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.