The Bad GDP Report is a Warning Not to Create Another Roosevelt Recession

Jan 31, 2013David Woolner

President Obama should begin his second term much like the first and demand stimulus to bolster a sagging economy.

The only real capital of a nation is its natural resources and its human beings. So long as we take care of and make the most of both of them, we shall survive as a strong nation, a successful nation and a progressive nation—whether or not the bookkeepers say other kinds of budgets are from time to time out of balance.

President Obama should begin his second term much like the first and demand stimulus to bolster a sagging economy.

The only real capital of a nation is its natural resources and its human beings. So long as we take care of and make the most of both of them, we shall survive as a strong nation, a successful nation and a progressive nation—whether or not the bookkeepers say other kinds of budgets are from time to time out of balance.

This capital structure—natural resources and human beings—has to be maintained at all times. The plant has to be kept up and new capital put in year by year to meet increasing needs. If we skimp on that capital, if we exhaust our natural resources and weaken the capacity of our human beings, then we shall go the way of all weak nations. —Franklin D. Roosevelt, 1938

In a somewhat surprising announcement, the Commerce Department noted yesterday that the U.S. economy actually shrank in the fourth quarter of last year, contracting by 0.1 percent. This sharp decline from the 3.1 percent growth rate posted in the previous quarter has not as yet lead to widespread fears that the United States is about to enter another recession, but given that much of the cause of the decline can be attributed to cuts in government spending, some economists worry that this news is but a harbinger of things to come. We are, after all, facing another government-manufactured showdown on March 1, as well as a possible government shut down near the end of March when the stopgap measure financing the federal government expires. Then there is the expected fight over raising the federal debt ceiling, which could lead the U.S. to default on its debts.

Most economists agree that the uncertainty brought about by the dysfunctional nature of Washington is having a negative effect on the economy. But we hear little about the direct effects that cuts in government spending have had on job growth. How many Americans, for example, are aware that one of the primary drivers of our persistently high unemployment rate is the sharp decline in public sector employment—the massive layoffs of teachers, firefighters, police officers, and other public sector employees over the past two years? We might also ask how many Americans recognize that one of the primary ways President Obama managed to stop the downward economic spiral at the start of his first term was through the funding of public sector jobs via the stimulus funds that were channeled to state and local governments. Indeed, it was the expiration of that federal support, and Congress’s refusal to support the president’s modest request for additional federal dollars to support state and local governments in his jobs bill, that initiated the recent public sector decline.

Now at the start of President Obama’s second term, with the U.S. economy still in a very fragile state, we are reminded once again of the direct link between government spending and jobs. For it was the deep cuts in federal defense spending that helped push the economy into negative territory in the past quarter.

One would assume, in the face of such economic realities, that Congress would support the type of modest spending proposals President Obama put forward in the American Jobs Act. But rather than provide funding for the employment of teachers, firefighters, police officers, and the like, rather than put hard-pressed Americans to work rebuilding our dismal infrastructure (now rated 23rd in the world), Congress would rather engage in another endless round of bickering about the perils of deficit spending. Once again heeding the siren song of the deficit hawks, those soothsayers of doom who insist that without an immediate and massive reduction in the level of federal spending we face an imminent economic collapse.

Interestingly, roughly three-quarters of a century ago President Roosevelt faced a similar argument at the start of his second term. Thanks to the stimulus spending of the New Deal, the U.S. economy had been growing at an average annual rate of over 11 percent. Fearing inflation, his more conservative economic advisors, like Treasury Secretary Henry Morgenthau, urged the president to cut spending, balance the budget, and tighten the money supply. But the U.S. economy—which had seen the largest drop in the unemployment rate in history—was still fragile, and the results of the spending cuts were a disaster. Unemployment shot up, industrial production declined, and the country soon found itself in the midst of a recession.

Thankfully, FDR quickly reversed course, and his re-instigation of the essentially Keynesian economic policies (counter-cyclical deficit spending) he had been following since the start of his tenure as president soon turned the U.S. economy around. But the cost to the American people and to FDR’s political fortunes was high. Millions lost their jobs unnecessarily, and the president took a real beating in the 1938 midterm elections, rendering his social and economic reform agenda much more difficult to accomplish.

President Obama, who is fond of history, might do well to study what happened to FDR in 1937. At the very least he should not give up on his demand that Congress provide a modest level of support for further federal spending on behalf of state and local governments. He should also insist on further federal spending on infrastructure. As FDR once said, these measures do not represent wasteful spending; they represent an investment in the American people, an investment in what he liked to call “human capital.” Human capital whose health and well being was not only critical for the present but also for the future. Indeed, FDR insisted that:

Before we can think straight as a nation, we have to consider, in addition to the old kind, a new kind of government balance sheet—a long-range sheet which shows survival values for our population and for our democratic way of living, balanced against what we have paid for them. Judged by that test—history's test—I venture to say that the long-range budget of the present Administration of our government has been in the black and not in the red.

Let us hope that the president and Congress will take heed of this lesson. For, like FDR, they too will one day have to pass the test of history.

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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How Has the Liberal Project Fared Under President Obama?

Jan 22, 2013Mike Konczal

After President Obama's inaugural address yesterday -- “one of the most expansively progressive Inaugural Addresses in decades," as President Clinton's former speechwriter told Greg Sargent -- many are looking at the liberal project from the point of view of what was accomplished in the first term as well as what is possible in the second. Paul Krugman makes one version of this argument in The Big Deal, arguing, "as the second term begins [liberals should] find grounds for a lot of (qualified) satisfaction." Elias Isquith, Ned Resnikoff, and Jamelle Bouie discussed the health of the liberal project, especially the fate of social insurance, last month.

People will be engaging with these questions for the foreseeable future, starting in the next few weeks and continuing for a generation of scholars. I'm not sure if I have good answers, but I do have good questions. I've created a generalizable framework of what the component parts of the modern, domestic liberal project are so I can map how they've fared in the first term and what the challenges for each are going ahead. Liberalism is a project of freedom, of course. But by mapping it into component parts of managing the macroeconomy, a mixed economy, a strong regulatory state, and a system of social insurance, allows us to chart progress and retreat.

I'm going to address where I think these issues stand in the current debate among liberals, so it'll have a "on the one hand and also the other hand" dynamic. (The framework might seem ad hoc, but it could be built from theoretical grounds [1].) 

Managing the Macroeconomy

Goals: Taming the business cycle, Keynesian demand management, full employment.

The first term began with the worst downturn since the Great Depression, and normal monetary policy was immediately put in check. The mass unemployment of the past several years has thrown this Keynesian project into complete disarray. It hasn't helped that voters no longer think that the government is capable of doing much here, which is an unfortunate side effect of the weak response.

There's already been an extensive debate about what could have been done to generate more stimulus early on in the administration instead of pivoting away to deficit reduction. After the GOP took the House in 2010, there were two initiatives to try and meet the GOP halfway on stimulus. There was the approach of trying to propose stimulus the GOP would potentially support, like the American Jobs Bill. Remember that Congressional address in which the president said "pass this jobs bill" over and over? There was also the approach of seeking Grand Bargains for additional stimulus. This involved exchanging, say, Social Security cuts for infrastructure spending and some tax revenue. For better or worse, but mostly better, this failed because Republicans refuse to raise taxes.

But this all means that we are still stuck with high unemployment rates for the foreseeable future. It is unlikely that there will be stimulus in the second term; we should hope that some of the harsher cuts, like the sequestration, are postponed while the economy is weak.

Investing in the Mixed Economy

Goals: Creating the conditions for long-term growth, investing in public goods, protecting the public sector.

In addition to managing the short-term economy, there's also the issue of setting the stage for longer-term growth. This is necessarily a grab-bag category, overlapping with the other categories, but it is useful to distinguish it from short-term unemployment. Michael Grunwald's excellent book The New New Deal revived the extensive investment in energy and other innovations that were part of the stimulus. Preventing the mass firesale and collapse of the auto industry were crucial as well.

But there's been a decline in primary and secondary education investment driven by the states, as well as a large decrease in the number of government employees. That's largely the focus of states. At the federal level, investments in infrastructure, research and development, and education, all crucial to building longer-term prosperity, are at risk. Through the Budget Control Act and upcoming sequestration, President Obama and Congress have cut non-defense discretionary spending in order to balance the medium-term debt-to-GDP ratio. As EPI's Ethan Pollack notes, it is difficult to cut here without threatening long-term prosperity.

The stimulus brought a large wave of investment, but that could be more than cancelled out by both collapsing state budgets and long-term austerity and cuts.

Social Insurance

Goals: Sharing risks from poverty, large declines in income, and health problems.

The obvious win over the past four years is Obamacare. Universal health care was the missing piece in the safety net, and efforts to try and tackle this problem have failed every 20 years going back a century. It also survived the Supreme Court, making it the law of the land.

Democratic Senator Tom Harkin called Obamacare a “starter home," which could be generous. The biggest fear I have is that when the government turns it on in 2013, it is viewed as a costly disaster. It isn't clear that Medicare costs would then be lowered and the whole idea of government health-care could be tossed overboard. The damage could be greater than just Obamacare itself. Greg Anrig worries that states can still sabotage the exchanges. Sarah Kliff has an overview on Obamacare implementation over the next four years.

The defeat of Romney and Ryan means that the conservative plans to voucherize Medicare, privatize Social Security, and block-grant everything that's not bolted to the floor is off the table, perhaps for a while. What's possible in the next few years is means-testing the programs, raising their eligibility age, and otherwise reducing benefits. The administration's proposed willingness to raise the eligibility age for retirement programs in exchange for non-social insurance related goals, like stimulus, is bad news on this frontier.

Much rides on Obamacare's success, both bending the cost curve of healthcare to fix the long-term deficit and the credibility of government more broadly.

Regulatory State

Goals: Creating rules for the marketplace that check market failures and power.

The failure to tackle climate change will be remembered as the biggest problem of President Obama's first term. He was largely silent on the issue while a bill went through Senate, though has gotten louder on the topic recently, including in the Inaugural.

Dodd-Frank consolidated regulators, added powers necessary to rationalize the derivatives market, and created a beefed-up consumer regulator. It didn't break up the banks and the Volcker Rule is very much uncertain. It's fair to say it gives regulators a lot of powers they should have had going into 2008 and checks some of the larger deregulations and market failures of the 2000s. There's a remaining sense, however, that Wall Street is outside of the normal accountability mechanisms of the state.

It's probably too early to tell how much reform was jettisoned through Cass Sunstein, the "ambivalent regulator" in charge of OIRA. But my sense is that there were genuine liberals in regulatory agencies pushing strong reform at places like the EPA and the NLRB.

Carbon is still a major threat, though it looks like the President will make a major push in his second term on the issue. There's a growing bipartisan argument for breaking up the Too Big To Fail banks, which, even if it doesn't turn into law, could put additional pressure on how financial elites have become detached from the normal modes of accountability and law.

What's your take? This framework is obviously missing international and civil libertarian projects. There is the escalation of war in Afghanistan, as well as the larger deployment of drones to more theaters, both of which are major problems. The embrace of the legacy of torture is a betrayal of civil liberties. Congress will eventually need to step up and check the power of the executive branch, yet they seem just as bad as the administration.

[1] If you want a more theoretical treatment on one way to get to this mapping, John Rawls proposed four "branches" of government in a Theory of Justice that loosely map onto these categories. The allocation branch works like the regulatory state, the stabilization branch as managing the macroeconomy, and the transfer branch for social insurance.

Follow or contact the Rortybomb blog:

  

After President Obama's inaugural address yesterday -- “one of the most expansively progressive Inaugural Addresses in decades," as President Clinton's former speechwriter told Greg Sargent -- many are looking at the liberal project from the point of view of what was accomplished in the first term as well as what is possible in the second. Paul Krugman makes one version of this argument in The Big Deal, arguing, "as the second term begins [liberals should] find grounds for a lot of (qualified) satisfaction." Elias Isquith, Ned Resnikoff, and Jamelle Bouie discussed the health of the liberal project, especially the fate of social insurance, last month.

People will be engaging with these questions for the foreseeable future, starting in the next few weeks and continuing for a generation of scholars. I'm not sure if I have good answers, but I do have good questions. I've created a generalizable framework of what the component parts of the modern, domestic liberal project are so I can map how they've fared in the first term and what the challenges for each are going ahead. Liberalism is a project of freedom, of course. But by mapping it into component parts of managing the macroeconomy, a mixed economy, a strong regulatory state, and a system of social insurance, allows us to chart progress and retreat.

I'm going to address where I think these issues stand in the current debate among liberals, so it'll have a "on the one hand and also the other hand" dynamic. (The framework might seem ad hoc, but it could be built from theoretical grounds [1].) 

Managing the Macroeconomy

Goals: Taming the business cycle, Keynesian demand management, full employment.

The first term began with the worst downturn since the Great Depression, and normal monetary policy was immediately put in check. The mass unemployment of the past several years has thrown this Keynesian project into complete disarray. It hasn't helped that voters no longer think that the government is capable of doing much here, which is an unfortunate side effect of the weak response.

There's already been an extensive debate about what could have been done to generate more stimulus early on in the administration instead of pivoting away to deficit reduction. After the GOP took the House in 2010, there were two initiatives to try and meet the GOP halfway on stimulus. There was the approach of trying to propose stimulus the GOP would potentially support, like the American Jobs Bill. Remember that Congressional address in which the president said "pass this jobs bill" over and over? There was also the approach of seeking Grand Bargains for additional stimulus. This involved exchanging, say, Social Security cuts for infrastructure spending and some tax revenue. For better or worse, but mostly better, this failed because Republicans refuse to raise taxes.

But this all means that we are still stuck with high unemployment rates for the foreseeable future. It is unlikely that there will be stimulus in the second term; we should hope that some of the harsher cuts, like the sequestration, are postponed while the economy is weak.

Investing in the Mixed Economy

Goals: Creating the conditions for long-term growth, investing in public goods, protecting the public sector.

In addition to managing the short-term economy, there's also the issue of setting the stage for longer-term growth. This is necessarily a grab-bag category, overlapping with the other categories, but it is useful to distinguish it from short-term unemployment. Michael Grunwald's excellent book The New New Deal revived the extensive investment in energy and other innovations that were part of the stimulus. Preventing the mass firesale and collapse of the auto industry were crucial as well.

But there's been a decline in primary and secondary education investment driven by the states, as well as a large decrease in the number of government employees. That's largely the focus of states. At the federal level, investments in infrastructure, research and development, and education, all crucial to building longer-term prosperity, are at risk. Through the Budget Control Act and upcoming sequestration, President Obama and Congress have cut non-defense discretionary spending in order to balance the medium-term debt-to-GDP ratio. As EPI's Ethan Pollack notes, it is difficult to cut here without threatening long-term prosperity.

The stimulus brought a large wave of investment, but that could be more than cancelled out by both collapsing state budgets and long-term austerity and cuts.

Social Insurance

Goals: Sharing risks from poverty, large declines in income, and health problems.

The obvious win over the past four years is Obamacare. Universal health care was the missing piece in the safety net, and efforts to try and tackle this problem have failed every 20 years going back a century. It also survived the Supreme Court, making it the law of the land.

Democratic Senator Tom Harkin called Obamacare a “starter home," which could be generous. The biggest fear I have is that when the government turns it on in 2013, it is viewed as a costly disaster. It isn't clear that Medicare costs would then be lowered and the whole idea of government health-care could be tossed overboard. The damage could be greater than just Obamacare itself. Greg Anrig worries that states can still sabotage the exchanges. Sarah Kliff has an overview on Obamacare implementation over the next four years.

The defeat of Romney and Ryan means that the conservative plans to voucherize Medicare, privatize Social Security, and block-grant everything that's not bolted to the floor is off the table, perhaps for a while. What's possible in the next few years is means-testing the programs, raising their eligibility age, and otherwise reducing benefits. The administration's proposed willingness to raise the eligibility age for retirement programs in exchange for non-social insurance related goals, like stimulus, is bad news on this frontier.

Much rides on Obamacare's success, both bending the cost curve of healthcare to fix the long-term deficit and the credibility of government more broadly.

Regulatory State

Goals: Creating rules for the marketplace that check market failures and power.

The failure to tackle climate change will be remembered as the biggest problem of President Obama's first term. He was largely silent on the issue while a bill went through Senate, though has gotten louder on the topic recently, including in the Inaugural.

Dodd-Frank consolidated regulators, added powers necessary to rationalize the derivatives market, and created a beefed-up consumer regulator. It didn't break up the banks and the Volcker Rule is very much uncertain. It's fair to say it gives regulators a lot of powers they should have had going into 2008 and checks some of the larger deregulations and market failures of the 2000s. There's a remaining sense, however, that Wall Street is outside of the normal accountability mechanisms of the state.

It's probably too early to tell how much reform was jettisoned through Cass Sunstein, the "ambivalent regulator" in charge of OIRA. But my sense is that there were genuine liberals in regulatory agencies pushing strong reform at places like the EPA and the NLRB.

Carbon is still a major threat, though it looks like the President will make a major push in his second term on the issue. There's a growing bipartisan argument for breaking up the Too Big To Fail banks, which, even if it doesn't turn into law, could put additional pressure on how financial elites have become detached from the normal modes of accountability and law.

What's your take? This framework is obviously missing international and civil libertarian projects. There is the escalation of war in Afghanistan, as well as the larger deployment of drones to more theaters, both of which are major problems. The embrace of the legacy of torture is a betrayal of civil liberties. Congress will eventually need to step up and check the power of the executive branch, yet they seem just as bad as the administration.

[1] If you want a more theoretical treatment on one way to get to this mapping, John Rawls proposed four "branches" of government in a Theory of Justice that loosely map onto these categories. The allocation branch works like the regulatory state, the stabilization branch as managing the macroeconomy, and the transfer branch for social insurance.

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President Obama image via Shutterstock.com.
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Leading from Behind is No Way to Lead: What a Second-Term Obama Can Learn from FDR

Jan 17, 2013David Woolner

To achieve progress in his second term, President Obama must recognize that his opponents aren't really interested in a "grand bargain."

To achieve progress in his second term, President Obama must recognize that his opponents aren't really interested in a "grand bargain."

My fellow countrymen. When four years ago we met to inaugurate a President, the Republic, single-minded in anxiety, stood in spirit here. We dedicated ourselves to the fulfillment of a vision—to speed the time when there would be for all the people that security and peace essential to the pursuit of happiness. We of the Republic pledged ourselves to drive from the temple of our ancient faith those who had profaned it; to end by action, tireless and unafraid, the stagnation and despair of that day. We did those first things first.

Our covenant with ourselves did not stop there. Instinctively we recognized a deeper need—the need to find through government the instrument of our united purpose to solve for the individual the ever-rising problems of a complex civilization… To do this we knew that we must find practical controls over blind economic forces and blindly selfish men. —Franklin D. Roosevelt, Second Inaugural Address, January 20, 1937

Just over three-quarters of a century ago, in his second inaugural address, Franklin Roosevelt, reflecting on the accomplishments of the New Deal in mitigating the worst effects of the Great Depression, noted that “the greatest change we have witnessed [over the past four years] has been the change in the moral climate in America.” Among “men of goodwill,” he went on, “science and democracy together offer an ever-richer life and ever-larger satisfaction to the individual. With this change in our moral climate and our rediscovered ability to improve our economic order, we have set our feet upon the road of enduring progress.”

FDR based this assumption on the idea that what had transpired over the course of his first term—a first term which brought us, among other things, Social Security, unemployment insurance, the right of workers to engage in collective bargaining, the separation of commercial and investment banking, the establishment of the Securities and Exchange Commission (SEC), the establishment of the Federal Deposit Insurance Corporation (FDIC), the largest single drop in the unemployment rate in the nation’s history to date, and an average annual economic growth rate of 14 percent—was directly tied to a new understanding of the role of government. This new understanding, he noted, was based on the “fulfillment of a [collective] vision…to speed the time when there would be for all the people that security and peace essential to the pursuit of happiness.”

Equally important, however, was FDR’s assertion that in arriving at this new vision of government the people understood that it was critical to find “practical controls over blind economic forces and blindly selfish men,” to recognize the “need to find through government the instrument of our united purpose to solve for the individual the ever-rising problems of a complex civilization.”

In essence, what FDR offered the American people was a new vision for the future. This new vision was based the fundamental idea that it was only the power of democratic government that could provide the means to counter “the blind economic forces” and “blindly selfish men” who had profaned democracy and brought the country to ruin in the dark days of the early 1930s.

There is much in this speech that still holds relevance for Americans today. In the massive loss of manufacturing jobs and the globalization of the world’s economy in the last few decades, we can see at work “the blind economic forces” of which FDR spoke. And in the wake of the 2008 financial crisis, the power of the “blindly selfish men” on Wall Street is all too familiar. So too—thanks to the onset of the Great Recession—is the anxiety, fear, and bewilderment that he noted plagued the American people on the eve of his first inaugural. What is missing, sadly, is the contravening narrative, the covenant that FDR made with the American people, the understanding that the reforms achieved in his first term had made the exercise of all power more democratic by bringing:

…private autocratic powers into their proper subordination to the public’s government. The legend that they were invincible—above and beyond the processes of a democracy—has been shattered. They have been challenged and beaten.

President Obama has for the most part shied away from the idea that the real challenge to our democracy stems not from the dysfunctional nature of Congress, but rather from the forces of wealth and privilege who see themselves as “above and beyond the process of democracy.” Rather than take on these forces directly, he speaks instead of asking the wealthy to “pay their fair share in taxes,” of building a consensus, of taking a “balanced approach,” of striking a “grand bargain” that would “make sure that middle-class folks aren’t bearing the entire burden and sacrifice when it comes to some of these big challenges.” In taking this approach, the president argues that he is following the will of the American people, who made it clear through his re-election that they want compromise and action. These may be noble sentiments, but they fall far short of expressing what the American people truly want from their president, which above all else is leadership.

The sad fact is that we now live in a society where the income disparity between the rich and the rest of us now stands at its worst level since the late 1920s—just before the onset of the Great Depression. The Congressional Budget Office, for example, recently reported that between 1979 and 2007 the top 1 percent of households doubled their share of pretax income while the bottom 80 percent of American households actually saw their share of income decline. In a similar study, a recent Census Bureau report notes that the average white male worker earns roughly the same hourly wage that he would have made in 1978, adjusted for inflation, while the average CEO’s pay has increased by roughly 600 percent.

As was the case in the 1920s, such a drastic mal-distribution of wealth is clearly not sustainable, as it makes it very hard for the average worker to sustain the level of purchases necessary to maintain our largely consumer-based economy. Hence, if we truly want to find a way to grow our economy—as the president insists he does—then we must find a way to address this critical structural imbalance in our economy. And this means real reform, the type of reforms we saw in the New Deal, reforms that brought about the birth of the post-1945 modern American middle class that now seems to be so rapidly disappearing.

So rather than beat about the bushes, President Obama might do well to recognize—as FDR did—that the forces of wealth and privilege weighted against him are not really interested in a compromise or a “grand bargain.” What they want is to maintain the economic and political status quo in what FDR once rightly called the “false belief” that happiness can only be achieved “in the mad chase of evanescent profits.”

To overcome these entrenched forces, President Obama will need to provide the country with much more than his somewhat vague efforts to meet the other side halfway. He must learn to recognize that above all else it is his responsibility to give voice to the common aspiration of the people and provide them with a vision for the future -- a vision that recognizes government’s fundamental responsibility to fashion a more just and equitable society, a vision based on the truism, as FDR said in his second inaugural, that:

We have always known that heedless self-interest was bad morals; we know now that it is bad economics. Out of the collapse of a prosperity whose builders boasted their practicality has come the conviction that in the long run economic morality pays. We are beginning to wipe out the line that divides the practical from the ideal; and in so doing we are fashioning an instrument of unimagined power for the establishment of a morally better world.

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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How Do the Elderly Spend Money and the Difficulty of Protecting Against Social Security Cuts

Dec 18, 2012Mike Konczal

Dean Baker and Doug Henwood both have good analysis on the cuts involved in chaining inflation. Since the rumored cuts to Social Security will hinge on this way of calculating inflation, I want to dig one level into the data to convey what it will mean and then look at some of the distributional impact.

I.

Let's start with two groups of people. The first is urban wage earners and clerical workers, one select group of the population, who purchase a representative basket of goods and services. How much does the basket of goods they purchase increase in price over time? This cost is called CPI-W, and it is currently used for adjusting Social Security benefits. The second group is all people aged 62 and over. Since the 1980s, the government has calculated the cost of goods and services for this group as well, and it is referred to as CPI-E. What do they spend money on? Here's the relative importance of major categories of spending, provided by the BLS, for each group from December 2007:

Green is where the group spends compartively less. As we can see, the elderly spend a lot more of their (more limited) money on housing, utilities, and medical care. And as you probably know, health care costs have been rising rapidly over the past several decades. With the notable exception of college costs, the things urban wage earners spend money on haven't increased in prices as fast as what the elderly purchase. As a result, the CPI-E has increased 3.3 percent a year from 1982 to 2007, while the CPI-W has only increased 3.0 a year.

But wait, what's this chained thing that is being proposed? Picture that in response to a price increase for one good you could substitute similar items. So if the price of chicken goes up, you could eat more beef. Or if the price of a movie went up, you would rent movies more often. This substitution effect blunts some of the price increases. As such, inflation is lower when you take this into account. It's more complicated than that, but it is a start for a definition.

But we don't have a "chained" version of the CPI-E. And the items that the elderly purchase probably aren't impacted in the same competitive way. If the price of beer goes up, you can drink more wine; if the price of utilities go up, your options are limited. The areas where the elderly pay more don't have the same competitive pressures, and their geography is going to be more limited. We could get a chained version of the CPI-E if Congress told economists to make one. However it's likely not to have the cuts built in the same way.

II.

Brad Delong, who signed a letter from over 300 economist experts and social scientists organized by EPI arguing that there's no empirical basis for the COLA change, says that "Chained-CPI" is code for "let's really impoverish some women in their 90s!" This will fall on those who live the longest and rely on Social Security the most. But can we find a way to have this impact the poor less so that it doesn't fall too hard on those with the least?

The White House is saying that there will be such a set of protections, and think tanks have proposed some, but we won't know what they'll entail until they are better reported. No matter what additional measures are proposed, it's important to understand how compressed the distribution of income is for those receiving Social Security. From the Social Security Administration, here's a chart on the importance of Social Security relative to total income by income quintile for beneficiary families over 65 years of age (Table 9.B6):

I hate using charts that have so many percents of a percent of a percent, but this data is really important. To get a sense of what this chart is telling us, let's look at a box. From this chart, in the botom 20 percent of income, or those that make $11,417 or less, 65 percent of beneficiaries families get 90 percent of their income from Social Security. So the poorest are very dependent on Social Security, and a large cut will impact them harshly.

But let's say we wave a policy wand and protect those in the bottom 20 percent. The problem is that the income here is very compressed, and that Social Security is a major source of income up the ladder. Even for those in the 60-80 percent of income bracket, 41 percent of their income comes from Social Security. The group around the middle, in the third quintile, have only around $20,000 a year to live on and get a majority of their income from Social Security.

This is not a program that just helps the destitute; it provides a broad level of income security in old age for the majority of retirees. The average elderly family receiving Social Security gets 58.2 percent of their income from the program. A quarter of families get 90 percent or more of their income from Social Security. Once you leave the top income quintile, Social Security is the major source of retirement security. It is hard to see how means-testing these across-the-board cuts will be sufficient to prevent this from having a serious impact on our most vulnerable.

 

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Dean Baker and Doug Henwood both have good analysis on the cuts involved in chaining inflation. Since the rumored cuts to Social Security will hinge on this way of calculating inflation, I want to dig one level into the data to convey what it will mean and then look at some of the distributional impact.

I.

Let's start with two groups of people. The first is urban wage earners and clerical workers, one select group of the population, who purchase a representative basket of goods and services. How much does the basket of goods they purchase increase in price over time? This cost is called CPI-W, and it is currently used for adjusting Social Security benefits. The second group is all people aged 62 and over. Since the 1980s, the government has calculated the cost of goods and services for this group as well, and it is referred to as CPI-E. What do they spend money on? Here's the relative importance of major categories of spending, provided by the BLS, for each group from December 2007:

Green is where the group spends compartively less. As we can see, the elderly spend a lot more of their (more limited) money on housing, utilities, and medical care. And as you probably know, health care costs have been rising rapidly over the past several decades. With the notable exception of college costs, the things urban wage earners spend money on haven't increased in prices as fast as what the elderly purchase. As a result, the CPI-E has increased 3.3 percent a year from 1982 to 2007, while the CPI-W has only increased 3.0 a year.

But wait, what's this chained thing that is being proposed? Picture that in response to a price increase for one good you could substitute similar items. So if the price of chicken goes up, you could eat more beef. Or if the price of a movie went up, you would rent movies more often. This substitution effect blunts some of the price increases. As such, inflation is lower when you take this into account. It's more complicated than that, but it is a start for a definition.

But we don't have a "chained" version of the CPI-E. And the items that the elderly purchase probably aren't impacted in the same competitive way. If the price of beer goes up, you can drink more wine; if the price of utilities go up, your options are limited. The areas where the elderly pay more don't have the same competitive pressures, and their geography is going to be more limited. We could get a chained version of the CPI-E if Congress told economists to make one. However it's likely not to have the cuts built in the same way.

II.

Brad Delong, who signed a letter from over 300 economist experts and social scientists organized by EPI arguing that there's no empirical basis for the COLA change, says that "Chained-CPI" is code for "let's really impoverish some women in their 90s!" This will fall on those who live the longest and rely on Social Security the most. But can we find a way to have this impact the poor less so that it doesn't fall too hard on those with the least?

The White House is saying that there will be such a set of protections, and think tanks have proposed some, but we won't know what they'll entail until they are better reported. No matter what additional measures are proposed, it's important to understand how compressed the distribution of income is for those receiving Social Security. From the Social Security Administration, here's a chart on the importance of Social Security relative to total income by income quintile for beneficiary families over 65 years of age (Table 9.B6):

I hate using charts that have so many percents of a percent of a percent, but this data is really important. To get a sense of what this chart is telling us, let's look at a box. From this chart, in the botom 20 percent of income, or those that make $11,417 or less, 65 percent of beneficiaries families get 90 percent of their income from Social Security. So the poorest are very dependent on Social Security, and a large cut will impact them harshly.

But let's say we wave a policy wand and protect those in the bottom 20 percent. The problem is that the income here is very compressed, and that Social Security is a major source of income up the ladder. Even for those in the 60-80 percent of income bracket, 41 percent of their income comes from Social Security. The group around the middle, in the third quintile, have only around $20,000 a year to live on and get a majority of their income from Social Security.

This is not a program that just helps the destitute; it provides a broad level of income security in old age for the majority of retirees. The average elderly family receiving Social Security gets 58.2 percent of their income from the program. A quarter of families get 90 percent or more of their income from Social Security. Once you leave the top income quintile, Social Security is the major source of retirement security. It is hard to see how means-testing these across-the-board cuts will be sufficient to prevent this from having a serious impact on our most vulnerable.

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The Paralyzed President Who Lifted a Paralyzed World

Dec 18, 2012David Woolner

The Republicans who voted against the ratification of the UN convention on disabilities are erasing a crucial part of our history.

It is not only that the lights of peace blaze in our great cities and glow in our towns and villages—that laughter and music still ring out from coast to coast—that we will return to safe beds tonight…

It is because we believe in and insist on the right of the helpless, the right of the weak, and the right of the crippled everywhere to play their part in life—and survive.

The Republicans who voted against the ratification of the UN convention on disabilities are erasing a crucial part of our history.

It is not only that the lights of peace blaze in our great cities and glow in our towns and villages—that laughter and music still ring out from coast to coast—that we will return to safe beds tonight…

It is because we believe in and insist on the right of the helpless, the right of the weak, and the right of the crippled everywhere to play their part in life—and survive.

It is because we know instinctively that this right of the unfortunate comes under our free people's philosophy from the bottom up and can never be imposed from the top down. —Franklin D. Roosevelt, January 30, 1941.

In recent years, we have recognized that people with disabilities are integral to our society, that we cannot afford to waste their talents, nor can we proclaim our beloved America demonstrably–the home of the brave, the land of the free–as we overlook the abilities that trump any disabilities.

The approaching vote on the Convention on the Rights of Persons with Disabilities is a proud moment for the Senate, the latest chapter of an untold story including the Americans that say: no first class democracy can tolerate second class citizens. —Former Republican Senate Majority Leader, Robert Dole, December 4, 2012

The recent decision by Senate Republicans to reject the United Nations Convention on the Rights of Persons with Disabilities (CRPD) serves as yet another sad example of just how pervasive—and effective—the fear mongering and misinformation tactics of the extreme right have become in our society. The convention, after all, had the strong support of such Republican luminaries as Senator John McCain, former governor and Homeland Security Director Tom Ridge, and of course former Senate Majority Leader Robert Dole. Yet in spite of their repeated assurances that the non-binding convention—which does not have the force of international law—would in no way infringe on U.S. sovereignty, 38 Republican Senators voted against the measure, largely based on the false claim spearheaded by the former conservative Senator Rick Santorum that ratification of the convention would have given UN bureaucrats “oversight” over such issues as “the healthcare and education choices parents with special needs kids make.”

Nothing could of course be further from the truth. The convention, like many other UN provisions on human rights, only establishes an international committee that makes recommendations to national governments, not laws, as part of their ongoing efforts to monitor a given state’s progress in achieving the non-discriminatory standards set by the treaty. Moreover, as the articles in convention are largely based on the 1990 Americans with Disabilities Act, which received broad bipartisan support in Congress and was signed by Republican President George H. W. Bush in 1990, and requires no change in U.S. law, the conservative right’s claims that ratification of the convention would somehow “put the state under the direction of the UN” are simply not true. Ironically, Mr. Santorum himself admitted as much when he asserted as part of his argument against the vote that there was no point in ratifying the treaty as it “would do nothing to force any foreign government to change their laws or to spend resources on the disabled.” That, he said, “was for governments to decide.”

Mr. Santorum’s confusion and ignorance about the jurisdiction of this convention—and the UN in general—is all the more disturbing because it represents a victory for the anti-internationalist, isolationist wing of the republic party. These are the same ideologues who are quite willing to highjack the common good on such issues as the fiscal cliff or debt ceiling for the sake of ideology. Thanks to their anti-government and anti-UN obsessions, the more than 600 million people living with disabilities worldwide will no longer be able to look to the United States for leadership in support of their fundamental right to live full and productive lives, free from both the physical and political barriers that all too often stand in their way.

Numerous editorials in the wake of the Republican Senators’ actions have characterized the vote as a shameful travesty of justice. But it is more than that. It is also a travesty of history. In their chauvinistic fervor to protect America from “overzealous international organizations” and supposedly supranational bodies, they forget that it was the United States that largely created the United Nations. Worse still, they have also forgotten why the UN was created and remain largely ignorant of the origins of its name or the decisive role that the average American played in bringing it into existence.

The term “United Nations” refers to the wartime alliance that Franklin Roosevelt helped craft in the wake of America’s entry into the Second World War. Its first formal appearance came on January 1, 1942, just weeks after the Japanese attack on Pearl Harbor, when representatives of 26 nations joined Franklin Roosevelt and Winston Churchill in signing a “Declaration by the United Nations.” In signing it, the states involved pledged to join a “common struggle” to “defend life, liberty, independence and religious freedom, and to preserve human rights and justice” not only in their “own lands” but also in “other lands,” against the “savage and brutal forces seeking to subjugate the world.”

Millions of men and women across the nation, including such World War II veterans as George Herbert Walker Bush, Robert Dole, and the late Senator Daniel Inouye, risked their lives in support of the United Nations. By the time the United Nations Organization was born in April of 1945, over 400,000 Americans had died in the effort to bring the United Nations to victory.

On the very day of his death and less than two weeks prior to the opening of the United Nations Conference that would give birth to the United Nations, President Roosevelt reflected on the importance of American leadership in the world in an address he planned to deliver on Jefferson Day. The president planned to remind the American people that “great power involves great responsibility” and that “the mere conquest of our enemies is not enough.” We must, he insisted, “go on to do all in our power to conquer the doubts and the fears, the ignorance and the greed” that made the horror of war possible. We must, he continued, face the “preeminent fact that, if civilization is to survive, we must cultivate the science of human relationships—the ability of all peoples, of all kinds, to live together and work together, in the same world, at peace.”

It was this spirit that gave birth to the United Nations and this spirit that drove young men like President George H.W. Bush and Senators Dole an Inouye to risk life and limb in the service of not only their country but also of humanity. It was this spirit that made their sacrifice and wartime wounds and life-long impairments worth the price, and this spirit that has been so sadly and callously abandoned by the 38 Republican Senators who voted against the UN Convention on the Rights of Persons with Disabilities. 

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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A Cost of Living Adjustment for Social Security in the Fiscal Cliff?

Dec 17, 2012Mike Konczal

I haven't been writing about the various trial balloons and back-and-forths in the fiscal cliff austerity phase-in negotiations. But I do want to make a comment on the latest one. From Ezra Klein, there's rumors that there will be more revenue, some extended unemployment insurance, and additional stimulus money. However, "the Democrats’ headline concession will be accepting chained-CPI, which is to say, accepting a cut to Social Security benefits." Krugman isn't sure if this is better than no deal.

I think it's terrible, and the best way to understand it is by comparing it to the two reasons some liberals, Kevin Drum for instance, give for making a deal on Social Security. This is not my argument, but it's a useful comparison. The first reason is that by proactively changing Social Security you can secure a deal that has more revenue and fewer cuts than you would otherwise. The second reason is that by making a deal on Social Security you take the issue off the policy table. Sure, the people who think Social Security is a form of tyranny will still be after it. But all the deficit scolds will pack up and go home on the issue.

This deal would do neither. You'd cut Social Security without putting in any new revenue. And it wouldn't be sufficient to close the long-term gap, so the issue would stay on the table. Indeed, it's obvious that Very Serious People would view this as a "downpayment" on future cuts, and require any future attempts to get more revenue for Social Security, say by raising the payroll tax cap, to involve significant additional cuts.

From CBO's Social Security Policy Options, you can see 30 options for Social Security. 

The CBO puts the 75-year actuarial balance deficit at 0.6 percent, and this chart shows how much of that 0.6 percent would be filled by various options. The last one, basing the cost-of-living-adjustments (COLA) on the chained CPI-U, is only 0.2, or about a third of what the deficit hawks will say is necessary. From the CBO, it would only extend the trust fund four years. There will be demands for going back to Social Security in the years ahead, and those changes will not come solely from revenue increases. That's giving up a major piece for nothing in terms of Social Security, which is a very bad deal.

Personally, I think changing the COLA is a bad idea in general. The elderly face a higher rate of inflation since their spending is so dependent on health care, which is difficult to adjust or comparison shop for (the idea behind chaining the inflation rate). More importantly, of the three legs of the stool of retirement security - Social Security, private savings and employer savings plans - the two that aren't Social Security are struggling. Employer pensions will become less secure and less available going forward. Housing wealth was wiped out in the crash. 401(k)s appear to have been a great way to shovel tax savings to the rich, but are in no shape to take over for a lack of pensions. Median wages have dropped in the recession, and are likely to show little growth in the years ahead, which makes building private savings harder. Social Security will become more important, not less, in the decades ahead. Its benefits should be expanded, not cut.

UPDATE: Kevin Drum has a similar conclusion on the deal.

I haven't been writing about the various trial balloons and back-and-forths in the fiscal cliff austerity phase-in negotiations. But I do want to make a comment on the latest one. From Ezra Klein, there's rumors that there will be more revenue, some extended unemployment insurance, and additional stimulus money. However, "the Democrats’ headline concession will be accepting chained-CPI, which is to say, accepting a cut to Social Security benefits." Krugman isn't sure if this is better than no deal.

I think it's terrible, and the best way to understand it is by comparing it to the two reasons some liberals, Kevin Drum for instance, give for making a deal on Social Security. This is not my argument, but it's a useful comparison. The first reason is that by proactively changing Social Security you can secure a deal that has more revenue and fewer cuts than you would otherwise. The second reason is that by making a deal on Social Security you take the issue off the policy table. Sure, the people who think Social Security is a form of tyranny will still be after it. But all the deficit scolds will pack up and go home on the issue.

This deal would do neither. You'd cut Social Security without putting in any new revenue. And it wouldn't be sufficient to close the long-term gap, so the issue would stay on the table. Indeed, it's obvious that Very Serious People would view this as a "downpayment" on future cuts, and require any future attempts to get more revenue for Social Security, say by raising the payroll tax cap, to involve significant additional cuts.

From CBO's Social Security Policy Options, you can see 30 options for Social Security. 

The CBO puts the 75-year actuarial balance deficit at 0.6 percent, and this chart shows how much of that 0.6 percent would be filled by various options. The last one, basing the cost-of-living-adjustments (COLA) on the chained CPI-U, is only 0.2, or about a third of what the deficit hawks will say is necessary. From the CBO, it would only extend the trust fund four years. There will be demands for going back to Social Security in the years ahead, and those changes will not come solely from revenue increases. That's giving up a major piece for nothing in terms of Social Security, which is a very bad deal.

Personally, I think changing the COLA is a bad idea in general. The elderly face a higher rate of inflation since their spending is so dependent on health care, which is difficult to adjust or comparison shop for (the idea behind chaining the inflation rate). More importantly, of the three legs of the stool of retirement security - Social Security, private savings and employer savings plans - the two that aren't Social Security are struggling. Employer pensions will become less secure and less available going forward. Housing wealth was wiped out in the crash. 401(k)s appear to have been a great way to shovel tax savings to the rich, but are in no shape to take over for a lack of pensions. Median wages have dropped in the recession, and are likely to show little growth in the years ahead, which makes building private savings harder. Social Security will become more important, not less, in the decades ahead. Its benefits should be expanded, not cut.

UPDATE: Kevin Drum has a similar conclusion on the deal.

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New Paper: Against the Coupon State

Dec 3, 2012Mike Konczal

Imagine if current neoliberal policymakers had to sit down today and invent the idea of a library. What would it look like? They'd likely create a tax credit to subsidize the purchasing and reselling of books, like much of our submerged welfare state. They might require a mandate for people to rent books from approved private libraries run by Amazon or Barnes and Noble, with penalties for those who don’t and vouchers for those who can’t afford it, like the recent health care expansion. 

Or maybe they’d create means-tested libraries only accessible to the poor, with a requirement that the patrons document how impoverished they are month after month to keep their library card. Maybe they’d also exempt the cost of private library cards from payroll taxes. Or let any private firm calling itself a library pay nothing in taxes while exempting their bonds from taxation and insuring their losses by, say, paying for books that go missing. You can imagine them going through every possible option rather than the old-fashioned, straightforward, public library, open to all, provided and run by the government, that our country enjoys everyday.
 
I have a new white paper out with New America's "Renewing the American Social Contract" series, titled "No Discount: Comparing the Public Option to the Coupon Welfare State." Here's the introduction, and here's the full pdf.
 
Given that the state wants to provide a certain good, I wanted to find the arguments over whether or not the government should provide that good itself or provide coupons for purchases in the private market. Surprisingly, there were few cohensive summaries, so I created one myself. Though not explicitly stated, It's relevant for discussions over whether or not the welfare state should be entirely replaced with cash (the ultimate coupon).
The rest of the papers in the series are very much worth your time too. I hope you check them out. Mine starts out with:
 
The fundamental ideological conflict surrounding the Welfare State in the U.S. is no longer over the scope of government, but instead how the government carries out its responsibilities and delivers services. The conservative and neoliberal vision is one of a government that provides a comparable range of benefits as conventional liberals, but rather than designing and delivering the services directly, it provides coupons for citizens. Coupons – whether by that name or more anodyne terms such as “vouchers” or “premium support” or tax subsidies – could then be used to purchase the services in the private market. Whenever neoliberals have sought to expand the scope of the welfare state or conservatives have tried to fundamentally shrink it, both have come bearing coupons.
 
Read the rest at New America.
 
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Imagine if current neoliberal policymakers had to sit down today and invent the idea of a library. What would it look like? They'd likely create a tax credit to subsidize the purchasing and reselling of books, like much of our submerged welfare state. They might require a mandate for people to rent books from approved private libraries run by Amazon or Barnes and Noble, with penalties for those who don’t and vouchers for those who can’t afford it, like the recent health care expansion. 

Or maybe they’d create means-tested libraries only accessible to the poor, with a requirement that the patrons document how impoverished they are month after month to keep their library card. Maybe they’d also exempt the cost of private library cards from payroll taxes. Or let any private firm calling itself a library pay nothing in taxes while exempting their bonds from taxation and insuring their losses by, say, paying for books that go missing. You can imagine them going through every possible option rather than the old-fashioned, straightforward, public library, open to all, provided and run by the government, that our country enjoys everyday.
 
I have a new white paper out with New America's "Renewing the American Social Contract" series, titled "No Discount: Comparing the Public Option to the Coupon Welfare State." Here's the introduction, and here's the full pdf.
 
Given that the state wants to provide a certain good, I wanted to find the arguments over whether or not the government should provide that good itself or provide coupons for purchases in the private market. Surprisingly, there were few cohensive summaries, so I created one myself. Though not explicitly stated, It's relevant for discussions over whether or not the welfare state should be entirely replaced with cash (the ultimate coupon).
The rest of the papers in the series are very much worth your time too. I hope you check them out. Mine starts out with:
 
The fundamental ideological conflict surrounding the Welfare State in the U.S. is no longer over the scope of government, but instead how the government carries out its responsibilities and delivers services. The conservative and neoliberal vision is one of a government that provides a comparable range of benefits as conventional liberals, but rather than designing and delivering the services directly, it provides coupons for citizens. Coupons – whether by that name or more anodyne terms such as “vouchers” or “premium support” or tax subsidies – could then be used to purchase the services in the private market. Whenever neoliberals have sought to expand the scope of the welfare state or conservatives have tried to fundamentally shrink it, both have come bearing coupons.
 
Read the rest at New America.
 
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FDR's 47 Percent: Will the Democrats Finally Heed Their Voices?

Dec 3, 2012David Woolner

President Obama should use the fiscal cliff to shift the debate away from deficits and take on the inequality that's undermining our democracy.

It has been well said that "the freest government, if it could exist, would not be long acceptable, if the tendency of the laws were to create a rapid accumulation of property in few hands, and to render the great mass of the population dependent and penniless…"

President Obama should use the fiscal cliff to shift the debate away from deficits and take on the inequality that's undermining our democracy.

It has been well said that "the freest government, if it could exist, would not be long acceptable, if the tendency of the laws were to create a rapid accumulation of property in few hands, and to render the great mass of the population dependent and penniless…"

We believe in a way of living in which political democracy and free private enterprise for profit should serve and protect each other—to ensure a maximum of human liberty not for a few but for all…

Today many Americans ask the uneasy question: Is the vociferation that our liberties are in danger justified by the facts?

...Their answer is that if there is that danger it comes from that concentrated private economic power which is struggling so hard to master our democratic government.—Franklin D. Roosevelt, 1938

In his remarks on the so-called “fiscal cliff,” and in numerous campaign speeches, President Obama has repeatedly remarked that “we can’t just cut our way to prosperity,” and that “if we’re serious about reducing the deficit, we have to combine spending cuts with revenue. And that means asking the wealthiest Americans to pay a little more in taxes.” The president has also said that he is “not wedded to every detail” of his current plan to reduce the deficit and that he is open to compromise. But he also has made it plain, as he did in his recent remarks at the White House, that he will refuse to accept any approach that isn’t balanced; that he is “not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me making over $250,000 aren’t asked to pay a dime more in taxes.”

For the millions of Americans who remain out of work, or are struggling with hourly wages that when adjusted for inflation stand where they were in 1978, this is welcome news. But the president’s focus on taxes and the deficit is only part of the story. What the country really needs, according to most economists, is more stimulus, for the best way to reduce the deficit is to expand the economy, which would of course result in more government revenue.

The president has certainly made reference to this, and he has included a modest $50 billion in stimulus spending in his recent budget proposal to Congress, but for the most part the public discourse on how to avoid the “fiscal cliff” and fix our economy has been centered not on jobs or the vast structural inequality that now separates the top 1-2 percent from the rest of us, but on the deficit. This is unfortunate, for it means, in essence, that the country’s economic agenda is still very much in the hands of the conservative right; that we are still focused not on the cause of our economic woes—a collapsed economy brought on by the worst financial crisis since the Great Depression—but on the by-product: the vast fall-off in federal, state, and local revenue that naturally came about as a result of this collapse.

A far better exercise would be to move away from the right’s obsession with the deficit and open up a conversation with the American people about a far more critical issue facing the nation: the ever-widening gulf between the rich and the rest of us and the very real consequences that this disparity in income has had on our economy and indeed on the very nature of our democracy.

Roughly three-quarters of a century ago, when faced with a similar set of circumstances—including a conservative right that was fond of labeling his policies socialist—Franklin Roosevelt did not shy away from addressing the conditions that led to the collapse of the world’s economy. He well understood—as did the millions of Americans who lived in or on the threshold of poverty—that “the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself.” He also understood that “the Federal debt, whether it be twenty-five billions or forty billions, can only be paid if the Nation obtains a vastly increased citizen income…The higher the national income goes the faster will we be able to reduce the total of Federal and state and local debts. Viewed from every angle, today's purchasing power—the citizens' income of today—is not at this time sufficient to drive the economic system of America at higher speed.”

Taking note of this—and in a reference to the bottom half of the U.S. population that today sounds all too familiar—FDR observed in a speech on the perils of monopoly that:

47 per cent of all American families and single individuals living alone had incomes of less than $1,000 for the year; and at the other end of the ladder a little less than 1 1/2 per cent of the nation's families received incomes which in dollars and cents reached the same total as the incomes of the 47 per cent at the bottom…

This clearly was unacceptable, he went on, for:

No people, least of all a democratic people, will be content to go without work or to accept some standard of living which obviously and woefully falls short of their capacity to produce. No people, least of all a people with our traditions of personal liberty, will endure the slow erosion of opportunity for the common man, the oppressive sense of helplessness under the domination of a few, which are overshadowing our whole economic life.

Hence, for Roosevelt it was economic plight of the average American—not the deficit—that was the key not only to the restoration of our economy, but also to the health and well-being of our democratic system of government; even to our very way of life.

The debate over the so-called fiscal cliff and the showdown between President Obama and Congress over what to do about it has attracted a great deal of attention from the media. But rather than fall into another round of endless bickering with the budget hawks about the deficit, the president should use this opportunity to remind the American people—as FDR did all those years ago—that an economy and a political system built on fundamental inequality is simply not sustainable. If we really want to help the 47 percent our highest priority should be to adopt policies based on the fundamental idea that “political democracy and free private enterprise for profit should serve and protect each other,” not just the wealthy few at the top.

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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Obama's Second Term Could Mark the Return of the Four Freedoms

Nov 21, 2012David Woolner

As part of our series "A Rooseveltian Second Term Agenda," a call to return to a foreign policy based in FDR's vision of shared peace and prosperity.

As part of our series "A Rooseveltian Second Term Agenda," a call to return to a foreign policy based in FDR's vision of shared peace and prosperity.

Even though we come from different places, we share common dreams: to choose our leaders; to live together in peace; to get an education and make a good living; to love our families and our communities. That’s why freedom is not an abstract idea; freedom is the very thing that makes human progress possible — not just at the ballot box, but in our daily lives.

One of our greatest Presidents in the United States, Franklin Delano Roosevelt, understood this truth. He defined America’s cause as more than the right to cast a ballot. He understood democracy was not just voting. He called upon the world to embrace four fundamental freedoms: freedom of speech, freedom of worship, freedom from want, and freedom from fear. These four freedoms reinforce one another, and you cannot fully realize one without realizing them all.—Barack H. Obama, University of Yangon, November 19, 2012

In his historic visit to Burma, also referred to as Myanmar, President Obama spoke at length about the journey Burma is taking from dictatorship to democracy, a transition he said has the potential to inspire people the world over as “a test of whether a country can transition to a better place.”

President Obama made it clear that his journey to Burma—the first by an American president—was inspired in part by his own desire to encourage the people and government of Burma to press ahead with their democratic reforms so that the “flickers of progress” that the world has seen will not be extinguished. The president’s visit was also notable for his repeated insistence that America was a “Pacific nation,” whose “future was bound to those nations and peoples to our West.” But perhaps the most significant aspect of his speech was his decision to frame his remarks around a concept first articulated by Franklin D. Roosevelt at one of the darkest moments of the Second World War—the need to build a world founded on four fundamental human freedoms.

At a moment when Adolf Hitler had proclaimed the onset of “a new order” in Nazi-occupied Europe, and when Japanese militarists had seized much of China and were poised to expand their grip on Southeast Asia, Franklin Roosevelt proposed “a greater conception,” a “moral order” that represented the very antithesis of the “tyranny which the dictators seek to create with the crash of a bomb.” FDR’s order was based on the idea that all people—“everywhere in the world”—deserved the right to enjoy freedom of speech and expression; freedom of worship; freedom from want; and freedom from fear.

He articulated this vision in part because of the critical need to gain the support of the American people and Congress for the passage of the Lend-Lease Bill that was pending on Capitol Hill. But the enunciation of the Four Freedoms and initiation of Lend-Lease—which would make it possible for the United States to provide arms and munitions to Great Britain free of charge—was also inspired by a much deeper conviction: that the security of the United States was tied directly to the health and well-being of other nations.

For many Americans today, World War II and the Great Depression are two separate events. But for the generation that lived through these unparalleled crises, nothing could be farther from the truth. In their minds, and in the mind of Franklin Roosevelt, the two were inextricably linked. The Great Depression, after all, was not confined to the United States, but represented a worldwide economic crisis that helped inspire anti-democratic forces in both Europe and Asia—anti-democratic forces that helped give rise to the fascist movements in Germany and in Japan that would initiate the most destructive war in human history.

In light of this, Franklin Roosevelt remained convinced that the Second World War had economic causes. Moreover, as the war progressed, he became more and more convinced that America’s security was tied to the security of the rest of the world. As such, it was not enough for the United States to rely solely on the strength of its armed forces to provide for the nation’s safety; we also had to concern ourselves with the political, social, and economic health of other regions of the world since, as FDR put it in 1944, “true individual freedom cannot exist without economic security and independence”…and “people who are hungry and out of a job are the stuff of which dictatorships are made.”

It was this basic idea that inspired not only the Four Freedoms, but also the many institutions and practices that were put in place during and after the war to foster international cooperation and a more prosperous, healthy, and peaceful world. Many of these institutions and practices—like the United Nations, International Monetary Fund, World Bank. and multilateral trading regime—are with us still, so that much of the world we live in today is the world shaped by the vision of Franklin Roosevelt.

In recent years, however, we seem to have moved further and further away from this vision to a foreign policy that is dominated largely by the use of military force—no doubt inspired in part by the advent of modern technology, such as drone aircraft. This is unfortunate, for even though President Obama has shown willingness to use other means to pursue America’s interests abroad, his foreign policy to date has remained highly militarized.

His eloquent speech in Burma may indicate that he has decided to pursue a more progressive foreign policy agenda in his second term, one based on the recognition that the best means to keep America safe in the long term is to ensure that the hopes and aspirations of people the world over to enjoy freedom of speech and expression, freedom of worship, freedom from want, and freedom from fear stand not, as Roosevelt said, as some “vision of a distant millennium,” but as “a definite basis for a kind of world attainable in our own time and generation.”

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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The American People are Ready for Leadership in the Wake of Obama's Victory

Nov 7, 2012David Woolner

The election results could encourage the bipartisan cooperation we need to solve our country's greatest challenges.

The election results could encourage the bipartisan cooperation we need to solve our country's greatest challenges.

Today we re-consecrate our country to long-cherished ideals in a suddenly changed civilization. In every land there are always at work forces that drive men apart and forces that draw men together. In our personal ambitions we are individualists. But in our seeking for economic and political progress as a nation, we all go up, or else we all go down, as one people.—Franklin D. Roosevelt, 1937

Tonight, more than 200 years after a former colony won the right to determine its own destiny, the task of perfecting our union moves forward. It moves forward because of you. It moves forward because you reaffirmed the spirit that has triumphed over war and depression, the spirit that has lifted this country from the depths of despair to the great heights of hope, the belief that while each of us will pursue our own individual dreams, we are an American family and we rise or fall together as one nation and as one people.—Barack Obama, 2012

With the 2012 election now over and President Obama returning to the White House, many Americans are asking themselves, will the next four years be any different? Or will we see more of the same gridlock, bickering, and obstructionism that so dominated the Washington political landscape of the past few years? Much will depend, of course, on the temper of the Congress, where the Republicans still hold a majority in the House of Representatives and where, despite their minority status in the Senate, Republicans can still use the filibuster to block or delay the president’s—and the country’s—agenda.

It was roughly two years ago that Senate Minority Leader Mitch McConnell famously remarked that “the single most important thing” the Republican Party wanted to achieve “is for President Obama to be a one-term president.” But now that the Republicans have failed in this effort one would hope that the party leadership would be more willing to work with—rather than against—the president and his Democratic colleagues.

Certainly the American public would welcome such a move, and thanks to the recent behavior of Governor Chris Christie of New Jersey and Governor Andrew Cuomo of New York, we now have a precedent upon which such a bi-partisan spirit might be built. For most Americans, Republican Governor Christie’s willingness to “extend the hand of friendship” to the President and “to say ‘thank you sir,’ for providing good leadership in a crisis and for helping the people of New Jersey” was a long overdue antidote to the harsh negativity of today’s “political discourse.”

Moreover, the same might be said for Governor Cuomo, who, despite his status as New York’s governor and leading Democrat, took the highly unusual step of endorsing Republican State Senator Stephen Saland’s bid for re-election thanks to the latter’s decision to support the governor’s legislation legalizing same-sex marriage last year. Senator Saland’s decision to vote in favor of the bill, in what he said was a personal vote of conscience, was not popular among his party’s right wing. So the governor, in a move he said was motivated in part by his desire to counter “extremists on both sides of the aisle,” came out strongly in favor of Saland, much to the chagrin of the senator’s Democratic opponent. (The winner in that race has yet to be called at this time.)

Like Governor’s Christie’s willingness to work with President Obama to meet the crisis caused by Hurricane Sandy, Governor Cuomo’s willingness to work with Republican legislators in Albany has been enormously popular among the New York electorate, where he has consistently enjoyed an approval rating of roughly 70 percent. Given all of this, and given the extremely low regard most Americans hold for Congress, one would hope that these examples of bi-partisan cooperation might prove infectious and that our representatives in Congress might summon the courage to work together to meet the enormous challenges we face today.

Nearly 80 years ago, at a time when our nation faced an even graver economic crisis, Franklin Roosevelt reminded those who were concerned “with the problems of government and economics” to never forget that “devotion to the public good, unselfish service, never-ending consideration of human needs are in themselves conquering forces.”

We expect this sort of devotion in the face of natural disasters like Hurricane Sandy, but is it too much to expect the same “consideration of human needs” in the face of the economic disaster we are grappling with today? If government can and must play a major role in rebuilding areas ravaged by nature’s fury why shouldn’t the same government do more to help those American citizens ravaged by the scourge of unemployment?

Last night in his acceptance speech, President Obama echoed Roosevelt’s first inaugural when he noted that the American people “voted for action, not politics as usual.” While the Speaker of the Republican-controlled House, John Boehner, remarked that the election represented “a mandate for both parties to find common ground and take steps together to help our economy grow and create jobs.”

After years of partisan gridlock, the American people are hungry for that elusive but all-important quality they expect from their elected officials and which was on rare display for a brief moment as a president and a governor from different parties came together in a moment of compassion for those suffering hardship through no fault of their own. That quality is called leadership. Let us hope that the moment has finally arrived when those we have placed in positions of power, both in the White House and in Congress, will now have the courage to exercise it.

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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