Monday, January 21, 2008

Free Market Myths and Other Republican Lies

Here’s the first of two articles from today’s Washington Post which gives lie to the Republican free market, supply side, trickle down and small government, conservative philosophy.

Of course the latest and greatest strategy of the conservative Republicans is to repudiate the Bush administration’s failure by claiming that the administration strayed from its fundamental conservative principles. But that’s not true. After six years in office, with a Republican controlled Congress, there’s nobody to blame for their failure but themselves and their policies. And as we’ll see later, it’s not the first time their ideology has failed the reality test. It’s actually the third such failure.

First, here’s a stunning example of ideology going awry when confronted with facts, evidence and reality. It’s from Fred Hiatt’s column. He is talking about President Bush’s transportation secretary, Mary Peters, and her role in killing government investment in the infrastructure, including the rail to Dulles project.

The next time you are stuck in traffic (and when are you not?), you might take a moment to ponder Mary Peters’ contribution to the fix you are in.

Peters is the Bush administration's transportation secretary, and her main objective seems to be blocking any increase of public contributions to the public infrastructure. The main reason you are sitting in traffic, she believes, is not that the purchasing power of Highway Trust Fund revenue has been dwindling for the past decade, not that population and freight traffic have been soaring with no government response -- but that you are not being asked to pay enough to use the road you are on.

The rigidity of the administration's ideology became clear last week with the culmination of a two-year study of the nation's transportation woes. A bipartisan federal commission came up with a comprehensive, balanced plan for the next 50 years, calling for maintenance and construction, road and rail, public and private funds.
According to Hiatt’s article, nine out of 12 members of this federal commission, including members appointed by former Speaker of the House Dennis Hastert, and former Senate Majority Leader, Bill Frist, supported recommendations to invest in the transportation infrastructure. The only dissenters were the three delegates from the administration including Peters. Here’s how she explained her dissent:
We believe, however, that a failure to properly align supply and demand, not a failure to generate sufficient tax revenues, is the essential policy failure," the Bush dissenters wrote. "When consumer demand determines supply, it will engender funding sufficient to meet the demand."
And here’s Hiatt’s rejoinder:
This is an astonishingly radical view of government's role in transportation. Cast backward, it would suggest that President Dwight D. Eisenhower never should have built the interstate highway system; it should have been left to private companies to build roads wherever tolling could generate a profit, and nowhere else. The result -- an incomplete, disconnected patchwork of highways -- might indeed have suited Peters, given that another of her goals is a reduced federal role in transportation policy. But the country would have been poorer for it.
Yet if you pick up any article written by a conservative columnist, or read any of their blogs, you’d find the same blind faith in free market ideology that Peters holds. Whether it’s the looming recession, the mortgage crisis, the housing crunch, health care, energy, or the stock market, their answer is the same: lower taxes, shrink the government, and let the markets take care of it.

But if the markets could magically solve all our problems, every hard working, well educated American would have gold plated health care coverage, live in a McMansion, commute to work on spacious highways and have a secure pension. Everybody would be a CEO – or at least live like one.

In the 1980s, Ronald Reagan rode to office on a landslide victory and the claim that government was the problem. Turns out that was one more thing he was wrong about.

In fact, it was the anti-regulatory, free market approach that created the mortgage crisis by giving a free hand to subprime lenders who created the housing bubble with too easy credit and bad loans. They also shot the stock market to hell by failing to reign in hedge funds.

It’s the unexamined free market philosophy and the lack of proper government involvement that is the real problem. And, no, that doesn’t mean going to Hugo Chavez style socialism. It means a uniquely American approach which would include public-private partnerships that encourage best practices in business so that companies are strong, profitable, produce safe products, and share the fruits of their profits with employees, who contribute to the corporations’ success. And it would include sensible regulation to control abuses of the system and protect consumers, investors and workers.

That hasn’t happened lately. In fact, as this other article points out, a largely hidden and intractable economic problem has been the long term unemployment of the educated middle class. That’s the problem that has been disguised by artificially low unemployment rates.
An unusually large share of workers have been out a job for more than six months even as overall unemployment has remained low, a little-noted weakness in the labor market that analysts said threatens to intensify the impact of the unfolding economic downturn.

In November, nearly 1.4 million people -- almost one in five of those unemployed -- had been jobless for at least 27 weeks, the juncture when unemployment insurance benefits end for most recipients. That is about twice the level of long-term unemployment before the 2001 recession.

The problem is ensnaring a broader swath of workers than before. Once concentrated among manufacturing workers and those with little work history, education or skills, long-term unemployment is growing most rapidly among white-collar and college-educated workers with long work experience, studies have found, making the problem difficult for policymakers to address even as it grows more urgent.

"What has happened is a polarization of the labor market. It was very strong at the very top and very strong until recently at the bottom," said Lawrence F. Katz, a labor economist at Harvard University. "But in the recent weak recovery, and now recession, demand has been very weak" for jobs in the middle
In many ways, this is a repeat of the economy under Ronald Reagan and the first President Bush. During his campaign for re-election in 1992, President George H. W. Bush kept arguing that the unemployment rate was not high. And it wasn’t, but the employment market was soft and everybody knew that the unemployment statistics weren’t telling the whole story.

Then, like now, the reason the unemployment rate was so low was that unemployment figures only account for those still eligible for unemployment insurance and those still actively looking for work. Many long term unemployed are no longer on the unemployment insurance lines, and they are no longer searching for jobs. Since they are no longer actively seeking employment, they are not counted in the unemployment rate.

In addition, many workers have slipped into less well paid careers and are under employed. They don’t count in these statistics either. Lots of people who proudly tell statisticians that they are self-employed or are consultants are former computer programmers and other technically skilled professionals whose jobs have been exported. In some cases, their new businesses are lawn care services or other personal care service businesses, or they work part time and no longer have health insurance or pensions. They are the hidden casualties of our economy.
The growth in long-term unemployment has occurred even as displaced workers have taken bigger pay cuts to reenter the job market. A 2004 study found that workers who lost a job in 2001 to 2003 took an average pay cut of 17 percent in their new jobs, more than double the average cut of those displaced in the late 1990s.

"When people are losing good jobs these days, they have a very hard time getting back to the type of job they had before," said Andrew Stettner, deputy director of the National Employment Law Project, an advocacy group that presses for more generous unemployment benefits.

While strong corporate profits, low inflation and record manufacturing output characterized the extended recovery that followed the 2001 recession, some economists call that period of expansion a "CEO's recovery." Real wages were mostly flat, poverty ticked upward and an unusual number of people had a hard time finding work -- a fact masked by relatively low overall unemployment rates.
Some of us have long argued that during the best years of our once roaring economy, the high GDP and productivity numbers hid problems for ordinary working people, who largely where by passed and did not benefit by the strong business cycles.

In addition, economists and business experts keep saying that the answer to outsourcing and the shrinking job market is retraining workers for new jobs. But they are never specific about precisely which jobs workers could be retrained for. What we’ve been bleeding are some of our best high tech jobs and many of the people who’ve lost those jobs have already been through retraining one or more times. The retraining mantra is a false hope not borne out by reality either. We simply can’t educate our way out of the softening job market with retraining.

The problem is one-sided free trade and globalization. Don’t let any high flying Republican rhetoric about the glory of the free markets or the bumbling of the government fool you. The real problem is just the reverse of their diagnosis and the real solutions are also the reverse of their prescriptions. Their twelve year reign in the 1980s and its reprise in the 2000s should put a nail in the coffin of their rhetoric. It doesn’t match reality. It never did. Not even back in the 1800s when it was called laissez faire capitalism.

That’s three times they’ve foisted their free trade philosophy on us where it’s failed to produce real results. It’s a failed ideology and nothing more.

It’s time for a government that is willing to invest in the transportation infrastructure, job creation, health care and education so that businesses have educated, healthy workers who can travel to their jobs on good roads. That doesn’t sound like the enemy of either business interests or the the interests of ordinary workers.


Anonymous said...
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AnonymousIsAWoman said...

Note: The comment above, which I deleted, was an advertisement from somebody from a payday loan company.

Two points: 1)I don't accept advertisements on my blog and I'm certainly not going to allow somebody free advertisement by posting a comment with a link to a commercial site; and 2)I do not in any way support the payday loan industry. In fact, I support legislation to regulate them better. So I'm certainly not going to allow somebody to use my site to advertise what I consider to be legalized usury.

Please rest assured, all legitimate comments are welcome and I don't ever delete comments just because I disagree with you.

I just answer back :)

Silence Dogood said...

Thanks for the insightful post. I really enjoyed reading it this morning while I was sipping a cool, crisp and refreshing Coca Cola.

Haha, just kidding about the product placement. ;)

My main problem with the free-market theories of the Reagan conservatives is that it's not actually about free markets so much as it's about the preservation of the holy Status Quo. The underlying philosophy is that since the status quo emerged from the market, it must be good and preserved at all costs. So we love the free market when it's growing, but when it goes through a natural cooling period to readjust and move in a new direction, we freak out and immediately jump in to try and stop it from fixing itself.

The latest and greatest example is the housing market. We were all for not regulating subprime lending practices while money was flooding into the market and the value of existing realestate kept skyrocketing. But as soon as the market tried to readjust and assert a lower real market value on property, well, oh noes, that's not good. We bought these homes as an investment, and no one wants to sell for a loss.

...except it is good. It would be great if property values were lower again. It would mean that more people could afford a piece of the American Dream without having to sell his kidneys or take out one of the free-money adjustable rate subprime loans that caused this mess in the first place. We don't have to let at-risk homeowners go homeless, but if we helped them through this transition period while allowing the market to readjust, existing homesales would actually pick up again. Indeed, the people facing eviction right now who NEED cheaper housing would able to find it if the realestate market at large was allowed to revalue. Cost of living would go down. Consumer confidence would go back up. And we'd actually be better off in the long run.

I'm probably more economically conservative than some people (I sort of came to accept that, being a Democrat and all) but I think we all can agree, or at least should agree, that the question at it's heart isn't Socialism versus Reaganomics. In my opinion, the real question is how and in what manner the government should promote the public good by giving people the tools they need to endure cooling market cycles and thrive during growth cycles. In other words, rather than preserving a status quo, how best can we invest in ourselves to promote future economic growth?

Demon Princess said...

Excellent post! Stumbled across it on Tailrank's aggegrator.

Dogood, your observation that the housing bubble is just going through a natural adjustment is well taken, but I think the broader economy is also suffering from all the other factors brought up in this post--it's been a "CEO's boom," & the factors that have driven it are not going away anytime soon. Note that the CEO of Countrywide Mortgage is doing more than fine, thank you, while the subprime mess he made is everybody else's problem. Bush's new "shot in the arm" solution is more "luntatics in charge of the asylum" voodoo economics --last seen in the neocon tax cuts of '03. We, as a country can't keep doing this. It's not a case of "socialism" v. "free market economies"--that simplification obscures the dynamics at work here.

The fact is that Americans need good jobs with benefits, a middle class, here in the U.S. And responsible CEO's who recognize this will not NEED to be regulated. The middle class as I knew it growing up would certainly be surprised to hear they've been the beneficiaries of "socialism." You use the word too broadly. Most Americans just want to be treated fairly at work--a tiny fraction of the cost of CEOs' pay--don't you? It is HORRIBLY lopsided & out of whack right now, & Bush's proposals will make it more so.

While we haven't been paying attention, EVERY US function in the US has been viewed as another opportunity to starve EVERY system we've come to rely upon as an opportunity for privatization (as above).

I particularly wanted to compliment the author for recognizing that the information we've been fed about the economy for so long is skewed. Unemployment figures are not correct indicators. Nor, for that matter, are the numbers of people who go hungry. Boy George has been playing semantic games with us by defining those problems out of existence on paper--who cares if they're about real people struggling, trying to play by the rules as once we knew them. It's been going on so long now that only now that it's beconme a full-blown crisis can we see the full implications of it, & how deeply a bankrupt economic policy has sunk us.

AnonymousIsAWoman said...

Thank you Demon Princess for that very well written comment.

You are right, especially about the fact that the debate has been oversimplified. It's not an either or - "free markets vs socialism."

Ironically, when some people criticize Barak Obama for his remarks about Ronald Reagan, they miss his main point. Historically, Obama was correct in what he said.

For good or ill, Reagan did change the terms of the debate on the economy and every analysis and every solution proposed since the so-called Reagan Revolution has been couched in terms of free markets and supply side philosophy.

The only solutions to economic slowdowns seem to include tax cuts and rebates, regardless of what that does to the national debt or the budget deficit.

Nobody has come up with true new ideas that challenge an orthodoxy that has been proved, by evidence on the ground, to not work.

The last truly transformative Democratic presidents who came up with progressive ideas, which had a resounding affect on the national discussion, were FDR, with the New Deal, and Lyndon Johnson, with the Great Society.

Their ideas worked for a while and then did need reform for reasons too complicated to get into here.

But their economic philosophy was successful for far longer and with less harm to working people than Reagan's supply side revolution.

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