We can no longer afford to listen to those conservatives who believe government is the problem, since there is no viable recovery from the worst recession since the Great Depression without government investment in sectors that will grow our future economy—particularly in education, infrastructure and the Research and Development of new technologies such as jump-started the Internet.
So say more economists, such as Nobelist and former chief World Bank economist Joseph Stiglitz in his most recent Vanity Fair article, “The Book of Jobs” that details how we recover from the Great Recession, and which sectors will prosper and expand. This means a “wrenching transition” of our whole economy, as happened in the 1930s, which means government has to be part of the solution.
“The problem today is the so-called real economy,” says Dr. Stiglitz. “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.”
And so just as with the Great Depression, government has to be part of the transition. Those who advocate little or no government—such as Libertarian candidate Ron Paul who would abolish just about all government—do not seem to realize it would be a return to the beginning of the Industrial Revolution so well documented by Charles Dickens—when there were no child labor laws, for instance.
Or a return to the Great Depression (really two, back-to-back) that lasted almost 10 years when there was no social security, unemployment insurance, or government investments that modernized the industrial sector for World War II.
“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,” said Stiglitz. “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.”
So, surprise-surprise, the Great Recession wasn’t really the fault of anyone in particular but a cascade of events that are driving us hell-bent out of the industrial, blue-collar era of factory jobs into the White Collar Service and Information Age. And we cannot do this without public-sector investments that must ease the transition; otherwise we are doomed for a “much longer long slump than necessary,” in Stiglitz’s words.
It was small government conservatives like Presidents Reagan and GW Bush that had been wasting taxpayers’ monies to pay for foreign wars and tax cuts since 1980, rather than paying down the deficit or even shoring up social security and Medicare. GW Bush wasted 4 consecutive budget surpluses of the Clinton era. And the low interest rates engineered by Fed Chairman Alan Greenspan for that purpose in turn inflated the housing bubble, lending a sense of false prosperity.
The result of such small government policies was the Fed then took away the punch bowl in 2006 and raised interest rates 17 consecutive times that in effect burst the bubble by raising all those teaser and liar loan interest rates too high for borrowers who shouldn’t have qualified for them in the first place. But that only hastened the inevitable rush away from Industrial to the Information Age. Factory jobs and salaries had already begun to decline in the 1970s along with household incomes for most Americans.
“Today we are moving from manufacturing to a service economy,” says Stiglitz. “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.”
“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.”
In other words, we need to put public monies where it will do the most good. Corporate profits today are the highest in history as a percentage of GDP—more than 14 percent—yet their CEOs haven’t been investing it wisely. Most of their profits have been either hoarded, invested overseas, or used to buy back stock to increase the stock options held by corporate executives. It has lined their own pockets, rather than that of their employees and therefore the economy as a whole.
And that is where today’s right and far right wing conservatives want even public monies to flow—into their supporters’ already full pockets—when they won’t allow the Bush tax cuts to expire that have bloated the federal deficit. This will only hasten the decline of America already suffering from record high income inequality, low rates of social mobility, record high violent crime rates, and a government they don’t want to work for the future of all Americans.
Government has to work—or else.
Harlan Green © 2011