The Ongoing Crisis Demands Jobs, Not Deficit Reduction

May 16, 2013David Woolner

Today's leaders must recognize that job creation is the key to boosting revenues for the government and the people.

Today's leaders must recognize that job creation is the key to boosting revenues for the government and the people.

Now, the rise and fall of national income—since they tell the story of how much you and I and everybody else are making—are an index of the rise and fall of national prosperity. They are also an index of the prosperity of your Government. The money to run the Government comes from taxes; and the tax revenue in turn depends for its size on the size of the national income. When the incomes and the values and transactions of the country are on the down-grade, then tax receipts go on the down-grade too. If the national income continues to decline, then the Government cannot run without going into the red. The only way to keep the Government out of the red is to keep the people out of the red. And so we had to balance the budget of the American people before we could balance the budget of the national Government.—Franklin D. Roosevelt, 1936

The news that the nation added 165,000 jobs in April and that the unemployment rate has dipped to 7.5 percent—its lowest since December 2008—is of course welcome. It has eased the fears of many economists that recent cuts in federal spending might stall our somewhat anemic recovery, helped boost the stock market to record levels, and has been cited by Alan Krueger, the Chairman of the President’s Economic Advisors, as “further evidence that the U.S. economy is continuing to recover from the worst downturn since the Great Depression.”

But as many economists have also reported, the April rate of job growth is still far too low to bring about the level of re-employment needed to bring us back to full employment, and, worse still, the slight improvement in the overall unemployment rate masks a good many far more disturbing statistics. Many of the jobs acquired in April are low-skill and low-paying. Some of the drop in the unemployment rate can be attributed to the fact that millions of Americans have stopped looking for work and have dropped out of the work force all together—496,000 people in March 2013 alone. Then there are the under-employed, who also rank in the millions. If we add their ranks to those who are unemployed or have dropped out of the work force altogether, we arrive at an overall “underemployment rate” of 13.9 percent, up from the previous month’s rate of 13.8 percent. Taken together this means that roughly 22 million Americans are either unemployed or under-employed—a staggering figure, which after four years of so-called “recovery” has some economists predicting that long-term un-and under-employment may now be a permanent fixture of the American landscape.

What is even more shocking, however, is that in spite of all of these grim statistics, grim statistics that reflect the hardship and pain of millions, much of the political discourse in Washington—and in the media—remains fixated on the debt and deficit and the Republican demand for a balanced budget. It is almost as if Washington has all but given up on trying to take direct action to bring about a better employment picture. This realization is perhaps best evidenced by the fact that one of the more significant contributors to our persistently high unemployment rate in the past year has been public sector layoffs. 

Calls for the federal government to balance its books are not new, of course. Thanks to the extremely effective public persuasion campaign of the conservative right, we have heard this refrain time and time again. It has now become de rigueur for most politicians— no matter what their party—to pay lip service to the need to get “our house in order” and cut the deficit no matter what the consequences for the average American.

It wasn’t always this way, however. In the mid-1930s, when faced with a similar economic crisis and similar calls for cuts in federal spending, Franklin Roosevelt took an entirely different tack. He insisted that in the midst of a crisis where—much like today—we faced both declining federal revenues and increasing unemployment, “a national choice had to be made” between those who argued that the government should do nothing and “let Nature take its course” and those who argued for federal intervention in the economy, even if it meant running a deficit. As FDR saw it, what stood between his administration and a balanced budget were “millions of needy Americans, denied the promise of a decent American life.” In light of this, he argued that “to balance our budget in 1933 or 1934 or 1935 would have been a crime against the American people,” which would have required either “a capital levy that would have been confiscatory” or accepting “human suffering with callous indifference." "When Americans suffered,” he went on, “we refused to pass by on the other side. Humanity came first.”

And so the Roosevelt Administration launched programs like the Works Progress Administration that built much of the infrastructure we still enjoy today and which gave millions of Americans, from common laborers to structural engineers, the joy and dignity of work. FDR admitted that “this cost money”—and the American people understood that this would continue to cost money “for several years to come.” But given the dire state of the economy and the lack of demand in the private sector, the American people understood that it was the right thing to do.

Unlike today’s politicians, however, FDR refused to pander to the sky-is-falling rhetoric of the conservative right on the disastrous consequences that would accrue to the country by running a deficit in the midst of an economic crisis. For them FDR had a simple answer. He flat out rejected “this foolish fear about the crushing load the debt will impose upon your children and mine.” On the contrary, he went on:

This debt is not going to be paid by oppressive taxation on future generations. It is not going to be paid by taking away the hard-won savings of the present generation. It is going to be paid out of an increased national income and increased individual incomes produced by increasing national prosperity.

In other words, FDR understood that the real crisis the country faced in the Great Depression was an employment crisis—not a deficit crisis—and that in the long run the “only way to keep the Government out of the red” was, as he said, “to keep the people out of the red.” And so he set his priority on the one thing he knew would help bolster the revenue of both the American people and their government: millions upon millions of jobs.

Unfortunately, much of our leadership in Washington today seems to have lost sight of this fact, and instead of taking meaningful action to help grow the economy and alleviate the suffering of the millions of unemployed, would prefer to cut spending and engage in another endless round of bickering about the debt and deficit. Such “callous indifference” to the plight of millions of Americans is no way to bring about an end to the current crisis or build a better future for our children.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute. He is currently writing a book entitled Cordell Hull, Anthony Eden and the Search for Anglo-American Cooperation, 1933-1938.

For more on solutions to the ongoing unemployment crisis, join the Roosevelt Institute in Washington, D.C. on June 4th for A Bold Approach to the Jobs Emergency: Setting the Political Agenda for 2014 and 2016.

 

Unemployment line image via Shutterstock.com.

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Daily Digest

Daily Digest - May 16: Thirty-Seventh Time's the Charm

May 16, 2013Tim Price

Click here to receive the Daily Digest via e-mail.

Four Better Ways to Spend the $55 Million Wasted on Votes to Repeal the Affordable Care Act (Think Progress)

Click here to receive the Daily Digest via e-mail.

Four Better Ways to Spend the $55 Million Wasted on Votes to Repeal the Affordable Care Act (Think Progress)

House Republicans will vote to repeal Obamacare for the 37th time today because they still haven't found a genie to grant their wish, but Bryce Covert and Adam Peck write that instead of paying them to pretend to work, we could pay for things we actually need.

Sequestration Cuts Taking Money Out of People's Unemployment Checks (HuffPo)

Arthur Delaney notes that 2 million long-term unemployed are seeing their benefits cut as a consequence of the sequester. Now that money can be put toward reducing the already rapidly shrinking federal deficit instead of being wasted on, say, a family's dinner.

The global epidemic of underemployed youth (Reuters)

Shane Ferro highlights a report from the International Labor Organization that finds fewer than 20 percent of young people in high- or low-income countries are fully employed, with the rest either hustling, studying, or just waiting around and wondering when life starts.

IRS Fallout: The Real Scandal Is Secret Money Influencing US Elections (The Nation)

While some critics are mad that the IRS dared to question the legitimacy of a bunch of guys in Thomas Jefferson costumes, Ari Berman argues the bigger problem is that they didn't even bother to question what the guys in the expensive suits and ties were up to.

Europe's endless recession, in one chart (WaPo)

Brad Plumer notes that the euro zone economy has now contracted for the sixth consecutive quarter, making it the longest recession the euro zone has ever experienced and, based on how its members are souring on the project, quite possibly the last.

The Fed's Credibility Problem (ProPublica)

Jesse Eisinger argues that while it might be fun to point and laugh at the hedge funders who have been complaining that the Fed doesn't know what it's doing, they kind of have a point, even if it's by accident: the central bank's track record is pretty abysmal.

Why Won't the SEC Rein in the Firms That Tanked America's Economy? (MoJo)

Erika Eichelberger writes that a handful of credit rating agencies helped blow up the economy by telling banks for a fee that the piles of toxic junk they were selling smelled like roses, but the SEC still isn't sure it sees anything wrong with that scenario.

Guerrillas in the Boardroom (TNR)

David Dayen writes that shareholder activists are learning to work the system, winning 66 percent of proposal votes this year and engineering the ouster of a Fortune 500 CEO. Now they're on the verge of making Jamie Dimon take his ball and go home.

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The IRS, Non-Profits, and the Challenge of "Electoral Exceptionalism"

May 15, 2013Mark Schmitt

What the IRS scandal really shows us is that it's getting harder and harder to draw a line between electioneering and political speech.

What the IRS scandal really shows us is that it's getting harder and harder to draw a line between electioneering and political speech.

As the report of the IRS Inspector General shows, the agency’s scrutiny of conservative groups applying for non-profit status was, more than anything, a clumsy response to a task the IRS is ill-equipped to carry out – monitoring an accidental corner of campaign finance law, a corner that was relatively quiet until about 2010.

That corner is the 501(c)(4) tax-exempt organization, belonging to what are sometimes called “social welfare” groups, which enjoy the triple privilege of tax exemption (though not for their donors), freedom to engage in some limited election activity, and, unlike other political committees (PACs, SuperPACs, parties, etc.), freedom from any requirement to disclose information about donors or spending. The use of (c)(4)s as campaign vehicles didn’t originate with the Citizens United decision in 2010 (Citizens United, the organization that brought the case, was already a (c)(4)), but the decision seems to have created a sense that the rules had changed, and even small groups – especially, apparently, local Tea Party organizations -- rushed to create (c)(4)s.

501(c)(4)s are not prohibited from engaging in political speech of most kinds. They are free to be “biased” without jeopardizing their tax exemption. They can advocate for or against legislation, they can lobby the government or criticize it. They don’t have to make any effort to be “nonpartisan” – for example, they can support a proposal that is only supported by members of one party, or directly advise only members of one party. And they can engage in some activity directly intended to influence the outcome of an election, as long as that doesn’t constitute the organization’s primary purpose.

There’s some confusion about the definition of “primary purpose,” discussed in great depth elsewhere, but what the IRS was trying to do was to identify organizations that seemed more likely to be heavily involved in electoral activity. Since the organizations were new, there was no way to look at their actual activities to see whether they were mostly electoral. So the agency had to rely on clues in the applications, like names and telltale phrases. If organizations had words like “Democrat” or “Republican” in their titles, for example, it would be reasonable to look more closely at their election activities, or possible future activities, than an organization that called, for example, “Save the Turtles.” I’m told that organizations with the names of political parties do receive extra scrutiny, even if in some cases, like “Students for a Democratic Society,” the word might mean something unrelated to the name of the party. That’s what the closer scrutiny would find out.

“Tea Party” in 2009 and 2010 was unquestionably an election category – there were “Tea Party” candidates and there was a “Tea Party Caucus” in Congress. It was not unreasonable for the IRS to use that phrase as an indicator that an organization using that phrase might be more inclined to engage in elections. There are comparable phrases on the left – for example, the term “Netroots” might suggest election involvement, as there were groups that identified and endorsed “Netroots” Democratic candidates in 2006 and later. Perhaps there were simply fewer organizations applying for (c)(4) status with that word, or they came in before the 2010 flood, or perhaps the IRS did screen on that word – we don’t know.

While there’s a perfectly plausible case for the IRS to use flag-words that indicate an election-focused movement, the actual questions asked of the groups do raise some concerns. If accurate, they did seem to go beyond evidence that these organizations were primarily engaged in elections, such as questions about lobbying and the role of family members.

But the reason these questions are complicated for the IRS, or for any agency assigned to police these complicated distinctions, is this: the line between robust political speech and influencing elections has become frightfully difficult to draw. Finding the right line around what is an “election” is really the fundamental problem in campaign finance. Almost everyone accepts the premise of “electoral exceptionalism” – elections are structured and require some particular rules, different from the rules that apply generally to political speech. The rule in most states that keeps campaigners 75 or 100 feet from the voting booths is the most obvious uncontroversial restriction on political speech, and there is broad acceptance of the idea that direct contributions to candidates and campaigns should be limited to prevent corruption and dependence. But what happens after that? What about outside spending that looks just like campaign spending? We used to think there was a clear distinction between “issue ads” that were expressing a view on an issue and “electioneering communications” that were the equivalent of campaign contributions. That distinction is actually what the Citizens United case was about -- the provision of the 2002 Bipartisan Campaign Reform Act that defined broadcast communications that mentioned a candidate within 30 days before a primary or 60 days before a general election as electioneering, which had to be financed with regulated funds.

That was an improvised line then, and it’s gotten even blurrier since. Part of the problem is partisanship – it used to be, for example, that there were environmentalists in both parties, supporters of social spending in both parties. A political ad about the environment was just that. But what’s an ad or brochure attacking “Obamacare” during the election year? Every Republican opposes it, and they’ve given it the name of the president. The Tea Party was based on issues, yes, but above all else, it was based on unflagging, total opposition to Obama and congressional Democrats.

To figure out where election advocacy begins and regular political speech ends in these cases was certainly more than mid-level IRS bureaucrats in Cincinnati could handle. But it’s not an easy challenge for anyone. All the noise about IRS “targeting” and about free speech and corporate speech is a distraction from a real challenge of money in elections: finding an agreement on the line around an “election,” and establishing some clear rules for what happens within that line in order to ensure that elections are fair and open and don’t lead to corruption. 

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

 

Audit invitation image via Shutterstock.com

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Daily Digest

Daily Digest - May 15: Adding Morals to Math

May 15, 2013Tim Price

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Creating an Economics for the 21st Century (Yahoo! Finance)

Click here to receive the Daily Digest via e-mail.

Creating an Economics for the 21st Century (Yahoo! Finance)

Roosevelt Institute Senior Fellow Rob Johnson argues that the problem with much of modern economics is that it offers no useful guidance for society, instead treating messy human decisions and interactions as if they could all be performed on a graphing calculator.

How the Case for Austerity Has Crumbled (NYRB)

Paul Krugman writes that the revelations about Reinhart-Rogoff's research errors wouldn't have been so embarrassing to so many proponents of austerity if they hadn't been looking for intellectual cover like a UFO believer searching the night sky with a telescope.

U.S. Budget Deficit Shrinks Far Faster Than Expected (NYT)

Annie Lowrey notes that the CBO estimates the deficit will be $200 billion lower than projected this fiscal year and could shrink to just 2.1 percent of GDP by 2015, allowing Washington to shift focus and get serious about jobs. Just kidding; who wants a tax cut?

Why Washington scandal-mania may save Medicare and Social Security (WaPo)

Greg Sargent writes that President Obama may give up on a Grand Bargain to avoid alienating the core progressive supporters he'll need to see him through the furor over the IRS's Tea Party targeting, the AP's phone records, and something something Benghazi.

Warren asks regulators to justify not taking Wall Street to trial (The Hill)

Peter Schroeder reports that Elizabeth Warren has sent a letter to the SEC, the Fed, and the Justice Department asking for any analysis they have to back up their strategy of settling out of court. Unlike the banks, they may just have to answer for their decisions. 

Student Loan Debt Horror Stories, Revealed (U.S. News & World Report)

Jim Lardner notes that the 28,000 personal statements about student loan debt published by the CFPB express something about the human costs of the crisis that statistics alone can't, though nothing's quite as frightening as those bills waiting in the mailbox.

Mending factory conditions after Bangladesh (WaPo)

Harold Meyerson writes that American companies like Wal-Mart have been reluctant to sign onto a plan to commit to improving factory safety, partly because they've worked so hard to ensure that consumers can only afford to buy the most cheaply made products.

Everyday Socialism, American-Style, Is Happening Now (Truthout)

Gar Alperovitz writes that, beyond the right treating Obama as the reincarnation of Chairman Mao, the U.S. is filled with real examples of publicly owned resources, from utilities to railways to pension systems, that democratize wealth and efficiently meet public needs.

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Rortybomb

Beta: Universal Basic Income Calculator

May 14, 2013Mike Konczal

Click here to try a new Universal Basic Income calculator. You can click on which programs you'd like to turn into a UBI, and what taxes you'd be willing to put into motion, and it will tell you how large of a UBI can be supported with those resources. You can also type in your own numbers if you are interested.

Over the weekend I wrote a column for Wonkblog on why a Universal Basic Income would be a good idea. At the same time, Jesse Myerson and Alexis Goldstein discussed the topic in the first episode of their new podcast, Beyond the Pale. Matt Bruenig and Peter Frase discussed whether a UBI is Utopian, and have a fascinating exchange about the idea of a UBI and policy and strategy.

The calculator is in a beta-test mode, and it isn't nice looking, but it might be a useful exercise in how the numbers might actually work. I'll say that playing with the numbers makes me more sympathetic with Barbara Bergmann's point that a “fully developed welfare state deserves priority over Basic Income because it accomplishes what Basic Income does not: it guarantees that certain specific human needs will be met.” You have to jettison a lot of the welfare state, raise taxes a significant amount, or phase it out aggressive and remove the universal component, to get to numbers like $10,000. On the other hand, it isn't that hard to get to the $2,000-$3,000 range.

But I'm interested in what you think of it.

Follow or contact the Rortybomb blog:

  

 

Click here to try a new Universal Basic Income calculator. You can click on which programs you'd like to turn into a UBI, and what taxes you'd be willing to put into motion, and it will tell you how large of a UBI can be supported with those resources. You can also type in your own numbers if you are interested.

Over the weekend I wrote a column for Wonkblog on why a Universal Basic Income would be a good idea. At the same time, Jesse Myerson and Alexis Goldstein discussed the topic in the first episode of their new podcast, Beyond the Pale. Matt Bruenig and Peter Frase discussed whether a UBI is Utopian, and have a fascinating exchange about the idea of a UBI and policy and strategy.

The calculator is in a beta-test mode, and it isn't nice looking, but it might be a useful exercise in how the numbers might actually work. I'll say that playing with the numbers makes me more sympathetic to Barbara Bergmann's point that a “fully developed welfare state deserves priority over Basic Income because it accomplishes what Basic Income does not: it guarantees that certain specific human needs will be met.” You have to jettison a lot of the welfare state, raise taxes a significant amount, or phase it out aggressively and remove the universal component to get to numbers like $10,000. On the other hand, it isn't that hard to get to the $2,000-$3,000 range.

But I'm interested in what you think of it.

Follow or contact the Rortybomb blog:

  

 

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Daily Digest

Daily Digest - May 14: The Slim Communications Barrier

May 14, 2013Tim Price

Click here to receive the Daily Digest via e-mail.

Mexico's Lucky to Have Just One Man Blocking Internet Equality. We've Got a Bunch (Wired)

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Mexico's Lucky to Have Just One Man Blocking Internet Equality. We've Got a Bunch (Wired)

Roosevelt Institute Fellow Susan Crawford writes that Carlos Slim uses his Mexican telecom monopoly to extract billions from customers. In America, we'd never let one man have all that power -- companies like Comcast and Verizon have already called dibs.

Why Washington Saved the Economy, Then Permanently Destroyed the Labor Market (The Atlantic)

Derek Thompson argues that while the government's swift response to the financial meltdown saved the economy from depression, the long-term unemployed have been abandoned because they don't have the kind of money needed to buy a lawmaker's time.

Half of All Jobs Created in the Past 3 Years Were Low-Paying (HuffPo)

Mark Gongloff highlights a new study reinforcing the evidence that the so-called recovery is creating a ton of low-wage retail and hospitality jobs. Even if you're able to find work, the closest you may get to making a living is by stealing from the cash register.

The Care and Feeding of Small Business (NYT)

Nancy Folbre writes that instead of going hunting for jobs by handing out subsidies and incentives to big corporations, states should pursue an economic gardening strategy and invest in local small businesses that will set down roots while the herd moves on.

The Partial Faith and Dubious Credit Act (WSJ)

Alan Blinder looks at the problematic House GOP bill designed to prioritize Treasury debt payments and Social Security checks in case someone gets the crazy idea to force the U.S. to hit the debt ceiling. But really, what are the odds of that happening... again?

Labor's Plan B (Prospect)

Abby Rapoport writes that as collective bargaining dies off along with dues-paying union membership, organized labor is pursuing experimental new strategies to achieve policy change. It could destroy unions as we know them, but time was doing that anyway.

Millions of Americans live in extreme poverty. Here's how they get by. (WaPo)

Dylan Matthews notes that while the global extreme poverty rate has been cut in half since 1990, research shows that 1.65 million U.S. households are still living on less than $2 a day per person. Without the safety net, they'd be on an all-chewing-gum diet.

This Week in Poverty: Twelve Things You Can Do to Fight Poverty Now (The Nation)

Greg Kaufmann talks to leading anti-poverty activists like Sister Simone Campbell and the Coalition of Immokalee Workers about what the average American can do to get engaged in fighting poverty while many elected leaders are busy fighting the poor.

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Millennial Pulse

How to Pensa 2040: Italy's Millennials Share Their Blueprint for Change

May 13, 2013Alan Smith

An Italian offshoot of the Roosevelt Institute | Campus Network shows that Millennial policy priorities reach across national borders.

An Italian offshoot of the Roosevelt Institute | Campus Network shows that Millennial policy priorities reach across national borders.

In 2010, the Roosevelt Institute | Campus Network created the Blueprint for Millennial America, a generational vision for the country we hoped to see by the year 2040. In the conversations that established the backbone of the blueprint, we identified a core set of values shared by Millennials. The top three -- a deeply held concern for equity, a respect for the individual and society, and a belief in community empowerment and self-determination – represent a commonality that we think underlines what is unique about this generation of Americans. We are a group that seeks self-empowerment and strives to improve our society, but not always through the traditional power structures.

Over the last year, a similar project has been taking root on university campuses and among active Millennials – except this time it’s in Italy, where students have stepped up to take charge of their country’s uncertain future. “Pensa 2040” has taken the values-based collective ethos of the Roosevelt Blueprint and the Budget for Millennial America but introduced an Italian perspective. More than a thousand Italians have participated in conversations similar to those that built the Blueprint, and a Millennial vision for Italy is coming into focus.

If we’ve learned anything at the Campus Network, it’s that ownership of the process is equally as important as ownership of the outcomes. From what we’ve seen so far, the leaders of the Pensa 2040 process have carried on the successes of the Thinks 2040 framework by being willing and able to customize their discussions for the people in the room and the issues that are near and dear to their hearts. Holding discussions that engage people through the fundamental framework of values, and in so doing asks participants to examine which issues they truly believe are the most important, can yield a deeper and more lasting engagement on the issues that the community decides on together. 

So, what happened in Pensa 2040? The top-ranked value listed by the Italian Millennials reveals a clear difference between our two cultures: a deeply held respect for the idea of “legality.” This concept, rooted in Italy’s ongoing problems with the mafia and organized crime, extends to ending tax evasion and corruption within government. The very fact that the idea of legality would be a core value reveals a desire for order that is not at the forefront of many Americans’ minds. Still, some of the outcomes that students hope for in this category include a fair tax system and a more effective and fair legal system – important underpinnings of the Government By and For Millennial America discussion. 

It is in the second and third values expressed by the Italian students that we find a direct match with their American counterparts: equality and respect for the rights of the person. These essentially match word for word the underpinnings of the American Blueprint, and we find kinship with a generation focused on an absolute right to citizenship, same-sex marriages, and “civil service for all” (outcomes under “Uguaglianza”) as well as a right to health and full access to the sorts of “primary goods” that people need to be active and successful citizens (outcomes listed under “Rispetto per i diritti della persona”). There is something here, direct and definable, that speaks to a global generational identity. 

This sympathetic outlook makes sense: there are more and more shared experiences for people across borders and oceans. Not only could we jump on Skype to hear the results of the Pensa 2040 discussions, but many of the core issues facing Millennial Italians are the same issues facing American students in the Campus Network. Global climate change, economic uncertainty, and the challenges of a consistently volatile yet ever-more-interconnected world mean that the experience of being young often establishes a stronger bond than the experience of being “American” or “European.” While the 39 percent youth unemployment rate in Italy dwarfs the 17 percent unemployment rate for American youth, both countries are experiencing talk of a “lost generation,” and anyone trying to get a job out of college right now can tell you that unemployment is only a part of a bitter cocktail that includes low-wage jobs and student debt.  The economic example serves to highlight a greater truth: that a generational movement is real and important. 

Pensa 2040 has moved from the conversation stages to the building of a values-based blueprint for Italy. Students are working with other stakeholders now to write policy recommendations for Italy going forward, and to follow in the footsteps of the Campus Network by creating a crowd-sourced and collaborative budget for Italy that tackles their ongoing economic woes from a place of shared values. We’re excited that Italian students have taken on a part of our brand of collective discussions and are using it to build something equally as empowering and exciting for themselves. Look for a Blueprint for Millenario Italia entro il 2014! 

Alan Smith is the Roosevelt Institute | Campus Network's National Policy and Program Director.

 

"Made in Italy" image via Shutterstock.com

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Now We Are Way Too Excited About Campaign Finance Skepticism

May 13, 2013Mark Schmitt

Some people overhyped the influence of money in the last election, but we shouldn't downplay the need for smart, effective reform.

Some people overhyped the influence of money in the last election, but we shouldn't downplay the need for smart, effective reform.

“We got way too excited over money in the 2012 elections,” my former colleague Ezra Klein said at a conference on inequality and politics at Yale last week, in remarks that he published as a column. A simple political science model for predicting the presidential election, which didn’t account for spending, nonetheless hit the results exactly; Citizens United didn’t unleash a torrent of corporate spending; and even in Senate races, big spending by Republican Super-PACs didn’t make much of a difference.

The first question to ask is, “What do you mean ‘we’?” More than a few of us argued that Citizens United wouldn’t be a world-changer – if major corporations had wanted to take major risks in the electoral arena, there were already ways for them to do it. (It actually had more impact than I thought it would.) And it has long been the consensus in political science that once a candidate or campaign has reached a sufficient threshold to be heard and to be competitive, extra spending beyond that has diminishing returns, whether that spending is within the campaign or from outside groups. That is, you can be outspent 3:1 and win, as long as your 1 is enough to compete in that state. Many wealthy, self-financed candidates have learned that lesson the hard way. All presidential candidates and almost all major party Senate candidates have reached the threshold where additional spending for or against them matters very little. Many Super-PACs, predictably, did more for the political consultants who were collecting fees from them (typically 15 percent for broadcast ad buys) than for the candidates they were intended to support.

There were ill-informed journalists, pundits, and advocates last year who made all sorts of claims about the impact money would have on the elections, but just because their predictions were predictably wrong doesn’t mean that “we got overexcited” or that we should stop being concerned about the influence of economic inequality on the political process. Money matters as a gatekeeper, for example: Many candidates, especially at the congressional or state legislative level, don’t have it and don’t know how to get it. It matters as a framer of the issues that are acceptable for debate – it’s not only money that gave the National Rifle Association the clout to block an amendment with massive majority support, but money helped. Money unquestionably shaped the Dodd-Frank financial reform legislation and might ultimately render it almost unenforceable. The life of a member of Congress without a very safe seat revolves almost entirely around money, as an article in the Boston Globe over the weekend showed. Newly elected Democrats were advised last fall to set aside four hours each day for “call time” to donors, more than they spend on any other activity and more than twice the time they spend with other constituents.

If money doesn’t have such a direct impact on election outcomes, then why does it have these other impacts? Are members of Congress overexcited, too? Perhaps, but most often the reason that we don’t see the impact of money so directly in the endgame of presidential and Senate elections is that the candidates have already done whatever they need to do to reach the threshold of competitiveness. They’ve done the three fundraisers a week, the hundred phone calls a day; they’ve avoided the tough votes that would alienate supporters. If they hadn’t done those things, they wouldn’t be there, in what are, in effect, the finals.

That’s why the key principle of reform is not to limit spending in the endgame, but to make it easier for candidates of all kinds to reach the threshold where they can compete, without spending all their time with major donors and without all the compromises that necessarily ensue. Trevor Potter and Bob Bauer, election lawyers for John McCain and Barack Obama, respectively, recently proposed what they called “A New Recipe for Election Reform,” which would “focus not on further restriction funding for political activity but rather on broadening avenues of citizen participation,” drawing on the experiences of states and localities with systems that encourage small donors. This is something I’ve been pushing for many years, and it has been gratifying to see a consensus build around the idea, especially as the state and local programs, such as New York City’s matching funds for small donations, have proven effective, stable, and constitutionally sound.

But back to Ezra Klein – he’s skeptical of these approaches as well. Later in the week, he went on to argue that the Potter-Bauer approach of encouraging participation would backfire, because small donors are more likely to be driven by ideology and/or partisanship (two different things that are often conflated), and are at least as bad, and maybe worse, than big donors or corporate money. “Just as big money is corrupting, small money is polarizing. And it’s polarization that probably poses the bigger threat to American politics right now.” Ezra is right that some of the federal candidates who collected the most money from grassroots donations were the most ideologically extreme, such as defeated Rep. Allen West of Florida. But that’s looking at the extremes, not the middle tier of politics, where candidates struggle to find the base of donations to be heard. And there’s no evidence that small donor systems such as New York City’s, Connecticut’s, or Minnesota’s superb system of automatic, quick tax rebates for small contributions have made those jurisdictions more polarized. (Minnesota’s system has been unfunded since 2010.)

This skepticism also reflects a quaint view of the role of big money and corporate money in politics. There was a time when corporations, through their PACs, tended to split their donations roughly 60-40 between parties, hedging their bets and mostly protecting useful incumbents. Or an industry might have Republican firms and Democratic firms. But in a polarized time (and partisan polarization reflects forces much bigger and more intractable than either money in politics or congressional procedures), corporations and major interests have moved more sharply to one side or the other. Most of the Wall Street firms, for example, moved toward the GOP, and the U.S. Chamber of Commerce, historically as cautiously solicitous of whichever party held power as possible, moved almost completely Republican. Secret vehicles, such as the Chamber’s 501(c)4 committee, allowed corporations such as Aetna to maintain the veneer of bipartisanship, while simultaneously putting millions of dollars behind one party. The most notorious Super-PACs of 2012, such as those that kept alive the candidacies of Newt Gingrich or Rick Santorum, or that targeted Senate Democrats, were at least as fiercely partisan as West’s donors.

There is a challenge for reform: Can we encourage genuinely average voters, those who don’t watch Glenn Beck or Rachel Maddow, or read RedState.com or Daily Kos, but who have preferences and views of their own, to put a few dollars behind congenial candidates? And can we boost those contributions with public financing that doesn’t have any “ask” attached to it? As we pursue the task that Potter and Bauer set out, to absorb the lessons of successful systems, this is one of the questions that we should be asking. Small donor financing won’t end partisanship or polarization by itself. But it can be a big part of a system that allows legislators to move more independently, develop new coalitions, and spend more time listening to constituents than lobbyists and donors.

The role of money in politics has sometimes been overstated, but that doesn’t justify the fashionable cynicism about money and reform that seems to be infecting the wonk class. 

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

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Daily Digest - May 13: Education for All -- and Some Money, Too

May 13, 2013Tim Price

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Student Debt and the Crushing of the American Dream (NYT)

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Student Debt and the Crushing of the American Dream (NYT)

Roosevelt Institute Senior Fellow and Chief Economist Joseph Stiglitz argues that in order to strengthen the recovery and remove the boot from the foreheads of Americans trying to climb the economic ladder, we need to rethink how we finance higher education.

Thinking Utopian: How about a universal basic income? (WaPo)

Roosevelt Institute Fellow Mike Konczal examines what the left might do next if it actually ended poverty by establishing a basic guaranteed income for all Americans, and why that's worth considering even if the checks would have to be airmailed via flying pig.

After Rana Plaza (New Yorker)

James Surowiecki writes that the garment factory collapse in Bangladesh is more proof that despite self-policing efforts by Western companies, workers' lives will remain as cheap as the products they make unless governments enforce better labor standards.

How Austerity Kills (NYT)

David Stuckler and Sanjay Basu write that between cuts to public health and nutrition programs making people sicker and high unemployment driving them to despair and suicide, austerity economics has become a global health crisis. Luckily, there is a cure.

Austerity and the Unraveling of European Universal Health Care (Dissent)

While American progressives may envy Europe's health care systems, Adam Gaffney notes that conservatives across the Atlantic are treating the economic crisis as an opportunity to dismantle them, like a doctor removing your leg during an appendectomy.

Fed Maps Exit From Stimulus (WSJ)

Jon Hilsenrath writes that some Federal Reserve officials are optimistic that they can begin winding down its bond-purchasing program as early as this summer, but to paraphrase Mike Konczal, they're worried we'll all be devoured by the expectations dinosaur.

What Is the Fed Thinking? (Bloomberg)

Evan Soltas notes that the Fed also recently introduced the possibility of expanding its stimulus program, and with jobs and GDP weak, inflation still low, and sequestration hanging over the economy like a poison cloud, it may want to keep its options open.

The Facts Are In and Paul Ryan Is Wrong (NY Mag)

Jonathan Chait writes that recent evidence contradicts everything the GOP's budget mastermind has been saying about austerity and health care costs, but no matter how loudly critics point out that the emperor has no clothes, he just keeps on strutting his stuff.

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Daily Digest - May 10: Where Are You, Jobs?

May 10, 2013Tim Price

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What's Wrong With the U.S. Job Market? (Businessweek)

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What's Wrong With the U.S. Job Market? (Businessweek)

Peter Coy tries to answer the million-dollar question from the supply and demand angle, also noting solutions like Roosevelt Institute Senior Fellow Jeff Madrick's call for companies to pay workers enough to buy their own products. Built-in marketing!

Economists See Deficit Emphasis as Impeding Recovery (NYT)

Jackie Calmes and Jonathan Weisman report that the Serious People are starting to corroborate what the filthy hippies have been saying for four years, as economic growth reports consistently include regretful footnotes about what Washington's up to.

Bernanke, Blower of Bubbles? (NYT)

Paul Krugman argues that there's little evidence of a bond or stock bubble emerging despite the misgivings of Ben Bernanke's critics, who wish the Fed would forget the unemployment thing and focus on other problems, even if they don't actually exist.

Congress Moves to Weaken Dodd-Frank Reforms That Officials Want Strengthened (Think Progress)

Travis Waldron notes that the House Financial Services Committee has advanced a package of six bills that would weaken derivatives regulations and ensure that federally insured banks don't feel like we're asking too much in exchange for our money.

Unions to Banks: Pay Up (Prospect)

Sarah Jaffe highlights a new plan embraced by labor leaders fighting cuts to public employees' pensions: close state budget gaps by making banks pay back what they stole through LIBOR-rigging and shady muni deals. Better check the silverware, too.

Fed says some were underpaid in U.S. foreclosure settlement (Reuters)

First the initial round of checks issued to victims of foreclosure abuse bounced. Now it turns out that about 96,000 checks issued in the second round were made out for less than what borrowers were owed. Go home, Rust Consulting. You're drunk.

How colleges are wooing the rich and sticking the poor with the bill (WaPo)

Dylan Matthews notes that while colleges are receiving massive federal subsidies intended to make higher education more affordable, a new report suggests they're shifting that money around to lure in future wealthy alumni rather than needy students.

The Price of Safety: Why Cheap Regulation Creates Expensive Crises (The Atlantic)

James Kwak writes that when it comes to airplane inspections or financial chicanery, regulators lack the resources to provide adequate oversight, and leaving it up to firms to monitor their own risk is like letting a four-year-old come up with his own meal plan.

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