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The Battle for Reducing Incarceration Without Preserving our Broken Prison System

Feb 17, 2011Mike Konczal

Mike Konczal explains the pitfalls that await progressives as we enter into a discussion over prison reform.

University of Chicago law professor Bernard Harcourt has this really amazing post over at Balkinization about the lessons that can be learned from the decline in mental institutionalization and how they can be applied to the de-incarceration movement. He starts by pointing out that in 1963, President Kennedy gave this speech:

Mike Konczal explains the pitfalls that await progressives as we enter into a discussion over prison reform.

University of Chicago law professor Bernard Harcourt has this really amazing post over at Balkinization about the lessons that can be learned from the decline in mental institutionalization and how they can be applied to the de-incarceration movement. He starts by pointing out that in 1963, President Kennedy gave this speech:

If we launch a broad new mental health program now, it will be possible within a decade or two to reduce the number of patients now under custodial care by 50 percent or more. Many more mentally ill can be helped to remain in their homes without hardship to themselves or their families. Those who are hospitalized can be helped to return to their own communities... Central to a new mental health program is comprehensive community care. Merely pouring Federal funds into a continuation of the outmoded type of institutional care which now prevails would make little difference.

Harcourt then makes the point explicit: "This country has deinstitutionalized before." Drawing from a recent working paper, he outlines three things that can be learned from this previous deinstitutionalization and applied to the movement to get some sanity into how we think about our prison populations (my bold):

What then can we learn from deinstitutionalization in the 1960s that could help us decarcerate in a successful manner? The place to begin is with the three factors that most influenced deinstitutionalization: first, the development of federal social welfare programs (such as Medicaid and Medicare) that created financial incentives for states to channel care for the mentally ill from state mental hospitals to community-based outpatient facilities; second, the development and use of psychiatric medicines as treatment for even severe mental illness that not only allowed patients to live on their own, but transformed the way we thought about mental illness; and third, the increased understanding and sympathy for persons with mental illness resulting from changed perceptions catalyzed in part by World War II, impact litigation, and critical attention to the plight of patients in documentaries and films like Titicut Follies and One Flew Over the Cuckoo’s Nest...

These factors suggest several avenues for change today. First, federal leadership should be encouraged to create funding incentives for diversionary and reentry programs and other ways of reintegrating offenders (or avoiding incarceration from the outset) that would give states a financial motive to move prisoners out of the penitentiary and into community-based facilities and programs. The key here is to give states an economic and fiscal incentive to move convicts out of state prisons and into non-custodial programs on the model of Medicaid reimbursement for outpatient community mental health treatment...

Second, regarding the use of prescribed medications, there is a real need for improved psychiatric care and treatment of prison inmates... Two other ideas in the same vein. The increased use of GPS monitoring and other biometric monitoring could serve as substitutes to incarceration as well. Electronic bracelets, telephone monitoring, and other forms of home supervision are an attractive alternative for certain types of offenders. Moreover, a move toward the legalization or medicalization of lesser controlled substances would also have a direct impact on reducing our prison populations, not only because of decriminalization but also by eliminating the drug trade and its attendant violence.

Third, high-profile impact litigation regarding prison conditions, the paucity of mental health treatment, and prison overcrowding, as well as documentaries of prison life along the lines of Frederick Wiseman’s 1967 film, Titicut Follies, should form part of a larger strategy to shift the public perception of those persons incarcerated. Increased public awareness of the reality of prison life would contribute to greater willingness to support federal policies aimed at helping reduce our prison populations. In the words of Justice Sonia Sotomayor at the oral argument on the California prison overcrowding case, “When are you going to avoid the needless deaths that were reported in this record? When are you going to avoid or get around people sitting in their feces for days in a dazed state? When are you going to get to a point where you're going to deliver care that is going to be adequate?”

All of these approaches may well involve Faustian bargains, and the dangers associated with each are apparent. 1960s deinstitutionalization had its own dark sides, including the increased racial imbalance of the mental hospital population as the asylums were being emptied, as well as the problem of transinstitutionalization. Some solutions, such as the use of risk assessment, may actually worsen the problems of race. It would be absolutely crucial, in any effort to reduce mass incarceration, to avoid both the further racialization of the prison population and the transinstitutionalization of prisoners into other equally problematic institutions, such as homeless shelters or the kind of large mental institutions depicted, precisely, in documentaries like Titicut Follies.

Read the whole thing. The third part, the call to continue making a case for why mass imprisonment is a a terrible way to deal with serious problems, is very important. Because any other pathway for reform can easily end up preserving the worst parts of the original. This is even clearer when you consider two recent events surrounding prison reform: the conservative movement promoting prison reform as budget reform, and Mark Kleiman's framework for understanding what happens when brute force fails.

Conservatives and Incarceration

Since he is someone who knows which way the wind blows, it is telling that Grover Norquist wrote a recent National Review editorial calling for a rethinking of mass incarceration under the subtitle: "Let’s stand for limited government, federal accountability, and reduced spending." More and more conservatives are looking at how out of control mass incarceration has gotten in the past decades, and many liberals are hoping to have a bipartisan effort to address it. This is going to be harder than it looks, as mass incarceration is central to conservative thought. And also because conservatives have one main goal: reducing state-level spending.

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Indiana governor Mitch Daniels is worth watching. Simply spending less per inmate is going to be an easy sell. Daniels can brag that his government is "housing 38% more prisoners without having built one additional cell. At a per day cost that is down around 30%, by the way." Or that his state government has outsourced "prison food to Aramark, cutting the cost from $1.43 a meal to 99 cents in the process."

This isn't a complex business model. There's not going to be a lot of fat to trim off the budget other than breaking public unions and hitting their pensions or fire selling the prison to private interests. There's something unique about an age where our meritocratic consultant elite is off making excel PivotTables on how to optimize the exact minimum you can spend on feeding captive populations. However, corporate efficiency reform is not what's needed and isn't geared toward human dignity, checking the violence of the state and reducing crime in a smart way.

When it comes to actually reducing the prison population, which is where all the savings are really going to be, Daniels is hitting major problems within the DA's office and among the conservative rank-and-file. This quote from Indiana's Sen. Sue Glick, R-LaGrange, a member of the Senate's Corrections, Criminal and Civil Matters Committee, is telling: "We just don't accept the idea that because the Department of Correction has a bed problem that we should be releasing serious felons back on the street."

Without making the case for why mass incarceration is bad in and of itself, not just as a budgeting issue, it's going to be harder to move this. During times of budget stress you see an increase in fear among the general population. So any desire to use the state's balance sheet as an argument for changing prison policy is going to be offset by an increase in xenophobia and a retrenchment that expresses itself most forcibly in the language of crime control.

When Brute Force Fails

The other development is that many liberal wonks are adopting the conceptual framework of Mark Kleinman's "When Brute Force Fails" as a policy agenda. Aaron Schwartz has a good review of the book here. The book is amazing. It should be required reading for anyone interested in public policy, the arguments about incarceration, or game theory.

It talks about a lot of things, but a short way of describing it is that we need to change the term structure of the way punishment is exercised by the state. Instead of uncertain, harsh punishments, there should be more certain, weaker punishments. The big example he uses is that we should create a more expansive and punitive parole system in order to combat recidivism, which will reduce our need for long prison sentences.

The thing that worries me about the plan, like the conservative plan to cut prison budgets, is that it doesn't necessitate de-incarceration. Let's talk about Broken Windows for a second. There's a way of describing Broken Windows as the criminalization and aggressive attack on pre-criminal activities like loitering or petty drug use. You can picture a wonk saying, "By aggressively criminalizing early, petty activities, we can deter later activities and thus have a smaller prison system." And you can picture the system saying back, "Yes, we can criminalize petty early activities and have a massive prison system." The wonk will yell, "Hey -- that's not what I said!" but it'll be too late.

One conclusion of the Brute Force Fails approach is that you can have a smaller prison system through a more aggressive parole system. It is not hard to imagine the system saying, "Good idea, let's have both, a huge prison system with an aggressive parole system." After all, these can work as compliments instead of substitutes: the surveillance, degradation and control associated with long-term incarceration will prep a person for more aggressive monitoring after incarceration.

For the theory to work well, it requires a move away from thinking of prisons as a benefit and instead of as a cost, a dangerous, wasteful and ineffective approach that comes with mass devastation for communities. But that brings us back to Harcourt's point: we need to continue to move public opinion on why our current system is the worst of all worlds.

Mike Konczal is a Fellow at the Roosevelt Institute.

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What Would a Strong Liberal Federal Reserve Member Look Like?

Feb 14, 2011Mike Konczal

Mike Konczal explores what a progressive Federal Reserve might look like in the post-Greenspan era.

With Kevin Wash leaving the Federal Reserve, it is a great time for progressives to organize around nominating a strong liberal candidate. But what would this candidate look like? If we had to create our ideal person, what characteristics would he or she have?

Mike Konczal explores what a progressive Federal Reserve might look like in the post-Greenspan era.

With Kevin Wash leaving the Federal Reserve, it is a great time for progressives to organize around nominating a strong liberal candidate. But what would this candidate look like? If we had to create our ideal person, what characteristics would he or she have?

Matt Yglesias just gave this a shot. His suggestions:

— Real specialization in monetary economics, capable of swaying the non-specialists on the FOMC

— A commitment to monetary stimulus, none of this “structural” hand-waving

— A skeptical view of the merits of a large and profitable financial services sector

— A generally progressive and egalitarian outlook

That's all great stuff. What else? I'm still thinking this through and I could use your opinions. Here are some ways to approach this question to continue the discussion:

Left/Right Symmetry We know what conservative picks for the Federal Reserve look like. They are usually business executives from regional banks who see structural unemployment everywhere they look, who have always and everywhere worried about inflation above anything else, and who care little about the costs of unemployment and workers and only about business interests. Can we just do the opposite of that? The left-wing/right-wing symmetry isn't a great conceptual framework for most problems, as the left and the right have different starting points, goals, forms of arguments and expertise, etc. But maybe that would work here?

Financial System One characteristic of the Greenspan era was a deferential attitude towards the financial sector and hostility to regulations, even to the point of enforcing existing regulations. So someone who is more skeptical of the financial sector is going to be a better candidate. This is for two reasons: (1) Supporters of Dodd-Frank reforms, particularly the CFPB, are going to be necessary inside the FOMC for it to actually be implemented well and (2) we need less emphasis on providing monetary support through the broken financial sector and more effort to get demand closer to actual consumers, and someone without a huge pro-Wall Street bias going into the committee will help.

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On Target Or Off Target I've noticed a lot of liberal bloggers engaging with Federal Reserve targeting rules to get out of this recession, coming from arguments related to ones proposed by Scott Sumner. One appeal of this argument is that it is similar to saying, "Even if the Federal Reserve didn't care about unemployment and just price stability, it would do QE2 and other drastic measures." But should our ideal Fed candidate support inflation targeting? I actually thought it was a way for our Fed to get around a dual mandate without going to Congress, to be indifferent to unemployment and raise interest rates at even the slightest hint of inflation, which goes against the basic conceptual outline here.

I've asked a few left-of-center economist friends about this and have gotten wildly different answers. Part of it depends on whether or not there would be a higher inflation target than normal. Which leads to...

The Great Moderation, In Hindsight Chris Hayes wrote a great (and not cited enough) piece for New America, Overcoming America's Debt Overhang: The Case for Inflation, that I think is relevant here:

More importantly, as we have learned from the past decade and half, an economy with inflation that is too low can produce perverse incentives: it stokes the financial economy at the cost of the real economy, and it can be a reflection (as Alan Greenspan once frankly admitted) of a working class suffering from stagnating wages and thus of an economy with insufficient aggregate demand. The boom years of low inflation saw a dramatic decrease in the prices of many household consumer goods from electronic equipment to clothing to food. This was partly due to the outsourcing of production to low-wage developing countries and partly due to rapid productivity gains in manufacturing. But those same dynamics also helped create massive global trade imbalances, and the profits captured by firms poured into capital markets, lowering interest rates and increasing the ravenous search for yield and the taking on ever more risk...

We are, in many ways, now reaping what decades of historically low inflation have sown: a massive upwards redistribution of wealth, an oversized financial sector, an eviscerated tradable goods sector, and a grotesquely large trade deficit. In other words, the imbalances and structural weaknesses of the post-Volcker economy, the ones that built up to create the crisis, were partly produced by the Great Disinflation that Volcker ushered in. Recovery will involve a fundamental restructuring of our economic engine, shifting from the supply-side nostrums of the past two decades that paradoxically led to an unhealthy pattern of asset bubbles and debt-financed consumption to policies that bolster global demand by investing in quality-of-life improvements and by raising incomes and wages worldwide. That means the seeding of a global middle class and recalibrating the share of profits captured by labor as opposed to capital. Such an economy will almost certainly be an economy with higher inflation than has been the case over the past two decades.

Should our candidate think that something went fundamentally wrong at the end of the Great Moderation? Should he or she seek higher inflation than what we've seen over the past 30 years? Did the Greenspan era simply give us a leverage-induced financialized growth susceptible to wild swings through balance sheet mechanisms, a growth that benefited financial intermediaries, pushed inequality up, generated trade imbalances and left workers the last to benefit? Do we need to do something much different than the Greenspan era, or just a little bit different?

I'm not sure. I'd very much appreciate feedback on this.

Mike Konczal is a Fellow at the Roosevelt Institute.

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Chamber and GE Have a Plan to Restore Business Confidence and Jobs -- from 1931

Feb 10, 2011Mike Konczal

What's that saying, "those who fail to learn from history are doomed to repeat it?" Nah, let's just do it all over again.

What's that saying, "those who fail to learn from history are doomed to repeat it?" Nah, let's just do it all over again.

I should write something about President Obama's recent talk to the Chamber of Commerce about how to get jobs started again. I find it funny that it's only been a few days and already Cato people like Dan Ikenson are writing non-ironic headlines like "Obama Hasn’t Given Enough Ground Yet To Business To Spark Growth." We do understand that businesses don't want growth, right? They want to consolidate, handicap their rivals, rent-seek and guarantee profit streams. Remember that right now fewer small businesses are opening, and they are more likely to fail when they do. This is a great deal for incumbent businesses.

The Swope Plan

But let's look at this from a different angle. What would the Chamber ideally want? Let's set the stage. The United States is struggling with high unemployment, financial sector panics, decreased consumer spending. There are calls for balancing the budget and for the Federal Reserve to tighten money. The President and elites are uncertain about what can be done, both in theory and in practice, to get the economy running again.

In a moment born of this desperation, our elites look to the leaders of General Electric and the Chamber of Commerce, and ask them: what does the government need to do for them to start creating jobs and get growth going? What ground needs to be given, what rules do they need implemented or cut, in order for the economy to work again? And sure enough, the leaders of General Electric and the Chamber of Commerce have a plan ready to go.

Sounds like today, right? It's actually 1931. The President of General Electric at the time was a man named Gerard Swope. During those desperate times, he stepped forward with his Swope Plan that would finally restore business confidence by removing burdensome regulations and replacing them with new business-friendly ones.

What did this look like? Because the internet is awesome, I can link to this September 28, 1931 Time Magazine description (my bold):

In times of economic stress — particularly if they verge on a national election — the fancy of thoughtful tycoons and ambitious politicians alike gravely turns to philosophizing about the relationship of Government to Big Business... President Gerard Swope of General Electric Co. has evidently done a great deal of this sort of thinking. Last week...he outlined an ambitious industrial plan for the U. S. [The Swope Plan] proposed a national organization of modified cartels in which competition would be limited, overproduction governed, workers and investors vigorously protected... "Legislation will be required to make such a plan possible, including the probable modification of some existing laws," notably the Sherman anti-trust law.

The Plan:

1)  "All industrial and commercial companies (including subsidiaries) with 50 or more employes, and doing an interstate business, may form a trade association... These trade associations may outline trade practices, business ethics, methods of standard accounting and cost practice, standard forms of balance sheet and earnings statement, etc., and may collect and distribute information ... on simplification and standardization of products, stabilization of prices...

"For the protection of employes the following plans shall be adopted by all of these companies: a) A workmen's compensation act... modeled after the best features of the laws which have been enacted by the several States, b) All employees... may, after two years of service... and before the expiration of five years of service, be covered by life and disability insurance." Cost of the policy would be shared equally by the employee and the company or companies for which he worked, even if he changed industries. The employer would not share the premium of a policy over $5,000. c) Old age pensions, to be effective when the worker reaches 70, would be worked out along the same lines, with the companies putting by a fund dollar-for-dollar with the employee as long as the company's share would not exceed $50 a year, d) A similar provision would be provided for unemployment insurance...

Comment on the plan was guarded and not plentiful. Many a businessman and educator was for it: President Silas Hardy Strawn of the U. S. Chamber of Commerce, who said the Chamber would have a similar scheme to announce this week; President William Wallace Atterbury of Pennsylvania R. R.; President Robert Isham Randolph of the Chicago Association of Commerce; President Nicholas Murray Butler of Columbia University; President Karl Taylor Compton of M.I.T. (of which President Swope is a graduate and trustee). An exception was Samuel Matthew Vauclain, board chairman of Baldwin Locomotive Works. "I don't care to comment on it," said he, "because I don't believe in it." In official circles the Swope Plan was viewed "with caution."

His Swope Plan is considered one of the main documents for the idea of an associationalist economy, or what we would now call a corporatist economy. Let businesses collude and form price-fixing organizations, and in response they'll hire more workers and even provide a social safety net for those workers. The government will need to suspend all anti-trust laws first, obviously, before all the sweet growth and jobs show up. Many socialists at the time realized that this was asking for trouble for obvious reasons -- rent-seeking and businesses not following through and fighting any type of regulatory oversight. Elements of this approach eventually found its way to the National Recovery Act, a poorly chosen endeavor that many New Dealers thought was a failure by the time the Supreme Court struck it down.

An aside: perhaps anticipating the Enron worker who had his life savings in Enron stock, liberalism thought better about the idea of attaching the welfare state and social safety net to individual corporate benefactors and instead relied on the national government they created. The one area where they didn't, health care, has been the bane of the welfare state ever since.

Demand is not a wall ornament.

Luckily there was another approach being developed, one focused on demand and not supply, though it was still being developed in journals, papers and books at the time the core of it had popular appeal. Here's a 1930 cartoon I found that I want to share:

(Source.) I could not agree more: Demand is not a wall ornament. It's a shame we are forgetting what it took a long time to find out in the first place.

Mike Konczal is a Fellow at the Roosevelt Institute.

 

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Monetary Policy Hearing Today: Ron Paul Versus the Kochtopus

Feb 9, 2011Mike Konczal

When the choice is between extreme and mild conservatives, progressives don't stand a chance.

Ron Paul is holding one of his first monetary policy hearings today and he hasn't sold out. Ron Paul is from the school of libertarians that hates D.C. libertarians, which is weird since he is one of the most well-known libertarians in D.C. How does that work?

When the choice is between extreme and mild conservatives, progressives don't stand a chance.

Ron Paul is holding one of his first monetary policy hearings today and he hasn't sold out. Ron Paul is from the school of libertarians that hates D.C. libertarians, which is weird since he is one of the most well-known libertarians in D.C. How does that work?

The term Kochtopus was originally used as a slur by some libertarians to describe the Koch brothers' funded wing of the libertarian movement (Cato, Reason, etc.). There's a lot of fighting over ideology, purity, funding and intellectual legacies between two groups of libertarians that splintered in the late 1970s/early 1980s, and Paul is on the other side of that divide. Here's a representative explanation by Lew Rockwell:

This is yet another example of how the Koch Brothers operate. While their ideological institutions on public campuses or Capitol Hill operate under a veneer of libertarianism or even Austrian economics, the actual policies they push expand the State: massive money printing (for the big banks and big companies), school vouchers (to deliver private schools into the hands of government), the Ownership Society (every person a homeowner through Greenspan's housing bubble), Social Security Privatization (a new layer of forced savings on top of the present SS taxes, to benefit Wall Street), etc. Is it any wonder that the Kochs have never, in 28 years, invited Ron Paul — the only public official for honest money — to their annual monetary conference, but instead invite and hail the central bankers who can do the plutocrats so much good?

Chris Hayes had a short history of the two, where he described the paleolibertarians, centered around the Mises Institute, and cosmopolitan libertarians of the Cato Institute. Cosmopolitan libertarians puts too nice a gloss on it. We know how they roll -- they'll criticize QE2 for pushing inflation expectations, but not state that any activity of the Federal Reserve is legalized government counterfeiting. They'll make clever historical arguments about Hayek having a lot to say about the welfare state instead of the more important argument that Abraham Lincoln was modernity's first great dictator. They'll talk about coco bonds and ratings agencies when it comes to financial reform, without making the argument that 1870 was the last time we had a free and functioning banking system. Pushed into a corner, they'll probably even mumble some argument about how there could be situations for defending deposit insurance, fractional reserve banking and not having a gold standard, instead of proudly stating that these are all boots stamping on a human face forever. They're the ones that like all the pretty songs, and they like to sing along, and they like to shoot their guns, but they don't know what it means.

So Ron Paul is holding a monetary policy hearing today. Is he going to keep it real, or is he going to go to cosmopolitan libertarians for experts? Scheduled to testify at the hearing:

Can Monetary Policy Really Create Jobs?

· Thomas J. DiLorenzo, professor of economics, Sellinger School of Business, Loyola University, Baltimore, Maryland

· Dr. Richard Vedder, professor of economics, Ohio University

· Dr. Josh Bivens of the Economic Policy Institute, Washington, D.C.

I like the title: does monetary policy ever really work? As for the witnesses, Thomas J. DiLorenzo is a senior fellow at the Ludwig von Mises Institute. He's got the Lincoln stuff down pat. He appears to be best known as an author of "Lincoln Unmasked: What You're Not Supposed to Know About Dishonest Abe". (For example, see this interview: "I saw it as my duty to spread the truth about what a horrific tyrant Lincoln was... I think secession is not only possible but necessary if any part of America is every to be considered 'the land of the free' in any meaningful sense... Lincoln was almost exclusively devoted to Hamiltonian mercantilism — high protectionist tariffs, other forms of corporate welfare, a central bank modeled after the Bank of England to pay for it all, and political patronage and matching politics... The entire agenda of Hamiltonian mercantilism was put into place during the Lincoln administration — along with the first income tax, the first military conscription law, and the creation of the internal revenue bureaucracy, among other monstrosities.")

He writes less about the Federal Reserve and monetary policy. He writes about central banking policy at the founding of our country as a debate between Hamilton and Jefferson, but post-WWII central banking gets mentioned only as "the Fed and its legalized counterfeiting operations" and that TARP was just like "appointing the US Treasury secretary as the nation's first financial dictator." This should make for an interesting conversation about monetary policy.

I'm not trying to cherry-pick. You can read his articles at Mises or Lew Rockwell. He has his opinions and arguments. What I'm interested in is the dialectical relationship between what Ron Paul is doing and what other people on the right are doing. By moving the goalposts and the dialogue so far to the right, and by properly harnessing the people's mass discontent with the financial system, the crisis and the Federal Reserve, Paul's activities are going to make the idea of stripping Maximum Employment from the Federal Reserve's mandate seem downright sensible. He's going to clear the space for the idea that the regional bank chiefs, instead of being ultra-conservative people who think unemployment is fine and who want a monetary policy that benefits business interests, are "regular folks" who "get it" outside the failed navel-gazing bureaucrats of the Federal Reserve.

He's also going to make Paul Ryan look reasonable, instead of someone who is both uninformed and terrible on monetary policy. In each case he's building on problems people are experiencing and pushing them further to the right. Do liberals have any type of counter-narrative to put out, rather than relying on discredited technocrat expertise?

Mike Konczal is a Fellow at the Roosevelt Institute.

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Today's Job Report: Unemployed Far More Likely to Drop Out Than Find a Job

Feb 4, 2011Mike Konczal

mike-konczal-2-100A closer look at today's job numbers shows we're still deep in a crisis.

While today's jobs numbers show the unemployment rate has gone down, don't call it a recovery just yet. Less jobs were created than expected -- it's not that more people are finding work, it's that they're dropping out of the labor force altogether.

employ_chart_jan_11003

A closer look at today's job numbers shows we're still deep in a crisis.

While today's jobs numbers show the unemployment rate has gone down, don't call it a recovery just yet. Less jobs were created than expected -- it's not that more people are finding work, it's that they're dropping out of the labor force altogether.

employ_chart_jan_11003

The percentage of unemployed who will drop out of the labor force is increasing, gaining over those who will find a job. This is unique in the post-World War II economy -- and only getting worse.

leaving_unemployment_1

More and more will fall into this hole as the 99ers lose their unemployment benefits. Worse, while President Obama talks of wanting to "win the future," it looks bleak for those who experience such long spells of unemployment, which harms their financial outlook. The longer they spend without work, the more they are likely to stay permanently out of the workforce. And we lose too, as we miss out on their productivity (and of course the taxes they would be spending if they brought in regular paychecks).

The graph below charts the difference between the chance of an unemployed person finding a job and an unemployed person dropping out of the labor force. As Arjun Jayadev and I showed in our paper "The Stagnating Labor Market," this number hasn't been negative since the 1960s, when data is first available.

unemployed_dropping_out

Work next week will take a deeper look into the current fate of the underemployed, those working part-time for economic reasons. The number has declined but is still very high. These will likely be the first workers to recover, and if they are just starting to find full-time work it points to an extremely long recovery without further government intervention.

Mike Konczal is a Fellow at the Roosevelt Institute.

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Why Elizabeth Warren Is Still the Best Choice for CFPB Director

Feb 3, 2011Mike Konczal

She's handled staffing and criticism while building bridges. What more could you ask for?

She's handled staffing and criticism while building bridges. What more could you ask for?

The Consumer Financial Protection Bureau just launched its website. Meanwhile, Shahien Nasiripour has a story that found "... if the White House can't get a nominee through the Senate by July, the bureau will lack the authority to supervise nonbank lenders, according to a Jan. 10 report by the inspectors general of the Treasury Department and Federal Reserve obtained by The Huffington Post." One of the main reasons for creating a Consumer Financial Protection Bureau is to close a loophole called "regulatory arbitrage," which lets a lot of these nonbank subprime lenders avoid following the same rules that regular banks do when it comes to lending. So if there isn't a nominee soon, the CFPB is going to encounter a serious problem in doing one of the most important parts of its job.

So it's time to talk about who should lead it. People are currently having this conversation, putting forward potential candidates for the job. I've been following this since the bill passed and, at this point, I think Elizabeth Warren is the obvious choice. Warren is obviously credentialed enough -- a Harvard Law professor who came up with the idea, who has written extensively on the topic and is the third most cited scholar on bankruptcy and consumer-related finances. During the previous debate, there were three major critiques about her running the CFPB: that she wasn't experienced enough in starting a new agency, that she was disliked by industry, and that she wasn't confirmable. Since then she's done an excellent job starting up the agency, hitting the ground running. She has stalemated the critiques from industry and Republicans. And the Republicans have shown that they hate the agency itself but don't actually mind Warren as far as candidates go, so she's relatively more confirmable than people imagine.  She's made as good of a transition from campaigning to governing as anyone would have expected, and then some.

Starting Up The Agency

As for staffing, Warren is managing a team of 150 as they continue to build and launch the bureau. As far as all reports go, she's doing an excellent job. She is under some intense scrutiny, particularly from established regulators and lobbyists, and surviving a round of hostile questioning from a resurgent Republican House. There have been no horror stories. By all accounts, Warren and the CFPB team are getting along with Secretary Geithner and Treasury.

She has signed up Holly Petraeus to work on military affairs, giving the bureau a scope that builds on many different fronts. (The GOP has supported consumer protection bills for the military in the past.) And the most important hire, from my point of view, is former Ohio Attorney General Richard Cordray to help lead enforcement, an AG who is serious about getting to the bottom of the foreclosure fraud crisis. Warren has assembled a fantastic team with few, if any, pitfalls.

While assembling the team, Warren has also contributed to the complicated, yet very important, battle over servicing fraud, helping to veto an ill-advised notarization bill early on. She has been able to staff an impressive team while also contributing to one of the most important, ongoing situations in consumer finance.

Working With Community Banks

As Carter Dougherty has written at Bloomberg, Elizabeth Warren has worked closely with community banks. This has been a conscious effort to include their concerns in the process.

Community banks had two main objections during the fight to create the CFPB. The first was that they didn't need a new regulator because they already had several focused on consumer regulation. The second was that they didn't cause the crisis; the crisis was generated by the shadow banking sectors of fly-by-night mortgage originators, originators that Greenspan could have regulated but chose not to. One can imagine the community bankers being skeptical of someone promising to consolidate regulators, thus upsetting established bureaucrats, as well as taking on something that regulators have ignored in the past.

By all accounts, Warren is making inroads. The whole idea was based on regulatory consolidation from early on. If you look at what Elizabeth Warren wrote for the Roosevelt Institute's Make Market Be Markets conference, it was clear this was a goal of hers. You can see that she gets their concerns in her Politico op-ed, which was well received.

New Potential Allies

Rep. Jeb Hensarling (R-TX) has called the bureau a "consumer credit rationing agency." Reading his critique and other conservative GOP critics on the topic, I'm almost surprised by how impersonal their criticism is. If it was anyone else, they would still be trying to go after the CFPB's budget, scope and independence.

And many Republicans even seem to be warming to Warren. Rep. Randy Neugebauer (R-TX) has said, "She wouldn't be my last choice. I don't know whether she's my first choice, but she certainly wouldn't be my last choice... If [the Consumer Financial Protection Bureau] isn't going away, then what we have to do is deal with what we've got, and I think it's easier to deal with an agency where we have a little bit more permanency about its operations..." Which isn't that bad. She discussed consumer finance in a press release with Republican Senator Snowe. The Wall Street Journal seems almost surprised by how much outreach Warren is doing with the GOP. She has done extensive outreach to State Attorneys General, both Republicans and Democrats. She's emphasized transparency in her work as well. She is as well-respected by the GOP as any effective leader is going to be.

I'm never a good judge of conventional wisdom, but if it's that Warren can't get through the Senate, I think it's wrong, or at least very overstated. I think she'll have a better shot than anyone else. Warren and the CFPB aren't on the tea party's radar, and the Chamber has had real difficulty astroturfing this topic. The left is energized about this nomination, even more so since the strong role the CFPB will need to play in foreclosure fraud and servicing regulations has become clear. So what's the downside of her being the nominee?

Mike Konczal is a Fellow at the Roosevelt Institute.

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FCIC Report: What was a Major Cause and What was Trivial?

Jan 31, 2011Mike Konczal

With such a wide breadth of topics, it's difficult to determine what advocates of reform should pay attention to.

With such a wide breadth of topics, it's difficult to determine what advocates of reform should pay attention to.

I'm still reading and enjoying the FCIC report. I think it's one of the best introductions to what happened and I'm learning new stuff throughout it. But one problem I'm having is that while the breadth of the topics is all-inclusive, it is difficult to discriminate between how much causation to assume from many of the issues, especially as we get further along in the crisis.

One thing I'm thinking about these days is the role of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 in the crisis. I think it's pretty much been proven to be a disaster of a bill. If we learned that it helped spark the shadow banking panic, so much the better. During the financial reform debates I did an interview with Stephen Lubben about it. I've been meaning to learn more since.

The FCIC document brings up the derivative amendments that were snuck into the bankruptcy reforms and their role in the crisis:

The CFMA effectively shielded OTC derivatives from virtually all regulation or oversight. Subsequently, other laws enabled the expansion of the market. For example, under a 2005 amendment to the bankruptcy laws, derivatives counterparties were given the advantage over other creditors of being able to immediately terminate their contracts and seize collateral at the time of bankruptcy. (p. 48)

Regulatory changes -- in this case, changes in the bankruptcy laws -- also boosted growth in the repo market by transforming the types of repo collateral. Prior to 2005, repo lenders had clear and immediate rights to their collateral following the borrower’s bankruptcy only if that collateral was Treasury or GSE securities. In the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Congress expanded that provision to include many other assets, including mortgage loans, mortgage-backed securities, collateralized debt obligations, and certain derivatives. The result was a short-term repo market increasingly reliant on highly rated non-agency mortgage-backed securities; but beginning in mid-2007, when banks and investors became skittish about the mortgage market, they would prove to be an unstable funding source. Once the crisis hit, these “illiquid, hard-to-value securities made up a greater share of the tri-party repo market than most people would have wanted,” Darryll Hendricks, a UBS executive and chair of a New York Fed task force examining the repo market after the crisis, told the Commission. (p. 114)

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The repo runs of 2007, which had devastated hedge funds such as the two Bear Stearns Asset Management funds and mortgage originators such as Countrywide, had seized the attention of the financial community, and the run on Bear Stearns was similarly eye-opening. Market participants and regulators now better appreciated how the quality of repo collateral had shifted over time from Treasury notes and securities issued by Fannie Mae and Freddie Mac to highly rated non-GSE mortgage–backed securities and collateralized debt obligations (CDOs). At its peak before the crisis, this riskier collateral accounted for as much as 30% of the total posted. In April 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 had dramatically expanded protections for repo lenders holding collateral, such as mortgage-related securities, that was riskier than government or highly rated corporate debt. These protections gave lenders confidence that they had clear, immediate rights to collateral if a borrower should declare bankruptcy. Nonetheless, Jamie Dimon, the CEO of JP Morgan, told the FCIC, “When people got scared, they wouldn’t finance the nonstandard stuff at all.”

To the surprise of both borrowers and regulators, high-quality collateral was not enough to ensure access to the repo market. Repo lenders cared just as much about the financial health of the borrower as about the quality of the collateral. In fact, even for the same collateral, repo lenders demanded different haircuts from different borrowers. Despite the bankruptcy provisions in the 2005 act, lenders were reluctant to risk the hassle of seizing collateral, even good collateral, from a bankrupt borrower. Steven Meier of State Street testified to the FCIC: “I would say the counterparties are a first line of defense, and we don’t want to go through that uncomfortable process of having to liquidate collateral.” William Dudley of the New York Fed told the FCIC, “At the first sign of trouble, these investors in tri-party repo tend to run rather than take the collateral that they’ve lent against.... So high-quality collateral itself is not sufficient when and if an institution gets in trouble.” (p. 293)

But it's sort of flat. I can't tell if this was a major cause of the panic, a minor cause, a clarification of standard practices, industry-wide, etc. There's little original data or research, which is probably expected given the exercise, but it's tough to distinguish the interesting small things versus the interesting important things. For a general reader that won't matter too much, but for people trying to figure out where to go next it is very important.

Luckily, they are doing large data dumps on what they researched and found to go with the report. I'm hoping that this will allow researchers, academics and interested parties to dig in and fill in the missing shades and depth in the causes of the crisis.

Mike Konczal is a Fellow at the Roosevelt Institute.

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FCIC Report: Ownership Society as Bridge to a Permanent Republican Majority

Jan 31, 2011Mike Konczal

While the GOP now tries to blame the crash on government sponsorship of homeownership, it was part of their strategy to turn the country into homebuyers -- and Republicans.

While the GOP now tries to blame the crash on government sponsorship of homeownership, it was part of their strategy to turn the country into homebuyers -- and Republicans.

Brad Miller has a post at Huffington Post called "Republican Amnesia on the Financial Crisis." The important story is that that during the 2000s, conservatives and libertarians hated the CRA and the GSEs because they believed that these institutions blocked or slowed the ability to give loans to poor people. After the crash, the right did an immediate about-face, blaming these institutions for lending too much.

I'm not making that up. Check out the Miller post. I've been documenting this for a while. As Cato put it in 2003, "...by increasing the costs to banks of doing business in distressed communities, the CRA makes banks likely to deny credit to marginal borrowers that would qualify for credit if costs were not so high." Bill Black walks through Wallison's turnaround on everything, and the GSEs in particular, here and here.

Meanwhile, David Frum is reading the FCIC report. His post on the CRA, "Did Washington Push Banks to Make Bad Loans?," ends with the quote: "George Bailey of It’s a Wonderful Life retired from mortgage lending forever. In the new anonymous securitized market, high-flown liberal egalitarian ideals became the material out of which self-interested and consequence-indifferent financial engineers built the biggest economic bomb since World War II."

Firstly, and the FCIC report emphasizes this in passing, but we had a credit bubble, and bubbles showed up everywhere, not just in housing. Secondly, I'm actually surprised that the FCIC didn't cover deregulation and securitization, considering they do cover the deregulation in the early 1980s that led to the S&L crisis. The private securitization market was the creation of the early Reagan administration, specifically through the Secondary Mortgage Market Enhancement Act of 1984 (SMMEA) in which Congress preempted a variety of state laws that inhibited private home mortgage securitization.

Ownership Society

But to the point, we need to distinguish between the idea that a regulator made the financial system do something versus turning a blind eye while the financial system did it on its own. Regulators didn't step up when the subprime market, the housing bubble, the CDO market, or the shadow banking system were all growing quickly, in part because they believed these things would regulate themselves. Greenspan was certainly of this belief. Being able to say that you were promoting homeownership was a great tagline for both parties, but that's a side effect of letting the market spin out of control.

But are "high-flown liberal egalitarian ideals" the reason that subprime mortgages and homeownership were pushed so hard and got so big in the 2000s, while regulators did nothing? Let's look at George W. Bush's 2004 Ownership Society fact sheet, and what I would characterize as the four-legged stool of The Ownership Society: tax cuts for the wealthy, health savings accounts, privatizing Social Security, and mass homeownership. Homeownership is a big deal in the fact sheet:

...The President believes that homeownership is the cornerstone of America's vibrant communities and benefits individual families by building stability and long-term financial security... The President also announced the goal of increasing the number of minority homeowners by at least 5.5 million families before the end of the decade...

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What he really promoted was homebuyership, not homeownership. But politically, why was this a big deal for Republicans? Egalitarian concerns? As the historian Rick Perlstein found in a 2005 special Ownership Society edition of the American Enterprise Institute's magazine,  Grover Norquist wrote that:

Bush's vision also calls for efforts to increase homeownership. Here's a hint of what that could mean: in House Speaker Dennis Haster's Congressional district in Illinois, 75-80 percent of voters own their own homes. In Democratic minority leader Nancy Pelosi's district in San Francisco, the number is 35 percent... A transition of great political importance is under way. Fifty years from now the move to an Ownership Society will be recognized as a change to America's political landscape as dramatic as the move from farms to factories.

Here's James Glassman:

Bush wants more ownership because he wants to change the shape of America. He understands that people who own stocks and real estate -- who possess wealth of their own -- have a deeper commitment to their community, a more profound sense of family obligation and personal responsibility, a stronger identification with the national fortunes, and a personal interest in our capitalist economy. (They also have a greater propensity to vote Republican.)

Here's more from what Perlstein found in that 2005 American Enterprise Institute magazine (my bold):

The places with the higehst levels of homeownership generally vote Republican.... "Our analysis shows that this connection between homeownership and voting Republican holds broadly at every level--from large regions all the way down to metro areas....more and more of the places offering new homes to young families following their dreams are in the heart of Red America." Not wanting to own your own home is revealed as downright European; Kotkin singles out Prague's homeownership rate at "about 12 percent." No Republicans there! He concludes by calling cities like Fresno, Orlando, Dallas, Houston, Phoenix, Las Vegas, and Atlanta "Our New Cities of Aspiration" -- "the de facto headquarters of the American dream."...

Once more our conservative think tank hammered home the electoral point: "Married couples with families, a key Bush constituency, had the highest rates among all groups: over 83 percent." No wonder Bush won: "Homeownership momentum continued right up to the election. Sales of new homes rose 4 percent in the fall, to an annual rate of 1.2 million units -- the third highest level on record. Sales of previously owned homes also rose to their third highest level."

Especially bustling? California, where first-time homeowners are said to "head for towns like Tracy, Modesto, and Grass Valley. Along the way, many embark on a journey that ends with them voting Republican."

They thought that getting homeownership rates up to 70% would secure a permanent Republican majority. They looked at the data and saw that suburban homeowners are more worried about tax issues, crime, and tend to vote more conservative on economic issues, and they thought they could let the financial sector do its thing and turn a critical mass of swing voters into suburban bourgeois tax-haters. There's an element of the GI Bill and post-war suburbanization in this strategy, which was designed in part by the GOP to get people to the new suburbs and weaken the power of Democratic city bosses.

They actively applauded themselves for pulling off this distinctly political project in their magazines. And then they blame poverty programs and the idea of government when it all collapses.

Mike Konczal is a Fellow at the Roosevelt Institute.

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Where are We Headed and Why Doesn't Anyone Care?

Jan 27, 2011Mike Konczal

Thoughts on the quiet surrounding an important announcement and outlandish comments about unemployment.

1: All's Quiet on the FOMC Front

Thoughts on the quiet surrounding an important announcement and outlandish comments about unemployment.

1: All's Quiet on the FOMC Front

I'm capable of getting nostalgic for things that happened seven weeks ago. Remember the debate over the tax cut deal? Remember that week with the fighting, the charts, the estimates, the hostage situation, the risks to Social Security, the Bernie Sanders filibuster, Obama blowing up over the public option, the cable news arguments about marginal tax cut rates and investment credits? Liberals got $60 billion in unemployment benefits, as well as some other credits that will help the economic recovery.

Yesterday the Federal Reserve's Federal Open Market Committee (FOMC) released its first policy statement of the year. I completely forgot about it until now. Ryan Avent covers it here, and the short of it is that they "remain wary about the weakness of the American economy." I like Avent's blogging, but it doesn't substitute for a wide-scale national debate over an important event. This FOMC statement got less than 1% of the energy or coverage that the tax deal received.

Because here's the interesting thing: if the report came back that they were optimistic and likely to stop QE2 early, and perhaps even raise interest rates earlier than anyone expected, that $60 billion in unemployment benefits would have been for nothing. The Federal Reserve would have immediately canceled out any potential growth and job creation the economy was getting and negated the meager fuel the Democrats were able to get by bribing the richest Americans with tax cuts.

The Federal Reserve is necessary for any steps towards getting our economy back to full employment. There's a robust debate to be had about whether or not (and under what conditions) it is sufficient, but everyone should agree that it is necessary in so much as they can cancel out what the government does. I think a goal for the progressive movement in 2011 should be to get people as organized and energized about discussing Federal Reserve appointments as we are about the Supreme Court (or at least as much as the right is about the Supreme Court). Matt Yglesias is very correct to point out that the failure here by the Obama team is a massive one.

2: Defenders of Full Employment, Richard Fisher Edition

There's also an online debate taking place about whether or not the Federal Reserve can deliver full employment without unions and without the government intervening in the labor market (see: Yglesias, Kevin Drum). We've certainly abandoned the fiscal government and labor unions applying pressure toward the ideal of full employment in hopes that monetary policy alone will do this.

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So with that said, let's take a good look at one of the new people who gained a vote at the FOMC this year and who stands in for unions in terms of getting us to full employment: president and CEO of the Federal Reserve Bank of Dallas Richard Fisher. Paul Krugman noted that he redefines price stability as “keeping inflation extremely low and stable” and blames health care reform and financial reform for unemployment being so high. Simon van Norden at Worthwhile Canadian Initative (in an amazing critique) found that Fisher thought (my bold):

[In March 2008] the paramount risk to the US economy is expected loose monetary policy. But what about the recession? the dual mandate? Financial turmoil? He went on to clearly chart his preferred course (with multiple nautical references) in the same speech:

...We cannot, in my opinion, confidently assume that slower U.S. economic growth will quell U.S. inflation and, more important, keep inflationary expectations anchored. Containing inflation is the purpose of the ship I crew for, and if a temporary economic slowdown is what we must endure while we achieve that purpose, then it is, in my opinion, a burden we must bear, however politically inconvenient. To some, this may appear a Hobson’s choice. I don’t see it that way. Our obligation is to prevent inflation in order to sustain long-term employment growth. I believe that the best way to cut through the treacherous economic waves that are upon us and keep our ship steaming forward is to stick to our purpose. [Speech, March 4, 2008]

He could not have been more wrong in 2008. Meanwhile, the graduating class of 2011 will enter a brutal job market that will hurt its ability to be rewarded for its labor, and thus lead a full life, for at least a decade. A note to these graduates: take comfort that you must "endure" this suffering in order to placate invisible bond vigilantes and protect rentier income.

In addition, Dylan Ratigan had two interesting catches from recently released transcripts of the FOMC in 2005 and found:

[Fisher] complaining about the enormous quantity of Chinese goods flowing into America... Only, he isn't complaining that there are too many Chinese imports, he is frustrated there aren't enough imports. Even though China has built special export-only ports to ship goods out of China, he says, the ports at "Long Beach and Northwest" can't absorb what China wants to sell us, because of work rules (i.e. unions). This is a huge problem, Fisher continues, because it is blocking his CEO contacts from outsourcing as much work abroad as quickly as possible. They cannot "exploit China" fast enough...

As late as 2005, Richard Fisher was celebrating this trend. In that same meeting where he complained about too few Chinese goods coming into the US, he bragged about the weakness of one of the most significant employers in the United States: "My most delicious irony is the fact that similarly dated Vietnamese debt now trades on a price basis richer, and on a yield basis lower, than that of Ford Motor Company. [Laughter]."

This is the guy whose job it is to bring us to full employment in 2011. And yes, "[Laughter]" is in the transcript.

Mike Konczal is a Fellow at the Roosevelt Institute.

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How Did We Lose Demand-side Theory and Forget Full Employment?

Jan 26, 2011Mike Konczal

Liberals thought they were making a good deal, but it turned out to be a Devil's pact.

Liberals thought they were making a good deal, but it turned out to be a Devil's pact.

Whatever happened to the goal of Full Employment? Boston Review has a forum on the topic. It kicks off with a lead essay by economist Robert Pollin, "Back to Full Employment", which also gives a history of the term and how it has been used. Contributors include Reihan Salam, James K. Galbraith, Ruy Teixeira, Lane Kenworthy and many others. Highly recommended.

Two additional things.

1. Reihan Salam's essay "Open the Labor Market" exposes the problem of using supply-side arguments to understand this crisis. Salam doesn't mention any kind of demand-side concepts, be they monetary or fiscal. Instead, he wants us to focus on the problem of incarceration blocking the supply of labor, which I think is a great idea. A great idea that can work in tandem with demand, but as a secondary problem in the crisis we now face. Incarceration doesn't explain our current crisis -- the huge drop in people employed is not the result of aggressive policing starting in 2007:

Unemployment has roughly doubled across every age and education group as well as by location. I'm sure if we dug deeper we could find that unemployment among college educated white women over 34 is up at least 80%. This is a group whose labor isn't a function of their interactions with the carceral state. And as the weakest potential employees are the last to benefit from growth after a recession, the longer we sit in this depressed state the worse it will be for the workers who were struggling the most going into the recession.

2. Jamie Galbraith has a piece, "Policies for Today’s World", that includes a history of the 1978 Humphrey-Hawkins Full Employment and Balanced Growth Act as well as arguments on infrastructure that are relevant to the State of the Union.

Paul Krugman and others are trying to figure out how demand arguments are being lost in the opinion-making class. I'd argue the problem is twofold. Conservatives went all-in attacking the notion of demand-side politics in the early 1980s, and liberals abandoned it in the 1990s for a different set of language on a pro-government supply side, leaving the demand work up to the Federal Reserve.

Jamie has written a lot during this crisis, but the piece I learned the most from for that debate was actually written in 1996 for The American Prospect, "The Surrender of Economic Policy." Here he explained, back when the debate was still being fought during the Clinton years, how liberals abandoned demand-side arguments in order to try and win over a role for the government in the supply-side arguments:

...LIBERALS LOST ON THE SUPPLY SIDE

At the very least, New Keynesian acceptance of the New Classical theoretical structure reduces macroeconomic policy to the fringe role, that of large-scale intervention only in deep and lasting recessions. In all other circumstances, the macro authorities are warned off -- as was Clinton himself during his brief Keynesian phase in early 1993.

What then can liberals do? The actual approach of the Clinton administration illustrates: Liberals can favor education, training, adjustment assistance, and other programs that upgrade skills and help workers move from one job to the next. They can support public investments in infrastructure, on the ground that these assist in the international competitiveness of the economy. They can support a combination of research and development assistance to advanced enterprises, alongside efforts to open foreign markets to American products, that help shore up the position of American companies in the world. If they are feeling brave, they can also support a higher minimum wage.

All of these are supply-side measures (except the last, which is a direct intervention in the labor market). Their purpose is to improve the long-term competitive performance of the American economy, on the thought that a more productive economy will generate higher average living standards. The further thought, that these higher averages will trickle down to low-paid production workers, is left as an assumption.

We can all agree that expenditures on education, training, research, development, and infrastructure are generally good things. But a macroeconomic commitment to full employment is the key to translating these investments into higher growth and living standards...

Infrastructure and associated environmental spending is undoubtedly of enormous need and value. But to whom? To the American citizen, as an element in the standard of living. Roads, water, sewer, power, and communications systems are all durable public consumption goods. It is consumers and workers, not the main business shippers, who hit the potholes on the road to work. It is people who breathe the air, drink the water, and boat on the rivers and lakes. All this has little to do with international competitiveness -- which is very sad, but true. This explains why business interests are not demanding higher infrastructure spending and why these items were the first to fail in the face of Republican opposition in the Congress.

We are left with the unpleasant conclusion that the liberal mainstream has fallen into a self-deluding trap. The right has taken over the commanding heights of both fiscal and monetary policy, leaving liberals with token sums to spend on supply-side interventions. Education, training, and infrastructure are very important, but not for the reasons usually given. Business won't support funding them at levels that liberals desire, and it is wishful to argue to business that they should. We must find, instead, a language in which to defend them for the sake of the people themselves, and organize the people around them for the vital direct benefits they bring (as indeed the environmental, consumer protection, and health and safety movements have traditionally done). Otherwise they will continue to lose the budget battles.

And if we want full employment, we need something else -- a full employment macroeconomics...

The liberals who built their careers post-1980 understand the tradeoff that was made when they took on the government-can-provide-productivity-too language, assuming that the Federal Reserve and break-glass-in-case-of-emergency federal fiscal policy would be there to step in and manage demand when a crisis happened. Which might help explain why they are so pissed at what is happening to the country right now.

Mike Konczal is a Fellow at the Roosevelt Institute.

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