Being lectured about the problem by those who created the problem

There are many examples of high profile players in the political arena trying to revise history and reinvent themselves to suit the new climate they are operating in. Tony Blair is a notable example in recent months where he sought to influence the upcoming British election by casting aspersions on the current Labour Party leadership. His past record is so abysmal that anyone in their right mind would just go away and stay silent. But this sort of person – the revisionist reinventers – have a thick hide and a sense of entitlement that most of us couldn’t imagine. I read an article in the American Prospect Magazine last week (June 1, 2017) – The Democrats’ ‘Working-Class Problem’ – written by Stanley B. Greenberg, an American pollster who “works with center-left political parties in the United States and abroad” and so claims to have insights into why people vote the way they do. This was a classic example of being lectured about a problem when the lecturer is himself part of the problem but, seemingly, fails to see that.

Greenberg’s contention is that Hillary Clinton lost the Presidential election in November 2016 not because she failed to connect with “white working-class voters (those without a four-year degree)”, which is the popular narrative floating around Democrat Party analysts, but because she failed to connect with the “working-class” per se.

He points out that the Democrats were abandoned by:

… all working-class voters across the electorate, including the Rising American Electorate of minorities, unmarried women, and millennials.

But, there is hope apparently.

He claims that:

Democrats have the opportunity to consolidate, engage, and perform much better with all of working America. I say “opportunity” advisedly, because better performance requires Democrats to embrace dramatically bolder economic policies and to attack a political economy that works for the rich, big corporations, and the cultural elites, but not for average Americans.

He thinks that “Bernie Sanders … attack on big money was much closer to hitting the mark than was Hillary Clinton’s message”.

The “working-class Americans” abandoned Clinton because of:

President Obama’s insistence on heralding economic progress and the bailout of the irresponsible elites, while ordinary people’s incomes crashed and they continued to struggle financially. They also pulled back because of the Democrats’ seeming embrace of multinational trade agreements that have cost American jobs … Instinctively and not surprisingly, the Democrats embraced the liberal values of America’s dynamic and best-educated metropolitan areas, seeming not to respect the values or economic stress of older voters in small-town and rural America. Finally, the Democrats also missed the economic stress and social problems in the cities themselves and in working-class suburbs.

That analysis is probably sound and is summarised by Greenberg’s contention that “The core problem is President Obama’s handling of the economy.”

This including bailing out the banksters (“government signed off on the executive bonuses for TARP recipient”) instead of locking them up (“no executive was punished for criminal malfeasance”).

So despite Obama’s narrative that his Administration had saved the US from something worse and protected jobs, the US people saw him protecting and rewarding those who caused the problem in the first place.

He claims this was a “fatal brew for Democrats”.

In addition, he conjects that “Trade is a key issue that has separated Democrats from many working-class voters” – referring to Obama’s obsession with pushing the TPP through as part of the ‘free market’ narrative that has dominated Democratic politics since Bill Clinton’s days.

Further, Greenberg writes that “Immigration is the next critical element of the Democrats’ working-class challenge” because a majority of Americans believe their jobs are being threatened by newcomers and “half of Democrats believe granting legal status ‘would be a drain on government services.'”

Finally, Greenberg wrote:

The final dynamic distancing Democrats from working-class America is the party’s alignment with the economically and culturally ascendant in America’s metropolitan centers, where Democrats win office and govern.

He claims the Democrats focus on “liberal” values and a “moral frame that values equality, equal rights, and fairness” failed to relate with the reality of working-class America, where people struggle “with low-wage jobs and sky-high costs of living, where poverty and segregation stubbornly persist, where millions of children are raised by single parents, and where inequality is most stark”.

The focus on identity politics at the expense of traditional class conflict is part of this Democrat ‘ignorance’. This is a theme we focused on in our upcoming book (with Thomas Fazi – to be published late September by Pluto Press, London).

Waylaid by post-modernist and post-structuralist theories, left intellectuals slowly abandoned Marxian class categories to focus, instead, on elements of political power and the use of language and narratives as a way of gleaning meaning.

This also defined new arenas of political struggle that were diametrically opposed to those defined by Marx.

Over the past three decades, the Left focus on ‘capitalism’ has given way to a focus on issues such as racism, gender, homophobia, multiculturalism, etc.

Marginality is no longer described in terms of class but rather in terms of identity. The struggle against the illegitimate hegemony of the capitalist class has given way to the struggles of a variety of (more or less) oppressed and marginalised groups and minorities: women, blacks, LGBTs, etc. As a result, Marxian class struggle has ceased to be seen as the path to liberation.

In this new post-modernist world, only categories that transcend Marxian class boundaries are considered meaningful by so-called progressive activists and politicians.

Moreover, the institutions that evolved to defend workers against capital – such as trade unions and social-democratic political parties – have become subjugated to these non-class struggle foci.

What has emerged in practically all Western countries as a result, as Nancy Fraser notes, is a perverse political alignment between “mainstream currents of new social movements (feminism, anti-racism, multiculturalism, and LGBTQ rights), on the one side, and high-end “symbolic” and service-based business sectors (Wall Street, Silicon Valley, and Hollywood), on the other”.

The result is a progressive neoliberalism “that mixe[s] together truncated ideals of emancipation and lethal forms of financialization”, with the former unwittingly lending their charisma to the latter.

The working class has fragmented into factions where the well educated, highly mobile, highly skilled, socially progressive cosmopolitan urbanites no longer have any common purpose with the lower skilled and less educated peripherals who rarely work abroad and face competition for jobs from immigrants.

The mainstream political Left has aligned itself mostly with the former cohort and, in part, helps us understand why the right-wing revolt currently engulfing the West is gathering steam.

The problem is that the more the working classes turn to right-wing populism and nationalism, the more the intellectual-cultural Left doubles down on its liberal-cosmopolitan fantasies, further radicalising the ethnocentrism of the proletariat.

This is what Greenberg is referring to.

He claims that, rather than attacking Trump personally (which “barely moved voters”), the Democrats should have stuck to providing:

… a compelling economic message demanding “an economy for everyone, not just the rich and well-connected,” attacking trickle-down tax cuts “for the richest and special breaks for corporations,” and promising an agenda to “rebuild the middle class” moved unmarried women (including white unmarried women), millennials, and white working-class women.

One might agree with all of that and I, for one, have been arguing that same line for years, as one social democratic political after another (and the demise can be traced back to the British Labour Party in Wilson’s second term in the 1970s and then Francois Mitterand’s disastrous ‘austerity turn’ in 1983), have become neo-liberal in outlook and practice.

Tony Blair’s ‘New Labour’ consolidated that trend in Britain. Bill Clinton in the US. Lange in New Zealand. Hawke and Keating in Australia. And the list goes on.

Now Socialist parties become the vehicles for inflicting devastating austerity on their nations while in office, damaging the very people they claim to represent (for example, the disastrous Syriza in Greece).

Social democratic governments have become tools of the elites rather than defenders of the poor. No wonder, the poor finally abandon them (for example, the electoral wipeout of the Dutch PvdA or the French Socialists in the recent elections).

But the other interesting point, and this is what the blog is really about, is how key players that pressured these social democratic parties to go down the neo-liberal road, are among those lecturing us about the damage that strategy has resulted in.

It is sort of like “there were no Nazis in Germany” at the end of the Second World War in Europe in May 1945.

For example, on July 30, 2011, Stanley B. Greenberg wrote a New York Times Op Ed – Why Voters Tune Out Democrats – that was representative of his view on this matter.

Greenberg opened that article saying:

BARACK OBAMA can’t catch a break from the American public on the economy, even though he prevented a depression and saved global capitalism.

Greenberg’s polling experience goes back to his role in the 1992 Clinton presidential campaign.

While this Op Ed rehearses some of the same arguments as the article in the American Prospect – for example, “Government rushes to help the irresponsible and does little for the responsible. Wall Street lobbyists govern, not Main Street voters” – it also rehearses many of the worn out lines that neo-liberals have promoted to ensure the government “does little for the responsible”.

It talks about how “soaring spending and crippling debt make America ever weaker, unable to meet its basic obligations to educate and protect its citizens”.

It claims that the Democrats have to “change government in fundamental ways – starting with welfare” and references Clinton’s presidential campaign, which resulted, upon election, in disastrous attacks on the most disadvantaged Americans under the guise of ‘welfare reform’.

Greenberg claimed that if the Democrats and progressives “want to win the trust of the public” it must “generate new revenue” and, wait for it:

… have to be serious about reducing the country’s long-term deficits … The deficit matters to people and has real meaning and consequences. A government that spends and borrows without the kind of limits that would govern an ordinary family is going to have big troubles. Voters I’ve studied say things like, if “we keep spending like this, we’re going to be bankrupt and there won’t be anything for anybody,” especially “our children.” The final straw is the government’s decision to continue spending and to put the country deeper into debt and more dependent on China.

President Obama understood this essential lesson when he decided to unveil his own plan for long-term deficit reduction … progressives should embrace the liberal think tanks’ bold deficit plans, which would raise taxes more and defend progressive priorities.

That would be in the spirit of President Clinton’s first economic plan …

There you have it. The full neo-liberal capture of progressive political movements.

And a total failure to connect the dots.

1. The erroneous household budget analogy

The household budget analogy is false. Households use the currency and must finance their spending.

A sovereign government such as the US issues the currency and must spend first before it can subsequently tax or borrow. A currency-issuing government can never be revenue-constrained in a technical sense and can sustain deficits indefinitely without solvency risk.

Our own personal budget experience generates no knowledge relevant to consideration of government matters.

An alternative narrative must highlight the special characteristics of the government’s currency monopoly, which doesn’t include ‘budget repair’ especially when living conditions, public infrastructure, wages growth, and labour underutilisation rates all suggest there is a lack of government spending and deficits are too low relative to the non-government spending and saving preferences.

The failure to connect the dots is that people in the US (and elsewhere) are being damaged by the lack of spending but then are lured into believing that ‘deficit reduction’ is the path forward. Greenberg is one of many who have generated this cognitive dissonance.

2. Deficit matters confusion

Deficits do matter but not for the reasons that Greenberg and his ilk claim. The financial size of the deficit is irrelevant in itself.

Fiscal deficits are neither good nor bad and, in accounting terms, equal the non-government surplus.

In behavioural terms, they are required when spending intentions of the non-government sector are insufficient to ensure full utilisation of available productive resources.

The context matters because the fiscal outcome is a vehicle to achieving socio-economic goals rather than an end in itself.

Similarly, fiscal surpluses are neither good nor bad and may be harmful in some circumstances.

For a nation with strong net exports, quality public services, and national income levels sufficient to support the private sector’s saving desires, a surplus may be required to contain nominal aggregate demand and avoid inflation.

That is certainly not the case in the US.

There are two problems with using the term ‘fiscal deficit’. First, the fiscal outcome is determined by the state of overall activity and is, largely, beyond the control of government.

If private spending is weak then the deficit will typically rise as tax revenue declines irrespective of what government does. Movements in the fiscal balance are thus ambiguous.

A given fiscal outcome can be signal that the deficit is “good”, if it has arisen as a result of discretionary fiscal policy decisions by government to maintain full employment given the spending and saving decisions of the non-government sector; or “bad”, if it has arisen because non-government spending has fallen and the automatic stabilisers have led to a decline in tax revenue and an increase in unemployment.

When private spending collapses and the deficit rises, the correct response is to increase discretionary net public spending not cut it.

Second, the term has a negative connotation because a deficit signifies a shortfall, which while accurate in an accounting sense, is highly misleading in the context of the positive contribution that a deficit makes to non-government sector net financial wealth.

Government deficits are the sole source of net financial assets for the non-government sector. All transactions between agents in the non-government sector net to zero.

This accounting reality means that if the non-government sector wants to net save in the currency of issue then the government has to be in deficit.

The sectoral balances derived from the national accounts generalise this result and show that the government deficit (surplus) always equals the non-government surplus (deficit).

Fiscal surpluses destroy private wealth by forcing the private sector to liquidate its wealth to get cash and destroy liquidity (debiting reserve accounts), which is deflationary. With an external deficit, fiscal surpluses result in increasing private domestic sector debt levels and cannot represent a sustainable long-term growth strategy.

Ultimately, the decision by the private domestic sector to increase its net saving and reduce its debt levels will interact with the fiscal drag coming from the surpluses and force the economy into recession.

The cyclical component of the government’s fiscal stance will then push the deficit back into a (bad) deficit.

With the US mired in household debt and negative equity, progressives should be promoting the idea the fact that a fiscal deficit allows the non-government sector to save overall and a fiscal surplus destroys non-government wealth should be promoted.

They should also be promoting an understanding that the context in which a particular fiscal outcome occurs is crucial to a reasoned assessment of the appropriateness of the fiscal position.

3. The government will run out of money and the debt will burden our children and their children myth

Neo-liberal politicians, including the captured Democrats, often claim the government will run out of money if it does not curb spending.

They attempt to give this statement authority by appealing to our intuition and experience – that is, they draw on the household budget analogy, and claim that governments, like households, have to live within their means.

This analogy resonates strongly with voters because it easily relatable: we intuitively understand that as individuals, we cannot indefinitely live beyond our means.

A currency-issuing government has no intrinsic financial constraints: government will never run out of money to build a hospital or pay health professionals, but the materials to build the facility and the skilled workers to run it may not be available.

Fiscal space is thus more accurately defined as the available real goods and services available for sale in the currency of issue. These are the ‘means’ available to government to fulfil its socio-economic charter. The currency-issuing government can always purchase whatever is for sale in its own currency.

The ‘run out of money’ myth is also related to the intergenerational (ageing) population claims that pension and health care systems will be unsustainable in the future.

There are no financial constraints on a currency-issuing government providing first-class health care and/or pensions in the future.

The challenge of rising dependency ratios will be whether productivity growth ensures there are adequate real goods and services available to maintain growth in living standards with fewer workers available. These are not financial constraints.

Further, the future generations choose their own tax burdens through the political process. Current government spending on education, health and public infrastructure and policies that promote full employment provide the future generations with the best chance of enjoying a prosperous life.

4. China is bailing out the US government myth

The Chinese government does not issue US dollars. The US government is the sole issuer of the US currency. If the Chinese investors chose to stop buying government bonds, nothing much would happen. They would just have US dollar cash balances in US banks (as a result of trade surpluses) instead of US government bonds.

That is, their wealth portfolio in US currency would be different.

End of story.

The US government doesn’t even need to issue bonds. The Federal Reserve Bank can buy as many bonds as it likes and thus hold yields on the same at whatever level it wants including zero (or negative values).

The US government can always purchase any good and service that is for sale in US dollars. China has nothing at all to do with that capacity.

Conclusion

There are many examples of this syndrome – the ‘I am not to blame’ syndrome in politics. That ‘I knew all along’ syndrome.

The problem for progressive parties is that until they abandon this neo-liberal macroeconomic frame and actively build in voter education on a truly progressive macroeconomics (that is, Modern Monetary Theory) to their campaigning they will be lost in these contradictions.

They want to expand health care, for example, but at the same time they want to constrain their capacity to do so by invoking erroneous fiscal constraints.

They then resort to pathetic – we will ‘tax the rich’ scenarios – which sound good but do nothing about educating the voter about the role of fiscal deficits and the need, in the current US environment, for higher deficits.

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.