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June 14 2011

The Swamp of Washington and the Morass of the Economy

Washington was built on a swamp. In the summer, temperatures can reach over 100 degrees — as they did over the last few days when I made the rounds of Washington Democrats, repeatedly asking why no bold jobs plan is emerging. 

Here’s a sample of their responses:

“Dead in the water. We’ll be lucky if we get votes to raise the debt ceiling without major spending cuts this year and next.”

“Are you kidding? It’s all budget deficit, budget deficit, budget deficit. Nobody’s thinking about anything else.”

“Republicans beat us up so bad over the first stimulus there’s no way we’re gonna try for a second.”

“We got them [Republicans] cornered on Medicare. Now they want to change the subject to jobs. Forget it.”

“No need. We’ll see job growth in the second half of the year.”

“The President doesn’t want to put anything on the table he can’t get through Congress.”

And so it went. Not a shred of urgency.

This morning I was on ABC’s “This Week,” debating jobs and the economy with Republican Senator Richard Shelby of Alabama. Shelby restated the standard Republican playbook of spending cuts and tax cuts (except for one instant when he inadvertently conceded America emerged from the Great Depression only when government spent big time mobilizing the nation for World War II).

But what struck me most was the similarity between Shelby’s overall attitude and that of the Democrats I talked with — a kind of shrug of the shoulders, a sense that it’s really not all that bad out there, and that nothing can be done anyway. (In the green room, before going on, Shelby told me employment in northern Alabama was actually fairly good and the problem was near the coast.)

The recovery is stalling across the nation yet in the Washington swamp it’s business as usual. 

Americans are scared, with reason. We’re in a vicious cycle in which lower wages and net job losses and high debt are causing consumers to cut their spending — which is causing businesses to cut back on hiring and reduce pay. There’s no way out of this morass without bold leadership from Washington to rekindle consumer demand. 

If the Democrats remain silent, the vacuum will be filled by the Republican snake oil of federal spending cuts and cut taxes on big corporations and the wealthy. Democrats — starting with the President — must have the courage and conviction to tell the nation the recovery is stalling, and what must be done. 

Reposted from02myEcon-01 02myEcon-01

Chris Dillow: The Importance of Class

What do you think of Chris Dillow's ideas on class, power, and ideology?

Class, power & ideology, Stumbling and Mumbling: “Nothing makes sense without class” says Owen Jones. He’s right, if we understand “class“ in its Marxist sense.

To Marx - though the idea was implicit in other classical economists such as Ricardo - class was not about lifestyle, but about one’s relationship to the economy. If your income comes from wages, you’re working class. If it comes from capital, you’re a capitalist.

You might reply that, by this criterion, we are almost all working class now. True. Even people who think of themselves as “middle class” are in many cases only a P45 away from poverty. They are objectively working class even if they are not subjectively so.

In this sense, Marx was right to predict that capitalism would produce an increase in the numbers of the working class. Remember, 200 years ago the yeoman farmer, the master craftsman, or the comfortably off idle wife were all significant social roles. They are, I suspect, less significant now.

What’s more, class in this sense is correlated with power: capitalists have it, workers don‘t*. This is because economic power flows to scarce resources and capital is scarcer than labor.

This perspective yields answers to three key questions which cannot be answered without the concepts of class and power:

  • why has inequality increased since the 1980s? It’s because a mix of technical change and the emergence of a mass supply of cheap labor from China and India have increased the power of capital relative to labor.
  • why is the pain of deficit reduction falling upon public sector workers and benefit claimants rather than the “rich”? It’s because the “rich” have power and workers and benefit claimants don’t.
  • why did the state bail out bankers but not ordinary workers who lost their jobs? It’s because bankers have power - though the precise source of this is another question.

This raises the question. If class is so central to an understanding of the economy, why is it so little discussed?

The answer lies in another of Marx’s insights - that false consciousness prevents people from seeing how capitalist power operates. In this sense, the cognitive biases research program throws up some new theories that vindicate Marx. For example:

  • the illusion of control causes people to over-estimate the chances of them escaping the working class through their own efforts, and so under-estimate the importance of collective class action .
  • the in-group heterogeneity bias (which is the flipside of the out-group homogeneity bias) causes people in similar economic positions to exaggerate the differences between themselves and so fail to see their common class position.
  • the just world effect causes people to think that victims are to blame for their fate - so, for example, the poor are thought to be stupid and feckless even if the cause of their poverty lies elsewhere.
  • the optimism bias leads people to think they will succeed if only they work hard enough, and so blinds them to the possibility that their class position will prevent them getting the full fruits of their labour.

And here, I part company with Owen. We cannot have a reasonable debate about class, because cognitive biases such as these are ubiquitous. Successful power structures persist in large part because the way in which power is exercised is hidden from us. The importance of class and the lack of discussion of it are two sides of the same fact.

* I’m simplifying horribly here. Many workers - most obviously the bosses who control firms owned by external shareholders - do have power. I’ll leave this for another time, as I don‘t think it much affects the main thrust of my point.

Reposted from02myEcon-01 02myEcon-01
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