On the History of the U.S. Economy in Decline

Plutonomy and the Precariat
by NOAM CHOMSKY

The Occupy movement has been an extremely exciting development. Unprecedented, in fact. There’s never been anything like it that I can think of. If the bonds and associations it has established can be sustained through a long, dark period ahead — because victory won’t come quickly — it could prove a significant moment in American history.

The fact that the Occupy movement is unprecedented is quite appropriate. After all, it’s an unprecedented era and has been so since the 1970s, which marked a major turning point in American history. For centuries, since the country began, it had been a developing society, and not always in very pretty ways. That’s another story, but the general progress was toward wealth, industrialization, development, and hope. There was a pretty constant expectation that it was going to go on like this. That was true even in very dark times.

I’m just old enough to remember the Great Depression. After the first few years, by the mid-1930s — although the situation was objectively much harsher than it is today — nevertheless, the spirit was quite different. There was a sense that “we’re gonna get out of it,” even among unemployed people, including a lot of my relatives, a sense that “it will get better.”

There was militant labor union organizing going on, especially from the CIO (Congress of Industrial Organizations). It was getting to the point of sit-down strikes, which are frightening to the business world — you could see it in the business press at the time — because a sit-down strike is just a step before taking over the factory and running it yourself. The idea of worker takeovers is something which is, incidentally, very much on the agenda today, and we should keep it in mind. Also New Deal legislation was beginning to come in as a result of popular pressure. Despite the hard times, there was a sense that, somehow, “we’re gonna get out of it.”

It’s quite different now. For many people in the United States, there’s a pervasive sense of hopelessness, sometimes despair. I think it’s quite new in American history. And it has an objective basis.

On the Working Class

In the 1930s, unemployed working people could anticipate that their jobs would come back. If you’re a worker in manufacturing today — the current level of unemployment there is approximately like the Depression — and current tendencies persist, those jobs aren’t going to come back.

The change took place in the 1970s. There are a lot of reasons for it. One of the underlying factors, discussed mainly by economic historian Robert Brenner, was the falling rate of profit in manufacturing. There were other factors. It led to major changes in the economy — a reversal of several hundred years of progress towards industrialization and development that turned into a process of de-industrialization and de-development. Of course, manufacturing production continued overseas very profitably, but it’s no good for the work force.

Along with that came a significant shift of the economy from productive enterprise — producing things people need or could use — to financial manipulation. The financialization of the economy really took off at that time.

On Banks

Before the 1970s, banks were banks. They did what banks were supposed to do in a state capitalist economy: they took unused funds from your bank account, for example, and transferred them to some potentially useful purpose like helping a family buy a home or send a kid to college. That changed dramatically in the 1970s. Until then, there had been no financial crises since the Great Depression. The 1950s and 1960s had been a period of enormous growth, the highest in American history, maybe in economic history.

And it was egalitarian. The lowest quintile did about as well as the highest quintile. Lots of people moved into reasonable lifestyles — what’s called the “middle class” here, the “working class” in other countries — but it was real. And the 1960s accelerated it. The activism of those years, after a pretty dismal decade, really civilized the country in lots of ways that are permanent.

When the 1970s came along, there were sudden and sharp changes: de-industrialization, the off-shoring of production, and the shift to financial institutions, which grew enormously. I should say that, in the 1950s and 1960s, there was also the development of what several decades later became the high-tech economy: computers, the Internet, the IT Revolution developed substantially in the state sector.

The developments that took place during the 1970s set off a vicious cycle. It led to the concentration of wealth increasingly in the hands of the financial sector. This doesn’t benefit the economy — it probably harms it and society — but it did lead to a tremendous concentration of wealth.

On Politics and Money

Concentration of wealth yields concentration of political power. And concentration of political power gives rise to legislation that increases and accelerates the cycle. The legislation, essentially bipartisan, drives new fiscal policies and tax changes, as well as the rules of corporate governance and deregulation. Alongside this began a sharp rise in the costs of elections, which drove the political parties even deeper into the pockets of the corporate sector.

The parties dissolved in many ways. It used to be that if a person in Congress hoped for a position such as a committee chair, he or she got it mainly through seniority and service. Within a couple of years, they started having to put money into the party coffers in order to get ahead, a topic studied mainly by Tom Ferguson. That just drove the whole system even deeper into the pockets of the corporate sector (increasingly the financial sector).

This cycle resulted in a tremendous concentration of wealth, mainly in the top tenth of one percent of the population. Meanwhile, it opened a period of stagnation or even decline for the majority of the population. People got by, but by artificial means such as longer working hours, high rates of borrowing and debt, and reliance on asset inflation like the recent housing bubble. Pretty soon those working hours were much higher in the United States than in other industrial countries like Japan and various places in Europe. So there was a period of stagnation and decline for the majority alongside a period of sharp concentration of wealth. The political system began to dissolve.

There has always been a gap between public policy and public will, but it just grew astronomically. You can see it right now, in fact. Take a look at the big topic in Washington that everyone concentrates on: the deficit. For the public, correctly, the deficit is not regarded as much of an issue. And it isn’t really much of an issue. The issue is joblessness. There’s a deficit commission but no joblessness commission. As far as the deficit is concerned, the public has opinions. Take a look at the polls. The public overwhelmingly supports higher taxes on the wealthy, which have declined sharply in this period of stagnation and decline, and the preservation of limited social benefits.

The outcome of the deficit commission is probably going to be the opposite. The Occupy movements could provide a mass base for trying to avert what amounts to a dagger pointed at the heart of the country.

Plutonomy and the Precariat

For the general population, the 99% in the imagery of the Occupy movement, it’s been pretty harsh — and it could get worse. This could be a period of irreversible decline. For the 1% and even less — the .1% — it’s just fine. They are richer than ever, more powerful than ever, controlling the political system, disregarding the public. And if it can continue, as far as they’re concerned, sure, why not?

Take, for example, Citigroup. For decades, Citigroup has been one of the most corrupt of the major investment banking corporations, repeatedly bailed out by the taxpayer, starting in the early Reagan years and now once again. I won’t run through the corruption, but it’s pretty astonishing.

In 2005, Citigroup came out with a brochure for investors called “Plutonomy: Buying Luxury, Explaining Global Imbalances.” It urged investors to put money into a “plutonomy index.” The brochure says, “The World is dividing into two blocs — the Plutonomy and the rest.”

Plutonomy refers to the rich, those who buy luxury goods and so on, and that’s where the action is. They claimed that their plutonomy index was way outperforming the stock market. As for the rest, we set them adrift. We don’t really care about them. We don’t really need them. They have to be around to provide a powerful state, which will protect us and bail us out when we get into trouble, but other than that they essentially have no function. These days they’re sometimes called the “precariat” — people who live a precarious existence at the periphery of society. Only it’s not the periphery anymore. It’s becoming a very substantial part of society in the United States and indeed elsewhere. And this is considered a good thing.

So, for example, Fed Chairman Alan Greenspan, at the time when he was still “Saint Alan” — hailed by the economics profession as one of the greatest economists of all time (this was before the crash for which he was substantially responsible) — was testifying to Congress in the Clinton years, and he explained the wonders of the great economy that he was supervising. He said a lot of its success was based substantially on what he called “growing worker insecurity.” If working people are insecure, if they’re part of the precariat, living precarious existences, they’re not going to make demands, they’re not going to try to get better wages, they won’t get improved benefits. We can kick ’em out, if we don’t need ’em. And that’s what’s called a “healthy” economy, technically speaking. And he was highly praised for this, greatly admired.

So the world is now indeed splitting into a plutonomy and a precariat — in the imagery of the Occupy movement, the 1% and the 99%. Not literal numbers, but the right picture. Now, the plutonomy is where the action is and it could continue like this.

If it does, the historic reversal that began in the 1970s could become irreversible. That’s where we’re heading. And the Occupy movement is the first real, major, popular reaction that could avert this. But it’s going to be necessary to face the fact that it’s a long, hard struggle. You don’t win victories tomorrow. You have to form the structures that will be sustained, that will go on through hard times and can win major victories. And there are a lot of things that can be done.

Toward Worker Takeover

I mentioned before that, in the 1930s, one of the most effective actions was the sit-down strike. And the reason is simple: that’s just a step before the takeover of an industry.

Through the 1970s, as the decline was setting in, there were some important events that took place. In 1977, U.S. Steel decided to close one of its major facilities in Youngstown, Ohio. Instead of just walking away, the workforce and the community decided to get together and buy it from the company, hand it over to the work force, and turn it into a worker-run, worker-managed facility. They didn’t win. But with enough popular support, they could have won. It’s a topic that Gar Alperovitz and Staughton Lynd, the lawyer for the workers and community, have discussed in detail.

It was a partial victory because, even though they lost, it set off other efforts. And now, throughout Ohio, and in other places, there’s a scattering of hundreds, maybe thousands, of sometimes not-so-small worker/community-owned industries that could become worker-managed. And that’s the basis for a real revolution. That’s how it takes place.

In one of the suburbs of Boston, about a year ago, something similar happened. A multinational decided to close down a profitable, functioning facility carrying out some high-tech manufacturing. Evidently, it just wasn’t profitable enough for them. The workforce and the union offered to buy it, take it over, and run it themselves. The multinational decided to close it down instead, probably for reasons of class-consciousness. I don’t think they want things like this to happen. If there had been enough popular support, if there had been something like the Occupy movement that could have gotten involved, they might have succeeded.

And there are other things going on like that. In fact, some of them are major. Not long ago, President Barack Obama took over the auto industry, which was basically owned by the public. And there were a number of things that could have been done. One was what was done: reconstitute it so that it could be handed back to the ownership, or very similar ownership, and continue on its traditional path.

The other possibility was to hand it over to the workforce — which owned it anyway — turn it into a worker-owned, worker-managed major industrial system that’s a big part of the economy, and have it produce things that people need. And there’s a lot that we need.

We all know or should know that the United States is extremely backward globally in high-speed transportation, and it’s very serious. It not only affects people’s lives, but the economy. In that regard, here’s a personal story. I happened to be giving talks in France a couple of months ago and had to take a train from Avignon in southern France to Charles De Gaulle Airport in Paris, the same distance as from Washington, DC, to Boston. It took two hours. I don’t know if you’ve ever taken the train from Washington to Boston, but it’s operating at about the same speed it was 60 years ago when my wife and I first took it. It’s a scandal.

It could be done here as it’s been done in Europe. They had the capacity to do it, the skilled work force. It would have taken a little popular support, but it could have made a major change in the economy.

Just to make it more surreal, while this option was being avoided, the Obama administration was sending its transportation secretary to Spain to get contracts for developing high-speed rail for the United States, which could have been done right in the rust belt, which is being closed down. There are no economic reasons why this can’t happen. These are class reasons, and reflect the lack of popular political mobilization. Things like this continue.

Climate Change and Nuclear Weapons

I’ve kept to domestic issues, but there are two dangerous developments in the international arena, which are a kind of shadow that hangs over everything we’ve discussed. There are, for the first time in human history, real threats to the decent survival of the species.

One has been hanging around since 1945. It’s kind of a miracle that we’ve escaped it. That’s the threat of nuclear war and nuclear weapons. Though it isn’t being much discussed, that threat is, in fact, being escalated by the policies of this administration and its allies. And something has to be done about that or we’re in real trouble.

The other, of course, is environmental catastrophe. Practically every country in the world is taking at least halting steps towards trying to do something about it. The United States is also taking steps, mainly to accelerate the threat. It is the only major country that is not only not doing something constructive to protect the environment, it’s not even climbing on the train. In some ways, it’s pulling it backwards.

And this is connected to a huge propaganda system, proudly and openly declared by the business world, to try to convince people that climate change is just a liberal hoax. “Why pay attention to these scientists?”

We’re really regressing back to the dark ages. It’s not a joke. And if that’s happening in the most powerful, richest country in history, then this catastrophe isn’t going to be averted — and in a generation or two, everything else we’re talking about won’t matter. Something has to be done about it very soon in a dedicated, sustained way.

It’s not going to be easy to proceed. There are going to be barriers, difficulties, hardships, failures. It’s inevitable. But unless the spirit of the last year, here and elsewhere in the country and around the globe, continues to grow and becomes a major force in the social and political world, the chances for a decent future are not very high.

The Power of Plutocracy

May Day! May Day!!
by ROB URIE


Last Tuesday, Mayday, 2012, tens of thousands from Occupy Wall Street and a coalition of unions and immigrant rights groups marched in New York, Oakland, San Francisco, Los Angeles, Chicago and other major cities to protest economic inequality and to celebrate other possibilities. The dominant theme of these marches and rallies was economic justice, with a significant proportion of marchers expressing their desire for an alternative to capitalism.

Despite being four years into the worst economic downturn since the Great Depression, America, by aggregate measures, is about as rich as it has ever been. Per capita GDP has declined, but not nearly in proportion to the degree of economic misery being experienced by a large number of us. Our problem is that a small group of corporate executives and bankers have taken a wildly disproportionate share of what America produces and left only crumbs for the rest of us.

This epic of financial capitalism has produced little real wealth but it has been an effective tool for shifting existing wealth from those who produced it to a small group of plutocrats via a state / financial nexus. The only proposed solutions emanating from the plutocrat / state are for more of the same policies that have destroyed the American economy, polity and culture. The sad truth is that the economic elite benefit from our declining wages and the looting of our social resources in direct proportion to what we lose. The economic elite has launched a class war against us and they have indicated every intention of seeing it continue.

Current circumstances are understood in a general sense by most of us and in some great detail by a significant number. Legal scholars and current and former criminal prosecutors have identified a large number of actionable financial, war and environmental crimes committed by the financial and political elite that have gone un-prosecuted and unpunished. A social division exists where the rich and the politically connected have impunity for theirs crimes while the police and the surveillance state are used as tools of social control and political repression against the rest of us. Were redress available through the established order, criminal prosecutions of culpable elites would already have taken place.

Meanwhile, a set of concrete economic proposals that would immediately improve the lives of those most affected by the current economic crisis, as well those of the long-term dispossessed, exists without being enacted and with no impetus for enacting them from either major political party. These include:

(1) A government works program that would guarantee a job to every person who can work and who wants a job
(2) Medicare for all that would guarantee access to healthcare for all citizens regardless of their ability to pay
(3) Expanded programs of food security that would guarantee healthy, adequate and nutritious food for everyone in America
(4) Free access to public education for every American from pre-school through graduate school including trade school education that would feed the trades and the government works program
(5) Increased funding for the arts that would revive American culture and shift the cultural focus from joyless striving to facilitating a creative, peaceful and nurturing world.

These programs would immediately put America back to work in socially useful and productive endeavors. These programs would stop the downward economic spiral that capitalist policies have produced and the newly employed would pay into social programs creating a new virtuous set of economic relationships.

Enacting these programs would require undoing the existing economic / political order that has created current conditions and that is determined to continue on the path that has led most of us to economic ruin. The political capture the existing plutocracy has achieved must be ended for meaningful change to occur. The power of the plutocracy lies in income inequality—political capture has been purchased with economic capture. Economic disparity is at the root of current conditions. This economic disparity derives from specific economic policies designed to bring it about and not from any process of nature. Economic disparity can begin to be rectified through a set of polices that include:

(1) Set maximum total compensation for corporate executives at 3X the total compensation of the lowest paid workers.
(2) Restore progressive taxation to 90+% of income that includes a wealth tax charged for the provision of programs to maintain social well being and stability (e.g. those listed above).
(3) Fund political campaigns with public money alone and enact laws against private funding of political campaigns
(4) Open the political process by including any candidate who can get 5,000 signatures of support in any campaign for national political office
(5) Require that equal time be given to each of these candidates and require that media companies provide extensive platforms for political debate in exchange for the licensing privileges that they already enjoy
(6) Review all government contracts to private industry and redirect contracts according to principles of maximizing social well-being, international peace and the nurturing of a peaceful, creative culture. Find new employment for those displaced in this process in the government works program if private jobs don’t exist for them.
(7) Immediately end all military aggression overseas, bring the troops home to guaranteed jobs and redirect all military resources to productive use while maintaining the minimal structure necessary for mutual defense.
(8) Immediately limit permissible banking activities to the straightforward provisioning of credit to unaffiliated creditworthy borrowers and place displaced bankers in government works programs if private employment is not available

These proposals are designed to provide a starting point for political dialogue. They are not the collective views of Occupy Wall Street or any group mentioned in this piece. With this understood, there already is a set of concrete proposals on the table from the plutocracy and their political servants. It includes the continued consolidation of wealth, endless war, increasing environmental destruction, increasing surveillance, control and political repression of the populace and the continued promotion of joyless consumption as the purpose of life. That is their vision. What then is ours?

CBO: Longest Period of High Unemployment Since Great Depression

Source: US News - February 17, 2012
After three years with (U3) unemployment topping 8 percent, the U.S. has seen the longest period of high unemployment since the Great Depression, the Congressional Budget Office noted in a report issued today.

And, despite some recent good news on the economic front, the CBO is still predicting that (U3) unemployment will remain above 8 percent until 2014. The report also notes that, including those who haven’t sought work in the past four weeks and those who are working part-time but seeking full-time employment, the (U6) unemployment rate would be 15 percent.


The CBO made its comments in a report examining the long-term effects of joblessness, and possible policy options to boost employment, including unemployment insurance reforms and job training programs. The report came at the request of  Michigan  Democratic Rep. Sander Levin, but Republicans quickly jumped on the chance to bash President Obama’s stimulus program, which is also reaching its three-year anniversary today.

The Book of Jobs

Forget monetary policy. Re-examining the cause of the Great Depression—the revolution in agriculture that threw millions out of work—the author argues that the U.S. is now facing and must manage a similar shift in the “real” economy, from industry to service, or risk a tragic replay of 80 years ago.
By Joseph E. Stiglitz- Vanity Fair

It has now been almost five years since the bursting of the housing bubble, and four years since the onset of the recession. There are 6.6 million fewer jobs in the United States than there were four years ago. Some 45 million Americans who would like to work full-time cannot get a job. Almost half of those who are unemployed have been unemployed long-term. Wages are falling—the real income of a typical American household is now below the level it was in 1997.

We knew the crisis was serious back in 2008. And we thought we knew who the “bad guys” were—the nation’s big banks, which through cynical lending and reckless gambling had brought the U.S. to the brink of ruin. The Bush and Obama administrations justified a bailout on the grounds that only if the banks were handed money without limit—and without conditions—could the economy recover. We did this not because we loved the banks but because (we were told) we couldn’t do without the lending that they made possible. Many, especially in the financial sector, argued that strong, resolute, and generous action to save not just the banks but the bankers, their shareholders, and their creditors would return the economy to where it had been before the crisis. In the meantime, a short-term stimulus, moderate in size, would suffice to tide the economy over until the banks could be restored to health.

The banks got their bailout. Some of the money went to bonuses. Little of it went to lending. And the economy didn’t really recover—output is barely greater than it was before the crisis, and the job situation is bleak. The diagnosis of our condition and the prescription that followed from it were incorrect. First, it was wrong to think that the bankers would mend their ways—that they would start to lend, if only they were treated nicely enough. We were told, in effect: “Don’t put conditions on the banks to require them to restructure the mortgages or to behave more honestly in their foreclosures. Don’t force them to use the money to lend. Such conditions will upset our delicate markets.” In the end, bank managers looked out for themselves and did what they are accustomed to doing.

Even when we fully repair the banking system, we’ll still be in deep trouble—because we were already in deep trouble. That seeming golden age of 2007 was far from a paradise. Yes, America had many things about which it could be proud. Companies in the information-technology field were at the leading edge of a revolution. But incomes for most working Americans still hadn’t returned to their levels prior to the previous recession. The American standard of living was sustained only by rising debt—debt so large that the U.S. savings rate had dropped to near zero. And “zero” doesn’t really tell the story. Because the rich have always been able to save a significant percentage of their income, putting them in the positive column, an average rate of close to zero means that everyone else must be in negative numbers. (Here’s the reality: in the years leading up to the recession, according to research done by my Columbia University colleague Bruce Greenwald, the bottom 80 percent of the American population had been spending around 110 percent of its income.) What made this level of indebtedness possible was the housing bubble, which Alan Greenspan and then Ben Bernanke, chairmen of the Federal Reserve Board, helped to engineer through low interest rates and nonregulation—not even using the regulatory tools they had. As we now know, this enabled banks to lend and households to borrow on the basis of assets whose value was determined in part by mass delusion.

The fact is the economy in the years before the current crisis was fundamentally weak, with the bubble, and the unsustainable consumption to which it gave rise, acting as life support. Without these, unemployment would have been high. It was absurd to think that fixing the banking system could by itself restore the economy to health. Bringing the economy back to “where it was” does nothing to address the underlying problems.

The trauma we’re experiencing right now resembles the trauma we experienced 80 years ago, during the Great Depression, and it has been brought on by an analogous set of circumstances. Then, as now, we faced a breakdown of the banking system. But then, as now, the breakdown of the banking system was in part a consequence of deeper problems. Even if we correctly respond to the trauma—the failures of the financial sector—it will take a decade or more to achieve full recovery. Under the best of conditions, we will endure a Long Slump. If we respond incorrectly, as we have been, the Long Slump will last even longer, and the parallel with the Depression will take on a tragic new dimension.

Until now, the Depression was the last time in American history that unemployment exceeded 8 percent four years after the onset of recession. And never in the last 60 years has economic output been barely greater, four years after a recession, than it was before the recession started. The percentage of the civilian population at work has fallen by twice as much as in any post-World War II downturn. Not surprisingly, economists have begun to reflect on the similarities and differences between our Long Slump and the Great Depression. Extracting the right lessons is not easy.

Many have argued that the Depression was caused primarily by excessive tightening of the money supply on the part of the Federal Reserve Board. Ben Bernanke, a scholar of the Depression, has stated publicly that this was the lesson he took away, and the reason he opened the monetary spigots. He opened them very wide. Beginning in 2008, the balance sheet of the Fed doubled and then rose to three times its earlier level. Today it is $2.8 trillion. While the Fed, by doing this, may have succeeded in saving the banks, it didn’t succeed in saving the economy.

Reality has not only discredited the Fed but also raised questions about one of the conventional interpretations of the origins of the Depression. The argument has been made that the Fed caused the Depression by tightening money, and if only the Fed back then had increased the money supply—in other words, had done what the Fed has done today—a full-blown Depression would likely have been averted. In economics, it’s difficult to test hypotheses with controlled experiments of the kind the hard sciences can conduct. But the inability of the monetary expansion to counteract this current recession should forever lay to rest the idea that monetary policy was the prime culprit in the 1930s. The problem today, as it was then, is something else. The problem today is the so-called real economy. It’s a problem rooted in the kinds of jobs we have, the kind we need, and the kind we’re losing, and rooted as well in the kind of workers we want and the kind we don’t know what to do with. The real economy has been in a state of wrenching transition for decades, and its dislocations have never been squarely faced. A crisis of the real economy lies behind the Long Slump, just as it lay behind the Great Depression.

For the past several years, Bruce Greenwald and I have been engaged in research on an alternative theory of the Depression—and an alternative analysis of what is ailing the economy today. This explanation sees the financial crisis of the 1930s as a consequence not so much of a financial implosion but of the economy’s underlying weakness. The breakdown of the banking system didn’t culminate until 1933, long after the Depression began and long after unemployment had started to soar. By 1931 unemployment was already around 16 percent, and it reached 23 percent in 1932. Shantytown “Hoovervilles” were springing up everywhere. The underlying cause was a structural change in the real economy: the widespread decline in agricultural prices and incomes, caused by what is ordinarily a “good thing”—greater productivity.

At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced for years. Agriculture had been a victim of its own success. In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume.

What this transition meant, however, is that jobs and livelihoods on the farm were being destroyed. Because of accelerating productivity, output was increasing faster than demand, and prices fell sharply. It was this, more than anything else, that led to rapidly declining incomes. Farmers then (like workers now) borrowed heavily to sustain living standards and production. Because neither the farmers nor their bankers anticipated the steepness of the price declines, a credit crunch quickly ensued. Farmers simply couldn’t pay back what they owed. The financial sector was swept into the vortex of declining farm incomes.

The cities weren’t spared—far from it. As rural incomes fell, farmers had less and less money to buy goods produced in factories. Manufacturers had to lay off workers, which further diminished demand for agricultural produce, driving down prices even more. Before long, this vicious circle affected the entire national economy.

The value of assets (such as homes) often declines when incomes do. Farmers got trapped in their declining sector and in their depressed locales. Diminished income and wealth made migration to the cities more difficult; high urban unemployment made migration less attractive. Throughout the 1930s, in spite of the massive drop in farm income, there was little overall out-migration. Meanwhile, the farmers continued to produce, sometimes working even harder to make up for lower prices. Individually, that made sense; collectively, it didn’t, as any increased output kept forcing prices down.

Given the magnitude of the decline in farm income, it’s no wonder that the New Deal itself could not bring the country out of crisis. The programs were too small, and many were soon abandoned. By 1937, F.D.R., giving way to the deficit hawks, had cut back on stimulus efforts—a disastrous error. Meanwhile, hard-pressed states and localities were being forced to let employees go, just as they are now. The banking crisis undoubtedly compounded all these problems, and extended and deepened the downturn. But any analysis of financial disruption has to begin with what started off the chain reaction.

The Agriculture Adjustment Act, F.D.R.’s farm program, which was designed to raise prices by cutting back on production, may have eased the situation somewhat, at the margins. But it was not until government spending soared in preparation for global war that America started to emerge from the Depression. It is important to grasp this simple truth: it was government spending—a Keynesian stimulus, not any correction of monetary policy or any revival of the banking system—that brought about recovery. The long-run prospects for the economy would, of course, have been even better if more of the money had been spent on investments in education, technology, and infrastructure rather than munitions, but even so, the strong public spending more than offset the weaknesses in private spending.

Government spending unintentionally solved the economy’s underlying problem: it completed a necessary structural transformation, moving America, and especially the South, decisively from agriculture to manufacturing. Americans tend to be allergic to terms like “industrial policy,” but that’s what war spending was—a policy that permanently changed the nature of the economy. Massive job creation in the urban sector—in manufacturing—succeeded in moving people out of farming. The supply of food and the demand for it came into balance again: farm prices started to rise. The new migrants to the cities got training in urban life and factory skills, and after the war the G.I. Bill ensured that returning veterans would be equipped to thrive in a modern industrial society. Meanwhile, the vast pool of labor trapped on farms had all but disappeared. The process had been long and very painful, but the source of economic distress was gone.

The parallels between the story of the origin of the Great Depression and that of our Long Slump are strong. Back then we were moving from agriculture to manufacturing. Today we are moving from manufacturing to a service economy. The decline in manufacturing jobs has been dramatic—from about a third of the workforce 60 years ago to less than a tenth of it today. The pace has quickened markedly during the past decade. There are two reasons for the decline. One is greater productivity—the same dynamic that revolutionized agriculture and forced a majority of American farmers to look for work elsewhere. The other is globalization, which has sent millions of jobs overseas, to low-wage countries or those that have been investing more in infrastructure or technology. (As Greenwald has pointed out, most of the job loss in the 1990s was related to productivity increases, not to globalization.) Whatever the specific cause, the inevitable result is precisely the same as it was 80 years ago: a decline in income and jobs. The millions of jobless former factory workers once employed in cities such as Youngstown and Birmingham and Gary and Detroit are the modern-day equivalent of the Depression’s doomed farmers.

The consequences for consumer spending, and for the fundamental health of the economy—not to mention the appalling human cost—are obvious, though we were able to ignore them for a while. For a time, the bubbles in the housing and lending markets concealed the problem by creating artificial demand, which in turn created jobs in the financial sector and in construction and elsewhere. The bubble even made workers forget that their incomes were declining. They savored the possibility of wealth beyond their dreams, as the value of their houses soared and the value of their pensions, invested in the stock market, seemed to be doing likewise. But the jobs were temporary, fueled on vapor.

Mainstream macro-economists argue that the true bogeyman in a downturn is not falling wages but rigid wages—if only wages were more flexible (that is, lower), downturns would correct themselves! But this wasn’t true during the Depression, and it isn’t true now. On the contrary, lower wages and incomes would simply reduce demand, weakening the economy further.

Of four major service sectors—finance, real estate, health, and education—the first two were bloated before the current crisis set in. The other two, health and education, have traditionally received heavy government support. But government austerity at every level—that is, the slashing of budgets in the face of recession—has hit education especially hard, just as it has decimated the government sector as a whole. Nearly 700,000 state- and local-government jobs have disappeared during the past four years, mirroring what happened in the Depression. As in 1937, deficit hawks today call for balanced budgets and more and more cutbacks. Instead of pushing forward a structural transition that is inevitable—instead of investing in the right kinds of human capital, technology, and infrastructure, which will eventually pull us where we need to be—the government is holding back. Current strategies can have only one outcome: they will ensure that the Long Slump will be longer and deeper than it ever needed to be.

Two conclusions can be drawn from this brief history. The first is that the economy will not bounce back on its own, at least not in a time frame that matters to ordinary people. Yes, all those foreclosed homes will eventually find someone to live in them, or be torn down. Prices will at some point stabilize and even start to rise. Americans will also adjust to a lower standard of living—not just living within their means but living beneath their means as they struggle to pay off a mountain of debt. But the damage will be enormous. America’s conception of itself as a land of opportunity is already badly eroded. Unemployed young people are alienated. It will be harder and harder to get some large proportion of them onto a productive track. They will be scarred for life by what is happening today. Drive through the industrial river valleys of the Midwest or the small towns of the Plains or the factory hubs of the South, and you will see a picture of irreversible decay.

Monetary policy is not going to help us out of this mess. Ben Bernanke has, belatedly, admitted as much. The Fed played an important role in creating the current conditions—by encouraging the bubble that led to unsustainable consumption—but there is now little it can do to mitigate the consequences. I can understand that its members may feel some degree of guilt. But anyone who believes that monetary policy is going to resuscitate the economy will be sorely disappointed. That idea is a distraction, and a dangerous one.

What we need to do instead is embark on a massive investment program—as we did, virtually by accident, 80 years ago—that will increase our productivity for years to come, and will also increase employment now. This public investment, and the resultant restoration in G.D.P., increases the returns to private investment. Public investments could be directed at improving the quality of life and real productivity—unlike the private-sector investments in financial innovations, which turned out to be more akin to financial weapons of mass destruction.

Can we actually bring ourselves to do this, in the absence of mobilization for global war? Maybe not. The good news (in a sense) is that the United States has under-invested in infrastructure, technology, and education for decades, so the return on additional investment is high, while the cost of capital is at an unprecedented low. If we borrow today to finance high-return investments, our debt-to-G.D.P. ratio—the usual measure of debt sustainability—will be markedly improved. If we simultaneously increased taxes—for instance, on the top 1 percent of all households, measured by income—our debt sustainability would be improved even more.

The private sector by itself won’t, and can’t, undertake structural transformation of the magnitude needed—even if the Fed were to keep interest rates at zero for years to come. The only way it will happen is through a government stimulus designed not to preserve the old economy but to focus instead on creating a new one. We have to transition out of manufacturing and into services that people want—into productive activities that increase living standards, not those that increase risk and inequality. To that end, there are many high-return investments we can make. Education is a crucial one—a highly educated population is a fundamental driver of economic growth. Support is needed for basic research. Government investment in earlier decades—for instance, to develop the Internet and biotechnology—helped fuel economic growth. Without investment in basic research, what will fuel the next spurt of innovation? Meanwhile, the states could certainly use federal help in closing budget shortfalls. Long-term economic growth at our current rates of resource consumption is impossible, so funding research, skilled technicians, and initiatives for cleaner and more efficient energy production will not only help us out of the recession but also build a robust economy for decades. Finally, our decaying infrastructure, from roads and railroads to levees and power plants, is a prime target for profitable investment.

The second conclusion is this: If we expect to maintain any semblance of “normality,” we must fix the financial system. As noted, the implosion of the financial sector may not have been the underlying cause of our current crisis—but it has made it worse, and it’s an obstacle to long-term recovery. Small and medium-size companies, especially new ones, are disproportionately the source of job creation in any economy, and they have been especially hard-hit. What’s needed is to get banks out of the dangerous business of speculating and back into the boring business of lending. But we have not fixed the financial system. Rather, we have poured money into the banks, without restrictions, without conditions, and without a vision of the kind of banking system we want and need. We have, in a phrase, confused ends with means. A banking system is supposed to serve society, not the other way around.

That we should tolerate such a confusion of ends and means says something deeply disturbing about where our economy and our society have been heading. Americans in general are coming to understand what has happened. Protesters around the country, galvanized by the Occupy Wall Street movement, already know.

How The Oligarchy Gets Politicized

A Short History of Elite Responses To Political-Economic Crisis

by ALAN NASSER

 

The performance of the US economy from the mid-1970s to the present was no match for its relatively robust performance during what  economists call the Golden Age – 1949 to 1973. This was in fact the longest period of sustained growth in US history, when most (white) working people had achieved a degree of material security unknown earlier and unattainable since. But from the late 1960s and through the 1970s economic malaise was increasingly in evidence, signaling worse to come: high rates of both inflation and unemployment  -stagflation- was not supposed to be possible in a Keynesian(1)  world, but there they were, and seemingly intractable. At the same time workers’ productivity declined dramatically. Profit rates fell steadily for more than ten years as revived Japanese and European economic competitors increasingly ate into US manufacturing’s share of both world trade and the domestic market itself.

Corporate and political elites responded with the cold bath treatment. “The standard of living of the average American,” pronounced Fed chairman Paul Volcker on Oct. 17, 1979, “has to decline. I don’t think you can escape that.”  Interest rates went through the roof. Austerity was the order of the day, and it still is.

In 1983 an analysis of US decline and the ensuing rise of Thatcher-Reaganism appeared, in the book Beyond the Waste Land, by three Harvard-based radical economists  - Sam Bowles, David M. Gordon and Thomas Weisskopf. The book received favorable reviews in many mainstream media, including The New York Times and The New York Review of Books. Reviewers included the  distinguished US economists John Kenneth Galbraith, James Tobin and Kenneth Arrow.

The authors argued that a social-political factor of great importance figured crucially in the decline of US hegemony: workers had become more secure and therefore more emboldened by Keynesian New-Deal benefits like Social Security and unemployment insurance, and the labor-friendly social programs of Lyndon Johnson’s Great Society. 

Labor’s uppityness was especially striking in the 1960s and early 1970s. There was a notable increase in labor actions, from strikes to industrial sabotage. With fewer workers worried about where the next mouthful would come from, we saw an increase in goofing off on the job, tardiness, job-switching, pressure for improved workplace safety measures and demands for higher wages and benefits. The result was a decline in productivity (output per unit of labor input) and a wage-push profit squeeze.

Most importantly, the legacy of the New Deal and the Great Society had resulted in a shift in the distribution of national income from capital to labor.

Bowles, Gordon and Weisskopf argued that with effective unions and unprecedented security, labor had achieved a degree of power over capital hitherto unknown. This analysis has been developed more recently by the economists Jonathan Goldstein and David Kotz, who show that every Golden-Age recession was generated by a wage-push profit squeeze in the preceding expansion. According to Bowles, Gordon and Weisskopf, capital did not take this sitting down. Corporate America initiated a counteroffensive which the authors called the Great Repression. Capital’s counterattack, we may say, persists to this day.

Liberal Thinking About the Politics of the Elite
Several of the most prominent liberal reviewers of Beyond the Waste Land were scandalized by the authors’ claim that capital deliberately organized active political resistance to working-class advances. In the New York Times (July 31, 1983) Peter Passell, who at the time wrote about economics for the Times’s editorial page, complained that the book exhibits an “emphasis on conspiracy.” John Kenneth Galbraith was far more insightful and dismissive of mainstream orthodoxy than liberals of a Paul Krugman or Robert Reich kidney. Yet he too could not imagine that the vested interests deliberately muster forces antithetical to working-class interests. In his otherwise generous praise for the book in The New York Review of Books (June 2, 1983) Galbraith registered a “serious complaint about the authors’ position on political power…. They see the present sorry behavior of the economy as the result of a thoughtful and deliberate exercise of corporate power.” Galbraith repudiated the authors’ “conviction that the present disaster is designed – that it reflects in a deliberate way the interest of the corporations. This I do not believe. I would attribute far more to adherence by the corporate world to outdated and irrelevant ideology, and to political leaders, not excluding the president, who do not know what damage they are accomplishing.”

It is as if acknowledging elites’ political activism gives credence to class analysis, which is thought to be too Marxian for our own good. Talk of corporate dominance of the State opens the door to unacceptably subversive reconceptualizations of matters we have been trained to understand in safer, less seditious terms. Seeing a recession as a strike of capital, for example, forces us to make the appropriate readjustments in a range of related economic and political understandings. Indeed, as Galbraith recognized, Beyond the Waste Land requires us to think and to act very differently regarding what political power is all about. It is less unsettling to imagine that “irrelevant ideology” and political ignorance lie at the heart of the current economic debacle, than it is to see the depression as the outcome of a deliberate assault on working people by the oligarchs.

These liberal objections are far less believable now than they were 28 years ago. Elites are not philosophers seeking to be guided by the most intellectually cogent theories. Political power is not about upholding this or that ideology; it is about legislating in this or that group’s interest. Political power is exercised most successfully by those whose interests are most consistently served by the exercise of State power.Cui bono? remains the best test of who matters most to the State managers. The latter govern; the former rule.

By this test only the blind fail to see that Wall Street is now running the show. The blind abound among liberal intellectuals. In his New York Times column on Nov. 23, 2009, Paul Krugman confesses that “It took me a while to puzzle this out. But the concerns Mr. Obama expressed become comprehensible if you suppose that he’s getting his views, directly or indirectly, from Wall Street.” You don’t say.

Krugman’s epiphany was available before Obama was elected. In September 2008, finance capital stepped forward, openly and unabashedly pushed aside its political representatives, and proceeded to dictate policy to the Congress and the White House. Hank Paulson demanded $700 billion for the banksters, with no strings attached: there would be no restrictions on how the handout was spent, no hearings, no Congressional debate, no expert testimony and Paulson was not to be held accountable. Obama suspended his campaign for a day to make phone calls urging Congressional Democrats to obey Paulson’s orders. His top economic advisors, his Treasury Secretary, his Fed chief, turned out to be mostly Wall-Street-linked deregulators. It was more than a year before it dawned on Krugman that Obama might be Charley McCarthy to Wall Street’s Edgar Bergen.

Elite Responses To Crisis
The political activism of the elite is striking in times of crisis, when the latter takes the form either of severe economic contraction or of working-class militancy, or both. Let’s look at the specifics.

The ruling class has attempted directly to address crisis situations in each of the three major economic downturn periods since 1823. I treat  nineteenth century American capitalism (1823-1899) as a single depression period, since over the course of sixty years it featured three steep depressions, 1837-1843, 1873-1878 and 1893-1897. Indeed, the entire period 1823-1898, excluding the Civil War, saw the nation in recession or depression more often than not. The Great Depression of the ‘30s was of course the second such period, and the years from late 2007 to the present constitute the third.

The corporate oligarchy has also responded to the New Deal/Great Society Golden Age as another crisis period, this time of a special kind. In that case the crisis was not perceived by the elite as purely economic, but as political, involving a transfer of both income and power from the wealthiest to the rest. Ruling-class mobilization ensued. The plutocrats openly “put politics in command.” Neoliberalism began to take shape.

After a brief review of the plutocrats’ responses to the depression periods and the Golden Age, I will look more closely at the stretch of time from the mid-1970s to the end of the twentieth century as a prolonged insurgency of the vested interests against regulated and relatively-worker-friendly American capitalism, and as a buildup to the current mess.

We begin with the corporate class’s first modern historical attempt to coordinate its power as a class. This was an effort initially confined to the economic sphere. Once the elite had established a private regime of market collaboration, it became clear that subsequent threats to its interests would require political mobilization. What we face now is a ruling class politically organized as never before, and with a firm grip on State power.

The Nineteenth Century: Depression Paves The Road To Corporate Organization
Railways and steel epitomized the chronic economic instability of nineteenth-century US capitalism. In each case enterprises repeatedly competed their profits away into bankruptcy or receivership. Finance capital responded by pressuring its industrial counterpart to consolidate in order to avert the perpetuation of what was very close to three quarters of a century of sustained slump.

Keynes famously described a clear instance of irrational competition: “Two masses for the dead, two pyramids are better than one; not so two railroads from London to York.” In fact, in Britain and in the US the railroad magnates had repeatedly built two or more railways from A to B, with the predictable consequences: bankruptcies proliferated. By the end of the nineteenth century the giant railway networks were the largest business enterprises in the world, yet by 1900 half of them had gone into receivership.

The financial magnate J.P. Morgan was attuned to the contribution of fratricidal competition to recurring economic downturns and, not incidentally, to the attending threat to bank profits.  He persuaded the biggest railway barons to organize. He had them form “communities of interest” to reduce destructive competition by fixing rates and/or allocating traffic between competing roads. Most of these efforts failed; invariably at least one of the companies would try to take advantage of the others’ compliance by breaking its promise.

Morgan’s response was, in retrospect, epoch-making. He implored his real-economy counterparts to consolidate as a matter of policy. Consolidation, he urged, was the most effective antidote to cutthroat-competition-induced depression and falling bank profits. Concentration was in capital’s best interests. Practicing what he preached, Morgan took control of one sixth of the nation’s largest railroads.

The steel industry exhibited a similar dynamic. The superinnovator Andrew Carnegie introduced productivity-enhancing technological improvements with uncommon frequency. His high rate of capital replacement lowered his unit costs, raised his competitors’ costs and devalorized their obsolete capital, enabling him to price-compete many of them to bankruptcy.

This left bankers like J.P. Morgan with big debtors unable to service their loans. Cutthroat competition was again rightly perceived by Morgan as contrary to the interests of capital.
Carnegie was a special nuisance to Morgan, who repeatedly implored him to slow down his innovations. When Carnegie resisted, Morgan simply bought him out and consolidated the Carnegie Steel Company with some of its weaker competitors. In 1901 Morgan’s steel behemoth became US Steel. This gave precedent and impetus to the oligopolization of major industries that was to become a hallmark of twentieth century capitalism. Cutthroat price competition was replaced with “corespective” competition, effected mainly through advertising, new products, improved technology, and organizational change.

Morgan had become the nation’s first prominent active critic of cutthroat competition. His effort consciously to limit competition was the first historical attempt of a major ruling-class activist deliberately to intervene in the dynamics of the economy in response to viral bankruptcies and depression.

Morgan’s lessons are implicitly subversive. He instructed his industrial brothers that their individual interests are best realized by action in concert. Morgan understood that the most effective agent of capitalist success is not the individual but the class. The same of course applies to anti-capitalist success. This Morgan did not discuss.

Organized capitalism was strikingly different from its nineteenth-century ancestor, with one exception. In both periods economic liberalism persisted; government regulation was almost entirely absent. The absence of regulation was a major factor in precipitating both the Great Depression and the current severe downturn.

The Great Depression: Coup d’Etat as Response to the New Deal’s Politicization of the State
J.P. Morgan’s response to crisis was to recommend to his class brothers a new form of industrial organization. The resulting reconfiguration of the private economy was accomplished with virtually no overt participation by the State, in accord with the prevailing laissez faire ideology. The notion that the State could respond to economic malfunction by active intervention  had not yet entered official thinking.

During the crisis of the 1930s the dominant orthodoxy was severely challenged. Morgan’s precedent for dealing with economic collapse generated by unbridled competition was that the Big Boys could put their own house in order by teaming up. By contrast, 1930s capital was without private, class-grown strategies adequate to the task of getting the Great Depression under control.

The seeds of the Depression had been planted in the 1920s, when the economic scene was strikingly similar to what precipitated the current downturn. Output, investment, productivity and profits rose much faster than wages. Unions were weak and inequality soared  -1928 was the then-record year for income inequality-  and working people relied heavily on debt to finance their purchase of the avalanche of newly available consumer durables. During the latter half of the decade economic growth was driven largely by credit-fueled consumption expenditures.

The unprecedented inequality that emerged from this setup widened the gap between productive capacity and effective demand and caused, beginning in 1926, a marked slowdown in the purchases of the very consumer durables   -radios, refrigeratots, toasters, automobiles-  on whose growth the health of the productive economy had become dependent. The growth rate of  manufacturing declined dramatically, and investment-seeking capital fled to speculative financial markets, ultimately inducing the crash of 1929. Sound familiar?

Reflecting on these realities, the Keynesians surrounding Roosevelt proposed the notion that the economy had reached “maturity” during the end-stage industrialization of the 1920s. All previous expansions out of downturns had been propelled by investment spending on means of production and workplaces; the nation was still industrializing. This time, and for the first time, it was different. Excess capacity abounded at the end of the decade, but not, as in the nineteenth century, as a result of serial bankruptcies. The triple blights of  inequality, over-investment and underconsumption were the culprits. With the basic industrial infrastructure now in place, and productive facilities glaringly superfluous, if the economy was to recover there had to be a resurrection of consumption demand. But the condition of the private economy ruled this out. This is what Keynes understood. His was a prescription for the economic restoration of a mature industrialized economy in the depths of a severe, sustained and self-perpetuating downturn.

The historical stage was now set for the birth of the Keynesian insight that only an agent outside the sphere of the market, and unmotivated by the quest for private profit, can restore a mature capitalist economy in deep depression. Many of FDR’s early “Brain Trust” were solid Keynesians, and the combination of their tutelage with mounting labor militancy convinced the president to initiate a major break with free-market precedent. He initiated a grand plan of public investment and government-provided jobs which not only brought about a reversal of the downward plunge of 1929-1933, but also generated the longest US cyclical expansion recorded up to that time, 1934-1938.

To the business class this seemed an unconscionably revolutionary turn. FDR’s fierce denunciation of the banksters even as he politicized the State in the name of working-class interests was viewed as an unparalleled and horrific development, a popular assault by the State on the power of Big Wealth. The logical response of the business class was not to attempt to reconfigure the private sector as Morgan had done, but to seek to capture the State, which it perceived as a greater threat to its dominance than the Depression itself. Morgan had attended to matters economic. But the emergence of a mature oligopolized form of economic organization required from the superordinates a distinctly political response.

The ruling elite proceeded in 1933 to organize a coup intended to topple the Roosevelt administration and replace it with a government modelled on the policies of Adolf Hitler and Benito Mussolini. (A 1934 Congressional committee determined that Prescott Bush, granddad of Dubya, was in communication with Hitler.) The plotters included some of the foremost members of the business class, many of them household names at the time.

Prominent insurgents included Rockefeller, Mellon, Pew, Morgan and Dupont, as well as enterprises like Remington, Anaconda, Bethlehem and Goodyear, and the owners of Bird’s Eye, Maxwell House and Heinz. About twenty four major businessmen and Wall Street financiers planned to assemble a private army of half a million men, composed largely of unemployed veterans. These troops would constitute the armed force behind the coup and defeat any resistance the in-house revolution might generate.

The revolutionaries chose Medal of Honor recipient and Marine Major General Smedley Butler to organize its armed forces. Butler was appalled by the plot and spilled the beans to journalists and to Congress. FDR nipped the thing in the bud.

The attempted coup was a landmark event in US history, baring the soul of America’s standing wealth. (We find no mention of this event in US history textbooks. History unfit to print.) We have no reason to think that these fascist instincts have been expunged from the class character of our rulers. No less important, the scandal alerts us to the elite’s Leninism, its identification of the State as the political prize of prizes, the seat of class power.

Ironically, it was Keynes who put the deliberate capture of the State on postWar capital’s agenda. 1930s Keynesianism saw the State legislating in the interests of working people, and successfully competing in the labor market with private companies. This was an explicitly politicized State functioning, in the eyes of the elite, as the executive committee of the working class.

Big capital learned a lesson of abiding importance: determining State power must be their deliberate and overriding political agenda. Siezing State power by force of arms, they had learned, is easier planned than accomplished. The final years of the Golden Age saw the captains of wealth devising a longer-term political strategy to roll back the New Deal and Great Society, and to set in place arrangements that would preclude their recurrence. This time it was to be a New Deal for capital, a State unabashedly politicized for the class that counts. These were the early formative years of neoliberalism.

The Golden Age Not So Golden For Capital
The Golden Age is distinguished by its remarkable growth rate and the unprecedented material security enjoyed by a good number of workers. But growth rates tell us nothing about how the fruits of growth are distributed. The present moment illustrates this nicely. The economy’s rate of growth has been very slow, while corporate profits and the income of the top .01% have reached record highs. Ring this up to a deliberate, policy-driven transfer of income and wealth from the rest to the richest. Distribution counts a lot for the wealthy. Their political power is a function of their wealth. If wealth and/or income is redistributed to another class, so is power. That goes down badly with rulers.

The New Deal/Great Society period saw increasing redistribution from capital to labor. The share of national income appropriated by the top 1% of households steadily declined during those years. In 1928, the most unequal year to date since 1900, the share of the top 1% stood at more than 23%; by the late 1930s it was down to 16%. It declined to 11-15% in the 1940s, to 9-11% in the 1950s and 1960s, and finally fell to its nadir of 8-9% in the 1970s.

This was the first 50-year redistribution of income from the very richest to the rest in American history. The oligarchs were to take steps to ensure that this would never happen again.

Elites saw redistribution as inherent in any State policy orientation distributing toward working people benefits which the market by itself would not produce. If you give them a little, little by little they’ll want it all. To the boys used to being in charge, Lyndon Johnson seemed to be responding to popular pressure to out-New-Deal the New Deal. The latter had given us Social Security; Johnson expanded the program to include disability payments and more. Johnson and a Democratic Congress passed new or strengthened laws, mainly around consumer and environmental issues, that cut into business profits by forcing corporations to absorb some of the costs they had previously externalized onto the rest of us.

In less than four years Congress enacted the Truth In Lending Act, the Fair Packaging and Labeling Act, the National Traffic and Motor Vehicle Safety Act, the National Gas Pipeline Safety Act, the Federal Hazardous Substances Act, the Flammable Fabrics Act, the federal Meat Inspection Act and the Child Protection Act. Whew.

Business-government relations had never before seen such an avalanche of legislation limiting the freedom of capital in the interests of working people.

Between 1964 and 1968 Congress passed 226 of 252 worker-friendly bills into law. Federal funds transferred to the poor increased from $9.9 billion in 1960 to $30 billion in 1968. One million workers received job training from these bills and 2 million children were enrolled in pre-school Head Start programs by 1968.

What made all this especially unnerving in the eyes of Big Wealth was that even the Republicans seemed to have swallowed the redistributionist line. Richard Nixon announced in 1971 “I am now a Keynesian in economics” (not “We are all Keynesians now”, as the remark is usually misquoted). Nixon was in fact a bigger domestic non-military spender than Johnson. During his first term in office Congress enacted a major tax reform bill, the Environmental Protection Agency along with four major environmental laws, the Occupational Safety and Health Administration and the Consumer Products Safety Commission.

The combination of regulation and redistribution left  the working class as materially secure as it had ever been, and more inclined to feel its oats. When the economy began to approach full employment, toward the peak of a Golden-Age expansion, workers’ slacking off, tardiness, job switching and general militancy increased. The US topped the OECD’s table in strikes per worker in 1954, 1955, 1959, 1960, 1967 and 1970.

This did not go unnoticed by business. Commenting on the causes of the 1970-1971 recession following the long expansion of the 1960s, a front-page Wall Street Journal article (January 26, 1972) noted that:

‘Many manufacturing executives have openly complained in recent years that too much control had passed from management to labor. With sales lagging and competition mounting, they feel safer in attempting to restore what they call “balance”.’

It’s hard to overestimate the impact of  new regulations, redistribution and labor militancy on business. Regulations are a class thing, and we shall see how they inspired the regulated to respond in self-defense as a class. We might begin by contrasting neoliberal anti-Keynesianism with the standard postwar efforts of business to influence government.

To the extent that business sought to mobilize before neoliberalism, its tactics were fragmented and limited in scope. The airline industry would lobby the Civil Aeronautics Board and/or bribe a favorite senator (e.g. Washington state’s Scoop Jackson, the “Senator from Boeing”), steel companies would lean on Congress for protectionist legislation, energy producers got tax breaks from their congressional favorite, and firms would target trade organizations. Much of this was done through personal contacts. Individual firms and specific industries had their own strategies; there was no cross-sectoral means of resistance to threats to business as a whole. But it is the nature of regulations to pose just such threats by affecting many industries at once. It is no surprise, then, that business should respond with a call for a new form of class mobilization, an all-business attempt to secure State power by political means less dramatic, though no less effective, than an out-and-out coup.

The Counterrevolt of Capital: The Legacy of the Powell Memo
Toward the end of the nineteenth century Morgan had urged industrial capital to organize itself within the private sector. During the Great Depression big capital galvanized its energies politically, in a coup attempt to sieze State power. The next major effort by business to coordinate and mobilize itself was also a political action, again aimed at control of the State apparatus, but this time with a strategy of methodical long-term class warfare.
In 1971 future Supreme Court justice Lewis Powell distributed among business circles a memo intended to politicize the captains of industry in resistance to the legacy of the New Deal and Great Society. The memo reads like a neoliberal instruction booklet:

“[the]American economic system is under broad attack. Business must learn the lesson…that political power is necessary; that such power must be assiduously cultivated; and that when necessary, it must be used aggressively and with determination – without embarrassment and without the reluctance which has been so characteristic of American business…. Strength lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations.”

In their remarkable book Winner-Take-All Politics, political scientists Jacob Hacker and Paul Pierson describe the organizational counterattack of business as “a domestic version of Shock and Awe.” The accomplishments are impressive:

“The number of corporations with public affairs offices in Washington grew from 100 in 1968 to to over 500 in 1978. In 1971, only 175 firms had registered lobbyists in Washington, but by 1982, nearly 2,500 did. The number of corporate PACs increased from under 300 in 1976 to over 1,200 by the middle of 1980. On every dimension of corporate political activity, the numbers reveal a dramatic rapid mobilization of business resources in the mid-1970s.”

This period also saw the birth of militant mega-organizations representing both big and small business. In 1972 the Business Roundtable was formed, its membership restricted to top corporate CEOs. By 1977 the Roundtable’s membership included the CEOs of 113 of the top Fortune 200 companies. The chairman of both the Roundtable and Exxon in the early Reagan years, Clifton Garvin remarked “The Roundtable tries to work with whichever political party is in power… as a group the Roundtable works with every administration to the degree they let us.”

The Conference Board further sharpened capital’s political focus by gathering leading executive especially well positioned to personally contact key legislators. The Board developed an ingenious agenda: to learn the tactics of public interest groups and organized labor in order to subvert the agenda of those very groups.

The Roundtable and the Board lobbied and established ongoing relationships with Congressional staffs. Organizations representing smaller firms also grew rapidly in the 1970s. With higher unit costs and no oligopoly pricing power to offset the administrative costs of regulation, these firms were highly motivated to mobilize. The Chamber of Commerce and the National Federation of Independent Businesses doubled their membership, with the now very effective Chamber tripling its budget.

It was during this period that the corporate presence on the Hill became conspicuously ubiquitous. While business had always been disproportionately represented in DC, never before had the chambers of legislation seen such thoroughgoing corporatization.

Corporate strategy was not merely a matter of bribing top politicos. The biggest organizations had learned their lessons well from their antagonists, the public interest groups pressing the popular demand for regulation, and organized labor. The business counterrevolt mimicked the strategies of those groups. Corporate groups used their ample resources, including sophisticated marketing and communications techniques, to organize mass campaigns composed of a heterogenous grouping of shareholders, local companies, employees and mutually dependent firms like retailers and suppliers. Washington would be deluged with phone calls, petitions and letters pushing business interests.

In short order elites surpassed both public-service organizations and organized labor in what they had done best, bottom-up organizing.

Within ten years the corporate takeover was well established. In the 1980s corporate PACs shelled out five times as much money to congressional campaigners as they had put out in the 1970s.

The agenda of the political infrastructure of rallied capital was to undo those policies and State priorities which had generated the redistribution and labor activism limiting the freedom of capital and enhancing the power of workers for almost three decades. In sum, the legacy of the New Deal and Great Society had to be undone. But these were political-economic projects which required ongoing bolstering by the State if they were to be kept effective. Mobilized capital had to capture the State and render it inoperative for proletarian purposes. The State had to be as explicitly reconstituted as a capitalists’ State as the elite perceived it to have been hitherto rigged for workers and against the Big Boys. This required the functional equivalent of a coup.

And a coup there was. Simon Johnson, former chief economist of the International Monetary Fund, wrote in one of the nation’s major weeklies of the “the reemergence of an American financial oligarchy” in “The Quiet Coup”, The Atlantic (May 2009). Johnson made it clear that his use of “coup” was not intended as a rhetorical flourish or a metaphor. Finance capital had effectively privatized the State. Neoliberalism had succeeded not merely in guaranteeing permanently reactionary governments, it had captured the State itself. Previously, a change in government  -e.g. from the Eisenhower to the Kennedy administration- might mean a significant change in domestic policy within the context of an abiding Keynesian State. Neoliberalism has sought to change the fundamental priorities of the State.

Mission Accomplished: The Privatized Neoliberal State
All of the major developed capitalist countries have deindustrialized over the past thirty years. The industrial capacity of the West is overripe, and widget production has accounted for a declining share of total output, total employment and total profits in these once-democracies. FIRE’s shares have correspondingly risen, and its top dogs now rule the roost and call the global shots. This has gone hand in hand with a string of financial crises.(2) This setup requires much more, not less, State implication in economic life.

To bail out or not to bail out – and who is to be rescued at whose expense? How is manufacturing to thrive in the current climate of intensified competition among deindustrialized developed countries, with the emerging markets poised to enter the fray?

The present answers to these questions are clear. The financial elite get everything while manufacturing is “restructured” as a low wage sector targeting the world’s fastest growing markets, which are not to be found in the imperial metropoles. Unemployment rates are to be kept high until the wage level drops low enough to render the US an effective competitor in global markets. None of this could begin to get off the ground without massive State collusion with corporate interests. The financial bailout and Obama’s restructuring of the auto industry are but the most conspicuous of many examples. The new State is to become  -has become?-  a capitalist State not in the trivial sense of the State of a capitalist country, but as a State unambiguously by and for Big Wealth.

Putting the Class Character of the State on the Political Agenda
The government is not the same as the State. The governmental alternatives -Republican or Democrat- within the context of an anti-Keynesian neoliberal State must be so limited as to count as no alternatives at all. That there is not a dime’s worth of difference between the Parties is what we should expect, given the dismantling of the State’s postwar social functions. If the remnants of the New Deal and Great Society are regarded by the State managers as “the old time religion”, as Obama characterized them in The Audacity of Hope, then the policy alternatives must be, from the perspective of working-class interests, piddling, and the pseudo-squabbles between the Parties inconsequential.

The historical unfolding of American capitalism has put the class character of the State squarely on the political agenda. It has been the plutocracy’s top priority for a long time. It is clearer to more Americans than ever that the entire political establishment is unprepared and unwilling to manage the economy and the State in the interests of working people. The ruling-class concerns of the neoliberal State homogenizes policy options and renders standard Party politics otiose and obsolete. An effective Left political program must make available to its constituency a radically revised conception of what it means to do politics. No less important is the forging of a political practice which compellingly incarnates that radical reconception. An independent OWS is just what such a practice would look like in its embryonic stages. Very much hinges on how that movement develops.

Notes.
(1) References to Keynesian policy require the reminder that Keynes encouraged economic policy far more radical than what the New Deal and Great Society offered. Perhaps the most neglected Keynesian prescription is his insistence that fiscal policy and government employment are not tools confined to recessions. Keynes held that full employment required ongoing targeted government stimulus, even during cyclical upturns.

(2) Savings and loans (early 1980s), Mexican debt crisis (1982), Mexican peso crash (1994, one year after the passage of NAFTA), Asian Financial Crisis (1997), Russian devaluation and default (1998), Argentina’s eebt crisis (2001), Enron (2001), Worldcom (2002), the hi-tech, dot.com bubbles of the late 1990s and the present turmoil, unparalleled of its kind in the history of capitalism.

The Rebellion of the Poor

Sunday, October 16, 2011 by The Independent/UK
Across the World, the Indignant Rise Up Against Corporate Greed and Cuts
by David Randall and Matt Thomas

 

Protests against corporate greed, executive excess and public austerity began to gel into the beginnings of a worldwide movement yesterday as tens of thousands marched in scores of cities. The "Occupy Wall Street" protest, which started in Canada and spread to the US, and the long-running Spanish "Indignant" and Greek anti-cuts demonstrations coalesced on a day that saw marches or occupations in 82 countries.

Some protests were small, as in Tokyo, where only 200 turned up; some were large, as in Spain, where around 60 separate demonstrations were staged; and some were muted, as in London, where nearly 2,000 intending to march on the Stock Exchange obeyed police who turned them back. As dusk fell, some 500 of them were kettled in St Paul's churchyard.

Containment tactics were also used by police in New York last night as thousands of demonstrators were penned behind barricades in Times Square. They had marched through Manhattan and protested outside the city's banks, withdrawing their money as they did.

Only one of the protests, in Rome, was violent. Here, among an estimated 100,000 protesters, were a few who broke away and hurled bottles, smashed shop windows, torched cars and attacked news crews. There were reports that the defence ministry had been partly trashed. Most of the disorder took place near the Colosseum, and police charged the protesters and fired water cannon. Some demonstrators fled, but others turned against the troublemakers, trying, with limited success, to stop them. Italy, with a national debt ratio second only to Greece's in the 17-nation eurozone, is rapidly becoming a focus of concern in Europe's debt crisis. But even in Germany – part of the solution to the crisis rather than the problem – around 4,000 people marched through the streets of Berlin with banners that urged the end of capitalism. Some scuffled with police as they tried to get near the country's parliamentary buildings. In Frankfurt, continental Europe's financial capital, some 5,000 people protested in front of the European Central Bank.

In Spain, six marches were set to converge on Madrid's Puerta del Sol plaza just before dusk yesterday. This is the country where, in May, groups which became known as the Indignant Movement established the first around-the-clock protest camps that lasted for weeks in cities and towns. Portuguese angry at their government's handling of the economic crisis were due to protest in central Lisbon later yesterday evening. Portugal is one of three European nations – the others being Greece and Ireland – that have already needed an international bailout.

In Stockholm, 500 people gathered to hear speakers denounce capitalism at a peaceful rally. They held up red flags and banners that read: "We are the 99 per cent" and "We refuse to pay for capitalism's crisis". The reference was to the world's richest 1 per cent, who control billions in assets, while billions around the world live in poverty or are struggling economically. Bilbo Goransson, a trade union activist, declared through a megaphone: "There are those who say the system is broke. It's not. That's how it was built. It is there to make rich people richer."

Anti-banking protests outside St Paul's cathedral yesterday drew a crowd of around 2,000. The "Occupy London" protesters gathered with the intention of taking over the plaza in front of the London Stock Exchange but were turned back at Temple Bar by mounted police. The crowds returned to St Paul's churchyard where WikiLeaks' Julian Assange spoke briefly.

The singer Billy Bragg was also in the crowd. "Today is about accountability," he said.
"People want to see a change in the way things are done." He believed yesterday's protest represented a shift in the way the public views demonstrations. "I think the attitude coming out of protests here and on Wall Street has been incredibly positive," he said. "It's a desire to build, rather than smash things up."

In Canada, hundreds gathered in Toronto's financial district to decry what they said was government-abetted corporate greed which has served elites at the expense of the majority. Further protests were planned yesterday for other Canadian cities, while, in the US, marches were scheduled in cities large and small, from Providence, Rhode Island, to Little Rock, Arkansas; from New York to Seattle. In the Bosnian city of Sarajevo, there was a different tone: hundreds walked through the streets carrying pictures of Che Guevara, old communist flags and placards that read: "Death to capitalism, freedom to the people".

Turnout was light in Asia, where the global economy is booming. In Sydney, around 300 people gathered, cheering a speaker who shouted: "We're sick of corporate greed! Big banks, big corporate power standing over us and taking away our rights!" Only 200 people protested in Tokyo; and in the Philippines, about 100 people marched on the US embassy in Manila to express support for the Wall Street protests.

A group of 100 prominent authors, including Salman Rushdie, Neil Gaiman and the Pulitzer prize-winning novelists Jennifer Egan and Michael Cunningham, signed an online petition declaring their support for "Occupy Wall Street and the Occupy Movement around the world". And there were stinging words yesterday in The New York Times' leading article for David Cameron and George Osborne. It began: "For now, Britain's economy has been stuck in a vicious cycle of low growth, high unemployment and fiscal austerity. But unlike Greece, which has been forced into induced recession by misguided European Union creditors, Britain has inflicted this harmful quack cure on itself."

It ended: "Austerity is a political ideology masquerading as an economic policy. It rests on a myth, impervious to facts, that portrays all government spending as wasteful and harmful, and unnecessary to the recovery. The real world is a lot more complicated. America has no need to repeat Mr Cameron's failed experiment."

Several years after the Western financial crisis began, and with growing momentum it seems, new dividing lines – if not battle lines – are being drawn up.

+++++

From Wall Street to South Africa

by RICHARD PITHOUSE

Grahamstown, South Africa.
In The Grapes of Wrath, John Steinbeck’s novel about the Great Depression, Tom Joad, the novel’s central character, a man who has been made poor and who is on the run from the law, tells his mother in the climactic scene that: “I been thinking about us, too, about our people living like pigs and good rich land layin’ fallow. Or maybe one guy with a million acres and a hundred thousand farmers starvin’. And I been wonderin’ if all our folks got together….”


That wondering is a red thread woven through American history with the promise of a way out of what Martin Luther King called “life as a long and desolate corridor with no exit sign”. In recent years a lot of Americans who have not been born to life in that desolate corridor have been forced in to it. The time when each generation could expect to live better than their parents has passed. Poverty is rushing into the suburbs. Young people live with their parents into their thirties. Most can not afford university. Most of the rest leave it with an intolerable debt burden. It’s the same in Spain, Greece and Ireland. England is looking pretty grim too. The borders that surround the enclaves of global privilege are shrinking in from the nation state to surround private wealth.


If the problem was that there just wasn’t enough money to go around, people would have to accept the situation. But when there is plenty of money, when there is, in fact, an incredible abundance of money but its being held by a tiny minority, its perfectly logical to start wondering along Tom Joad’s lines.


The financial elite who had, for so long, successfully presented themselves as the high priests of the arcane arts of economic divination on whom our collective well being was dependent caused the financial crisis of 2008. The problem was not a miscalculation in some algorithm. It was the greed of a caste that had been allowed to set itself up above everyone else. As a character in a Bruce Springsteen song about the deindustrialisation of America observes “Them big boys did what Hitler couldn’t do”. This caste has developed so much power over the media and politicians that it has been allowed to dictate the resolution of the crisis. Their plan, of course, comes down to the proposal that they should continue to profit while the shortfall is recovered from society. That means more people losing their homes, no longer able to afford health care or child care, dropping out of university, sliding deeper into debt and working two or three crappy jobs just to keep going.


There was resistance from the start. But for a long time it looked like right wing populism would be the dominant popular response in America. But with the occupation of Wall Street inciting occupations and planned occupations in cities throughout the United States, and as far away as Hong Kong and South Africa, it seems that a response that targets the real source of the problem is gaining more traction.


The choice of Wall Street as the target for the occupation is, in itself, a perfectly eloquent statement. And slogans like “We’re young; we’re poor; we’re not going to take it any more” are incisive enough. But if the occupation of sites of symbolic power in cities across North America is to win concrete rather than moral victories, and to make a decisive intervention against the hold that finance capital has taken over so much of political and social life, it will have to do two things. It will need, without giving up its autonomy, to build links with organisations, like churches, trade unions and students groups, that are rooted in everyday life and can support this struggle over the long haul. It will also need to find ways to build its own power and to exercise it with sufficient impact to force real change.


Wall Street is usually a world away from Main Street and bringing it under control is no easy task. But its encouraging that what links Tahrir Square to Liberty Plaza, the protests in Athens and Madrid and the movements that have emerged in the shack settlements of Port-au-Prince, La Plaz, Caracas and Durban, is a concern with democracy. In Tahrir Square the primary point was to unseat a dictatorship but elsewhere there is a global sense that the standard model of parliamentary democracy is just not democratic enough. This is a crucial realisation because, in many countries, America being one of them, you just can’t vote for an alternative to the subordination of society to capital. But a serious commitment to dispersing power by sustained organising from below can shift power relations. It is the only realistic route to achieving any sort of meaningful subordination of capital to society.


The idea of an occupation as a way to force an exit from the long and desolate corridor to which more and more Americans are being condemned is not new. Martin Luther King dedicated the last years of his life to the Poor People’s Campaign. In 1968 he travelled the country aiming to assemble “a multiracial army of the poor”, “a new and unsettling force” that would occupy Washington until Congress enacted a poor people’s bill of rights providing decent housing and work or a guaranteed income for all. Reader’s Digest warned of an “insurrection”. King was assassinated on the 4th of April 1968 but the march went ahead on the 12th of May 1968. Up to 50 000 people marched on Washington and occupied Capitol Hill. Thousands built a shanty town known as Resurrection City and held it for six weeks, in which it seemed to rain incessantly, before it was bulldozed.


In that same year there was mass protest, sometimes verging on insurrection, from Prague to Berlin, Paris and Mexico City. Much of it was inspired by the war in Vietnam and much of it took the form, against both the state and the authoritarian left, of direct democracy and collective self-organisation. In 1968 armed third world peasants became the most compelling image of a revolt that, while not global, was certainly international. With the defeat of these struggles the human rights industry was able to recast the third world poor as passive victims requiring charity and guidance from the North.


Debt, often mediated through dictatorship, became a key instrument through which the domination of the North was reasserted over the South. Debtors don’t just have to wring every cent that they can from life. They are also without autonomy. But the servitude of the debtor is increasingly also the condition of home-owners, students and others in the North who are paying for much of the financial crisis.


When some people are living like pigs and others have land lying fallow its easy enough to see what must be done. But when some people are stuck in a desolate corridor with no exit signs and others have billions in hedge funds, derivatives and all the rest it can seem a lot more complicated. And of course it is more complicated in the sense that you can’t occupy a hedge fund in the same way that you can occupy the fallow land of a billionaire.


But the point about finance capital is that it is the collective wealth of humanity. The money controlled by Wall Street was not generated by the unique brilliance, commitment to labour and willingness to assume risk on the part of the financial elite. It was generated by the wars in the Congo and Iraq. It comes from the mines in Johannesburg, the long labour of the men who worked those mines and the equally long labour of the women that kept the homes of the miners in the villages of the Eastern Cape. It comes from the dispossession, exploitation, work and creativity of people around the world. That wealth, which has been captured and made private, needs to be made public. Appropriated or properly taxed under democratic authority it could fund things like housing, health care, education, a guaranteed income and productive investment.


When a new politics, a new willingness to resist, emerges from the chrysalis of obedience, it will, blinking in the sun, confront the world with no guarantees. But we need to get together and commit what we can to try and ensure that 2011 turns out differently to 1968 or, for that matter, 1989. Here in South Africa the immediate task for the young people inspired by the occupations that have spread from Cairo to New York via Madrid and Athens is to make common cause with the rebellion of the poor.