In recent days, I have become confused about the problems facing the US economy.
Among liberal commentators, it’s more or less accepted wisdom that the stimulus was too small. The underlying premise is that the problem facing the economy currently is a lack of aggregate demand and that adequate Keynesian “pump-priming” could thus get things moving nicely again. Meanwhile, the deficit spending required would pay for itself as a growing economy increased government revenues. In general, I have tended to find such views convincing.
Many other commentators embrace the view that the high unemployment we are experiencing is “structural” and that the only thing hiding it for the last decade was an artificial housing bubble. Absent such irrational exuberance, the US economy faces a mismatch between skills needed and skills actually possessed by workers, hampering job creation. I have tended to find these views less convincing, in part because the policy prescriptions of such commentators seem to be “therefore there’s really nothing we can do.” Like Dr. House, I prefer a diagnosis that has a treatment. Further, various Rortybomb posts (which I have shared along the way) have argued that even if there is a structural component to unemployment, Keynesian stimulus can significantly lower the unemployment rate — and Rortybomb is, of course, always right.
Accepted wisdom used to be that Obama was misled by powerful advisors such as Larry Summers and Timothy Geithner into believing that a small stimulus was all that was necessary. Now, however, a new book by Ron Suskind reveals that the seemingly evil Summers was actually to Obama’s left on this issue and joined Christina Romer in urging him to push for further stimulus once it became clear that the economic projections they had been using were much too optimistic. Obama rejected the idea, embracing something like the structural unemployment hypothesis — specifically, he is reported to believe that greater automation and greater use of offshore labor necessarily increase unemployment in a way that Keynesian stimulus can’t fix.
Liberal commentators have reacted to Obama’s views with horror. (How, they ask, could he possibly ignore the expert advice that, based on previous presuppositions, liberal commentators were urging him to ignore for the past two years?) My reaction is different. Going against all my instincts, which have been thoroughly trained to distrust Obama at this point, I wonder: doesn’t he kind of have a point? In Michigan, for instance, it’s clear that increased automation and use of offshore labor have decreased the number of industrial jobs — and weirdly, new jobs didn’t magically materialize to take their place.
More generally, I find the Marxist view of this issue, recently articulated by Jameson in Reading Capital, pretty compelling: namely that the tendency is for capitalist development to produce massive accumulation and massive unemployment in tandem. Isn’t that precisely what’s happening in the US, as corporations and wealthy individuals hold huge stockpiles of cash while Depression-level numbers of unemployed workers sit idle?
During the postwar “golden age” of Keynesian policy, the tax code discouraged over-accumulation while the hegemony of union power forced corporations to distribute more profits to workers. By contrast, in an economy that is set up to push down wages and funnel most profits directly to the already bloated holdings of the rich, how much good could Keynesian stimulus, even if of “adequate size,” really do? So now I’m inclined to think that the “structural unemployment” advocates and, even moreso, Obama have a point — except that the “structural unemployment” people misidentify the “structure” that’s to blame and Obama, characteristically, fails to push his initial insight in the direction of the necessary political confrontation.
The problem isn’t that we’ve failed to innovate and educate workers adequately for an increasingly competitive global economy, etc., and meanwhile papered over the problem with asset bubbles — the problem is that we’ve been doing neoliberalism for over three decades. In these circumstances, a bigger stimulus most likely would have relieved some short-term suffering — a worthy goal, and I for one wish it had been pursued! — but the economy it would have pushed back into high gear is one that is designed, from the ground up, to create stagnant wages and greater unemployment while increasing already appalling levels of inequality.