Zizek misses the point: Austerity politics is a social and economic disaster.

In a recent essay, Slovenian theorist and literary provocateur Slavoj Zizek attempts to unpack the political meaning of the riots in England. These broke out in response to the shooting of Mark Duggan by the Metropolitan Police and then spread rapidly from London to other cities. Zizek argues that the riots amounted to an exercise in sound and fury signifying nothing -- symptoms of an "ideological-political predicament" in which opposition can only be expressed through meaningless bursts of violence. This is the essence, he suggests, of global capitalism. He takes issue with both conservative and liberal responses, calling out the former for promoting an authoritarian crack down and the latter for trying to find "deeper meaning" in the social and economic conditions faced by the rioters.

The essay strikes me as similar to a lot of Zizek's other work: too clever by a half, with strained echoes of fashionable appeals across ideological divides reminiscent of, for example, Barack Obama. The difference is that Zizek is a theorist. Thus the discussion is framed in terms of High Theory: an abstract nod first to the left, then another equally ethereal gesture to the right, followed by the claim that both are plainly inadequate.

Alas, the thinner the ice, the faster Zizek skates. He is impatient to get a theory of resistance going, but the fact is that we are only three years into the Great Recession, so his efforts are a bit premature. If you look back at the Great Depression, you will see that distinctively new patterns of resistance usually took three to four years to form. Until then, there was discontent aplenty, but electorates in advanced countries mostly sullenly voted out the conventional politicians in office and replaced them with one or another of the existing moderate "out" parties. Occasionally, there were riots, and in peripheral countries, much worse. But only after the 1931 European financial crisis (sense a pattern?) dragged the whole world down another notch did real swamp creatures swarm out, as unbearable budget cuts and falling national incomes forced progressive social groups to organize more seriously. So I suspect it will be this time.

It’s free! Sign up to have the Daily Digest, a witty take on the morning’s key headlines, delivered straight to your inbox.

In contrast to what Zizek proposes, I doubt that what we see now reveals the inner essence of global capitalism or anything else. It's probably not accidental that he finds political movements in Greece and Spain more constructive -- they are further into the crisis than the Brits, whose turn to the right is brand new. The British riots probably reflect the despair and anger of marginalized populations staggering under early shocks of austerity while local authorities themselves reel from cuts in their own budgets. The world has a lot more experience with macroeconomic austerity than most of the media or social science cares to talk about. The social disasters that sweeping budget cutbacks bring in their wake are plain to anyone who wants to see.

Zizek is right about one important fact: Repetition is a basic feature of social history. Unfortunately, it's not, as St. Augustine thought, the mother of learning. Its deadly spiral now mostly reflects the indifference of elites, the realities of political power, and wretched theories of free market fundamentalism. Zizek probably knows as well as anyone what Hegel's students reported he said in his famous lectures on Reason in History: "What experience and history teach is this: peoples and governments have never learned anything from history and acted according to what one might have learned from it." The euro crisis and the disastrous G20 Toronto Consensus in favor of austerity will churn world politics for a long time.

Thomas Ferguson is Professor of Political Science at the University of Massachusetts, Boston and Senior Fellow at the Roosevelt Institute. The International Journal of Political Economy has just published a revised version of his paper with Robert Johnson on "A World Upside Down: Deficit Fantasies in the Great Recession."

Pulling back on monetary policy would cancel out even the best stimulus bill.

For many historically minded liberals and progressives, stopping the mistakes of 1937 means preventing the president from going through with unnecessary, counter-productive, and economically dangerous fiscal cuts. Franklin Roosevelt tried to balance the budget in 1937-1938, which put the weak recovery back into a tailspin and created a second depression within the Great Depression.

Trying to keep President Obama and the current Congress from doing the same exact thing right now -- cutting the deficit when financial markets are begging us with low rates to increase the deficit by putting people to work doing useful things -- is a full-time job for liberals and progressives. But there's another mistake of 1937 that we shouldn't ignore, and that's the mistake of pulling back on monetary policy.

Gauti Eggertsson and others have argued that in addition to the fiscal contraction, a monetary contraction taken through several means in 1937 helped pushed the United States economy off a cliff. And right now there are three members of the Federal Reserve dissenting, because they believe monetary policy needs to be contracted sooner rather than later. This is the first time there have been three dissenters in two decades, and there are increasing political pressures on the Federal Reserve by conservatives and Republicans.

What is motivating these attacks on the right? There seem to be three overlapping approaches to criticizing monetary policy from conservatives. The first is the screeching cry of inflation hawks -- people who are fundamentally fighting the last wars of the 1970s. They are worried about every type of inflation -- your inflation, stagflation, hyperinflation -- except one: deflation. This kind of critic is like the proverbial person crying "Fire! Fire!" while the water is creeping into the sinking Noah's Ark.

The group consists of people who think our economy has dropped anchor because this is the right place to be. They look -- using increasingly complicated and implausible theoretical and empirical evidence -- for excuses on how regulations, President Obama, and structural limitations are causing unemployment to be as high as it is. These arguments usually are light on the numbers -- they involve gut feelings and dubious assumptions.

It’s free! Sign up to have the Daily Digest, a witty take on the morning’s key headlines, delivered straight to your inbox.

The second group is also big enough to contain conservatives who aren't interested in getting us back to full employment anytime soon, especially using any means necessary, with an important presidential election coming up. Cynical maybe, but so is politics these days.

The third group is made up of people who think monetary policy is fundamentally unsound and illegitimate. This is a further right, 19th century laissez-faire approach to the government, one an order of magnitude more conservative than people like Milton Friedman. Here, monetary policy is no longer about stabilizing prices, ensuring maximum employment and keeping the economy from overheating or stalling into free fall. Instead it's about deflation, wealth defense, the interests of rentiers and "job creators" above all else, and money as an emblem of natural order rather than a social creation designed to make the economy work.

These groups, though they conflict on important values and thoughts, are enough to push the debate further to the right than anyone would have imagined. And if they continue to succeed they can do major damage. Even if a dream package of deficit-financed infrastructure building went through, if monetary policy is contracted ahead of schedule it will instantly cancel out that stimulus.

Mike Konczal is a Research Fellow at the Roosevelt Institute.

When FDR ignored the Keynesian tenet that cutting spending in a downturn spells disaster, he paid dearly. Obama is set to relearn this lesson the hard way.

"The economic experiments of President Roosevelt may prove, I think, to be of extraordinary importance in economic history, because for the first time -- at least I cannot recall a comparable case -- theoretical advice is being taken by one of the rulers of the world as the basis of large-scale action. The possibility of such a remarkable event has arisen out of the utter and complete discredit of every variety of orthodox advice. The state of mind in America which lies behind this willingness to try unorthodox experiments arises out of an economic situation desperate beyond precedent."

~John Maynard Keynes, January 1934

Just under three quarters of a century ago, a group of conservative economic advisers close to Franklin Roosevelt informed the President that they were worried about the rapid rate of growth in the US economy. Since 1933, when FDR took over at the height of the Great Depression, the economy had been expanding steadily, at an average rate of 14 percent per year. Schooled as most of these advisors were in the tenets of economic orthodoxy (which called for cuts in spending during an economic downturn), and unsure of the effects of the Keynesian-style deficit spending that the administration had been engaged in under the terms of the early New Deal, the President was advised to cut the budget, reduce deficit spending and tighten the money supply as a means to stave off inflation. Heeding their word (and no economist himself), FDR did just that.

The results were an unmitigated disaster.

Thanks to the Administration's decision to move away from the increasingly Keynesian policies it had been following -- policies that saw the unemployment rate fall from a high of 25% in 1933 to 14% by 1937 -- FDR launched one of the sharpest economic downturns in American history-the so-called "Roosevelt Recession" of 1937-38. In just a few short months, the GDP declined by 13 percent; industrial production by 33 percent; wages by 35 percent and an estimated four million people lost their jobs. No fool, FDR quickly reversed himself and went back to Congress to seek a massive stimulus bill to put people back to work and repair the damage to the Depression-era economy. Within three months growth had returned and the economy was back on track.

FDR only met John Maynard Keynes once during the 1930s, and after their 1934 meeting both men expressed a certain ambivalence about the other (Keynes said FDR did not know much about economics and Roosevelt said with all of his "numbers" Keynes struck him as more of a mathematician than an economist). But the lessons FDR drew from the 1937-38 recession were clear: cutting federal spending and tightening the money supply in the midst of a deep economic crisis were bad ideas and from this point on his administration pursued economic policies that can only be described as unabashedly Keynesian. FDR may never have publically embraced Keynes's theories, and in fact preferred to call his subsequent use of massive government borrowing and spending "compensatory fiscal policy," but the two concepts were virtually identical.

Spurred along by this change of heart and by the growing demands to increase defense spending to meet the challenges of World War II, the federal government borrowed 100s of billions of dollars in the late 1930s and early 40s, while at the same time government expenditures -- i.e. stimulus -- reached record levels. By the time the United States was fully engaged in the war, federal spending accounted for more than half of the country's Gross National Product, business was booming and the scourge of unemployment had all but disappeared.

It’s free! Sign up to have the Daily Digest, a witty take on the morning’s key headlines, delivered straight to your inbox.

And what were the long term consequences of all of this borrowing and spending? Economic chaos? A sovereign debt and default crisis? No, what followed was more than three decades of postwar economic expansion and the creation of perhaps the best paid and best educated work-force America had ever seen.

The modern middle class was born.

In the past two years we have heard official after official claim that they do not want to repeat "the mistakes of the Great Depression." Yet the recent behavior of both the Obama Administration and senior members of Congress belies this claim. Rather than fight for economic policies that would stimulate the economy and put people back to work, this Administration -- and even many senior democratic party officials -- have chosen to ignore the lessons of the past. Instead of focusing on jobs and growth -- the real crisis in our economy -- they have embraced the sky-is-falling rhetoric of the Republican Party extremists. These fear mongerers and obstructionists have convinced millions of Americans and virtually the entire US media that the key to economic recovery is to slash federal spending. The Administration's championing of the 39 billion in cuts to the 2010-2011 budget and the recent debacle over the debt ceiling -- with an agreement that does nothing to stimulate the economy -- are but two sorry examples of this phenomenon.

In 1937 FDR paid a heavy political price for his decision to turn away from Keynesian economics. The democrats lost seats in the 1938 election and FDR's ability to push through further fundamental reforms in Congress was severely limited from this point forward. Worse still, millions of Americas suffered from the sudden economic downturn that came as a result of these ill-timed and unnecessary cut-backs.

President Obama sells the Budget Control Act of 2011 as a victory for the American people; as an important "first step" in solving the "deficit crisis." But he has missed a fundamental point: the most effective way to reduce the federal deficit in the long term is to spur economic growth in the short term. He also seems to have lost sight of the fact that the real crisis we face is that roughly 26 million Americans are either under employed or out of work. This national tragedy could be greatly alleviated by a return to the Keynesian economic policies temporarily abandoned by Franklin Roosevelt three quarters of a century ago. But neither the President nor his colleagues in Congress appear to have the desire or political will to resist the incessant Republican demands to cut spending no matter what the cost to the American people.

It is sad to think that history may be repeating itself. But the apparent decision of this administration to embrace cuts over spending may soon lead the President down the same path that FDR took in 1937. Only this time the "Obama recession" of 2011-2012 will most likely cost the current president his job.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute.

Rather than focusing on far off threats, FDR chose to combat high unemployment and sluggish growth with everything he had.

I’ve been reading this important David Beckworth post on the quantitative easing and monetary policy FDR implemented during the Great Depression. Beckworth argues that the first QE policy happened during this time and that it benefited from the fact that Roosevelt explicitly said he would do what it took to get to the pre-trend price-level target. Beckworth links to this Gauti Eggertsson paper that argues that when FDR took office, he signaled that they’d get the price-level back to pre-Depression trend by going off the gold standard, financing a Federal government through deficit spending, and explicitly stating target levels for prices, and this change in expectations from Hoover's administration did a lot of the work of recovery.

I wasn’t sure how serious to take this -- a president talking about price levels with the public? But sure enough, here’s the second Fireside Chat from May 7th 1933 (my bold):

Much has been said of late about Federal finances and inflation, the gold standard, etc. Let me make the facts very simple and my policy very clear. In the first place, Government credit and Government currency are really one and the same thing. Behind Government bonds there is only a promise to pay… [I]n the past the Government has agreed to redeem nearly thirty billions of its debts and its currency in gold, and private corporations in this country have agreed to redeem another sixty or seventy billions of securities and mortgages in gold… [They] knew full well that all of the gold in the United States amounted to only between three and four billions and that all of the gold in all of the world amounted to only about eleven billions.

If the holders of these promises to pay started in to demand gold the first comers would get gold for a few days and they would amount to about one-twenty-fifth of the holders of the securities and the currency… We have decided to treat all twenty-five in the same way in the interest of justice and the exercise of the constitutional powers of this Government. We have placed everyone on the same basis in order that the general good may be preserved.

The Administration has the definite objective of raising commodity prices to such an extent that those who have borrowed money will, on the average, be able to repay that money in the same kind of dollar which they borrowed. We do not seek to let them get such a cheap dollar that they will be able to pay back a great deal less than they borrowed. In other words, we seek to correct a wrong and not to create another wrong in the opposite direction. That is why powers are being given to the Administration to provide, if necessary, for an enlargement of credit, in order to correct the existing wrong. These powers will be used when, as, and if it may be necessary to accomplish the purpose.

I discussed most of the parts of that quote dealing with gold clauses here and here. FDR told rentiers who had put suicide-pact clauses in their contracts, which allowed them to collect more gold than existed in the world so as to allow private parties to profit while the country suffered and was in a deflationary spiral, that he was going to come at them like a spider monkey. Beyond establishing credibility and changing expectations, it makes me happy to see a president so actively go after broken, destructive contractual schemes that prevent the management of bad debts and threaten the general good. But there’s the bold quote, stating what the final goal of monetary policy was at the beginning of his administration.

Sign up for weekly ND20 highlights, mind-blowing stats, and event alerts.

Economic and monetary policy commentators like Ryan Avent have noted that "the Fed chose a direction rather than a destination” when it comes to QE and monetary policy. If Avent wants to see a destination mentioned by a sitting president, he should check out FDR’s fourth fireside chat on October 22, 1933 (my bold):

Finally, I repeat what I have said on many occasions, that ever since last March the definite policy of the Government has been to restore commodity price levels. The object has been the attainment of such a level as will enable agriculture and industry once more to give work to the unemployed. It has been to make possible the payment of public and private debts more nearly at the price level at which they were incurred. It has been gradually to restore a balance in the price structure so that farmers may exchange their products for the products of industry on a fairer exchange basis. It has been and is also the purpose to prevent prices from rising beyond the point necessary to attain these ends. The permanent welfare and security of every class of our people ultimately depends on our attainment of these purposes…

Some people are putting the cart before the horse. They want a permanent revaluation of the dollar first. It is the Government’s policy to restore the price level first. I would not know, and no one else could tell, just what the permanent valuation of the dollar will be. To guess at a permanent gold valuation now would certainly require later changes caused by later facts.

When we have restored the price level, we shall seek to establish and maintain a dollar which will not change its purchasing and debt paying power during the succeeding generation. I said that in my message to the American delegation in London last July. And I say it now once more.

I have two takeaways:

1. Wouldn’t it be funny if in this fireside chat, years into a sub-trend growth and massive waste from high unemployment and unused capacity, Roosevelt said something like, “Someday, 25 years from now, Russia might be able to get a space dog into orbit before us. In order to Win the Future against this space dog, we should immediately forget everything going on right now in order to prepare for research competition with potential adversaries decades from now. We must immediately start planning for this battle right now, lest we lose the future, so let’s give a bunch of tax holidays and easily captured credit benefits to various rocket manufacturers and other incumbents.”? That would be crazy. But that's how the discussion is now framed by the current administration. Instead, FDR was really serious about using every pressure point and every lever to get monetary and fiscal policies going instead.

2. Obviously back then the Democratic coalition had a lot of farmers in it, people for whom “the price level” wasn’t a graph pulled from the St. Louis Fed to put on their blogs but a real thing that they dealt with daily. There is a chance that insomuch as hipsters are an influential Democratic coalition group, and hipsters begin to engage in urban farming, “the price level” might become more of a thing that Democrats are responsive to in order to meet the needs of urban hipster gardeners. Until then, it’s up to economic bloggers to carry this message.

Mike Konczal is a Fellow at the Roosevelt Institute.