The Hannah Arendt Center has followed the shadow dance of the fiscal cliff less for its fiscal than for its political lessons. While a deal was struck, it is hard not to be impressed by the breakdown of our political class. Like the Europeans, we are now officially kicking the can down the road, refusing to address our meaningful problems. There is, in short, no political will and no political leadership with the courage and willingness to act in ways that might help us imagine a new way out of our predicament.
One could say it is the fault of voters. But there is a funny thing happening in politics. The House of Representatives, which is supposed to be the most populist of the major branches of government, is the one branch of government that is calling loudly for painful spending cuts and resisting the rise of our out-of-control debt. True the House is calling for tax cuts, but so too did the Senate and the President. What distinguishes the House now is its insistence on cutting spending. The Senate and President—imagined to be more protected from popular will—are instead combining now to cut taxes, increase spending, and keep the gravy train of government-subsidized stimulus flowing. In a strange way, it is the political body most responsive to voters that is at least calling for change—even if the House Republicans refuse to be honest about what those changes would be or what they would mean. Why or how has this political inversion happened?
One of the few Senators who voted against the compromise is Michael Bennett, the Democratic Senator from Colorado who was supposed to be cliff jumping in Vail (it’s nice here!) but stayed in Washington to vote “No.” Interviewed by Maureen Dowd in The New York Times, Bennett says: “Going over the cliff is a lousy choice and continuing to ignore the fiscal realities that we face is a lousy choice.” Bennett, a free thinking Democrat, knows that things have to change.
"The burden of proof has to shift from the people who want to change the system to the people who want to keep it the same,” he said. “I think if we can get people focused to do what we need to do to keep our kids from being stuck with this debt that they didn’t accrue, you might be surprised at how far we can move this conversation.
But what is it about the system that needs to change? Some see this as simply a matter of policy. Nouriel Roubini, writing today in the Financial Times, thinks taxes need to go up for all Americans to help support a welfare state that is drastically underfunded and yet ever-so necessary:
Neither Democrats nor Republicans recognise that maintaining a basic welfare state, which is right and necessary in our age of globalisation, rapid technological change and demographic pressure, implies higher taxes for the middle class as well as for the rich. A deal that extends unsustainable tax cuts for 98 per cent of Americans is therefore a pyrrhic victory for Mr. Obama.
Roubini may very well be right. But as he himself recognizes, the political will to exercise this transformation is simply not there. What that means policy wise, I do not know.
It is a fallacy to think that political thinking can exist separately from economic thinking. Hannah Arendt, no economist, saw clearly that the origins of totalitarianism were, in large part, traceable to the importing of economic thinking (unlimited growth) into the political realm, where politics is concerned with geographical, social, and moral limits. The economic victory over politics at that time went under the name of imperialism. Today, under the rubric of globalization, economic thinking continues to subsume political thinking to economic calculations.
The economic crisis of the last four years has brought with it a particular challenge to politics. The crisis is so large and so devastating and it so completely threatens to undermine our ways of life that there is a feeling of political futility. What possibly can be done to address this crisis? From out of this futility arises a kind of head-in-the-sand approach that denies the crisis instead of addressing it. One end point of such an approach is the kind of technocratic governance by bureaucrats now holding sway in Greece and Italy, as well as in a selection of American cities and counties. If we are to avoid giving up our political self-determination and if we want to engage the crisis rather than submit to it, we must first understand it, something that few politicians have been willing to do.
To confront the depth of our ongoing crisis, it is helpful to look at a new report out from the New America Foundation, authored by Daniel Alpert, Robert Hockett, and Nouriel Roubini. This report was sent to me by a long-time supporter of the Arendt Center. It is well worth reading in full. A few basic facts to set the stage:
•Four years into the Great Recession, more than 25 million working-age Americans remain unemployed or underemployed;
•The employment-to-population ratio lingers at a near-historic low of 58.3 percent;
•Consumption expenditure remains weighed down by massive private sector debt overhang left by the bursting of the housing and credit bubble a bit over three years ago (even if debt levels are coming down, as Floyd Norris argued today in the NY Times.)
The basic argument that Alpert, Hockett, and Roubini make is that economists and politicians have misunderstood the nature of the financial crisis. As a result, our responses have been ineffective. As they write: "The principal problem in the United States has not been government inaction. It has been inadequate action, proceeding on inadequate understanding of what ails us. "
So what is really the problem? Alpert, Hockett, and Roubini argue that the crisis is a conjunction of an extreme a credit crisis along with two other long-term trends that exacerbate that crisis. While most commentary and political response has focused on the credit crisis, the importance and impact of the two long-term trends have been largely overlooked. The two trends are:
First, the steady entry into the world economy of successive waves of new export- oriented economies, beginning with Japan and the Asian tigers in the 1980s and peaking with China in the early 2000s, with more than two billion newly employable workers.
Second, the "long term development that renders the current debt-deflation, already worse than a mere cyclical downturn, worse even than other debt-deflations is this: The same integration of new rising economies with ever more competitive workforces into the world economy also further shifted the balance of power between labor and capital in the developed world. That has resulted not only in stagnant wages in the United States, but also in levels of income and wealth inequality not seen since the immediate pre-Great-Depression 1920s."
The upshot of these two trends is that wage labor in developed countries is under continuing downward pressure. Whether the limpid economic recovery continues or not, the wage levels of the pre-crisis period will not return and those workers who earn wages for their performance will continue to experience lower real wages and thus a deteriorating standard of living.
What many still have not wanted to see is that the crisis itself was a response to these trends. For the last 20 years, the decreasing wages of workers in developed countries was hidden and compensated for by increasing debt, both private and public. As the report sees,
Easy access to consumer credit and credit-fueled rises in home values – themselves facilitated by recycled savings from emerging economies’ savings – worked to mask this widening inequality and support heightening personal consumption.
There is a chart in the report that itself shows the problem with crystal clarity. In Figure 2, we see that until 1982, the wages of workers and the income of non-wage earners (thus the higher-paid supervisory workers) was largely equal. Beginning in 1982, however, the earnings of non-wage earners began to rise significantly faster than the income of wage workers. This is at least one original source of the increasing inequality of the American populous and it is exacerbated by an increasingly less-progressive tax code and also by the increasingly profitability of capital investments in the global economy. As the report concludes,
Because many workers were no longer sharing the fruits of the economy’s impressive productivity gains, capital was able to claim a much larger share of the returns, further widening wealth and income inequality which by 2008 had reached levels not seen since the fateful year of 1928.
For anyone concerned with politics in the 21st century, understanding our current economic predicament is essential. That is why reading such a lucid report as this one from the New America Foundation is so important. It is, this weekend, your weekend read.