Monday, August 6, 2018

Jared Bernstein: Trump 2020 game plan: Fake Laffer, Go Keynes. [feedly]

The dangerous  tale in the lastest econ numbers....as always, dangers -- and opportunities


Trump 2020 game plan: Fake Laffer, Go Keynes.
http://jaredbernsteinblog.com/trump-2020-game-plan-fake-laffer-go-keynes/

I'm genuinely sorry to intrude on your Sunday like this, but this new forecast (no link) from the highly-skilled Goldman Sachs economic research team (GS) has me completely on shpilkes. I'll make it brief, but not painless.

Back when the tax cut passed, this figure, also from GS, previewed an important fiscal fact about to unfold: outside of wartime, the Republican tax cuts and other deficit spending would add more fiscal juice to an economy already closing in on full employment than we'd ever tried before outside of wartime (note that the right-side scale is inverted; the point is low unemployment is usually associated much smaller deficits than we have now).

Here's what I wrote at the time:

How unusual is [the divergence at the end of the above figure]? Well, looking at data back to the late 1940s, the average deficit-to-GDP ratio when unemployment was below 5 percent was close to zero. Since 1980, that same calculation yields an average deficit-to-GDP ratio of 0.5 percent. As I mentioned, the jobless rate this year may average less than 4 percent while the deficit-to-GDP ratio could be about the same, and closer to 5 percent next year. So, pretty unusual.

This is all known, and no reason to intrude on your Sunday. That recent, big 4% pop in GDP was widely and correctly labeled a function of this stimulus and thereby unsustainable.

But here's what's new. The GS team has an updated forecast based on key, upward revisions, most notably, the doubling of the U.S. savings rate as a share of spendable income. Their reasoning as to why this is going to notably boost growth and lower unemployment to close to 3% by the end of 2020 is this: the savings rate is well above where it usually is given the variables that typically drive it (income, slack, net worth). That means it should fall, implying more consumer spending, the latter of which accounts for 70% of GDP.

Based on this revision, the figure below shows their updated prediction for GDP growth and unemployment. First, note that GDP comes off its unsustainable peak, underscoring the unsustainability point: if GS is right, we're looking at Keynesian stimulus, not Laffer suppy-side. But check out the jobless rate, which hits a low of almost 3% by the end of 2020.

Now, far be it from me to wax political rather than economical, but a potted plant could get re-elected president at 3% unemployment. Of course, a potted plant might be preferable (lots of potential angles there: steady leadership, solid green credentials, growth oriented, doesn't lie/tweet), and there are many caveats I'll get to next, but jeez…

Now, 2020's a long way off and while GS is better at this forecasting stuff than most, nobody's very good at it. And, of course, conditions in the macro-economy are but one factor in play. If Trump was getting credit for the economy thus far, his approval rating would be a lot higher (though stagnant real wages are of course in play, as I've stressed). Also, conditional on price/wage acceleration, the Fed might get spooked by the above scenario and move from brake-tapping to brake-slamming.

A couple of final thoughts. First, at one level, the above is a crushing example of the self-imposed budget austerity, back when the expansion was first taking off (see circled area in figure below).

Relatedly, let me try to be clear about my beef with all of this. I've argued that when an economy closes in on full employment, we want our fiscal accounts to begin to consolidate, as has historically been the case as shown in the first figure (here's why). But at the same time, if this fiscal experiment takes the unemployment rate down to 3% without triggering overheating and Fed-rate risk, workers may well finally have the full-employment-induced bargaining clout they've long lacked, and that will be a very good thing.

So…let's here it for PPP (Potted-Plant for President!!).


 -- via my feedly newsfeed

Krugman: Notes on a Butter Republic (denmark)

Notes on a Butter Republic

By Paul Krugman
Still on vacation, and I'm currently in Denmark – in fact, just cycled from Copenhagen to Helsingor, aka Elsinore. Sad to say, I'm such a fearsome nerd that instead of thinking about Shakespeare, my thoughts have turned to … economics. For Denmark's story is, I'd argue, of considerable interest to the rest of us.

To be clear, I am in no sense an expert on the Danish economy, now or in the past. I only know what I read and can pull out of readily available databases. So this is really about using Denmark as a mirror to hold up to the rest of the world. But it's an interesting mirror (and much nicer to think about than the outrages at home.) There are, in particular, two lessons I think Denmark can teach us: a hopeful story about globalization, and another hopeful one about the possibilities of creating a decent society.

Blessed are the cheesemakers

OK, as a helpful bystander points out in Life of Brian, it's a metaphor, not to be taken literally: the blessing extends to all manufacturers of dairy products. The blessing certainly worked in the case of Denmark.

During the creation of the first global economy, the one made possible by railroads, steamships, and telegraphs, the world seemed to bifurcate into industrial nations and the agricultural raw/material producers who catered to them. And the agricultural nations, even if they grew rich at first – e.g., Argentina – seemingly ended up getting much the worse of the deal, turning into banana republics crippled economically and politically by their role.



But Denmark became, not a banana republic, but a butter republic. Steamships and steam-powered cream separators allowed Denmark to become a huge exporter of butter (and pork) to the UK, leading in turn to impressive prosperity on the eve of World War I.

One interesting point about this export surge is that in a way it was value-added production, like the exports of modern developing economies that rely on imported inputs – except that in Denmark's case it was imports of animal feed from North America that helped provide a crucial edge.

The good news was that this agricultural orientation didn't turn out to be a dead end. Instead, it laid the foundation for excellent performance over the long run. And in Denmark's case globalization seems to have been equalizing, both politically and economically: instead of fostering dominance by foreign corporations or domestic landowners, it led to dominance by rural cooperatives.

Why was the Danish story so happy? The Danes may have been lucky in the product in which they turned out to have a comparative advantage. Also, like the Asian countries that led the first wave of modern developing-country growth, they came into globalization with a well-educated population by world standards. They may also have been lucky in the enlightened behavior of their elites.

Anyway, I'm not pushing a universal lesson that globalization is great for everyone; just the opposite. The point is that the results depend on the details: a country can produce agricultural products, be "dependent" by most definitions, yet use that as the basis for permanent elevation into the first world.

And in today's world, Denmark manages to be very open to world trade, while having very low levels of inequality both before and after redistribution. Globalization need not be in conflict with social justice. Speaking of which …

The non-horrors of "socialism"

A number of people on the U.S. right, and some self-proclaimed centrists, seem totally taken aback by the rise of politicians who call themselves socialist. But this rise was predictable and predicted.

Here's what happened: for decades the right has tried to shout down any attempt to sand down some of the rough edges of capitalism, whether through health guarantees, income supports, or anything else, by yelling "socialism." Sooner or later people were bound to say that if any attempt to make our system less harsh is socialism, well, they're socialists.

The truth is that there are hardly any people in the U.S. who want the government to seize the means of production, or even the economy's commanding heights. What they want is social democracy – the kinds of basic guarantees of health care, protection against poverty, etc., that almost every other advanced country provides.

Denmark, where tax receipts are 46 percent of GDP compared with 26 percent in the U.S., is arguably the most social-democratic country in the world. According to conservative doctrine, the combination of high taxes and aid to "takers" must really destroy incentives both to create jobs and to take them in any case. So Denmark must suffer from mass unemployment, right?

Ahem:
Image
--
John Case
Harpers Ferry, WV
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Sunday, August 5, 2018

How China beat the Global Financial Crisis [feedly]

How China beat the Global Financial Crisis
http://mainlymacro.blogspot.com/2018/08/how-china-beat-global-financial-crisis.html

If you were hoping for something on yesterday's interest rate rise, I can only direct you to the leaderin the FT today which says: "There is no compelling reason to increase the cost of borrowing in the UK, but there is definitely good cause to wait." On why nine intelligent people could all make the same mistake, you have to question their mandate, and move to something that focuses on having the right environment for growth, as I do here.

I recently finished reading the latest bookby Adam Tooze (of which much more in a subsequent post), and it reminded me of a story that was not told enough in the early days of austerity. Everyone knows about how quickly the Chinese economy has grown over the last few decades, and how strong exports have been an important part of that. In dollar terms the value of Chinese exports more than quadrupledbetween 2000 and 2007. By 2007 Chinese exports represented 35% of GDP.

An important characteristic of the Global Financial Crisis (GFC) was how quickly world trade collapsed. If we compare the beginnings of Great Recession after the GFC with the start of the Great Depression, while world industrial production moved in a similar fashion, world trade collapsed by much more in the Great Recession than the Great Depression. Here is a chart from Barry Eichengreen and Kevin O'Rourke's 'A Tale of Two Depressions Redux' VoxEU article.



Trade collapsed in the winter of 2008 around the globe, without exception. This was very bad news for China. Whereas exports had been around 35% of GDP in 2007, they fell to around 25% of GDP in 2009. That is a big hole to fill, and if it wasn't filled, there was a chance that Chinese growth would collapse completely with damaging knock on (multiplier) effects to the rest of the economy. Above all else, China feared the political consequences of the unrest widespread unemployment would bring.

As Tooze recounts, China's reaction was swift and bold. In November 2008 it announced a stimulus package of public spending worth 12.5% of GDP. (The Obama stimulus package, by comparison, was around 5% of GDP.) "Over the days that followed [the announcement], across China, provincial party meetings were hurriedly convened …" Within a year 50% of the stimulus projects were underway. Some of this stimulus paid for what Tooze describes as "perhaps the most spectacular infrastructure project of the last generation anywhere in the world", the Chinese high speed rail network. Monetary policy was also relaxed.

In 2008 as a whole, before the stimulus and hardly touched by the collapse in world trade, Chinese GDP grew by 9.6%. In 2009, when GDP in the advanced countries fell by 3.4%, Chinese growth was 9.1%. The stimulus package had filled the whole left by collapsing Chinese exports. (Source)

Basic macroeconomic theory says that a negative shock to GDP, caused for example by falling exports, can be completely offset by a monetary and fiscal stimulus. China is a good example of that idea in action. What about all the naysayers who predicted financial disaster if this was done? Well there was a mini-crisis in China half a dozen years later, but it is hard to connect it back to stimulus spending and it had little impact on Chinese growth. What about the huge burden on future generations that such stimulus spending would create? Thanks to that programme, China now has a high speed rail network and is a global leader in railway construction.

Now of course people will say that China is not like an advanced democracy, and it was not part of the global banking network that caused the GFC. But the US and UK stimulus programmes could and should have been larger. Those close to the action tell me that the UK was running out of things to spend more money on in 2008/9, but I cannot help think this amounts to a failure of imagination: it is not as if UK infrastructure is great, there are no flood defence projects left to do etc. Above all else China's example tells you what a huge mistake 2010 austerity was.

 -- via my feedly newsfeed

Bernstein: July’s Jobs Report: Solid jobs but little wage acceleration [feedly]

July's Jobs Report: Solid jobs but little wage acceleration
http://jaredbernsteinblog.com/julys-jobs-report-solid-jobs-but-little-wage-acceleration/

Summary: Today's jobs report shows the U.S. labor market remains in a strong groove, with payrolls up 157,000 last month as the unemployment rate ticked down to 3.9 percent. The broader underemployment rate ("U-6")–a more comprehensive measure of labor market slack–fell to 7.5%, its lowest rate since 2001, thanks to more part-timers finding the full-time jobs they seek.

Wage growth, however, remains a sore spot and despite further tightening, did not accelerate.

Expectations were for a higher payroll number–190,000–but these monthly data are noisy. To better pull out the underlying signal, we apply JB's monthly smoother that takes average job gains over 3, 6, and 12-month periods (these averages include a combined revision of 59,000 jobs added to the May and June payroll gains). As shown, trend growth rate for job growth is north of 200,000, a strong trend at this stage of expansion.

I dig deeper into the wage story below, but the figures below show year-over-year percent changes in hourly earnings for all private-sector workers and for middle-wage workers (blue-collar factory workers and non-managers in services), along with a 6-months average to smooth out the noise. Over the past year, average hourly earnings before inflation were up 2.7% last month for both groups, the same growth rate as in June. For all private-sector workers, yearly wage growth has stayed remarkably steady, growing between 2.6-2.8 percent since last December.

The moving average reveals a slight, welcome acceleration for middle-wage workers, but given recent pressures in topline consumer inflation (including energy prices), their real hourly wage growth is flat. Below, I offer a Q&A on these critical wage issues.

Broken "Breakevens?" Many labor market watchers have long maintained that the "breakeven rate" for job growth–the monthly payroll gain associated with a stable unemployment rate–is 100,000 or less. But as the smoother shows, over the past year, monthly job gains have averaged 200,000, twice the alleged breakeven rate. Meanwhile, the jobless rate hasn't fallen particularly sharply–it's wiggled around between the high-3's and the low-4's–implying more labor supply than the low breakeven number implies.

The labor force participation rate held steady at 62.9% last month–its same level as last July. But the closely watched employment rate for prime-age workers (25-54 year-olds) continues to slowly climb, up from 79.3% in June to 79.5% in July. The peak employment rate for this growth was 80.3% in January 2007, while its trough in 2011 was 74.8%. Thus, prime-age workers have recovered 4.7 out of 5.5 lost percentage points, or 85.5%, of their decline since the downturn.

All told, this is simply a technical way to suggest that we have probably not hit full capacity in the job market; there are still sideliners to be pulled in. Low, stable coreinflation (last seen at 1.9 percent; inflation including energy prices has grown faster) and only slowly accelerating wage growth corroborate this suspicion that there's more room-to-run in the job market than is commonly believed.

Wage Dive: There's been a lot of wage commentary lately, which I'd like to take a quick stab at sorting out here, with more to come in a longer paper out soon.

For now, a quick Q&A:

Q: Is there a wage problem in the current labor market?

A: There is, as real wages for middle-wage workers, as in today's data, are flat (growing at about the same rate as inflation), meaning the only way working families can grow their incomes is working more hours.

Q: Is that a function of slow nominal wage growth or faster inflation?

A: It's really about faster inflation, most recently, as the figures below reveal. They plot the yearly growth rate of the mid-level wage against inflation (I've forecasted the July inflation value as it's not out yet). The difference between the wage and the inflation lines represent real growth. As you see in this figure for an important sector for mid-wage workers–health care and education– inflation grew from very low levels and has caught up with pay rates in the sector.

At the same time, mid-level wage growth before inflation, as described above, has been slower in this recovery than in previous ones, especially at such low unemployment.

Q: What factors explain the faster prices and slower nominal wage growth?

A: Higher energy costs have been boosting prices (as noted, core inflation, which takes out energy and food, has been much tamer) of late, and these could trail off in coming months as oil supplies are up. The tariffs, especially if they escalate, could push prices up a bit, but topline inflation could slow in coming months, leading to faster real gains, especially if falling unemployment pushes up nominal wage growth.

Q: What other constraints are in play?

A: Economists point out that productivity growth puts a cap on real wage growth and there's no question that a) the two variables are linked, and b) slow productivity is a constraint on current wage growth. But slow productivity growth certainly does not explain flat, mid-level real wages in such a tight job market. For example, business profits remain strong, firms are spending billions on share buybacks to boost their stock prices. If workers had stronger bargaining power, they could push for more profits to flow into paychecks.

And, of course, over the longer term, productivity has risen much faster than median compensation (see figure), again, a function of long-term, structural factors reducing worker bargaining power, including outsourcing of jobs, diminished union power, long periods of slack markets, eroding labor standards, and, especially in the Trump era, a politics that is incessantly hostile to workers and friendly to capital.

Source: EPI

Q: Will lower unemployment give workers more clout?

A: It likely will. Thus, a potential, positive near-term scenario is lower unemployment pushing up nominal pay. Should that occur as energy prices come down, we'll see real gains in coming months. But there are enough links in that chain that it's no slam dunk, even in the near term. As just noted, the fact that worker power has been in long-term decline while concentrated employer power is ascendant remains a critical determinant of the living standards of working families.



 -- via my feedly newsfeed

Rulers of the World: Read Karl Marx! [feedly]

Rulers of the World: Read Karl Marx!
http://economistsview.typepad.com/economistsview/2018/08/rulers-of-the-world-read-karl-marx.html



Second time, farce

Rulers of the world: read Karl Marx!

On his bicentenary Marx's diagnosis of capitalism's flaws is surprisingly relevant



A GOOD subtitle for a biography of Karl Marx would be "a study in failure". Marx claimed that the point of philosophy was not just to understand the world but to improve it. Yet his philosophy changed it largely for the worst: the 40% of humanity who lived under Marxist regimes for much of the 20th century endured famines, gulags and party dictatorships. Marx thought his new dialectical science would allow him to predict the future as well as understand the present. Yet he failed to anticipate two of the biggest developments of the 20th century—the rise of fascism and the welfare state—and wrongly believed communism would take root in the most advanced economies. Today's only successful self-styled Marxist regime is an enthusiastic practitioner of capitalism (or "socialism with Chinese characteristics").

Yet for all his oversights, Marx remains a monumental figure. At the 200th anniversary of his birth, which falls on May 5th, interest in him is as lively as ever. Jean-Claude Juncker, the president of the European Commission, is visiting Trier, Marx's birthplace, where a statue of Marx donated by the Chinese government will be unveiled. The British Library, where he did the research for "Das Kapital", is putting on a series of exhibitions and talks. And publishers are producing a cascade of books on his life and thought, from "Das Kapital"-sized doorstops (Sven-Eric Liedman's "A World to Win: The Life and Works of Karl Marx"), to Communist Manifesto-slim pamphlets (a second edition of Peter Singer's "Marx: A Very Short Introduction").



None of these bicentennial books is outstanding. The best short introduction is still Isaiah Berlin's "Karl Marx", which was published in 1939. But the sheer volume of commentary is evidence of something important. Why does the world remain fixated on the ideas of a man who helped to produce so much suffering?

The point of madness

The obvious reason is the sheer power of those ideas. Marx may not have been the scientist that he thought he was. But he was a brilliant thinker: he developed a theory of society driven forward by economic forces—not just by the means of production but by the relationship between owners and workers—and destined to pass through certain developmental stages. He was also a brilliant writer. Who can forget his observation that history repeats itself, "the first time as tragedy, the second as farce"? His ideas were as much religious as scientific—you might even call them religion repackaged for a secular age. He was a latter-day prophet describing the march of God on Earth. The fall from grace is embodied in capitalism; man is redeemed as the proletariat rises up against its exploiters and creates a communist utopia.

A second reason is the power of his personality. Marx was in many ways an awful human being. He spent his life sponging off Friedrich Engels. He was such an inveterate racist, including about his own group, the Jews, that even in the 1910s, when tolerance for such prejudices was higher, the editors of his letters felt obliged to censor them. He got his maid pregnant and dispatched the child to foster parents. Mikhail Bakunin described him as "ambitious and vain, quarrelsome, intolerant and absolute…vengeful to the point of madness".

But combine egomania with genius and you have a formidable force. He believed absolutely that he was right; that he had discovered a key to history that had eluded earlier philosophers. He insisted on promoting his beliefs whatever obstacles fate (or the authorities) put in his way. His notion of happiness was "to fight"; his concept of misery was "to submit", a trait he shared with Friedrich Nietzsche.

The third reason is a paradox: the very failure of his ideas to change the world for the better is ensuring them a new lease of life. After Marx's death in 1883 his followers—particularly Engels—worked hard to turn his theories into a closed system. The pursuit of purity involved vicious factional fights as "real" Marxists drove out renegades, revisionists and heretics. It eventually led to the monstrosity of Marxism-Leninism, with its pretensions to infallibility ("scientific socialism"), its delight in obfuscation ("dialectical materialism") and its cult of personality (those giant statues of Marx and Lenin).

The collapse of this petrified orthodoxy has revealed that Marx was a much more interesting man than his interpreters have implied. His grand certainties were a response to grand doubts. His sweeping theories were the result of endless reversals. Toward the end of his life he questioned many of his central convictions. He worried that he might have been wrong about the tendency of the rate of profit to fall. He puzzled over the fact that, far from immiserating the poor, Victorian England was providing them with growing prosperity.

The chief reason for the continuing interest in Marx, however, is that his ideas are more relevant than they have been for decades. The post-war consensus that shifted power from capital to labour and produced a "great compression" in living standards is fading. Globalisation and the rise of a virtual economy are producing a version of capitalism that once more seems to be out of control. The backwards flow of power from labour to capital is finally beginning to produce a popular—and often populist—reaction. No wonder the most successful economics book of recent years, Thomas Piketty's "Capital in the Twenty-First Century", echoes the title of Marx's most important work and his preoccupation with inequality.

The prophet of Davos

Marx argued that capitalism is in essence a system of rent-seeking: rather than creating wealth from nothing, as they like to imagine, capitalists are in the business of expropriating the wealth of others. Marx was wrong about capitalism in the raw: great entrepreneurs do amass fortunes by dreaming up new products or new ways of organising production. But he had a point about capitalism in its bureaucratic form. A depressing number of today's bosses are corporate bureaucrats rather than wealth-creators, who use convenient formulae to make sure their salaries go ever upwards. They work hand in glove with a growing crowd of other rent-seekers, such as management consultants (who dream up new excuses for rent-seeking), professional board members (who get where they are by not rocking the boat) and retired politicians (who spend their twilight years sponging off firms they once regulated).

Capitalism, Marx maintained, is by its nature a global system: "It must nestle everywhere, settle everywhere, establish connections everywhere." That is as true today as it was in the Victorian era. The two most striking developments of the past 30 years are the progressive dismantling of barriers to the free movement of the factors of production—goods, capital and to some extent people—and the rise of the emerging world. Global firms plant their flags wherever it is most convenient. Borderless CEOs shuttle from one country to another in pursuit of efficiencies. The World Economic Forum's annual jamboree in Davos, Switzerland, might well be retitled "Marx was right".

He thought capitalism had a tendency towards monopoly, as successful capitalists drive their weaker rivals out of business in a prelude to extracting monopoly rents. Again this seems to be a reasonable description of the commercial world that is being shaped by globalisation and the internet. The world's biggest companies are not only getting bigger in absolute terms but are also turning huge numbers of smaller companies into mere appendages. New-economy behemoths are exercising a market dominance not seen since America's robber barons. Facebook and Google suck up two-thirds of America's online ad revenues. Amazon controls more than 40% of the country's booming online-shopping market. In some countries Google processes over 90% of web searches. Not only is the medium the message but the platform is also the market.

In Marx's view capitalism yielded an army of casual labourers who existed from one job to the other. During the long post-war boom this seemed like a nonsense. Far from having nothing to lose but their chains, the workers of the world—at least the rich world—had secure jobs, houses in the suburbs and a cornucopia of possessions. Marxists such as Herbert Marcuse were forced to denounce capitalism on the grounds that it produced too much wealth for the workers rather than too little.

Yet once again Marx's argument is gaining urgency. The gig economy is assembling a reserve force of atomised labourers who wait to be summoned, via electronic foremen, to deliver people's food, clean their houses or act as their chauffeurs. In Britain house prices are so high that people under 45 have little hope of buying them. Most American workers say they have just a few hundred dollars in the bank. Marx's proletariat is being reborn as the precariat.

Still, the rehabilitation ought not to go too far. Marx's errors far outnumbered his insights. His insistence that capitalism drives workers' living standards to subsistence level is absurd. The genius of capitalism is that it relentlessly reduces the price of regular consumer items: today's workers have easy access to goods once considered the luxuries of monarchs. The World Bank calculates that the number of people in "extreme poverty" has declined from 1.85bn in 1990 to 767m in 2013, a figure that puts the regrettable stagnation of living standards for Western workers in perspective. Marx's vision of a post-capitalist future is both banal and dangerous: banal because it presents a picture of people essentially loafing about (hunting in the morning, fishing in the afternoon, raising cattle in the evening and criticising after dinner); dangerous because it provides a licence for the self-anointed vanguard to impose its vision on the masses.

Marx's greatest failure, however, was that he underestimated the power of reform—the ability of people to solve the evident problems of capitalism through rational discussion and compromise. He believed history was a chariot thundering to a predetermined end and that the best that the charioteers can do is hang on. Liberal reformers, including his near contemporary William Gladstone, have repeatedly proved him wrong. They have not only saved capitalism from itself by introducing far-reaching reforms but have done so through the power of persuasion. The "superstructure" has triumphed over the "base", "parliamentary cretinism" over the "dictatorship of the proletariat".

Nothing but their chains

The great theme of history in the advanced world since Marx's death has been reform rather than revolution. Enlightened politicians extended the franchise so working-class people had a stake in the political system. They renewed the regulatory system so that great economic concentrations were broken up or regulated. They reformed economic management so economic cycles could be smoothed and panics contained. The only countries where Marx's ideas took hold were backward autocracies such as Russia and China.

Today's great question is whether those achievements can be repeated. The backlash against capitalism is mounting—if more often in the form of populist anger than of proletarian solidarity. So far liberal reformers are proving sadly inferior to their predecessors in terms of both their grasp of the crisis and their ability to generate solutions. They should use the 200th anniversary of Marx's birth to reacquaint themselves with the great man—not only to understand the serious faults that he brilliantly identified in the system, but to remind themselves of the disaster that awaits if they fail to confront them.

 -- via my feedly newsfeed

Links (8/3/18) [feedly]

Wednesday, August 1, 2018

Carl Davidson: Strategic Thinking on the U.S. Six Party System

You know its time to rethink theoretical concepts (again), when an article provokes your own thinking in a way that starts out as critical, but quickly becomes self-critical! I think there can be better, simpler and more consumable frameworks than Carl's, but his youthful 'retirement' shines here!



image

Congressional Progressive Caucus presenting its platform

"If you know the enemy and know yourself, your victory will not stand in doubt; if you know Heaven and know Earth, you may make your victory complete." 
–Sun Tzu, The Art of War

By Carl Davidson
Keep On Keepin' On

Successful strategic thinking starts with gaining knowledge, particular gaining adequate knowledge of the big picture, of all the political and economic forces involved (Earth) and what they are thinking, about themselves and others, at any given time. (Heaven). It's not a one-shot deal. Since both Heaven and Earth are always changing, strategic thinking must always be kept up to date, reassessed and revised.

To make a political assessment of the forces commanded by the U.S. bourgeoisie and its subaltern allies and strata, it helps to make an examination of Congress, the White House and other Beltway institutions, as well as voting trends and others political and cultural among the masses. And to get an accurate estimation, we must often tear away, set aside or bracket misleading labels and frames, as well as assess varying economic resources and voting results. We want to illuminate an intentionally obfuscated landscape, like when a flash of lightning at night does away with shadows and renders the landscape in sharp relief.

The primary conventional wisdom we want to dissect here is that the U.S. has a two-party system.  First, the nature of political parties in the US today is rather unique; they are not parties in any European parliamentary sense, where members are bound to a program or platform with some degree of discipline, and mass party organizations exist at the base. Second, the Republicans and the Democrats in the US are largely empty shells locally, consisting mainly of incumbents and staffers, and their retained lawyers, fundraisers and media consultants. There is some variation from state to state–state committeemen and women will pass resolutions and certify ballot status and positions, but there's not much of a mass character save for an occasional campaign rally. Third, at the Congressional level the two-party structure, to some degree, still allows for dividing the spoils of committee assignments, but even these are often warped by other considerations.

A few also like to argue that the US has only one party, a capitalist party, with two wings, the bad and the worse. But this is reductionist to a fault, and doesn't tell you much other than that we live in a capitalist society, which is rather trivial.

Some also hold out hope for a 'third party' that is noncapitalist. But given the 'winner take all' rules in most elections, along with the amount of money and resources required to mount credible campaigns, these are long shots, save for periods of crisis and upheaval, like the period just before the U.S Civil War, where the Whigs imploded, the Liberty Party had a role, and a new 'First Party' formed, the GOP. Another period worth a deeper look is 1944-48, when the rising forces of the Cold War and Southern racism led to a four-way race in 1948 between the Dixiecrats (Strom Thurmond), the Democrats (Harry Truman), the GOP (Thomas Dewey) and the Progressive Party (Henry Wallace).

Our Six-Party System

But today, we'll do better to get a more accurate picture of our adversaries if we set aside the labels of 'two-party system', 'Democrats' and 'Republicans' and the other nuances mentioned above.  Instead, I'll offer an alternative working hypothesis, that we live under a six-party system with two labels, and that this will give us a closer and more realistic view of the relation and balance of forces with which we have to deal. But even here, it's important to note that we are discussing 'parties' as clusters of colluding and contending blocs of interests, economic views and social coalitions, not unified and disciplined ideological formations strictly bound to a platform. The six 'parties' described here below, however, do come closer to these kinds of constructs than the larger 'two labels' they operate under.

So who are they?

The Tea Party. So far, only the most far right group has been given the label 'party' in the mass media, even though it operates as a faction within the GOP. It generally represents anti-globalist nationalism with a prominence given to the 'Austrian School' economics of classical liberalism and, in some cases, the self-interest philosophy of Ayn Rand. It also merges with paleo-conservative traditionalists, which serves as a cover for defending white and male privilege and armed militia groups. It appeals to about 10-20 percent of the electorate, with greater support in the South and West. It is currently locked in a fierce factional struggle with the other wing of the GOP. While a minority in the House overall, they dominate the GOP House Caucus, and thus, as reported widely on 24-hour news cycles, they can and do block many bills from coming to the floor. Tea Party incumbents have been aided in gaining and retaining their seats by GOP-led redistricting on the level of the states they control, breaking up districts electing Democrats and forming new one with more homogenous rightwing majorities. This was begun by Paul Weyrich of the 'New Right' under Reagan, and continues to this day

The Republican Multinationalists. These are the neoliberal moneybags of the GOP (and the neoconservative subset termed 'The War Party' by Pat Buchanan and Ron Paul from the right)-the Bushes, Cheney, Karl Rove, the Koch brothers and others with fortunes rooted in petroleum, defense industries and other US businesses with global reach. Their neoliberal economics became hegemonic with Reagan's ascendancy via the anti-Black and anti-feminist 'Southern Strategy' alliance with the forces that later came to make up the Tea Party right. The Koch brother's money also helped form ALEC, the American Legislative Exchange Council, thus allowing business lobbyists to write uniform reactionary legislation, mainly on the state level, across the country. Despite statewide gains, the GOP label's current dilemma is that the Tea Party's more inane, backward and proto-fascist views on social and cultural issues is causing the GOP tickets to lose national elections, deadlock the Congress and strain the alliance. On the other hand, if the 'Country Club' Republicans dump the Tea Party, the GOP itself may implode

The Blue Dogs. This caucus in the Democratic Party is tied to 'Red State' mass voting bases-the military industrial workers, and the Southern and Appalachian regions. They are neo-Keynesian on military matters, but neoliberal on everything else. Their 'party' frequently sides with the GOP in Congressional voting. The Blue Dog Coalition has recently shrunk from 27 to 14 members, often having paved the way to self-defeat by backhandedly encouraging GOP victories in their districts by attacking Obama and other Democrats.

The 'Third Way' New Democrats. This 'party' of the center right is mainly the U.S. electoral arm of global and finance capital, with the Clintons and Rahm Emanuel as the better known public faces. Formed to break with 'economic populism' of the old FDR coalition, and assert a variety of globalist 'free trade' measures and the gutting of Glass-Steagall banking regulations, this new post-Reagan-Mondale grouping decided to put distance between itself and traditional labor allies. While neo-Keynesian on most matters, it also 'triangulates' with neoliberal positions. Started as the Democratic Leader Council and the 'New Democrat Coaltions. John Kerry is a member of the DLC but President Obama has claimed 'no direct connection,' even though the grouping lists Obama as one of its 'rising stars' The DLC/'New Democrats' essentially speaks for some of the more powerful elements of finance capital under the 'Democratic' label.. It is the dominant view among the Senate Democratic majority.

Old New Dealers.  This 'party' is represented by unofficial wealthy Democratic groups like Americans Coming Together, plus the AFL-CIO's Committee on Political Education and others. They take a Keynesian approach to economic matters, and are often critical of finance capital and the trade deals promoted by the globalists. They are also wary of deep defense cuts that would cause layoffs among their membership base. They maintain, however, strong alliances with some civil rights, women's and environmental groups. Their main value to Democratic tickets is their independent get-out-the-vote operations, which can be decisive in many races. They also work closely with the Alliance for American Manufacturing, a business-based anti-free trade lobby that works with labor.

PDA/Congressional Progressive Caucus. While the largest single caucus in the House, the CPC 'party' is still relatively small, representing 80 out of 435 votes. Its policy views are Keynesian and, in some cases, social-democratic as well.  Its recent 'Back-to-Work Budget' serves as an excellent economic platform for a popular front against finance capital. It also largely overlaps with the Hispanic and Black Caucuses, and is the most multinational 'Rainbow' grouping in the Congress. It also includes Senator Bernie Sanders, the sole socialist in Congress, who was an initial founder of the CPC. It has opposed the wars in Iraq and Afghanistan, under the Progressive Democrats of America banners of 'Healthcare Not Warfare' and 'Windmills Not Weapons.' It has recently gained some direct union support from the militant National Nurses United and the Communications Workers of America. Many, but not all, CPC members are also members of Progressive Democrats of America, an independent PAC dubbed the 'Tom Hayden/ Dennis Kucinich' Democrats at the time of their founding in 2004. The Congressional Progressive Caucus is the closest political group the US has that would parallel some of the 'United Left' socialist and social democratic groups in European countries

What Does It All Mean?

With this brief descriptive and analytical mapping of the upper crust of American politics, many things begin to fall in place. Romney, a very wealthy representative of the Multinational GOP group, defeated all the Tea Party candidates in the primaries, and consequently, could never convince the Tea Party he was one of them, simply because he wasn't. This led to a drop in GOP voter enthusiasm that couldn't even be overcome with 'dog whistle' appeals to racism and revanchism in the campaigns.

The Obama administration, on the other hand, at its core, represents an alliance between the DLC 'Third Way' and the Old New Dealers, while also pulling along the PDA/Congressional Progressive Caucus as energetic but critical secondary allies. The Blue Dogs found themselves out in the cold from the wider Obama coalition, and shrank accordingly. Barbara Lee of PDA and the CPC, moving from a minority of one on Afghanistan at the start of the invasion, finally got a majority of House Democrats to oppose and push Obama on the wars, but to little avail in any immediate sense, being thwarted by both the DLC and the Multinational GOP.

This 'big picture' also reveals much about the current budget debates, which are shown to be three-sided-the extreme austerity neoliberalism of the Tea Party Ryan budget, the 'austerity lite' budget of the DLC-dominated Senate Democrats, and the left Keynesian progressive 'Back to Work' budget of the Congressional Progressive Caucus. The 'Old New Dealers' were caught in the middle, with only 20 or so coming over on the Black Caucus version of the 'Back to Work' budget, which was still in the minority.

While all this shows why and how Obama was able to pull together a majority electoral coalition, it also reveals why he is still thwarted on pulling together an effective governing coalition. Likewise, it shows how the Tea Party, with only 10-20 percent of the electorate, is able to water down or completely bloc common-sense measures on gun control with 70-90 percent support among the general population.

Finally, the fact that there is only one avowed socialist in Congress tells us something about our own position in the overall balance of forces. Socialist candidates are only able to draw 2% to 5% of the votes in this period, save for Sanders, and we all know that Vermont has some unique features that made it possible, not that Sanders didn't do yeoman work in pulling together a progressive majority that elected him.

In summary, here are a few things to keep in mind.  If you decide to intervene in electoral work to build independent working class grassroots organizations, you don't go 'inside the Democratic Party'. There's not much of an 'inside' there anymore. What you do instead is join or work with one of the two factions/'parties' that are left of center.  Your aim is to make either of these stronger, preferably the PDA/Congressional Progressive Caucus. Then to shift the overall balance of forces, your task is to defeat the Tea Party, the Multinational GOP, and the Blue Dogs. At present, not a single piece of progressive legislation is going to get passed without driving a wedge between the two parties under the GOP label and weakening both of them.

We have to keep in mind, however, that 'shifting the balance of forces' is mainly an indirect and somewhat ephemeral gain. It does 'open up space', but for what? Progressive initiatives matter for sure, but much more is required strategically. We are interested in pushing the popular front vs. finance capital to its limits, and within that effort, developing a socialist bloc. If that comes to scale, the 'Democratic Party Tent' is likely to collapse and implode, given the sharper class contractions and other fault lines that lie within it, much as the Whigs did in the 19th Century. That demands an ability to regroup all the progressive forces into a new 'First Party' alliance able to contend for power

An old classic formula summing up the strategic thinking of the united front and popular front is appropriate here: 'Unite and develop the progressive forces, win over the middle forces, isolate and divide the backward forces, then crush our adversaries one by one.' In short, we have to have a policy and set of tactics for each one of these elements, as well as a strategy for dealing with them overall. Finally, a note of warning from the futurist Alvin Toffler: 'If you don't have a strategy, you're part of someone else's strategy.'



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John Case
Harpers Ferry, WV
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