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Saturday, July 09, 2011

The Regeneracy may not be televised (II)

It was a year ago, on July 5, 2010, that I suggested that this crisis might well have started on September 11, 2001, that it might be nearing its end, and that it would not involve any regeneracy comparable to what the United States experienced during the Depression and the Second World War. A great deal has happened since then, including the Republican Congressional victory, the new war in Libya, the interruption of economic recovery, and the threatened debt crisis. In my opinion, as I plan to show today, most of what has happened suggested that I was right--but there are also possibilities looming on the horizon pointing in a different, and, sadly, even less inspiring direction.

The view I enunciated then, it is now clear, is most definitely shared by the President of the United States--but while I regretted the end of the crisis and the lack of any real regeneracy, he seems to be embracing it. Barack Obama is of course a Gen Xer, a Nomad in Strauss-Howe terminology, not a Boomer, or a Prophet like Lincoln (Transcendental) or FDR (Missionary.) And although he was born in the first year of JFK's presidency, he evidently dreams of emulating his fellow Nomad, Dwight D. Eisenhower. Just as Eisenhower accepted (sometimes reluctantly) the reforms of the New Deal and even the very high tax rates it bequeathed to the nation, Obama has not challenged the economic deregulation that has been going on for thirty years and reached a climax under George W. Bush. Like Eisenhower, he has embraced the (somewhat less sweeping) new foreign policy commitments that his predecessor made. (It is one thing, however, to embrace NATO, as Eisenhower did, and a completely different thing to embrace an indefinite American presence in the heart of the Muslim world.) The centerpiece phrase of Obama's State of the Union address--the "Sputnik moment"--was a clear reference to the late 1950s. The Obama Administration is playing roughly the same role in the gay rights revolution that the Eisenhower Administration played in the civil rights revolution. Nowhere, however, is Obama's affinity with Ike more obvious than in the debt reduction negotiations now taking place.

Both Eisenhower and Obama began their terms with majorities in Congress and lost them in their first mid-term election. (Obama, unlike Ike, still has a Senate majority, but given the evolution of Senate customs it is not big enough to accomplish anything.) And both have reacted by accommodating the opposition leadership to an extraordinary extent. Obama is more than happy to cut tens of billions of dollars in federal discretionary spending, putting more people out of work, and is even willing to discuss reductions in Medicare, Medicaid, and Social Security benefits. He wants to use the threat of a debt crisis to forge a grand compromise, a new consensus, which will firmly establish him as a strong leader and lay the partisanship of the last forty years to rest. And just as Eisenhower evidently realized that the New Deal was here to stay, Obama does not seem to care that that grand compromise would continue to promote income inequality and leave the United States with numbers of permanently unemployed comparable to the latter stages of the Great Depression.

Can he do it? There are two threats, one political and one economic.

Republican columnist David Brooks obviously wants Obama to bring this off, and last week he criticized Congressional Republicans for not meeting the President half way. But the Republican Party has just won a smashing Congressional victory by portraying Barack Obama as a political Antichrist for two years. Taking their cue from Rush Limbaugh, they have blamed everything on him and his supposed liberal allies. (Liberals, meanwhile, are finding out, as conservative Republicans did under Ike, that Obama is not much of an ally at all. I received an email from one of my Senators this week complaining, in effect, that the President was considering Social Security and Medicare cuts.) Although John Boehner seems tempted by the possibility of emulating 1950s House Speaker Sam Rayburn, Mitch McConnell shows no sign of wanting to be the new LBJ. (Just those comparisons show how far we have sunk.) The last thing the Republicans want is to announce that they have solved the country's problems with the help of Barack Obama. Boehner's reaction to yesterday's wretched jobs news suggests that the bad economy makes a deal less likely, because he and his troops think they have Obama on the run.

I do not think, however, that the Republicans will actually dare to plunge the country into default for more than a few days. Thus we will see a series of stopgap compromises, including a catastrophic agreement to continue the cut in the social security payroll tax that Larry Summers evidently talked Obama into before he left--really one of the stupidest moves by a Democratic President in my lifetime, since it is hastening a genuine crisis in social security payments. There will be no great compromise unless Obama is re-elected, holds the Senate and makes some gains in the House. (He is not going to win a majority back there.) And it is far from clear, given the state of the economy, that that will happen.

In either case the United States's decline is going to continue. We have not got the political will or the intellectual capital to attack our real problems, including long-term job losses, the power of the energy, food, and drug industries, and the cost of health care. Some left-wingers are indeed hoping that things will get so much worse that a stronger left-wing response will be necessary. I do not share those hopes.

To begin with, there simply isn't any strong organized left ready to assume leadership. We have not elected a truly liberal President on domestic issues since Lyndon Johnson. The Democratic Party may have worse relations with Wall Street and the energy industry than the Republicans but it is not offering a real policy alternative. The right is at least as likely to benefit from a further economic deterioration as the Left.

Make no mistake: the stronger the Republicans get, the worse the economy will get. I learned in my teens and twenties that today's Republican policies made the depression worse both in Germany and the United States. In Germany they brought Hitler into power; here they brought in FDR. We have no Hitler, but we also have no FDR. Our economy is going to stagnate for a very long time. Our interest is to have it do so at the highest level of employment possible, and I think the grand compromise probably would be, on balance, a good thing.


Bozon said...


Thanks for this capsule of the current situation in context.

Unfortunately, I see 'stormier weather' on the horizon.

One might come to wish for mere long term mild stagnation, hardly an appealing prospect in itself;

but I believe that events elsewhere will overtake a slow decline here rather abruptly I am afraid.

I would say that we are politically and ideologically less well prepared for the future than any comparably placed great power has been.

All the best,

Jennifer Chronicles (jenx67.com) said...

Can you define "a very long time?" ugh.

David Kaiser said...

To Jen: based on the Japanese experience, it could be ten years. But I certainly can't claim to kinow.

Anonymous said...

The last paragraph confuses me. If this compromise means ten years of stagnation with near depression-era levels of unemployment, all while avoiding problems like energy and health care , how can that be a good thing? Compared to what?

James50 said...

I think Rogoff and Reinhart say it takes about 8 years to recover from a financial crisis. That would make it about 2016 or 5 more years before we see real growth again. There is no government action possible at this point to bring us prosperity any sooner.

If we are to keep unemployment levels at a reasonable place, we must turn our attention to export to the parts of the world which are growing - primarily Asia and perhaps Brazil. Obama's move to more free trade agreements is a positive.

We will have a lot to endure in the next few years.

Bob in NC, formerly MA said...

Obama's big mistake was not holding investigations of the Bush-Paulson financial crisis immediately, and hence not holding GOP feet to the fire for the Iraq-Afghan debacles and "off the books" trillions those cost (not to mention 6000 Americans and uncountable Muslim deaths).

He naively seemd to think turning the other cheek would force GOP hardliners to temper particanship. Ha!

Your point about the absence of left leadership is well taken, but a deeper look at how & why this happened would be interesting... who broke the unions? who allowed millions of illegals? who broke the semi-alliance of "welfare-labor"? Whose policies resulted in skewed taxes and lax labor & financial regulatory standards that have caused a 22% decline in working class incomes since 1980? Who incentivized outsourcing of manufacturing to China & India? ("Globilization" was incentivized by US tax & regulatory The answer: partly Reagan & GOP, partly Clinton & the Dems. The result of these 30 years of financial elite policies: a looming disaster.

Like the 1930's, things will continue to deteriorate until we see massive civil unrest, and maybe an "American Spring" like the turmoil surging through oppressed Arab dictatorships...
I hope I'm wrong.

Anonymous said...

Bob in NC -- You speak of Obama's "mistake", but I think that only makes sense if you consider him something like a "real" Democrat, or even a partisn of **any** stripe, i.e., one interested in strengthening and advancing an ideology and a coalition. I don't see anything to suggest that that's what Obama is. I find Dr. Kaiser's generational description of Obama difficult to believe as well.

I don't think Obama believes in much of anything other than advancing Obama. Other than vanity, I can't think of any reason why he even wants to run for another term. What the hell would he do with it? What the hell would he try to accomplish? If you asked him, do you think you'd get ANY tangible answer?

Even more than most politicians, self-seeking and vanity explain Obama completely. I'd still vote for him over a deluded saber-rattler like McCain, but if that isn't damning with faint praise I don't know what is.
-- sglover

Anonymous said...

No discussion of economic history can be serious without acknowledging the operating theory of the historian.

Your conclusions would make sense in the context of Keynesianism, but not at all in the world of Austrian Economics. Keynesian economics is currently under attack due to its' apparent failure to avoid or even predict the financial troubles we currently find ourselves in. The Austrian critics, however, were sounding the alarm bells in the early 2000's, and their dire predictions have come to pass.

If Austrian theory is true, then continued spending (with it's attendent taxes and inflation) will be the cause of our decline, not the savior.

steveftw said...

First time commenter; been reading this page for over a year now.

From my perspective, America (and the larger "free world" is in the middle (or maybe nearer the end) of a multi-decade class war, being waged by the "2%" ruling class against all the rest of the participating classes.

Starting with the congress in the late 70's, running through today, the ruling class have won skirmish after skirmish, and now control the battlefields.

Until some type of singularity (insert your favorite catastrophe here) that "changes everything", I find it hard to believe that anything of substance will change trend.

The ruling class has successfully bought and paid for the legislative body (and, in my opinion, the courts and executive branch as well) of the largest economy in the world, and their "employees" are going to do what all good employees do - exactly what the guy signing their check (campaign contribution) want them to do.

The small percentage of elected officials remaining outside the tent are being replaced at every opportunity.

The only chance - and I firmly believe this - that anyone not of the ruling class has that chance for the better life our founding fathers had in mind (the chance, not the better life) is to learn and understand the short term financial markets, and to gather wealth from the same places the ruling class gets it.

I'm 56 years old, solid middle class (just barely 6 figure income), and am "mad as hell" at the violations of the social contracts and beliefs I was raised with.

If I could see a solution other than "something that changes everything", I sure wish someone would point it out.

Keep up the good work


Bob in NC said...

Well, I am now terrified: if the always amiable and insightful Gerald Meaders, is frightened, I am even more so!
The anonymi have good points too, but it's not a trade-off of spending & taxes vs. Austrian pinch-pennyism; to think the world economy is zero sum is to lapse into Malthusianism. Growth comes from creating wealth, and wealth creation comes from investment in human capital and infrastructure to advance it. (Schools, roads, research, nutritian, science, nuture of families, etc).
Nor should we try to out-flank the arbitrageurs or Wall St money- spinners. No amount of paper instrument manipulation will create growth or real wealth.
With hindsight, we can wonder why we voted for Obama? There was no "progressive" alternative, but why is no one talking about a credible Democrat alternative to Obama in 2012?
Is it because we're all "huddled masses" now with no leaders? Or is it, as the Professor implies, that there is no for-the-people, honest progressives left standing?

Anonymous said...

steveftw -- emphatically agree. One small quibble, though: I think the sainted founders would be generally pleased with the oligarchs' success. When they put out the political design document called the Constitution -- which was NEVER that great to begin with, and is flat-out pathological now -- their primary concern was preserving the privileges of wealth, their class.
-- sglover

Anonymous said...



And you are talking about "REGENERACY"?

current regime?

David Kaiser said...

Thanks for 11 excellent comments on this post.

I posted the last comment, above, to tell you all about something. It comes from a conservative lunatic who leaves some piece of rightwing propaganda here, usually with an obnoxious tag line of his own, nearly every day. I was away for 24 hours yesterday and returned to find he had left 12 of them, of which that is one. It's typical because they all read as if I were a totally uncritical supporter of the Obama Administration, which you all know is very far from being the case. But he has me "pegged."

I know who this might be--some one who has been repeatedly kicked off the fourthturning forum, this time, it seems, for good--but there is no way of knowing. In any case, I announced a long time ago that comments that are both abusive and anonymous will be deleted (and so will simply abusive ones if they are abusive enough), and they will.

Filling cyberspace with obnoxious commentary is clearly a current right-wing tactic.