The politics of private and government debt provide an occasion to contest both conventional economic theory and related moral narratives. The old story is that a profligate working class and indulgent governments spent themselves into deserved ruin. Yet as The New York Times reports, the wealthy are now defaulting in dis-proportionate numbers on investment housing loans.
But as Robert Reich points out in his blog, working-class Americans “went into such deep debt … because their wages didn’t keep up. The median wage … dropped between 2001 and 2007. … [T]he only way … Americans could keep spending at the rate necessary to keep themselves — and the economy — going was to bor-row, especially against the value of their homes.”
The same authorities that now preach austerity egged them on. Reich adds: “But that borrowing [and the spending it sustained] ended when the housing bubble burst.” Only government can fill the huge
void left by ravaged consumers.
Contemporary deficit mania has a curious, occasionally quarrelsome parentage. It includes fear of full employment, disdain for the poor and leisure, dreams of rags to riches for those who combine self-denial and luck, and a blind — albeit selectively applied — faith in markets.
Some wealthy have reasons to fear full employment. Even more than redistributive taxation, full employment narrowed gaps between rich and poor substantially during World War II, the late ’60s and the final years of the Clinton administration. Full employment and steady productivity growth funded Social Security, private pensions and gradual reductions in working hours, so crucial to family and to wider ranging interests.
The very success of full employment has also been its undoing. In the late ’60s, Lyndon Johnson’s guns-and-butter economics gave us full employment. Corporate pricing power, workplace and racial conflict and productivity problems, however, drove inflation higher. OPEC and automatic cost of living adjustments embedded inflation.
Business and government highlighted inflation and social turmoil to force Jimmy Carter to appoint a conservative banker, Paul Volcker, as Fed chairman. He drove interest rates and unemployment sky high.
These problems might have been addressed — and often were in Europe — through wage and price guidelines, labor-management negotiation of codetermination or profit sharing schemes. Except in war and briefly during Nixon’s administration, however, such an approach has been rejected as inefficient and intrusive by politi-cians.
Ever since the Carter years, tales of ’60s turmoil and ’70s stagflation have been trotted out to blunt enthusiasm for any government initiative. The inefficiency of curbing inflation through chronic working-class layoffs engineered by government is seldom considered. For three decades, unemployment coupled with assaults on la-bor have deprived workers of the rewards for their increased productivity.
The private debt economy’s unprecedented crash gave President Barack Obama a brief window to redress these economic and moral narratives. Once his feeble stimulus disappointed, however, it became easy to revert to familiar narratives.
Pundits celebrated a return to government and personal austerity, scapegoated African Americans and immigrants, and magnified the dream of rags to riches. That cultural attitudes play as much a role in this debate as narrow economics shows in the willingness of “deficit hawks” to save elite bankers and subsidize our parasitic private health insurance industry.
Congress also seems reluctant to consider inexpensive — albeit unconventional — ways to reduce unemployment. A German work-sharing program extended tax credits (less costly than unemployment compensation) to firms that shorten worker hours while retaining wage and salary levels. It held unemployment constant even with falling GNP.
Much polling data suggests Americans are ambivalent about the public debt. Depending on the question, some suggest jobs are more important than the deficit. Polls and economic arguments probably won’t by themselves carry the debate.
Rather than reflexively blame economic troubles on individual moral failings, the U.S. has also periodically demonstrated deeply democratic moral commitments. In fights for unions, jobs, voter rights, and shorter
hours, the Catholic social gospel, the civil rights and labor movements, and various strands of secular liberalism have collaborated. In their most ethical moments, they were open to those who grounded their activism on differing moral philosophies and were attuned to newly emerging rights claims. They questioned work without end, challenged gaping inequality, and broadened democratic participation.
These movements suggest the role that coalitions across major differences have had in improving not only economic circumstances but also the quality of citizen lives.
John Buell is a political economist who lives in Southwest Harbor. Readers may reach him at firstname.lastname@example.org.