Americans (anyone born since the 1960s) grew up being taught that the retention of that prosperity required limited federal spending and the deregulation of business. They learned to work under laws that weakened trade unions and under tax codes that encouraged income and wealth inequality. Most of them grew up protecting and enhancing their own living standards by working more hours per week than their parents had done, by turning themselves into two-income families as more and more women combined childcare and paid employment, and also more recently by maxing out their credit cards, using rising house prices as collateral. America's present condition is so dire because that debt-based economic growth model -- the post-1980 one initially championed by Ronald Reagan and then followed by both Bill Clinton and George W. Bush -- fell entirely to pieces in 2008. The result is that what all of us now need is not simply a return to economic growth. To return to growth, we also need to find an entirely new basis on which to build rising prosperity again.

If that was not enough, there is also this. We have to find that way back to generalized prosperity in completely new and difficult conditions. The new conditions are those of a fully-integrated global economy in which communism no longer shuts out one-third of the world from competition with us as it did before 1989, and one in which colonialism no longer guarantees favorable terms of trade to northern economies from southern ones as it did in the heyday of empire. The conditions are more difficult because of the weakening of the productivity-drivers which once generated a steady increase in output/hour from American workers: first in the 1950s (via the semi-automated production lines first pioneered by Henry Ford) and then in the 1990s (via the generalized application of information technology to both manufacturing production and the retail economy). Those productivity boosters have run their course, so that we now urgently need to find new ones. But those are hard to come by in an economy in which -- through the outsourcing of many basic manufacturing processes to cheaper labor markets abroad -- so many high-wage/high output jobs in the manufacturing sector have been replaced by low-wage/low output ones in the service sector. The task before us in 2014 is nothing less than to find a route back to generalized prosperity amid the wreckage left in place by the collapse of the Reagan growth model and the rise of the globalized economy.

Ways of Improving That Condition

It is in that context that the recent exchange of views between Ezra Klein, Paul Krugman, Jared Bernstein and others is particularly to be welcomed. They at least are debating calmly and intelligently, without rhetoric or cliché, whether full unemployment or income inequality is the defining problem of the age; and they are exploring what exactly is the nature of the relationship between wage dispersal and job creation. Is inequality a barrier to full employment, as some progressive economists have argued , or is inequality a pre-requisite to full employment -- as conservatives often claim? Will full employment bring income inequality down without any need for anti-poverty initiatives of a direct kind, or is a reduction in income inequality something that progressives should prioritize over the creation of jobs, precisely because it will not happen without that prioritization? These are good questions -- not least because they take us away from our normal preoccupation with the daily tedium of the Washington gridlock, and focus our attention instead on the less visible and more basic underlying processes that shape our daily existence. They are good questions, but they are also limited ones.

They are limited partly by not being framed in watershed terms. The debate now underway about the relationship between full employment and income inequality is vital because progressives have to find -- and find quickly -- a set of economic policies that can credibly refute the sustained attempt by the GOP to take us back to the future. Tea Party-driven conservatives are currently set on "solving our economic problems" by reconstituting the Reagan-era growth model in its purest and most reactionary form. From conservative circles, we now face a coordinated campaign to intensify income inequality, to erode the welfare safety net, to undermine public services and to weaken still further already weak labor unions -- with the entire right-wing initiative legitimated by what should be the completely discredited claims of trickle-down economics. For moral as well as for economic reasons, progressives have to challenge this conservative renaissance by developing a political program that explicitly and proudly combines job creation and inequality reduction, one that insists on greater income equality as the route to full employment. And we have to develop that program now, and in a hurry, in order to restore the reality of the American Dream to those many working families across this nation who are currently struggling on low incomes and facing insecure employment. The GOP will deny it, of course, but in reality their policies will hurt those people. They will hurt the poor, the unemployed and the partially employed, and progressives have therefore to be the defenders and the champions of all three.

Such a progressive program will gain credibility partly through the careful examination of the causal relationships between employment and income disparities of the kind now underway in the Klein-Krugman-Bernstein debate. But it will gain even greater traction if that examination is widened -- to explore alongside it how to increase the rate of growth of labour productivity again, and how to ensure a fair sharing of the benefits of any productivity gains. Full employment itself will be a greater productivity-booster -- no more wastage of the economic output of so many men and women keen to be economically productive -- but that productivity boost will be so much greater if it is also linked to the re-industrialization of the American economy (to the bringing of American jobs home through a commitment to fair rather than to free trade) and to the facilitation of a better work-life balance. The European evidence is overwhelming that married women with children, and their men, all work more effectively if they can combine high levels of effort at work with proper care of their families at home, and striking that key balance between work and life requires a new set of public policies on affordable childcare, flexible working hours, and paid maternity and paternity leave. We can no longer afford to waste the productivity potential of skilled workers of either gender.

The task before progressives in 2014, therefore, is to develop and campaign for policies that simultaneously prioritize job creation, poverty eradication, the strengthening of American manufacturing and the empowerment of the American family. Conservatives will tell us that those four things are mutually incompatible. It is our job to demonstrate that they are not.

This argument is developed more fully in David Coates,
Making the Progressive Case: Towards a Stronger U.S. Economy

First published with full academic citations at www.davidcoates.net