The New Guard

What is the Crash Generation?

Apr 29, 2013Nona Willis Aronowitz

Down but not out, Millennials who came of age during the Great Recession could reshape the American economy and society.

The economy is personal. It colors our decisions about everything: when to have kids, what city to move to, who to vote for, who to sleep with. And nobody knows this better than the biggest generation in history: the Millennials. These 80 million Americans have come of age during the worst economic recession since the Depression, an experience that will have profound repercussions on our lives—and our political consciousness.

Down but not out, Millennials who came of age during the Great Recession could reshape the American economy and society.

The economy is personal. It colors our decisions about everything: when to have kids, what city to move to, who to vote for, who to sleep with. And nobody knows this better than the biggest generation in history: the Millennials. These 80 million Americans have come of age during the worst economic recession since the Depression, an experience that will have profound repercussions on our lives—and our political consciousness.

I call us the Crash Generation. For many of us in our twenties, 2008 was a period awash in exhilarating highs and terrifying lows. The words “depression,” “economic crisis,” “mass layoffs,” and “foreclosures,” along with “hope,” “change,” and “Obama,” all clogged the headlines and made their way into whiskey-fueled party conversations. Washington and the media had never been so frank about the cataclysmic proportions of a financial crash. And a candidate had never kicked young voters into such high gear like Barack Obama, who seemed to reflect the seismic demographic shift our generation was heralding. The mythic American dream-bubbles were bursting for young people at the exact moment we had begun to wield our political influence. That second half of 2008 was our JFK assassination. Our Vietnam. Our Great Depression. 

Study after study finds that Millennials are “materialistic” or obsessed with money. But really we're obsessed with the money we don’t have; put in political terms, we’re class-conscious. Thanks to Occupy Wall Street and Mitt Romney’s slipups, the concept of income inequality is finally part of the public conversation. The economic patterns of the past few decades, with the financial crisis as their crescendo, have yielded an atmosphere ripe for a youth-led social movement that hinges on our bottom lines. Because of our sheer numbers, we have enormous potential to transform waves into tsunamis, and we have already flexed our political muscle in two elections. Those of us who came of age when the bubble burst, particularly the downwardly mobile “privileged poor,” have a tangible common experience, a renewed indignation.

But too often, this indignation often has nowhere to go, and is enveloped in our frenetic lives of multiple jobs, demoralizing underemployment, or joblessness—the constant physical and emotional stress of keeping our heads above water. Years later, the status quo has not budged. We haven’t done much to shrink the income gap or encourage upward mobility. We haven’t gotten our leaders to address anemic state budgets, deregulation, unions’ decline, freelancers’ precarity, shrinking wages, student debt, or the insane cost of living in major cities. All those economic pressures have primed this era for an economic shift. Yet those same pressures limit our freedom to protest or push for policy changes. In other words, we’re pissed—but we’re paralyzed by the very forces we’re pissed about.

Right now, most of the permanent underclass feels politically frozen: When one missed paycheck means descending into poverty without a safety net, unions and political activism seem like a low priority. Educated young people are frozen, too—caught in the privileged-poor paradox. Our meager (or nonexistent) paychecks incite righteous anger—especially when we think of our middle class parents’ luck at their age—but they also choke our very ability to organize, create, and take risks. As our wages fall, our degrees lose value, prices of food and rent rise, and workdays expand, we have less and less time to read a book, to join a rally in the next town over, to hop a bus to Washington, to even have a hours-long discussion about politics with our friends. Most Millennials aren’t starving, Great Depression-style, but they are starved for a low cost of living and a baseline of economic freedom.

Here's the good news: For every 10 twentysomethings seized with frustration, there’s one pushing the conversation forward and coming up with compelling solutions, however flawed or nascent. This seething discontent signals the start of a major shift. The fizzling of Occupy Wall Street, for instance, shouldn’t depress us; Roosevelt Institute fellow Dorian Warren recently reminded me that if this is our civil rights movement, we’re only in 1957—a year after the Montgomery bus boycott. So far, our empty wallets and our denial have hindered our ability to meaningfully influence policy, but that doesn’t mean it won’t happen soon.

Some people think that entrepreneurship, not government policy, will save Millennials. The truth is, not everyone has the support and connections to launch their own business or score a job at a scrappy start-up. Besides, start-up culture and economic reform aren’t mutually exclusive. In a post-recession era, both social change and entrepreneurism stem from being able to live securely and cheaply. A 2008 study from the RAND Corporation found evidence of "entrepreneurship lock," where workers resist leaving firms offering health care due to the high premiums of the individual health insurance market. Compare this reticence to places like Norway: When journalist Max Chafkin visited the country in 2010, he reported on a spate of Norwegian entrepreneurs who not only were happy to pay high taxes, but attributed their penchant for risk-taking to a strong social safety net. (There are also more entrepreneurs per capita in Norway than in the United States. Same with Canada, Denmark, and Switzerland.)

Millennials are starting to realize that if their lives are going to improve, there needs to be policy that addresses unemployment, student debt, and income inequality. Young people like the ones striking outside McDonald’s in New York, or the students who won a minimum wage hike in San Jose, or the ones in Roosevelt’s Pipeline and Campus Network across the country—they’re all updating historic social movements (and the policies they’ve pushed) that have improved the lives of middle and working class Americans. 

The future movers and shakers of the Crash Generation have a modern sensibility. We’re Internet natives. We’re optimists. We believe in community and the “sharing economy.” We’ve all but settled the culture wars. But we also have faith in the idea of government, if not its current reality, and we’re not afraid to engage with successful historical models.

Nona Willis Aronowitz is a Roosevelt Institute | Pipeline Fellow. Join her tomorrow night at the Roosevelt Institute for a Crash Generation salon on "Why Millennials Should Care About Family Policy," with guest speaker Sharon Lerner of Demos. She will also be moderating a panel on paving the path to good jobs at A Bold Approach to the Jobs Emergency on June 4th.

 

Woman looking for work image via Shutterstock.com

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Rortybomb

What's the Best Way to Help the Long-Term Unemployed? Full Employment.

Apr 24, 2013Mike Konczal

What's the best way to help the long-term unemployed? There's new concern about how difficult it is for the long-term unemployed to find jobs in light of an interesting study by Rand Ghayad, a visiting scholar at the Boston Fed and PhD candidate. Ghayad sent out resumes that were identical except for how long the candidate was unemployed, and the longer they were unemployed, the less likely it was they would get called back. Matthew O'Brien has a great writeup of the study here, and there's additional thoughts from Megan McArdle, Paul Krugman, Felix Salmon, and Matt Yglesias.

The impact of long-term unemployment on human lives is very real, and I think the government should be combating it using every tool it has. However, I want to push back on a few of the economic ideas that tend to hover in the background of these discussions; specifically, the idea that we should consider the long-term unemployed uniquely in trouble in this economy. Because, based on my interpretation of the evidence, the best approach to handling this problem is to aim for full employment.

It's well known that it is harder for those who have been out of the labor force the longest to find jobs. It would be weird if Ghayad hadn't found that result. There is a large debate in the literature about whether this is driven by employers or job candidates, and Ghayad provides a very useful study finding that employers are a key part here.

But let's look at the likelihood of finding a job in three different economic scenarios (2000, 2007, and 2012) by duration of unemployment:

But notice that when the economy is much stronger, as it was in 2000 when unemployment averaged 4 percent, the rate at which the long-term unemployed find jobs jumps up. Let's zoom in on the last category, the job-finding rate of those who have been searching for a job for 53 weeks or longer, and chart it back to 1995. (Since the data, provided by the BLS, is not seasonally adjusted, the number here is a 12-month rolling average.)

As you can see, it's much easier for the long-term unemployed to find jobs when there's a tight labor market, like there was in the late 1990s. This rate collapses in a recession, and with years of 7+ percent unemployment, it has stayed depressed.

A lot of people are drawing conclusions that something has broken in long-term unemployment based on a previous paper by Rand Ghayad, where he disaggregates the Beveridge Curve by unemployment duration. I've been critical of that paper. I think, strictly speaking, that the disaggregation just tells us that the long-term unemployed have become a larger percentage of the unemployed, which we knew. Meanwhile, the labor market is depressed for everyone, even short-term unemployed (also see SF Fed for more evidence of this). As the long-term unemployed are less likely to drop out of the labor market than in normal times right now, the dramatic increase in the long-term unemployed hasn't turned into a large drop in labor force participation like many worry about.

We should do things that are smart policies that target the long-term unemployed. Amy Taub of Demos has done convincing work on why ending credit checks as part of the job interview process would be a good idea. Extending unemployment insurance is also important. But the idea that we should change course away from boosting the general economy strikes me as a bad idea. The long-term unemployed experience the worst impact of a generally weak economy. But its that weak economy that is doing the damage. If unemployment was actually brought down, which we could do with more expansonary policy, then employers couldn't afford to be so choosy.

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What's the best way to help the long-term unemployed? There's new concern about how difficult it is for the long-term unemployed to find jobs in light of an interesting study by Rand Ghayad, a visiting scholar at the Boston Fed and PhD candidate. Ghayad sent out resumes that were identical except for how long the candidate was unemployed, and the longer they were unemployed, the less likely it was they would get called back. Matthew O'Brien has a great writeup of the study here, and there's additional thoughts from Megan McArdle, Paul Krugman, Felix Salmon, and Matt Yglesias.

The impact of long-term unemployment on human lives is very real, and I think the government should be combating it using every tool it has. However, I want to push back on a few of the economic ideas that tend to hover in the background of these discussions; specifically, the idea that we should consider the long-term unemployed uniquely in trouble in this economy. Because, based on my interpretation of the evidence, the best approach to handling this problem is to aim for full employment.

It's well known that it is harder for those who have been out of the labor force the longest to find jobs. It would be weird if Ghayad hadn't found that result. There is a large debate in the literature about whether this is driven by employers or job candidates, and Ghayad provides a very useful study finding that employers are a key part here.

But let's look at the likelihood of finding a job in three different economic scenarios (2000, 2007, and 2012) by duration of unemployment:

But notice that when the economy is much stronger, as it was in 2000 when unemployment averaged 4 percent, the rate at which the long-term unemployed find jobs jumps up. Let's zoom in on the last category, the job-finding rate of those who have been searching for a job for 53 weeks or longer, and chart it back to 1995. (Since the data, provided by the BLS, is not seasonally adjusted, the number here is a 12-month rolling average.)

As you can see, it's much easier for the long-term unemployed to find jobs when there's a tight labor market, like there was in the late 1990s. This rate collapses in a recession, and with years of 7+ percent unemployment, it has stayed depressed.

A lot of people are drawing conclusions that something has broken in long-term unemployment based on a previous paper by Rand Ghayad, where he disaggregates the Beveridge Curve by unemployment duration. I've been critical of that paper. I think, strictly speaking, that the disaggregation just tells us that the long-term unemployed have become a larger percentage of the unemployed, which we knew. Meanwhile, the labor market is depressed for everyone, even short-term unemployed (also see SF Fed for more evidence of this). As the long-term unemployed are less likely to drop out of the labor market than in normal times right now, the dramatic increase in the long-term unemployed hasn't turned into a large drop in labor force participation like many worry about.

We should do things that are smart policies that target the long-term unemployed. Amy Taub of Demos has done convincing work on why ending credit checks as part of the job interview process would be a good idea. Extending unemployment insurance is also important. But the idea that we should change course away from boosting the general economy strikes me as a bad idea. The long-term unemployed experience the worst impact of a generally weak economy. But its that weak economy that is doing the damage. If unemployment was actually brought down, which we could do with more expansonary policy, then employers couldn't afford to be so choosy.

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Millennial Pulse

Millennials Identify Three Keys to Preventing the Next Superstorm Sandy

Apr 22, 2013Preeya Saikia

Current and future leaders convened at Yale to explore a proactive approach to natural disasters.

Current and future leaders convened at Yale to explore a proactive approach to natural disasters.

It’s been six months since Superstorm Sandy devastated the Northeast, but its impact can still be felt. Recently, members of the Roosevelt Institute | Campus Network held a conference at Yale University to consider the policy implications of the disaster. New Haven Congresswoman Rosa DeLauro set the stage for the conference with a keynote reminding us that “disasters test contracts of citizenship.” This notion was embodied in student presentations on ongoing policy work influenced by actions that governmental and non-governmental agencies took to manage the crisis.

A guiding principle behind these student policies and the speaker presentations: planning efforts for a natural disaster are hardly limited to trouble-shooting the problem when it occurs. As future policymakers, we must have thoughtful disaster plans in place, anticipate factors that contribute to the occurrence of natural disasters, and forecast the ramifications of rebuilding an area after a disaster strikes.  

Preparedness

Sandy was an opportunity for citizens to pull together in the face of adversity. This positive outcome aside, we should not lose sight of why community members had to create ad hoc campaigns in the first place: they were filling gaps in formal disaster relief efforts, some of which still haven’t even been identified. Students advocated for increased efficiency in relief plans to help neglected segments of the population, with one calling for an assessment of the role of civilian first responders in order to understand what public agencies can do to organize this manpower going forward.

To take one example, Sandy separated many mental health patients from their caretakers and limited their access to medicine. As one student policy pointed out, well-intentioned individuals tried to fill the void, but they lacked the background to handle these situations. Speaker Mary Casey Lockyer, Manager of Disaster Services for Health Services at the Red Cross, explained that while many Red Cross volunteers are registered nurses who have the training to handle mental health issues, they are also over the age of 50. These well-practiced volunteers faced challenges in moving around during the storm due to their advanced age. Her recommendation is for younger people to volunteer with the Red Cross as apprentices to these professionals so that they can be trained and mobilized in the event of another Sandy-sized disaster.

Another student policy in progress identified the asymmetric level of relief available to low-income Americans compared to their wealthier counterparts. In identifying this gap, public agencies can revise disaster plans to incorporate all Americans. Speaker Robert Smuts, Director of Emergency Management in New Haven, stressed that it is critical for public agencies to anticipate what will go wrong and prepare the right units accordingly. In anticipation of Winter Storm Nemo, which brought 34 inches of snow to New Haven, he prepared snow trucks that also had medical supplies and tools to cut down fallen trees.

Preventative Measures

Natural disasters are not entirely preventable, but there are measures that public agencies can adopt to mitigate the level of damage and the frequency with which they occur. Several student policies made the connection between climate change and natural disasters. One Roosevelter investigated the role of weather forecasting in disaster prevention. In her research, she found that America’s forecasting model lags behind Europe’s. This is a critical technical deficiency, since an advanced computer model could alert us to disasters sooner and allow us to build adequate buffers to mitigate damages and limit human suffering by evacuating people from areas that are likely to be devastated.

Another approach to prevent the effects of climate change is to limit the use of fossil fuels that release greenhouse gas emissions. One student policy looked at using solar power towers to harness the sun’s energy in lieu of fossil fuels.

Rebuilding    

If there is one takeaway from the conference, it is that we need to rebuild devastated areas thoughtfully. Speaker James Rausse, President of the American Planning Association’s New York chapter, enlightened us on the reality of overseeing a rebuilding project in Breezy Point. The storm destroyed several businesses, which had repercussions for the local economy. The challenge of rebuilding Breezy Point lies in deciding what ought to be developed and how to finance the project.

Congresswoman DeLauro addressed the challenge of financing rebuilding efforts through a National Infrastructure Bank. This entity would leverage private investments for public projects. The Concourse Fund, a student-run microfinance institution that began in Fordham University, suggested a stock market model for ideas on rebuilding in order to answer the question of “what ought to be developed.” The exchange would provide public officials with the opportunity to review all rebuilding ideas, as well as the cost and effectiveness of these ideas. This would allow them to make sound decisions and justify those choices to the public based on the market results.

Students also contributed their own ideas on what ought to be built, including a suggestion that we create a national park to serve as a buffer between high sea levels and residential communities in the Lower East Side. This would also allow the community to raise revenue from park entrance fees and events.

In order to answer the questions of “what ought to be developed” and “how to finance projects”, the Concourse Fund introduced the idea of retrofitting buildings with green roofs, which limit the fossil fuels that city buildings use for maintenance. As an added advantage, these green roofs would be financed through small business loans from community banks, which would result in active small businesses that stimulate the local economy.

The conference at Yale was an invaluable experience for all who attended. Several of the student presentations led to collaborative brainstorming sessions, which led to partnerships to develop ongoing policy work. Students also connected with speakers to help them develop their policies. Some of these students have already shown interest in showcasing their projects at the Roosevelt Institute’s annual Policy Expo in Washington, D.C., and submitting their final policies for publication in the next edition of the 10 Ideas journal. The conference was a unique opportunity for students to hear from individuals who are active in the Sandy recovery and rebuilding efforts, and it gave current leaders the chance to hear from future leaders in public service.

Preeya Saikia is the Economic Development Policy Director at The City College of New York's Roosevelt Institute | Campus Network.

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Rediscovering Government

Good News on the Deficit Makes Social Security Cuts Even Worse

Apr 12, 2013Jeff Madrick

The deficit is already shrinking rapidly, and Social Security won't add much to it anyway.

The deficit is already shrinking rapidly, and Social Security won't add much to it anyway.

The reason President Obama's proposal to cut Social Security benefits is tragic is that it is simply not necessary. His plan is to use a different method to compute how much benefits are raised to offset inflation. But Social Security will add very little to federal spending over the next 30 to 40 years. As a proportion of national income (GDP), It will rise from 5 percent to 6 percent. At the same time, retirees are set to get much less money from their pensions because so many were forced to depend on 401(k)s and defined contribution plans rather than traditional pensions with defined benefits.

But a new report from Goldman Sachs economists puts the Obama decision in an even harsher light. The federal deficit is coming down rapidly on its own. In a piece entitled, “The Rapidly Shrinking Federal Deficit,” Goldman notes that the deficit averaged 4.5 percent of GDP in the first calendar quarter, compared to 10.1 percent in fiscal year 2009. The reasons are faster economic growth, higher taxes, and reduced government spending. 

More importantly, Goldman thinks the deficit will fall to 3 percent or so over the next two years, mostly because business and households will begin spending again. They think so-called deleveraging—that is, paying back debt—is coming to an end.

And here’s some additional good news: deglobalization! McKinsey reports that deglobalization has plagued the world since the financial crisis. The cross-border flows of capital are down sharply. The good news, McKinsey admits, is that they probably should be. Such border flows were often hot capital, financing speculation more than long-term investment. Now foreign direct investment, usually stable investment in business, is a much higher proportion of capital flows.  

And financial deepening—the proportion of GDP that is in debt and stocks--is also down. What sticks out like a  sore thumb is that the financial deepening of the preceding two and a half decades—which was huge--went far less to households and business than is to be expected. Even McKinsey says this is astonishing, because what else is finance supposed to do but supply funds to individuals and businesses? Instead, an enormous proportion went to finance itself—that is, financial firms borrowed at dramatically higher rates. And an awful lot of that must have gone into speculative activities, especially highly risky mortgage securities. From my point of view, this financialization was the disease created by the triumphalism of globalization. Globalization, to be sure, had benefits, but they were overshadowed by the financial instability of capital flows, which grew enormously since Ronald Reagan was president.

McKinsey warns that this deglobalization of finance could go too far. As noted, cross-border flows, especially long-term investments, can be highly benefical for world growth. But for me, it is now welcome. 

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed. 

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To Build a Nation and a People: FDR and the WPA

Apr 8, 2013David Woolner

Today's Congress needs to step up as it did in the 1930s to address high unemployment and crumbling infrastructure.

Today's Congress needs to step up as it did in the 1930s to address high unemployment and crumbling infrastructure.

To those who say that our expenditures for Public Works and other means for recovery are a waste that we cannot afford, I answer that no country, however rich, can afford the waste of its human resources. Demoralization caused by vast unemployment is our greatest extravagance. Morally, it is the greatest menace to our social order. Some people try to tell me that we must make up our minds that for the future we shall permanently have millions of unemployed… But…I stand or fall by my refusal to accept as a necessary condition of our future a permanent army of unemployed. On the contrary, we must make it a national principle that we will not tolerate a large army of unemployed and that we will arrange our national economy to end our present unemployment as soon as we can and then to take wise measures against its return. I do not want to think that it is the destiny of any American to remain permanently on relief rolls.—Franklin D. Roosevelt, September 30, 1934

One of the most alarming statistics about America’s persistently high unemployment rate over the past four years is the large number of long-term unemployed. Current estimates by the Bureau of Labor Statistics put the total number of these largely forgotten workers at 4.8 million people—or roughly 40 percent of the total number of jobless Americans. Unlike previous recessions, where there was a good deal of movement in and out of the job market, loss of employment is much more serious in today’s Great Recession, as an individual’s chances of getting back to work are much lower. This leads to what one recent article terms a “loss of skills, loss of trust, and loss of networks,” all of which exacerbates the problem.

Worse still, there seems to be little political will to tackle this problem in Washington, as any serious effort to address the issue of the long-term unemployed has been sidelined by the endless budget debates in Congress and the sky-is-falling rhetoric of the extreme right, which remains ideologically opposed to government intervention in the economy. Perhaps the great symbol of this callous indifference can be found in the fact that while the recent sequester did not result in any loss of pay among the members of Congress, the long-term unemployed will see their benefits cut by 10 percent.

In the meantime, a recent report by the American Society for Civil Engineers notes that while there has been a slight improvement in the overall state of America’s infrastructure in the past four years, the current state of our nation’s roads, bridges, water systems, energy grid, and other transportation networks remains dismally low—receiving a grade of D+ as opposed to the nearly failing grade of D- four years ago. Thanks to this persistent neglect and Congress’s reluctance to appropriate the funds needed to fix our crumbling roads and other facilities, the U.S. now ranks 25th in the world in terms of infrastructure, far behind the rest of the industrialized world.

This juxtaposition of long-term unemployment and a failing infrastructure is not unlike the situation that Franklin Roosevelt faced in 1935 when, in a bold and unprecedented effort to alleviate the suffering of the long-term unemployed, FDR pushed Congress to pass the Emergency Relief Appropriations Act. It was through this piece of legislation passed 78 years ago today that Congress appropriated the funds FDR needed to launch the most ambitious public works program in American history—the Works Progress Administration, or WPA.

As the generation that lived through the Great Depression passes away, fewer and fewer Americans may be aware of what a great debt this nation owes to this remarkable government program. Indeed, the WPA not only employed 8.5 million people, it also built much of the infrastructure we still use today. How many New Yorkers, for example, are aware that the WPA is responsible for the construction of the Lincoln Tunnel, Tri-borough Bridge, the Belt, Grand Central, and Henry Hudson Parkways, the East River (FDR) Drive, or LaGuardia Airport? How many Chicagoans know that Midway Airport and much of Lake Shore Drive were built by the WPA? What about the fabled “river walk” of San Antonio, Texas? Do the residents of this community know that this critical piece and driver of much of their local economy was conceived and constructed by WPA architects and engineers? Are the people of New Jersey aware that they owe the Palisades Parkway to the WPA? What about those of us who have enjoyed the beauty of a drive along the Blue Ridge Parkway in North Carolina – are we aware that it too was built by the WPA? And what about Los Angeles International Airport or the Glendale Viaduct and countless other public works projects in California? Or the many WPA constructed buildings, parks, and other facilities constructed in New Mexico and other parts of the Southwest?

This list could go on and on, for before it was through the WPA would construct nearly 600,000 miles of rural roads, 67,000 miles of urban streets, 122,000 bridges, 1,000 tunnels, 1,050 airfields, 500 water treatment plants, 1,500 sewage treatment plants, 36,900 schools, 2,552 hospitals, 2,700 firehouses, and nearly 20,000 other state, county, and local government buildings. Most importantly, it would also give meaningful employment to millions of skilled and unskilled workers, providing our nation with the infrastructure it needed to become the most efficient and productive economy in the world and the long-term unemployed with the one thing they needed above all else—a job.

Seventy-eight years ago, our leaders in Congress had the courage and vision to engage in what FDR called “bold, persistent, experimentation.” In the face of the worst economic crisis in our history, they came to recognize that there are times when government itself must step in to provide employment if the free market fails to do so. They had no plans “to take the country down the path to socialism” as some critics charged, or to make the WPA into a permanent institution. What they did see was a need—a critical need to provide employment and to secure the skills of an entire generation of workers, juxtaposed with an equally important need to bring America’s rickety 19th century infrastructure into the modern world. They understood that this would cost money, but they also understood that in the long run this investment—even if it required deficit spending—would pay off.

They were right. Just ask any member of the “greatest generation” who lived through the seemingly massive federal investments and spending of the 1930s and 40s and then went on to enjoy the largest expansion of the American middle class in our nation’s history. Or ask yourself, the next time you land at LaGuardia Airport or enjoy an evening out among the many shops, cafes, and restaurants that cluster around San Antonio’s River Walk.

If today’s Congress had the same vision and courage that existed in Washington in 1935, it would see that with nearly 5 million people suffering the ill effects of long-term unemployment, and with an infrastructure that is now ranked 25th in the world, the least it could do is get behind President Obama’s nearly forgotten call for a modest $50 billion in spending for infrastructure. But unfortunately it does not appear that today’s Congress—particularly the conservative membership of the House—possesses anything like the vision of its counterparts in 1935. This is very bad news, for as FDR remarked about the “generation of self-seekers” that brought the country to ruin in 1933, “they have no vision, and when there is no vision, the people perish.”

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.

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Rediscovering Government

Defeating Laissez Faire Thinking in the Name of the WPA

Apr 8, 2013Jeff Madrick

Winning the war of ideas will be vital if we ever hope to implement such a successful program again.

Winning the war of ideas will be vital if we ever hope to implement such a successful program again.

Many thinking people are surprised that the lessons of the Great Depression have been so easily forgotten as the rich world struggles to get economies back on track after the worst recession since the 1930s. Keynes himself would have been surprised, because he thought the end of laissez-faire economics was well on its way even before the Great Depression. He wrote an essay in 1930 to that end called "The End of Laissez Faire," nicely summarized in a new book by Angus Burgin, The Great Persuasion, which predated his magnum opus, The General Theory, by six years.

But laissez-faire rose again with a vengeance under the articulate, if simplistic, preachings of Milton Friedman. It remains a guiding principle today partly because of the very allure of its simple core principle. For those of us who believe government is needed not merely to tame capitalism but to make it work, as well as to provide for a decent society that rewards all fairly and promotes social cohesion and optimism, we should remind ourselves how profoundly appealing laissez-faire is and what a battle we face. It is a set of elegant principles, while the correct critiques of it are ugly by comparison. Also, it was in the 1920s, and is today, the philosophy of the rich and powerful, not a small matter.

The rise, momentary fall in 2008, and rise again of laissez faire is therefore not really a stunning historical event. Fiscal stimulus, the main legacy of John Maynard Keynes, was derided when President Obama got an $800 billion stimulus passed. Then it was said by many that it didn’t either save or create new jobs. Meanwhile, Europe is overwhelmed by the disease of austerity economics. Only Germany stays above water based on exports made cheap by the low value of the euro -- something it would not be able to enjoy if it were independent of the Eurozone and had its own currency. Austerity economics has spread to the U.S. in the form of allegedly sensible budget balancing commissions that are not sensible at all. They helped foment the pressure to balance the budget as soon as possible, even with unemployment at nearly 8 percent.

It is not only fiscal stimulus that is derided. Programs to spur job growth have been limited to relatively modest infrastructure investments and tax cuts, especially payroll tax cuts. Less obvious, the push by mainstream economists to explain income inequality almost solely in terms of inadequate education is deeply misleading. Such an expalantion neglects the low minimu wage, persistently high unemployment rates, the failure to implement labor organization laws, and on.

There have been new programs. A modest investment in infrastructure and tax cuts. We do have a healthcare bill, which we should applaud on balance. But none of this compares to the adventure of the New Deal, and in particular the Works Progress Administration, whose anniversary we are celebrating today. The WPA went out and hired Americas to do jobs, including building infrastructure. By some estimates, some 8 million jobs were created.

We need a wide range of New Deal ideas made contemporary: higher minimum wages, living wages, aggressive public investment, green investments, and on. Government will be the generator of these jobs. Some, but very few, argue we need outright public employment programs, just like the WPA.

What made that happen then? A more severe recession than now, for one thing. A far bolder president, for another.   

But the ideology of laissez faire still had to be defeated. Laissez faire was not mentioned by Smith, Ricardo, or Mathus, Keynes wrote. “Even the idea is not present in any form in these authors,” he said in “The End of Laissez Faire.” He went on, the public had “come to regard the simplified hypothesis as health and the further complications as disease.”

Keynes blindly believed reason would prevail. The many over-simplifcations of laissez faire would become obvious, he optimistically thought. Sane criticism would prevail over simple ideology. For a while, he was right—a pretty long while. Arguably a version of Keynesian progressivism, which even included fixed exchange rates and plenty of social programs, especially in Europe, prevailed until the 1970s. Then it turned to over-simplifications and scapegoats, mainly driven by the painful inflationary economy of the 1970s.

Many are enamored of the idea that a revitalized right wing of effective think tanks, lobbying, and media disinformation ended progresssivm in the U.S. But that misreads history. Margaret Thatcher introduced stern anti-Keynesian policies well before the U.S. did at the start of the 1980s. Germany was anti-Keynesian throughout the 1970s. Ideas matter, and the acceptance of the idea of laissez faire regained the upper hand.

As we battle in memory of the marvelous WPA, we should keep in mind how intensely compelling laissez faire ideology is. It has captured, without their really noticing, the hearts and minds of most orthodox economists. As usual, it has the rich mostly on its side. If we recognize it is a tough, ongoing battle to defeat the simple version of it, we will fight it better. In the meantime, we can rejoice in how well we once did. That is the proof that we can win. American history can be repeated.

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed. 

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Higher Ed Cuts Could Hold States and Students Back

Mar 21, 2013

President Obama has talked about the need to "win the future" by investing in higher education, but based on the deep budget cuts states have made in recent years, it looks more like we're trying to forfeit. A new report from the Center on Budget and Policy Priorities finds that states are now spending 28 percent less per student on higher education than they were before the recession.

President Obama has talked about the need to "win the future" by investing in higher education, but based on the deep budget cuts states have made in recent years, it looks more like we're trying to forfeit. A new report from the Center on Budget and Policy Priorities finds that states are now spending 28 percent less per student on higher education than they were before the recession. Many states have experienced a budget crunch due to decreased tax revenues, but instead of raising tax rates to close the gap, they've often resorted to counterproductive cuts in public resources and services. In the case of higher education, those cuts have been passed on to students and their families in the form of soaring tuition rates. CBPP finds that per-student revenue fell by $2,600 while per-student tuition rose by $2,600 in the last 25 years. But even tuition hikes aren't covering the full cost of state budget cuts, so public colleges and universities have been forced to lay off staff and elminate programs while students wind up paying more for less.

The Roosevelt Institute | Campus Network and the United States Students Association released a report this week on Millennial solutions to the student debt crisis, and this is part of the problem. If we're not willing to invest more in our public university systems, we won't just be driving students further into debt. We'll be denying them the quality education they need to become productive and competitive members of the work force.

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FDR Called Minimum Wage Critics "Hopelessly Reactionary." He Was Right.

Mar 19, 2013David Woolner

Like President Obama, FDR faced resistance to guaranteeing workers a decent wage, but he knew he had the American people on his side.

Our Nation so richly endowed with natural resources and with a capable and industrious population should be able to devise ways and means of insuring to all our able-bodied working men and women a fair day's pay for a fair day's work. A self-supporting and self-respecting democracy can plead no justification for the existence of child labor, no economic reason for chiseling workers' wages or stretching workers' hours.

Like President Obama, FDR faced resistance to guaranteeing workers a decent wage, but he knew he had the American people on his side.

Our Nation so richly endowed with natural resources and with a capable and industrious population should be able to devise ways and means of insuring to all our able-bodied working men and women a fair day's pay for a fair day's work. A self-supporting and self-respecting democracy can plead no justification for the existence of child labor, no economic reason for chiseling workers' wages or stretching workers' hours.

Enlightened business is learning that competition ought not to cause bad social consequences which inevitably react upon the profits of business itself. All but the hopelessly reactionary will agree that to conserve our primary resources of man power, government must have some control over maximum hours, minimum wages, the evil of child labor and the exploitation of unorganized labor. –FDR, May 1937

In his recent State of the Union address, President Obama called on Congress to increase the federal minimum wage to $9 an hour and to link the future minimum wage rate to inflation. In doing so, the president took note of the fact that at today’s minimum wage, a family with two children that works full time sill lives below the poverty line. This, he insisted, is unacceptable, as “in the wealthiest nation on Earth, no one who works full-time should have to live in poverty.” Higher wages, the president insisted, “could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead.” And for businesses across the country, it would mean “customers with more money in their pockets,” which translates into the simple fact that “our economy is stronger when we reward an honest day’s work with honest wages.”

Not surprisingly, the president’s call for an increase in the minimum wage has elicited a somewhat predicable response from conservative Republicans. House Speaker John Boehner has called the idea “a job killer,” while House Budget Committee Chairman Paul Ryan called it “inflationary” and “counter-productive.” Some Republican leaders, such as House Majority Leader Eric Cantor and Senator Marco Rubio of Florida, have even gone so far as to advocate doing away with minimum wage/maximum hours laws altogether.

Interestingly, the legislation that gave us the minimum wage, the Fair Labor Standards Act, was also promoted by Franklin Roosevelt in his January 1938 State of the Union address. Here, after taking note of the fact that “millions of industrial workers receive pay so low that they have little buying power,” and hence “suffer great human hardship,” FDR also pointed out that these same workers are “unable to buy adequate food and shelter, to maintain health or to buy their share of manufactured goods,” all of which he insisted was a drag on our national economy.

Moreover, even though a majority of Americans—much like today—supported the passage of legislation that would set minimum wages and maximum hours, the Fair Labor Standards Act aroused fierce opposition among FDR’s conservative critics. The National Association of Manufacturers insisted that the law was but the first step in taking the country down the road to “communism, bolshevism, fascism and Nazism.” The National Committee to Uphold Constitutional Government insisted the act was unconstitutional and part of a larger conspiracy to turn the president into a dictator. To counter these absurd claims, FDR turned to one of his most effective tools, the Fireside Chat, where he calmly cautioned the American people:

not [to] let any calamity-howling executive with an income of $1,000.00 a day, who has been turning his employees over to the Government relief rolls in order to preserve his company's undistributed reserves, tell you—using his stockholders’ money to pay the postage for his personal opinions—tell you that a wage of $11.00 a week is going to have a disastrous effect on all American industry. Fortunately for business as a whole, and therefore for the Nation, that type of executive is a rarity with whom most business executives most heartily disagree.

Since its passage in 1938, the Fair Labor Standards Act has helped improve the lives of millions of American workers—especially those at the bottom rung of the income scale. Moreover, contrary to the fear mongers of 1938 and today, minimum wage and maximum hours legislation has not been disastrous for American business. In fact, study after study shows that, on balance, raising the minimum wage has been good for the economy and business overall because it increases the purchasing power of the American consumer.

Given the sluggish state of our economy, and given the fact that the minimum wage as it stands today, when adjusted for inflation, falls far below the hourly income levels achieved in the mid to late 1960s, isn’t it time to offer hard-working Americans a pay increase?

In 1938, Franklin Roosevelt argued that if we want to move “resolutely to extend the frontiers of social progress, we must…ever bear in mind that our objective is to improve and not to impair the standard of living of those who are now undernourished, poorly clad and ill-housed.”

If Congress is serious about improving and not impairing the lives of the millions of working poor in this country, then it needs to act to reverse the downward spiral in hourly income that has occurred in the past four decades and get behind President Obama’s call for an increase in the minimum wage. The president is right. It is outrageous that in the richest country on earth, a person who works full-time is still forced to live in poverty. Surely the simple idea that an honest day’s work deserves an honest day’s pay is something that all Americans—even conservative Republicans—can agree should be part of the American dream.

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.

 

Rich man underpaying worker image via Shutterstock.com.

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The Budget Wars: An Outbreak of Sanity or the Foundations for a New Offensive?

Mar 18, 2013Bo Cutter

The partisan divide over the budget may seem unbridgeable, but there's a deal to be had if both sides want it.

I'll open by acknowledging a considerable difference between my budget/fiscal policy hopes and my actual predictions. My hopes for the emergence of a doable centrist budget strategy from the Obama administration have never come close to reality. My predictions that nothing much will happen have mostly been correct. So where are we now?

The partisan divide over the budget may seem unbridgeable, but there's a deal to be had if both sides want it.

I'll open by acknowledging a considerable difference between my budget/fiscal policy hopes and my actual predictions. My hopes for the emergence of a doable centrist budget strategy from the Obama administration have never come close to reality. My predictions that nothing much will happen have mostly been correct. So where are we now?

We're in the middle of the clash of ideology, reality, what Edward Luttwag calls "the autism of great powers" applied to domestic politics, and an organizational-bureaucratic brain freeze. Both the left and right are deeply mired in the ideologies of another time and another universe. Reality has played out contrary to all expectations. The "great powers" keep saying the same things because that's what they said yesterday. And the various bureaucracies are all essentially impermeable to new strategies and have no idea what steps to take now.

There are some parallels here to Bill Clinton and the spring of 1995. (Just to be clear, I was an enthusiastic part of that administration.) In the 1994 congressional elections, the Clinton administration had been clobbered. For the first time in 40 years, the Republicans won both houses of Congress, gaining eight seats in the Senate and 54 seats in the House. It was a grim time in the White House, made grimmer by the standoff over 1994-95 spending and the government shutdown that then ensued. Bill Clinton won the public relations battle around the shutdown but, in retrospect, clearly began to be uneasy over how dug-in over budget/deficit issues his own White House was. And it was Bill Clinton, acting on his own, who moved his administration toward a balanced budget as a goal, toward the political center, and toward a huge victory in 1996.

Is something similar happening now?

The circumstances are obviously not exactly the same today. President Obama has won his second term and is now trying to establish the basis for a successful second term and a legacy for the ages.

Just a few weeks ago, the second-term strategy, clearly signaled by the White House, was to run against the Republican House and focus almost completely on turning the House in the 2014 elections. Not that anyone asked, but I thought this was a terrible strategy. (And no, the Truman 1948 "Do-Nothing Congress" campaign is not even remotely an analogue.) Winning the House in 2014 is an uphill fight with the odds very much against the president. If you as the president try and then lose, you can be certain that you will get nothing in your last two years -- because you invested your first two in depicting your political opponents as the nation's enemies. If you try and actually win, you won't win much because your power ebbs so rapidly in those last two years. All those House seats you won will be filled by moderates who are looking to a future when you won't be there.

I saw this as the common problem of poker players who don't understand the central issue of money odds versus card odds. It's okay to draw to inside straights if the pot is giving you money odds that are more in your favor than the card odds are against you. Which is to say low-probability strategies are fine if you really know the odds and the payoff is big enough. The problem in this specific case is that the odds are worse and the payoff for success less than the enthusiasts believe.

But suddenly we're in the middle of a charm fest, filled with dinners and meetings and discussions, all about the budget, that were never anticipated. What happened? Reality happened.

I think there is at least a chance that President Obama noticed developments out there in the real world, saw that his own White House was dug in on a low probability/low return strategy and unlikely to change, and moved on his own.

What, possibly, did the president see?

The end-of-the-year tax increases on upper-income families did not lead to the uprising Republicans expected. But they also did not spark the public expressions of devotion that the White House wanted.

Then sequestration happened, which no one expected, and it was a political non-event. The public did not turn against Republicans because of the budget cuts. But it also became obvious to everyone that sequestration makes all of government a bit worse, and is more than anything else a sign of an utter absence of political leadership or comity.

Then the picture of the economy became a bit clearer. Here's my view: enjoy this nice employment bump we've had and the decent first quarter (which is basically over), because it's the last of the good news. The rest of the year will probably be pretty slow, and the sequester will probably cost us about 500,000 jobs, mostly in the private sector. If you're President Obama, you know one thing for certain: any chance you have of building a great second-term legacy will be sunk if the economy stays mediocre and you're spending your time entrenched in the budget wars.

Finally, the polls began to tell a story. In the most recent Washington Post - ABC News poll, President Obama's approval ratings have dropped 5 points to about 50 percent since his reelection. And the 18-point advantage the president had over the Congress regarding whom the public trusted more to handle the economy has fallen to 4 points. 50 percent of independents now have a negative view of the president's performance compared to 44 percent with a positive view. Since the end of World War II, only two second-term presidents, Obama and George W. Bush, have had approval ratings this low this early. (This is not good company.)

Meanwhile, of course, the ongoing public debate involves all of the normal agita. Representative Paul Ryan and the Republican House have put out a House budget that progressives hate. And Senator Patty Murray and the Senate Democrats have offered a counter-budget that conservatives hate. The two, of course, have nothing to do with each other, and cannot possibly be used as the basis for a true compromise or "deal." I think they are like the cans of sardines in the joke: they're there for trading, not eating. Judging by the mail I keep getting telling me breathlessly there is a desperate need for me to give money to save us from Paul Ryan (I'd bet the conservative side is raising money to save us from Patty Murray), I sometimes suspect that the left and right got together and agreed to put out two undoable budgets as organizing and fundraising mechanisms. Thankfully, we really do not have to spend a dime to defend ourselves against either Ryan or Murray. Both of their efforts are basically sideshows.

What I hope is happening -- and a few friends in various places think is happening -- is that both sides are looking at all this and concluding they can't be at all confident they have winning hands, and maybe it's better to see if there's a deal to be had. It will be hard to do anything else of real importance until this issue is settled; it will just sit there offering opportunities for completely unproductive fights several times every year. President Obama has a much lower chance of building a real legacy unless the issue is settled. And the hell of it is that if you decide to solve the problem over a decade, it actually isn't that hard.

Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

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A New Pope Brings New Hope for Ending Austerity

Mar 18, 2013Tim Price

If Pope Francis raises his voice on behalf of the poor, he could deal the final blow to austerity economics.

If Pope Francis raises his voice on behalf of the poor, he could deal the final blow to austerity economics.

“Now faith is the substance of things hoped for, the evidence of things not seen.” That’s a quote from the New Testament, but it’s easy to imagine many in Europe expressing the same sentiment today, and I don’t just mean the crowd that gathered outside St. Peter’s Basilica last week to watch the newly elected Pope Francis make his first address. It applies just as much to austerity advocates throughout the European Union who continue to assure themselves that economic growth and recovery will come if they just keep cutting deeper. As Pope Francis leads the Church into a new era, he may also be able to help bring the age of austerity to a close.

The man formerly known as Cardinal Jorge Bergoglio has a lot of hopes pinned on him, not the least of which is that he’ll serve as an advocate for the poor and an opponent of the economic policies that are afflicting them. The left has been let down on this front before; Pope Benedict XVI spoke of the “scandal of glaring inequalities" and condemned “unregulated financial capitalism,” but most progressives wouldn’t exactly consider him a staunch ally given his rejection of just about everything else they believe in. Already, critics have highlighted Pope Francis’s condemnation of gay rights and rumored collaboration with Argentine’s dictatorship, and as Mother Jones’s Eric Kain writes, “If the cardinals had elected a pro-choice pope, that would have been real news.”

But there are reasons to believe progressive optimism about Pope Francis isn’t totally misplaced. E.J. Dionne notes that he’s “the first pope to take the name of the saint known for his devotion to humility and to the poor.” He’s also the first pope from Latin America, which brings a new perspective to the Vatican and suggests that he’s “likely to weigh in often on behalf of the world’s poorest regions.” And to top it all off, he’s a Jesuit, which even among Catholics makes him the equivalent of that guy from college who made you feel bad by telling you he spent his summer volunteering with Habitat for Humanity while you were busy doing tequila shots. (There are also anecdotes about the modest life he chose to lead, but that feels uncomfortably close to saying Scott Brown would make a good senator because he drove a truck.)

Still, even if the new pope does emerge as a progressive voice on these issues, some might be tempted (no pun or theological implications intended) to dismiss his influence on economic policy. Regardless of whether you believe he’s really infallible, he’s still just one man (albeit one with a whole lot of employees), and the architects of austerity won’t be swayed by the power of prayer alone. But even they may be starting to question their beliefs – with their citizens protesting in the streets and voting them out of office, they don’t have much choice. The Associated Press reports that European leaders “aren't backing away aggressively from budget cuts and higher taxes, but they are increasingly trying to temper these policies, which have stifled growth and made it harder for many countries to bring their deficits under control.” A strong and sustained condemnation from the Holy See would make their position even more tenuous, even if the Church’s power in Europe is greatly diminished from what it once was. It might even give pause to austerity sympathizers on this side of the Atlantic, like former altar boy Paul Ryan. Okay, maybe we can’t expect miracles.

In Europe, the U.S., and throughout the world, people are losing faith in their leaders. Policies that attempt to prop up the status quo of a broken financial system while ignoring and even exacerbating real human suffering have made us feel cynical, isolated, and angry. Pope Francis has been called on to lead the Catholic Church, but he has an opportunity to provide some much needed guidance to people of all faiths or none. The message that will make that possible is not a sectarian one, but a universal one. We are our brothers’ and sisters’ keepers, and caring for those in need, not supporting the rich and powerful, has to be the top priority of a healthy, sustainable society. In our holy texts and our constitutions, we’ve made that promise. Now it’s time to keep the faith.

Tim Price is Deputy Editor of Next New Deal. Follow him on Twitter @txprice.

 

Pope Francis image via Shutterstock.com.

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