The attention span in Washington DC these days is remarkably short, and multi-tasking is something at which Congress seems particularly inept. So right now the focus there is overwhelming on just one thing, scandals – some genuine, some imagined, all minor – while the real business of the American people goes largely unexamined. The sufferings of the homeless and the foreclosed[1] find no echo there. The fate of the long-term unemployed is likewise ignored;[2] and if real issues surface at all, they do so only occasionally, invariably framed in the old and stale conversation about the size of the federal debt.

            So at the end of April, Erskine Bowles and Alan Simpson pitched their “grand bargain” again to readers of The Washington Post.[3] Phil Gramm and Steve McMillin told the readers of The Wall Street Journal last Wednesday that “the debt problem hasn’t vanished.”[4] Most significant of all, the House Appropriations Committee, firmly under Republican control, voted last Tuesday for a second round of spending reductions to begin in October: big reductions in spending on labor, health and education programs in order to free up an increase of $28 billion on defense.[5]  It would appear, therefore, that the fight over the size and sources of federal debt has not gone away. It is simply on hold: ready for reactivation when the debt ceiling looms again in the fall. Paul Ryan is on record: “the debt limit is the backstop….we need to get a down-payment on the debt; we need entitlement reform.”[6]

So we have been warned. The old fight will be back sooner than we know. The task therefore is to prepare for it now. The question is how.

One way is to go back, and re-educate ourselves on the complexities of debt in the modern American economy. There is a primer on my website that might help you;[7] and if that is not to your taste, Robert Samuelson has recently provided another,[8] and Jeff Spross a third.[9]

The other way is to go forward, saying at least the following.

·         The federal budget deficit is now falling, and will continue to fall to 2015: so that in a genuine sense, the immediate problem is largely solving itself. Paul Krugman is a reliable guide here: “it’s true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy – and you’re actually supposed to run deficits in a depressed economy to help support overall demand.”[10] In May, the Congressional Budget Office cut the projected deficit for fiscal year 2013 to just $642 billion (4% of GDP), its lowest level since 2008, and has the deficit down to 2.1% of GDP by 2013. 2.1% of GDP is an entirely sustainable level of federal deficit – the product of increasing tax revenues, sequestration cuts, and repayments to the Treasury by Fannie Mae and Freddie Mac. This rate of debt-shrinkage is significantly faster than policy-makers and commentators previously anticipated.[11] Indeed the Treasury expects to repay $35 billion of debt in the second quarter of 2013 – something that has not happened since 2007[12] – taking the heat out of the political battle over the deficit level, at least for now. What heat remains is, in that sense, politically inserted rather than economically dictated.[13] The CBO think that the deficit will rise again in 2016 as baby-boomers tap into Social Security and Medicare. so this problem may reappear; but long-term forecasts are invariably adjusted later, so any immediate major structural change predicated on them is likely to be premature. The best rule of thumb here seems to be, let’s wait and see.

·         Other debt problems are not solving themselves, and they should be the focus of any debt discussion to come: not federal debt, but personal debt, housing debt, debt caused by unemployment and – most immediately challenging of all – student debt. Student debt in total ($864 billion in federal loans and $150 billion in private loans) now exceeds $1 trillion, at an average debt/student of more than $25,000 (with one in ten American students now owing more than $54,000 in loans).[14] Many of those students and ex-students face the danger, this July, of seeing their interest rates on those debts double to 6.8% unless Congress acts. Debt levels of this scale among Americans in their 20s and 30s are already having an adverse effect on both house and auto sales, acting as a drag on the already weak consumer-demand side of the struggling U.S. economy; and are doing so at a time when the employment prospects of the Class of 2013 are unusually dismal[15] and when wage levels among young college graduates have not risen in a decade. (On the contrary, on average they dropped 7.6% between 2007 and 2012.[16])  And the problem is not one afflicting young Americans alone. It is hitting older Americans as well: “since 2005, debt levels have more than tripled among those aged 50 to 59 and more than quintupled for borrowers 60 and up.” Indeed, according to a recent Federal Reserve Bank of New York study, “nearly 17% of outstanding student loan debt is held by borrowers age 50 or older,” and the number of Americans whose Social Security benefits have been reduced because of this has risen from six in 2000 to 122,056 in 2012.[17] It is private debt of this kind, and not immediate federal deficit, which is the true threat to the long-term stability of the American economy.

·         The academic case for cutting federal spending as the best route to economic growth has just been seriously discredited. The conclusion of the paper by Carmen Reinhart and Kenneth Rogoff that is so often cited by advocates of the austerity route to growth – namely that federal debt levels exceeding 90% of GDP invariably trigger economic slow-down or recession – has recently been shown to be methodologically flawed; as has the earlier and equally influential paper by Alesina and Ardagna that argued much the same.[18] The commentary on these inadequacies is now extensive on both sides of the Atlantic, some of it brilliantly reviewed this month by Paul Krugman in The New York Review of Books.[19] This is one academic controversy on which all of us need to get up to speed: partly by reading Krugman; partly by going back to the critical breakthrough paper by Thomas Herndon, Michael Ash and Robert Pollin;[20] and partly by reading all or part of Mark Blyth’s remarkable Austerity[21] (the subject of Krugman’s review) and/or Robert Kuttner’s stirring Debtor’s Prison.[22] There is no need to cut public spending further now. On the contrary, with economic recovery sluggish and unemployment high, the case for a second stimulus package more than trumps the Republican call for a second round of sequestration. Counter-intuitive though it may seem to those trained only in neoclassical economics, there are certain debts in a modern credit-based economy that are quite simply too crucial to the continued health of the entire system ever to be fully paid off.[23]

·         The current Republican enthusiasm for further cutting federal spending runs in the face of clear evidence that the recent tax hikes and budget cuts are slowing the economy down, not revving it up. We are heading, as the New York Times editorial put it in April, in the wrong direction.[24] A growth rate now running modestly at 2.5% per year would be close to 4% were it not for the higher payroll taxes imposed in January and the growing impact on overall levels of demand of sequester cuts too blunt to be targeted properly.[25] But for the counterweight of quantitative easing by the Federal Reserve, our sluggish rate of economic recovery would be lower still.[26] The Director of the Congressional Budget Office told Congress in February that a full set of sequester cuts ($1.2 trillion) would cost the U.S. economy 750,000 jobs in 2013 alone: but to no avail. Conservatives there persist in ignoring the parallel warning from a coterie of leading economists that “the fragile recovery is threatened by obsessive concern with cutting deficits.”[27] That the conservatives’ concern is obsessive was clear even this week, in the tortured response of Oklahoma’s senators to their state’s visible need for large-scale federal recovery aid. Instead of just voting the aid through, we had yet another dance around the whole problem of balancing aid here with cuts there.[28] That was truly appalling nonsense in the wake of such a tragedy!

·         The austerity route to growth favored by Republicans has been extensively tried in Europe – both by the British acting alone, and by the Germans seeking a collective route out of the Eurozone crisis. Both attempts have failed: so that even mainstream economic institutions like the IMF are now advocating the moderation/abandonment of austerity-driven recovery programs. So too, if you listen carefully, is the Federal Reserve. The U.K. economy is still teetering on the edge of a triple-dip recession, and the Eurozone is now facing its second quarter in recession. Little wonder then that the IMF, making its annual inspection of the U.K. economy this week, should have advised the Chancellor of the Exchequer there to defer his cuts program (they “pose headwinds to growth” that might jeopardize the U.K.’s “tepid” economic recovery[29]) and instead focus on economic stimulus by investing more in social housing, schools and road repairs. The language used by Fed chairmen is always more circumspect than that common in IMF reports, but Ben Bernanke’s message to Congress last week was essentially the same: that “fiscal policy at the federal level,” as he put it, “has become significantly more restrictive.”[30]

As is often the case, the best way to understand what is happening in Washington D.C. is to leave it. The view from London expressed by Martin Wolf, who is arguably the best financial journalist of his generation, is worth reflecting on in full. In January he wrote this.[31]

The US confronts huge challenges, at home and abroad. Its fiscal position is not one of them. This is a highly controversial statement. If one judged by the debate in Washington, one would conclude that the federal government is close to bankruptcy. This view is false. Yes, the US does confront fiscal challenges in the long-term. But these are largely caused by the soaring costs of it inefficient healthcare. Yes, the US is engaged in a fierce debate on fiscal policy. But this is due to philosophical disputes over the role of the state. Yes, the US has been running large fiscal deficits in the short-term. But these are a result of the financial crisis.

Oh for that level of clarity from the Washington press corps. For Martin Wolf is right: the debt problem that will likely return to center-stage in Washington in the fall will not be primarily economically driven. It will be politically motivated. As the House Appropriations Committee proposals make clear, and the Ryan budget earlier demonstrated, Republicans can live quite happily with increases in spending on things they value: primarily spending on defense. But they are equally prepared to use the debt ceiling fight as cover for a serious attack on the already beleaguered American welfare state. They do not favor increased spending on the poor.[32] The way to counter their reactionary politics in the short term is to make the Keynesian case for public spending as a trigger to private sector growth,[33] and the centrist case for infrastructure investment as the key to long-term prosperity.[34] The way to counter them over the longer term is to reinforce those more technical arguments with moral ones: making the progressive case for greater equality, a fairer sharing of the burdens, and a stronger welfare net.[35]

Putting those two sets of arguments together, and making each regularly and clearly, will give us just some chance of solving the debt crisis in the only way it can ultimately be solved: by using the 2014 mid-terms to end Republican control of the House of Representatives.

            On the housing front, the good news is that the President wants Mel Watt to head the FHFA. The bad news is that, precisely because the President wants him, there is no certainty that Mel Watt will be confirmed. The really bad news is that the problems in the U.S. housing system are currently so entrenched that, even if he is confirmed, Mel Watt will be hard-pressed to resolve them.

Of course, on the surface of things, the housing market is apparently improving without help from any new head of the Federal Housing Finance Agency. Housing starts and house sales are both up. Prices are at last beginning to rise. Mortgage rates are at historic lows; and most welcome of all, the number of mortgage holders who are still underwater is beginning to fall. Currently, house prices are rising at their fastest rate for seven years (9.3% up on a year ago).[1] The sale of new homes in March ended the best quarter of new house sales since 2008.[2] The inventory of unsold houses in March was the lowest for that month since the year 2000.[3] Competition between builders for new land pushed average values up 13% in 2012, the first annual gain since 2005;[4] and rising house prices lifted 1.7 million homeowners out of negative equity in the last twelve months alone.[5] The number of foreclosures is currently four percentage points down from its peak in early 2010.[6]

            But beneath the surface, real problems remain.

·         One problem is the sheer number of foreclosures still in the pipeline, and the related number of home owners whose mortgages continue to be greater than the value of their property. The recovery of the private housing market is at best patchy: as late as October 2012, 65% of all U.S. housing markets still had average prices lower than before the 2008 financial crisis.[7] “Florida, for example, is still in deep trouble, with home prices about 40% below their highs and one in eight mortgages in some stage of the foreclosure process.”[8] Overall, nearly 14 million homeowners still have mortgages that are under water, and that is still nearly 20% of all mortgage holders in the United States.[9] Most of those homeowners are still regularly paying their mortgages, and so remain relatively safe from foreclosure; but even so, at the end of 2012 “about 10.8% of mortgage loans on one-to-four unit homes were either in foreclosure or at least 30 days past due.”[10] At least 792,000 Americans actually lost their house through foreclosure in 2012,[11] and bank foreclosures are still running at a rate of over 40,000 a month.[12] Indeed “the percentage of loans in foreclosure remains a staggering eight times higher than it was in 2005” – 5.3 million American households behind on their mortgage payments.[13]

“No age group, race, or ethnicity has been spared from the effect of declining home values.” On the contrary, there were close to 3 million older Americans “at risk of losing their homes” as late as December 2011, with AARP then reporting that “the rate of serious delinquency of older Americans had outpaced that of young homeowners from 2007.”[14] A year or more later, the number of foreclosures may now at last be falling: but the number of what often replaces simple foreclosure – short sales, where the owner sells for less than the outstanding mortgage and the bank absorbs the loss – is actually on the rise.[15] People still lose their homes, that is, but walk away without mortgage debt. So although on the surface, things might be getting slowly better in the private housing market, when examining the country as a whole, for every individual still caught up in the ongoing U.S. housing crisis the loss of a home is as traumatic as ever.

·         A second problem is the sheer number of people still living downwind of their own foreclosure crisis, with all the associated loss of wealth and self-respect associated with the repossession of their property. “More than four million Americans have lost their homes since the housing bubble began bursting six years ago;”[16] and the vast majority of those four million lost their homes because they lost their jobs, not because they had in better times taken out mortgages that they could not afford. Even so, for all their lack of guilt here, each of those Americans will face a complex web of rules, and years of delay, before being able to purchase housing again.[17] And since the house is the major asset that most of us possess, its loss is always particularly destructive of wealth for those with the fewest resources. It is not the rich who are being foreclosed. It is those on the margin of the core middle class. It is particularly middle class minorities who have taken the greatest hit on both their personal wealth and their associated credit scores.[18] Falling house prices since 2008 have pulled median white net-worth down by 27% but median black net-worth down by anywhere between 40%[19]and 53%.[20]

It is not just ethnicity in play here. Generational issues factor in too. One of the most entrenched and disturbing features of the recession caused by the housing crisis/financial meltdown of 2007/8 is the fall in the number of independent households now in existence in the United States: a number down – Catherine Rampell tells us – by more than a million from the level which our demographics would normally require. Young people are not just losing houses. They are also neither buying nor renting them in the numbers they previously did. Instead, too many of them are camping – camping with parents, camping with other relatives, or camping with friends: “in 2007, 1.3 million unemployed adult children were living in their parents’ homes. This year, the total is about 2.5 million.”[21] When conservatives go on about strengthening the American family, this can hardly be the kind of strengthening they have in mind.

·         A third problem is the continuing and now growing difficulties in the private rental sector and in publicly-provided housing. The very fact that more people find themselves unable to buy a house has increased demand for rental properties; and the rental sector now has this new and morally questionable extra dimension – big firms buying up foreclosed homes at bottom-basement prices in short sales or court-organized auctions, then renting them out and securitizing the rental income.[22] In such processes, hedge funds benefit. Renters do not. Indeed the paradox here is a stark one: “as rental incomes continue rising – they climbed 0.8% in the third quarter [of 2012] to a national average of $1,090 a month – home ownership is increasingly becoming cheaper than renting”[23] again. The vacancy rate for rented homes is now down to 8.6%,[24] and home ownership is down 4 percentage points from its 2005 peak (each percentage point represents about one million households[25]). As rents rise under the pressure of this growing demand, people at the bottom of the income ladder find even renting a home to be a harder and harder thing to do.

Renting was difficult enough even before sequestration kicked it; and right now sequestration is actually making renting more difficult for Americans on low- or no income. It is triggering cuts in housing benefit: some 140,000 fewer housing vouchers are expected to be issued in 2014, at a time when the need for them has never been higher.[26] In addition, the same Washington preoccupation with the scale of public debt has reduced still further the already inadequate levels of state and city investment in public housing.[27] So it is not surprising that – at the very bottom of the U.S. housing market – the number of households facing what HUD calls “worst case housing needs” has risen dramatically (by 43%) since 2007: 8.5 million households now, as against 5.9 million households in 2007. (“Worst case housing needs” mean households with no housing assistance and either paying more than half their income in rent & utilities or living in severely substandard housing.[28]) If there is any comfort at all to be taken from the current data at the bottom end of the housing chain, it is this:  at least the number of the homeless has remained steady throughout the recession, reflecting the seriousness with which the Obama Administration has worked on programs to house veterans and the chronically homeless.[29]

Which suggests, of course, that housing policy can work if it is seriously pursued. Oh that it was and that it had been, across the whole of the sector; but that is not the case.[30] On the contrary, Wall Street is back to its bad old ways – speculating on property again – in part because prosecutions for foreclosure fraud have not been pursued, and in part because the settlement between the big banks and the states’ attorneys-general has still not yielded the scale of principal reductions that the agreement promised.[31] Access to mortgages remains difficult because those same banks have gone back to very high underwriting standards – a kind of poacher turned gamekeeper transformation that has taken us from too loose a regime in the private housing market to one that is now too tight. Those high underwriting standards remain in place too because the FHFA under Edward DeMarco has consistently blocked Administration calls to allow principal reductions on houses now worth less than their mortgages,[32] and has done so in spite of repeated calls to do so from both the Administration and liberals in Congress.[33] The FHFA supervises Fannie Mae and Freddie Mac, of course, and both those GSEs are currently back in strong financial shape.[34] That must make Edward DeMarco happy – their financial strength (and the protection of taxpayer interests) have been his repeatedly-asserted primary concerns – but that happiness has not translated itself yet into more and more Americans enjoying low mortgages or manageable rents. So what frankly is gained for the rest of us by that financial strength? With evidence available that the Administration’s proposals would actually save the taxpayer money,[35] that gain might be clear to Mr. DeMarco but it is not clear to me.

If he replaces Edward DeMarco, Mel Watt will remove a key obstacle to a more active housing policy. But important as that development will be, we need so much more than simply a change at the top, if the pain of this housing crisis is ever to ease. We need extensive principal reductions of the kind now being blocked. We need an easing of excessively restrictive underwriting terms. We need large-scale refinancing at lower rates of interest. We need renewed funding of public housing. We need an end to sequester cuts in housing benefit. We need Fannie & Freddie to remain in public hands and to be put to clear and progressive public purposes. We need all these things not simply because the housing market remains a drag on long-term economic growth, though it certainly remains that. We need these things because less-privileged American homeowners and renters have suffered unnecessary stress long enough, and have done so in very large measure through no fault of their own.

      Tragically, the fact that Mel Watt might make a difference to the viability and character of housing policy in the United States is exactly why Republican Senators might yet block his confirmation.  Heaven forbid that we have a publicly-managed housing system that actually works. If we did, how could Republicans credibly talk up the importance of the unregulated market forces they favor, the very market forces that created this housing crisis in the first place. In housing, as in so much else, the political logic dominant inside the Washington beltway, and the social requirements paramount outside it, are running in opposite directions. This fundamental lack of symmetry is the modern American tragedy from which we somehow now need so desperately to break.

This argument builds on earlier ones to be found on pages 105-126 of Pursuing The Progressive Case

Commentary on recent developments in American politics, written for a British audience

As must now be blindingly obvious to anyone following the international news, American politics is not like Western European politics. In the United States, popular outrage does not turn rapidly into responsive public policy. Governments do not move effectively to deal with economic and social problems on whose resolution most thinking people are in broad agreement. Tiny children are slaughtered in their schoolroom by a deranged youngster armed to the teeth with his mother’s weapons, but the U.S. Senate cannot even pass a limited set of background checks on potential gun-buyers (background checks which a full 90% of the U.S. electorate now understand to be necessary). Eleven million American workers survive in the shadows without proper documentation, yet comprehensive immigration reform remains stuck in Congress. The U.S. economy is still 9 million jobs short of its 2007 total, and yet the President’s Jobs Bill remains blocked by Republican opposition and filibuster. Whatever else works in the United States, federal politics visibly does not.

The question is why? And at least three reasons spring initially to mind.

One is that the constitution wasn’t exactly designed to make Washington DC work – at least not in the manner of a modern democratic unitary constitution. From the outset, the founding fathers preferred checks and balances to untrammeled executive power. They wanted privileged minorities to exercise disproportionate influence; and they wrote in a small state and a southern veto into the way legislative seats were allocated and legislative procedures operated. [1]They saw federal politics as the politics of notables. The one thing they feared most, as destructive of the careful power balance they had built, was the rise of faction. Well, faction has really risen now.  On the right at least, the notables have been replaced by the party hacks. The Democratic Party remains a shambolic coalition of liberals and conservatives; but the modern Republican Party does not. It has its divisions – social conservatives against libertarians for one – but its center of gravity these days is pure Tea Party. Margaret Thatcher (not to mention Ronald Reagan) would be a moderate in today’s Republican coalition. What progressives currently face across the aisle in Congress is nothing less than right-wing politics run amok.[2]

Why so right-wing and reactionary? Partly that is the product of money and planning. The plutocrats who grew rich in the inequality of the Reagan and Clinton years are determined to hold on to all that they have.[3] The entitlement culture is alive and well at the top of American society. The super-rich now spend billions to sustain an ideological and political offensive against all things progressive. Washington is in so many ways these days a bought town. Money buys campaign-influence there. Money sustains right-wing think tanks. Money finances vast lobbying exercises. Money buys media outlets that push the conservative and the libertarian case. Money fuels the organizations that build the right-wing mass base. The parents of the slaughtered get the television time, but the National Rifle Association gets the Senate votes.

So there is money, but there is more. Ideological campaigns need audiences as well as resources, and unfortunately modern day American conservatism has them in abundance. America is changing fast: economically, it is losing its global dominance; socially, it is losing its white Anglo-Saxon majority; culturally, it is losing its Puritanism and its patriarchy. There are a lot of frightened and beleaguered conservatives in the United States right now: evangelical Christians hanging on to their faith; angry white men, hanging on to their guns; and low-paid Americans desperately hanging on to whatever money they can earn.[4] When conservative talk-radio tells them every day that socialists have taken over in Washington – and that Washington elites are therefore now after their taxes, their sports and their faith – it is hardly surprising in the midst of an economic downturn of the scale now upon us that conservative populism is so prevalent in small-town America.

            So strong in middle-America in fact, and so entrenched in the House of Representatives (where, since 2010, the gerrymandering of seats is at an all-time high[5]), that getting anything progressive done in Washington is staggeringly difficult these days. It is as difficult in Washington now as it was in the UK in 1983 and 1987 when Thatcherism was so all-pervasive. But 1997 did eventually happen – something slightly better did eventually turn up in power in Westminster. We certainly need its equivalent here. Any suggestions on how to get it will be gratefully received, because these are desperate and frustrating times for the American centre-left!

First published (without footnotes) on Speri.Comment on the website of the Sheffield Political Economy Research Institute, available at http://speri.dept.shef.ac.uk/2013/05/02/gridlock-washington-conservative-heaven/

Perhaps it is the sheer size of this country that makes important problems invisible – with each problem so localized and personal as not to count in public discourse. Or perhaps it is the sheer size of the problems themselves that enables them to hide in the open –with each so large and so ubiquitous as to be thought simply normal. Or perhaps it is because as a country we are becoming blind – so beset with problems that we chose to either play them down or ignore them altogether.

I think we are becoming blind.[1]

I say that because of two conversations this week with friends whom I have known for more than a decade. One has just lost his job. The other is fearful of losing his. Those conversations brought home in an entirely personal way the scale and impact of the jobs crisis with which this economy is still beset – a jobs crisis about which our political leaders and mainstream commentators now talk less and less, and with greater and greater degrees of superficiality. It is not that the jobs crisis is entirely ignored or that every commentator is silent.[2] They are not.[3] It is rather that once a month the politicians comment on the numbers; and once a month they then pass rapidly on to other things. In a culture with a low attention span, there seems to be no attention span lower than that of our political class when faced with the awesome reality of an economy stalled in recession. We have a jobs crisis of epic proportions, and yet – with the honorable exception of a handful of legislators on the liberal wing of the Democratic Party – our politicians chose to focus instead on anything and everything else.

·         One friend was laid off after 35 years of working, mainly for one company. He was unexpectedly cast aside because of corporate downsizing. A man who has worked hard every week of his adult life – a walking example of true American values – was abruptly discarded, left with an empty Monday morning which he must now struggle to fill. In his late 50s, his chances of re-employment – as he is all too aware – are at best slim to negligible.

·         The other friend, slightly younger but in the same business, still has his job, but is now watching a rolling program of redundancies working its way steadily in his direction. It is working its way towards him just at the time when he, like many parents of high school seniors, has to co-sign a student loan package for a son off to college – signing just at the moment, that is, when his own sense of financial security is at its lowest.

The President is likely to have a bad week with his progressive base, if what we are told to expect in his budget tomorrow turns out to be true. We are told that his budget will trade “modest entitlement savings,” including future reductions in Social Security payments, for immediate tax hikes on the corporate-rich.[1] If that is so, the trade that will be proposed tomorrow will reflect poor judgment on the Administration’s part – poor moral judgment, poor economic judgment and poor political judgment.

Such a trade will certainly be morally problematic. No matter how quickly Obama technocrats like Peter Orszag move to tell us that the changes proposed will only be slight,[2] they will nonetheless bring reductions in the money made available to Social Security recipients over time. The trade being proposed, if what we are told is true, involve future cuts to a pension program for which people have already paid ahead of time (through payroll taxes on the wages they earned during their working lives): future cuts to a pension program, moreover, that for many low-paid workers and now low-paid pensioners is a vital lifeline in these difficult times.[3] There is no parallelism here between the marginal impact on the lives of the rich that will come from any tax-hike acceptable to Republicans, and the significant impact on the lives of the elderly poor that any reduction in Social Security will inevitably bring. And because there is no parallelism, there should be no proposal that pretends otherwise. Indeed it will be doubly ironic if what ultimately saves us from this particular deal is not White House flexibility but Republican intransigence – no chained CPI because its use fails to cut Social Security heavily enough!

The budget offer, if made, will also reflect a deeply flawed economics. Offering to curb the growth rate of Social Security spending keeps at the center-stage of American politics the on-going Republican claim that it is deficit reduction, rather than job creation, which is the prime economic need of the day. But in reality it is not. Federal deficit reduction would be the key issue of the day if government spending was squeezing out private sector investment; but no such squeezing out is currently underway. On the contrary, corporate profits and cash holdings are at record levels again. Private sector investment and job creation is blocked right now, not by resource shortages, but by uncertainty about future consumer demand. The President’s top budget priority should therefore be the creation of a large economic stimulus through public spending. Rather than conceding the key principle here – the principle that Social Security should not be treated as part of the entitlement budget because it is separately funded and already paid for – the Administration would serve us better by examining the economic and moral case for increasing Social Security payments over time rather than reducing them. The new team at the Treasury currently faces at least four existing budget models to which it can relate its own: two Republican, two Democrat.[4] By proposing this horse-trade, the Administration will position itself to the right of the more moderate of the two Democratic budgets, and put itself as far away as possible from the more progressive of the two center-left alternatives. That positioning cannot be the proper ground on which a newly-returned Democratic Administration ought to raise its flag. After all, it was Obama, not Romney, who won in November – and the budget proposals need to reflect that.

The budget offer, if made, will also be bad politics. It will be bad politics in the short-term, and it will be bad politics for the long haul. All that the offer will do immediately is reward Republican intransigence by attempting to strike a deal with a set of conservative politicians who have no interest in genuine bipartisanship. Such an offer will make no political sense, because no such deal is available. Instead, and as the Obama charm offensive on the Republicans intensifies, the intransigents will simply retreat further into their right-wing bunker, sucking the Administration after them.[5] A Republican Party knocked back on its heels by electoral defeat last November will thereby be helped up again by an Administration keener on deals than on principles. And it will be bad politics long-term because such a budget offer will alienate the very foot-soldiers whom the Administration will need actively on its side when the next mid-term elections arrive. Indeed such a budget offer will give that mid-term campaign a preliminary double-whammy. It will drive progressives into inactivity through frustration, while reinforcing in the public mind the Republican claim that federal over-spending on entitlement programs is the prime cause of our present difficulties. Such reinforcement can only mean that, should progressives swallow hard and fight actively again, their task will already have been made more difficult by the budget strategy of the very administration that they will be campaigning to strengthen.[6]

Now it just may be that the Obama Administration is more subtle than we give them credit for: and that this budget move will be a cleverly-designed and last attempt by the White House to demonstrate the reasonableness of the Democrats and the unreasonableness of the Republicans – a last demonstration of this key difference between the parties before the President opens an eighteen-month campaign to win back the house by unseating Tea-Party Republicans. But somehow I doubt it. Somehow I suspect that, unfortunately, this will be simply more of the same – the latest episode in what is by now a long-running pursuit by this Administration of some elusive bipartisan middle-ground agreement – a pursuit led by a President whose political instincts are more centrist than center-left. If so, it will be a pursuit which is not only fruitless but also politically damaging to the progressive cause. In the President’s first term, the endless horse-trading necessarily involved in seeking some middle-ground accord so alienated key sections of the progressive electorate that it cost Democrats the 2010 mid-term election.[7] We have to fight now to make sure that such horse-trading does not also cost us the 2014 mid-term election, a mid-term in which a strong Democratic surge is absolutely vital if any progressive legislation is ever to find its way successfully through the Washington political maze.

Barack Obama may have no elections left to win, but we do. In fact, we have lots of them to win, starting with those 2014 mid-terms. So the President might at the very least use his position not to make the progressive task more difficult. Ideally he would use it to make our task a little easier. He says he wants to. He fund-raises on that basis. But success in 2014 will not be simply a consequence of funds, no matter how plentiful those ultimately prove to be. We will win in 2014 only if a progressive program has by then been sufficiently strongly canvassed to sway the sympathies of undecided voters. That canvassing can only be undermined by any White House decision to trade future Social Security increases for modest tax hikes on the super-rich.

The President must know that, and ought therefore to act accordingly. He says he is proposing things that he really doesn’t want to do. If that is genuinely the case, he should simply stop proposing them. Barack Obama may not have our vote to lose, but he can still lose our respect. Right now, on this issue at least, he is in danger of doing so.

            It’s been quite a month for budgets – both here and, as it happens, in the U.K. too. In London in March, the coalition government provided another round in its continuing pursuit of economic growth through fiscal austerity[1] – an economic growth which continues to elude it – while here in the U.S. different sections of the Republican Party offered varying versions of that same strategy, and the Democrats countered with entirely different budgets of their own.

So there is currently a lot of choice around – at least as far as budgets are concerned – a choice in Washington between the Paul/RSC budget, the Ryan budget, the Murray budget and the budget offered by the Congressional Progressive Caucus. These budgets have one thing at least in common. They share similar names.[2] They all promise prosperity. Nobody, after all, is going to label their budget “the route to yet more unemployment.” In truth, however, the proposals they contain are, to put it mildly, rather different. These are not just different budgets. They are entirely different route-maps to our collective future.

• The Rand Paul[3]/RSC[4] budget, defeated in the Senate but supported there by a slew of Republican senators up for re-election in 2014, would close four federal departments (Education, HUD, Energy and Commerce) and fully privatize the TSA en route to returning the federal budget to surplus in just five years (the Ryan budget takes 10 years). It would repeal the Affordable Care Act and Dodd-Frank, establish a low flat tax for individuals and corporations, and return welfare provision to the states. The Republican Study Committee budget in the House – the Rand Paul equivalent – would put the retirement age up to 70 for workers not yet 50, and cut Social Security benefits for current recipients by tying their growth to the chained CPI. It would freeze discretionary spending at 2008 levels until 2017, and lower non-defense spending in total by $6 billion by 2023. The Rand Paul budget would return to the Pentagon over a ten year period only $126 billion of the $492 billion[5] cut from the military budget by the sequester.

• The Ryan budget,[6] passed by the Republican majority in the House but rejected by House Democrats and the Senate,[7] leaves the sequester cuts in place, and has the federal budget in balance by 2023, cutting the spending side by $4.6 trillion in the process. In the Ryan budget, savings are achieved by turning Medicare into a voucher plan by 2024, and by handing provision of Medicaid and food stamps back to the states – the federal government simply providing a block grant that will not grow at the same pace as demand for those programs. If implemented, the Ryan budget would repeal the Affordable Care Act and Dodd-Frank, take discretionary spending down to nearly 2% of GDP, and cut top tax rates for both individuals and corporations to 25%. Half of the Ryan budget savings ($2.7 trillion) would come from cuts in spending on Medicare, Medicaid and the Affordable Care Act. Pentagon spending would go up by $500 billion. The Ryan budget aims to get government spending down to 19.2 percent of GDP by 2021. The Murray budget, as we will now see, has that target as 21.8 percent.

• The Murray budget[8], the first from Democratic senators in five years and passed by them in the Senate,[9] includes a $100 billion targeted jobs and infrastructure package designed to boost employment quickly, to strengthen the economy’s infrastructure, to protect vital R&D, and to fund/protect school budgets, college loans and new training programs. It replaces the sequester cuts with a $975 billion program of cuts of its own: half on domestic spending (including health savings), and a quarter each on defense spending and interest payments. It balances its new spending with an equivalent increase in tax revenue – adopting a one-to-one ratio between spending cuts and revenue hikes – the nearly $1 trillion addition to total tax revenues to be achieved over ten years by eliminating tax loopholes used by both the super-rich and the largest corporations. It eschews any cuts in (or privatization of) Medicare, Medicaid and Social Security, and it protects funding for programs supporting low-income families. It anticipates a $4.25 trillion reduction in the federal deficit by 2020.[10]

• The budget[11] of The Congressional Progressive Caucus begins with a huge stimulus program of $2.1 trillion between 2013 and 2015, focused on infrastructure spending and public works programs, aid to states and localities for the rehiring of teachers and public sector workers, and middle-class tax cuts. It avoids cuts to Social Security, Medicare and Medicaid, and strengthens the cost-cutting measures already enacted in the Affordable Care Act. It reverses cuts in public spending agreed in the 2011 debt ceiling deal and in the sequester, and commits the federal government instead to an anti-poverty program that would cut poverty numbers in half in a decade. It takes $939 billion off defense spending, and it raises $4.2 trillion in higher taxes over the next decade: by imposing higher marginal rates on the super-rich and the corporate sector, by closing tax-loopholes, and by taxing financial transactions and carbon pollution. The CPC budget promises 7 million new jobs in its first year of implementation, and federal deficit reduction of $4.2 trillion by 2023.[12]

These differences reflect, of course, entirely incompatible understandings of our present condition and routes to its improvement. The two Republican budgets differ only in degree, not in kind. Both see the deficit in federal spending as the key problem. Both insist that federal spending is a barrier to private sector economic growth; and both compete only on the scale, speed and mechanisms by which federal spending can be cut. The two Democratic budgets are similarly linked. Both see unemployment as the key problem. Both see federal spending as an essential trigger to private sector job creation; and both – to varying degrees – look to tax hikes and stimulus packages as progressive ways of bringing down the long-term debt-to-GDP ratio. There is middle ground between the various packages on either side of the political aisle, but literally a chasm between the two Republican budgets and the two Democratic ones. Even the two budgets closest to the center are still far apart. The Murray budget aims to reduce the federal deficit by $1.85 trillion over a decade through an equal mix of tax increases and spending cuts. The Ryan budget aims at $4.6 trillion in savings over the same decade, with no tax increases at all. The Murray budget invests in clean technology. The Ryan budget defunds clean energy technologies[13]…..and so on.

Several things therefore follow. One is that some kind of bipartisan compromise between positions that are so polarized would simply give us the worst of both worlds. It is not possible to be half-pregnant. What we need as a country, and as a political system, is the full implementation of one package or the other. Yet another grubby compromise will simply bring out the worst of each: eroded public provision without compensating private sector economic growth. That miserable outcome is what the sequestration compromise is now slowly delivering[14] – a genuine policy mess from which voters will take lessons – hopefully lessons about the undesirability of any more last-minute horse-trading between political opposites. It is a miserable outcome that damages Democratic Party aspirations more than it damages Republican ones. The sequester is poised to erode still further the number of people employed by federal and state agencies – a number already reduced by previous state and local government budget cuts[15] – which is all the more reason for progressives to focus now on a long-term strategy to win back full political control in Washington DC, and thereby undo the damage that currently cannot be stopped.

The second consequence is that the proper job of political leadership in conditions such as these is not one of seeking common ground between incompatible positions. It is rather one of campaigning effectively for the creation of a political coalition in both Houses of Congress that can eventually deliver a coherent program of economic and social reform. The Republican leadership knows this, and they are not taking their 2012 drubbing as the last word in what is ultimately an ideological struggle for the hearts and minds of the American electorate. So nor should the Democrats take the present balance of political forces as fixed and immutable: on the contrary, the electoral tide moved back towards the center-left in 2012, and that tide needs to keep going in the same direction in 2014. The American electorate moved back towards the center-left in 2012 because they were given a clear choice, and they need to be given that choice again the next time round.[16]

The third consequence is this: that this vital deepening of the progressive tide will not happen unless the White House changes its political strategy now. It will not happen if the President chooses to play bipartisan politics for the rest of this year, and then goes partisan only immediately before the mid-term elections. Elections are not won that way – certainly not by parties of the center-left. Progressive electoral coalitions have to be built slowly and solidly if they are to last. A quick sprint to mid-term victory for the Democrats will not occur in 2014 if, by then, all we have experienced is a further eighteen months during which every example of Republican intransigence was countered only by yet another White House charm offensive. So no more Mr. Nice Guy from the President: because the fight for 2014 is already underway, and because the Administration has another important opportunity looming in which to make the case for progressive economic change. It is an opportunity that must not be missed.

Next month it will be the President’s turn to present a budget. He must use that opportunity to lead from the center-left, and not from the center. After all, everyone else is using budget presentations to make their own particular case, so why should he be any different?

For commentary on the first Obama term, see

David Coates, Pursing the Progressive Case: Observing Obama in Real Time[17]

Faced by insurmountable odds as the Carthaginians swept down the Italian peninsula during the Second Punic War, the Roman general Fabius Maximus simply retreated and retreated, wearing the opposition down by declining to engage with them at all. Watching the Republicans play the President right now, the scorched earth policy that the Romans used to briefly frustrate Hannibal is all too evident again. It didn’t work that well for the Romans. Hannibal wasn’t delayed for long, and he wasn’t looking for compromise. These days, however, the President apparently still is looking for compromise – for some “grand bargain” – so our modern day Republicans might be on to something here. After all, they aren’t facing anything more substantial this week than an offensive based on charm.[1]

As the latest iteration of the Ryan budget[2] serves to remind us, the President’s opponents are currently willing to meet the Administration only on terms that are entirely unacceptable to mainstream and liberal Democrats.[3] So in spite of all the supposed desire for bipartisanship, nothing in Washington actually gets done. Or rather, nothing progressive gets done. Public programs get cut, of course – the sequester is already in place – and as finance for those programs is cut, so too are the chances of effective legislation on a string of other vital issues: immigration reform, infrastructure renewal and even modest gun control. Instead of policies being implemented that have majority public support, an entrenched minority of conservative legislators ensures that, drip-by-drip, the mandate for progressive change (and the associated rejection of trickle-down economics) that was delivered by the American electorate last November slips imperceptibly away.

In the ghastly dance that now passes for politics in Washington DC, delay is itself a policy. Sins of omission may be less visible than those of commission, but they are no less venal for that. Slowly and incrementally, the erosion of public programs triggered by the sequester is beginning to bite. There is no one dramatic moment in that process, of course, just slow death by a thousand cuts. But unfortunately the bulk of the belt-way media don’t do slow. They only do drama; and since there is no drama, watching them cover Washington these days might persuade you that there are no cuts – certainly none of any substance. But you would be wrong. There are.

So where is the moral outrage when, due to Republican intransigence, the poorest amongst us find their resources diminished, while the profits and incomes of the rich and privileged bounce back as if no recession had ever happened? And where is the sense of alarm (except in a few liberal corners) when the President starts again on a charm offensive with the charmless, offering to meet them half-way as they retreat ever further into their austerity bunker.

—

We have seen this political play before: it cost us public programs in 2011 and it left us a sequester crisis in 2013. Unless the President stands firm now – and lays responsibility publicly and openly on a Tea Party political project that is economically flawed and morally bankrupt – we seem likely to see that play again. Can we therefore please remember, and constantly tell each other, at least the following things.

• The sequester is already hurting – and hurting the least privileged among us.[4] The director of the CBO estimated that 750,000 jobs will be lost this year because of the sequester, and some of those jobs have already gone: teachers in Arizona, construction workers in Indiana, FAA employees in Nevada.[5] The list is long and growing.[6] Cuts now loom for programs delivering food stamps, unemployment insurance, public housing and children’s health insurance.[7] And cuts have already happened across the public sector in anticipation of the sequester – “everything from schools to new police officers to parks.”[8] – cuts that shrank the economy faster in the last quarter of 2012 than the Republicans’ much-vaunted private sector growth could cross-compensate.

• The debt that the sequester is supposed to bring down is already falling, and needs no extra immediate help. According to the Office of Management and Budget, because the $85 billion cuts have to be implemented in 7 months rather than through a full fiscal year, they involve reductions of “approximately 13% for non-exempt defense programs and 19% for non-exempt discretionary programs:” and as such “will be deeply destructive to national security, domestic investments and core government functions.”[9] Yet cuts already agreed and tax hikes already made are together pulling the federal deficit down: to less than $1 trillion in 2013 according to the CBO, and “continuing to plummet in 2014 and 2015, to less than 3 percent of the overall economy for much of the decade.”[10] Conservative commentators only manage to deny that the deficit is already under control by running together the federal deficit and the national debt.[11] Each is different of course,[12] though as percentages of GDP both are currently on the way down.

• The economic growth needed to ease the debt-to-GDP ratio is ever threatened by the very cuts advocated to strengthen it. That is not just my view. It’s also the view of the International Monetary Fund[13] and of a growing number of leading American economists – 350 of whom issued a public warning in February that sequester cuts could kill the recovery.[14] Across the G-20 as a whole, key policy-makers now worry that debt clearance by leading economies will make a sustained pick-up in global economic growth more difficult to achieve, rather than less:[15] and they point to the European experience as a warning. To quote the economists: “as Great Britain, Iceland, Spain and Greece have shown, inflicting austerity on a weak economy leads to deeper recession, rising unemployment and increasing misery.”[16] How could it be otherwise, when the government is a major employer of key workers, and when “one in every five Americans works for a company whose customer is the government.”[17]

• Economic growth is needed because unemployment is high and wages are stuck. Though the official unemployment rate has eased down slightly, the economy remains nearly 9 million jobs short of its pre-recession level, and much of the downward movement in official figures is not the result of Americans finding full-time work. It is rather the result of job-seekers giving up the search for full-time employment or settling for part-time work instead.[18] The EPI’s projections actually leave unemployment rates high and essentially unchanged for whites, Latinos and African-Americans throughout the whole of 2013,[19] amid reports that U.S. employers remain slow to hire – the average length of an unfilled vacancy is now up to 23 business days from its low of 15 days in 2009 – as many companies “string…job applications along for weeks or months before they make a decision.”[20] And those jobs, when they come, invariably pay less than before the Great Recession.  As the recent report from the Federal Reserve Bank of San Francisco put it: “the vast majority of job losses during the recession were in middle-income occupations, and they’ve largely been replaced by low-wage jobs since 2010.”[21]

• The rich and privileged are already flourishing again, back to their old ways as those nothing unpleasant had ever happened. It’s the wealthiest households who are carrying the spending load: as Mark Zandi recently put it, “people in the top half of the income distribution are doing just fine. They’re spending enough to keep the economy moving…but the lower half is having a difficult time keeping their heads above water.” [22] Certainly the nine senior hedge fund managers who took home over $1 trillion between them in 2012 are coping admirably,[23] as are those who kept their jobs on Wall Street. Bonuses there were up 9 percent in 2012.[24] The Dow is at a record level.[25] Fanny Mae and Freddie Mac are recording big profits again:[26] but the housing crisis continues, and the bulk of American consumers spent the opening months of 2013 offsetting rising taxes and gas prices by getting out their credit cards all over again.[27]

—

Not much of this makes it into the central concerns of those who provide us with our daily diet of news and entertainment. For the bulk of the belt-way media have a built-in enthusiasm for process rather than content. They regularly praise bipartisanship over principle, as though how decisions are made is of greater importance than the quality of the decisions themselves. But as we saw so clearly in the President’s first term,[28] the asymmetry in programs that divide Republicans and Democrats always gives Republicans the edge in the pursuit of the bipartisan.[29] For if that pursuit fails, as it invariably does in so divided a city, public policy fails: and Republicans are no enthusiasts for successful public policy.[30] It is Democrats who need Washington to work; and Washington will not work until the Tea Party hold on the House of Representatives is only a memory.

So let the President be charming, by all means. But let him also stand his ground. Better he does that, and works assiduously to win back the House for Democrats in 2014, than he strikes a grand bargain that cuts Social Security for the old and Medicaid for the poor. The “not so grand bargain” struck in December to avoid going over the fiscal cliff has already taxed the poor and the middle class enough. It is time for the rich and the corporate to bear their share, and time for the Democrats to remind the Republicans that it was Barack Obama’s notion of change, not Mitt Romney’s, that won in November. Gerrymandering may have kept one house (the House of Representatives) safe for Paul Ryan and his kind in that election, but not even attempts at voter suppression on an unprecedented scale could give them the other house (the White one).

The President has already made extensive cuts in federal spending[31] and has proposed still more[32] – cuts and proposals that Republicans regularly fail to either concede or even acknowledge.[33] So this time he must let the Republicans come to him for a change, while actively using every ounce of available executive power to protect the poor and vulnerable from the full effects of the sequester whose implementation the entire political class failed to stop. The President’s charm offensive needs refocusing: from the Republicans to the poor. In the days and months ahead, the President should use his executive power openly and explicitly to protect the most vulnerable Americans: in the process easing their burdens slightly while simultaneously clarifying where Republican priorities actually lie. We need to know. Are the Republicans ideologically so opposed to federal spending that they will let the full weight of spending cuts fall on those least able to handle them, while continuing to protect low taxation for those best able to do so? Are they so opposed to Presidential power when it is in the hands of a Democrat that they will block the use of that power for anti-poverty purposes? The President needs to flush the Republicans’ Tea Party prejudices out into the open – as he did so effectively in November – out into the clear light of day where their minority status is publicly visible.

So please, Mr. President: no grand bargains with the defeated.[34] No toleration of their scorched-earth policies. Stop inviting Republicans to dinner. Start eating them for lunch. Avoid the temptation they continually place before you – of winning an election on one set of principles and then governing on another. Instead, replace the charm offensive with a principled campaign designed to win back Democratic Party control of both Houses of Congress in November 2014.[35]  Make a principled stand now, the better to deliver effective policy later. Democratic charm-offensives focused on Republican law-makers can come at too high a price. Let’s make sure that this one most definitely does not.

Equivalent commentary on the first term of the Obama Presidency is available in

David Coates, Pursuing the Progressive Case? Observing Obama in Real Time

(Bloomington: iUniverse, 2013)[36]

Watching the economic policy debate in both Washington and London is a deeply frustrating experience. The debate in the UK is at least clearly focused -  on the adequacy or otherwise of Osborne’s policy of deliberate austerity – and from that debate real policy emerges. The equivalent debate in the US isn’t even focused. Instead, it is deadlocked in a debate between two fundamentally incompatible positions in a political system that makes a virtue of divided government. The looming result right now is a series of severe cuts in public spending – the so called sequester – cuts that nobody is supposed to want but which are kicking in automatically because there is no agreement to stop them.

The only bright spot on the horizon, if it can even be thought of in those terms,, is the manufacturing strategy laid out by the President in his recent State of the Union Address: a new set of public/private partnerships to create global centers of excellence in high-tech manufacturing and to rejuvenate cities/regions hit by deindustrialization, plus more tax incentives for corporations bringing jobs back to the United States – corporations, that is,  willing to employ a labor force re-skilled for the “jobs of the twenty-first century.”

To a British ear, all that must sound both remarkably familiar and extremely modest. It certainly did to mine. But so it should: because the most striking feature of the relationship between federal politics and the national economy in the contemporary United States is the gap between the enormity of the problems that need to be addressed and the banality of the policy solutions being canvassed to address them. The US economy is currently flat-lining. Its rate of job growth is barely keeping pace with the rate of entrants to the labor market. One American in seven is now officially poor. One American family in two has less than three months of financial reserves, should unemployment/illness strike. The median wage has been effectively stagnant for a generation. And all the President has new to offer are a set of glorified research triangles and the usual corporate tax-breaks.

That doesn’t get anywhere near what is needed because in truth, the barriers to rapid economic growth in the contemporary US are both interlocked and daunting.

The most obvious one is the political deadlock in Washington, and the enthusiasm of the Republican Party there for a slash and burn growth strategy: cutting public programs on the premise that their presence is a barrier to private sector expansion. (Republicans in my state – the one with the third highest jobless rate in the country – just cut unemployment benefits by 30 percent.) Add to that the continuing absence of private sector expansion – the inadequacy of investment and hiring by US companies large and small. That inadequacy is actually created by weakness in domestic consumer demand, and so it is one that cuts in public spending are already making worse and that the sequester will seriously amplify. Then there is the appalling hangover from the failed growth strategy of the Reagan/Clinton years: the sheer economic burden of massive family and student loan debt, of a broken housing sector still beset by foreclosures, and of enormous income and wealth inequality. Mix in too a decade of outsourcing of employment by major American companies (2.4 million jobs shipped overseas in a decade) and America’s growing dependence on export markets (particularly in Europe) which are also in trouble. Then bear in mind the sheer physical scale of this country. Unlike the UK, it is huge. You can be unemployed and yet physically miles away from any available work. The result, in a state like North Carolina where I live, are whole areas that are fully denuded of even low-skilled manufacturing employment, with their people locked away in eroding and isolated local economies that contain no inner dynamic of growth. That is a dire economic cocktail that a few additional corporate tax breaks doesn’t even touch.

There are definitely two Americas now. One is the America most visible from the other side of the Atlantic; with its recovering financial sector, its large pharmaceutical companies, its big arms producers and well-subsidized agribusinesses, and its high-spending managerial class. The other is the less visible America of sprawling suburbs, small towns and isolated hamlets – each with its standardized set of fast food restaurants and big-box retail stores, its low and stagnant wages, its hard-pressed public schools, and its deep divisions of class, ethnicity, religion and even (as here in the new south) on occasion divisions of language. That second America is hurting economically right now, and is struggling both socially and personally. The inability of the political class in Washington to address its growing needs both feeds the libertarianism of the American Right and speaks to the on-going inadequacy of the American center-left.

I know that things are tough economically and socially in Britain now, and across the whole of southern Europe. But just for the record, for too many Americans, they are very tough here too. This is a shared crisis, and I hope we all remember that.

Amid the urgency of the sequestration crisis, many things of substance are likely to fade into the background of public debate – at exactly the moment when they should not.

Among those are the President’s call for a strengthening of the economy’s manufacturing base and the recreation of well-paying US-based manufacturing jobs – his key solution to the problem of diminishing middle-class prosperity. He made that call in The State of the Union Address, and he went straight from delivering the Address to Asheville in North Carolina to make the case again. In Asheville, he proposed four ways of bringing manufacturing jobs back home – “insourcing instead of outsourcing” as he put it.

Number one — we can create more centers for high-tech manufacturing in America–- global centers of high-tech jobs and advanced manufacturing around the country…The second thing we need to do is make our tax code more competitive….Number three — if you’re a manufacturing town, especially one that’s taken a hit — that’s seen a company close up shop or a plant shut down — I want to partner with local leaders to help you attract new investment….Number four — we’ve got to help our workers get the training to compete for the industries of tomorrow….So those are four common-sense steps that we can take right now to strengthen manufacturing in America. There’s no magic bullet here. It’s just some common-sense stuff. People still have to work hard. Companies…still have to make good products. But the point is, is that if we can just do a few things, then over time what happens is we start rebuilding our manufacturing base in a way that strengthens our economy as a whole.[1]

If all this is, in the President’s words “just some common-sense stuff,” the questions worth asking become these. Will common sense win the day; and if it does, will common sense be enough?

The very obvious answer to the first of those questions is that, given the present state of  our politics, common sense will not rule the day. Washington DC is deadlocked. The President faces a Republican-controlled House that will never countenance a well-funded federal recovery program without compensating cuts in welfare programs that no Democratic President (including this one) should ever tolerate. The less obvious answer to the second question is that, even were the Democrats currently in control of the Congress, the kind of modest program now being advocated would not be enough. At best, it would only scratch the surface of a problem whose roots are so deeply and firmly embedded in our entire economic and social structure that pulling them out requires much more radical political gardening than any currently being proposed by the White House.

Why the need for more radical political gardening? For these four reasons at least.

• First, because recreating large numbers of well-paying manufacturing jobs is no easy matter. On the contrary, increasing manufacturing employment here in the United States runs counter to all the major trends in investment-location and job-creation of the last decade. Even leaving the recession aside, the number of manufacturing jobs located in the United States has long been falling, as have the wages that those jobs are capable of sustaining. The contribution of manufacturing GDP has been going down, and the number of jobs created abroad by American-owned multinational corporations has been going up.[2] So the President is attempting to reverse very deeply embedded tendencies – tendencies of outsourcing, deindustrialization and stagnant wages – that will not go away on their own; and is making the effort armed with very limited policy equipment indeed – mainly with tax incentives and public/private partnerships.[3]

• Second, the main immediate barrier to the recreation of jobs of any value here (well-paid or otherwise) is not outsourcing. It is limited and uncertain consumer demand here at home.[4] We have seen in the last week just how fragile that demand can be, with the simultaneous increase in the payroll tax and in the price of gasoline[5] triggering price reductions at Burger King and falling sales at Wal-Mart.[6] With unemployment still officially at 7.9 percent and in reality much higher, with home-starts stalling again amid a continuing foreclosure crisis,[7] and with further job losses and salary furloughs waiting down the pike as the sequestration cuts kick in,[8] no business is going to start hiring in volume, or voluntary raising its wage bill, any time soon: no matter how often the President says that it should. On the contrary and as the Fed’s Vice-Chair Janet Yellen put it in a major speech last week, “It will be a long way back to a healthy job market. It will be years before many workers feel like they have regained the ground lost since 2007.”[9] So if the President genuinely wants large-scale hiring to begin again, as I’m sure he does, an industrial policy designed to strengthen manufacturing employment will have to be immediately accompanied by a general and substantial stimulus program. That program, moreover, will need to consolidate consumer confidence and demand in all sectors of the economy, and not just in the manufacturing one. Yet there is no sign of that renewed stimulus package anywhere on the current political horizon.

• Third, the lack of demand and uncertainty about the future prevalent among contemporary American consumers is not accidental. It is the direct legacy of the Reagan-designed growth strategy that collapsed so dramatically in 2008. The prosperity of the Reagan/Clinton years was built on the very business deregulation that facilitated the systematic outsourcing of jobs and the explosion of the trade deficit with China. It was built on wage and tax policies that allowed an unprecedented increase in inequality in both income and wealth, and on an easy credit regime that facilitated the accumulation of unprecedented levels of personal debt, including student debt – debts accumulated by middle-class Americans precisely to cross-compensate for inadequate wage growth. And the Reagan/Clinton growth strategy was built on welfare policies that trapped one American in seven in real and abject poverty – Americans able to escape from welfare-based poverty into the poverty of low-wage employment in the 1990s, but not even able to escape in that fashion in any great numbers after 2001. Shaking off the legacies of a failed growth strategy of this scale and complexity requires the creation of another one of greater potency and length – which is why a few tax breaks for companies bringing jobs home will not cut it, when the economic failures of the immediate past run so deep and so wide.

• Fourth, it is not possible easily to eradicate the long-term impact of the 2008 financial crisis and its subsequent recession on either the psychology[10] or the practices of the contemporary American consumer. Too many of our fellow-citizens now live in or on the edge of poverty to enable us to rapidly return this economy to a high-consumption, high-employment growth path simply by our spending alone. The shadow of 2008 has not yet gone away and it will not go away any time soon. Many American consumers now quite properly choose to reduce the volume of their debt rather than to increase the volume of their consumption, as and when their personal financial situation begins to ease. And indeed, the next generation of American consumers – the millennium generation – is already buying fewer houses, making their cars last longer, and struggling more with the burden of their student loans, than did their parents a generation ago.[11] Vast areas of once-prosperous middle-America remain plighted by closed factories, foreclosed homes and depleted public services – the people in one place, the jobs in another. Changes to the American tax code, however desirable and long overdue they may be, will not markedly transform any or all of that – certainly not in any immediate time period – and yet we need that transformation now.

This economy is flat-lining for very good reason. It is flat-lining not just because Washington can’t get its act together. It is flat-lining because the new social compact needed for the restoration of strong economic growth is nowhere visible in contemporary America. This economy and society is not simply stuck. It is damaged. It is so damaged, in fact, that the restoration of the long-term economic health requires nothing short of fundamental economic and social reform.

There will be no generalized prosperity again in contemporary America without a major and sustained assault on the causes and reproducers of poverty[12]. There will be no generalized prosperity again until we make new rules limiting the wealth of the few and protecting the earning powers of the many.  There will be no generalized prosperity again so long as only certain sectors of our damaged economy – those closest to the Pentagon and to the Departments of Agriculture and Energy – swallow the bulk of federal assistance and protection, at the cost of assistance and protection for the rest. There will be no generalized prosperity again in contemporary America without major programs of urban renewal, industrial relocation and environmental protection. There will be no generalized prosperity again without a dramatic increase in investment in public education. There will be no generalized prosperity again until….. The list is necessarily very long.

Because it is, it is a list that we need to start building and talking about now. The President’s proposals are definitely a beginning. They go in the right direction,[13] but they are at best baby-steps. They open a much-needed conversation, but they don’t and they mustn’t end that conversation. We need active industrial and social policy on an ambitious scale if we are ever to put this economy back onto the high-investment, high-wage growth trajectory from which the Reagan years took us away. Amid the chatter and clatter of the sequester fight, we need to say again that – no matter what Congressional Republicans repeatedly assert[14] – the American economy right now does not need smaller government. It doesn’t even just need smarter government, as the President said in the State of the Union. It needs big government, active government, interventionist government, reforming government: and it needs it now. We ought to say so.

These arguments are developed more fully in David Coates,

Making the Progressive Case: Towards a Stronger U.S. Economy[15]

See also

Pursuing the Progressive Case? Observing Obama in Real Time[16]

So, the State of the Union is strong, is it? Well, maybe it is for the people the President chose to speak about last night. But what about the ones he only mentioned in passing, or the ones that he omitted to mention at all?  What about the state of the union for those Americans in, or on the edge of, poverty? What about the state of the union for those in the process, or on the edge, of losing their homes; or for those young working families trying to combine low-paid work, full-time child-care and inadequate child support? Is the state of the union fine for them? No, it is not.

Catalog speeches are never the best, and this State of the Union Address, like so many before it, was very much a catalog. Here we had a President, elected with a clear majority, with an opportunity to lay out a clear vision and a clear philosophy for the country to follow. And there were moments in the speech when vision and philosophy briefly surfaced: when a general defense of smart government was on offer, and when an appeal to unite around modest agreed reforms was strongly pushed. But mainly the Address was a catalog of things he wanted Congress to do – mostly things to do which we had heard about before – with some pretty pedestrian linkages taking us from one desired thing to another. True, the Address was vaguely populist in tone, and no doubt offensive to Tea Party Republicans for that reason; and we did hear briefly – really for the first time in this President’s State of the Union Addresses – about problems of poverty, about problems of gender discrimination in pay; and about the need for a significant increase in the minimum wage and the future index-linking of that minimum wage to the cost of living. All that was good to hear.

But mainly what we got from the President last night, even in the most populist moments of the Address, were superficial proposals that at best could only scrape the surface of problems so deeply embedded in our society that their solution clearly requires root-and-branch reform. It was not so much that problems were ignored in the Address. It was rather that the solutions offered to them were sufficiently modest as to seem at times almost derisible.

• Take for example the President last night on the issue of poverty. He did mention it. That was something new and welcome. He talked of “communities in this country where no matter how hard you work, it’s virtually impossible to get ahead. Factory towns decimated from years of plants packing up. Inescapable pockets of poverty, urban and rural, where young adults are still fighting for their first job.”  And he offered a solution of a sort: what he called “new ladders of opportunity into the middle class for all who are willing to climb them” to be created by new public-private partnerships in 20 of America’s hardest-hit towns.  But does that solution in any way address the scale of the problem. No, it does not.

• Then there was the question of low wages. Here the President’s sentiments were clear and progressive. He was offended that: “today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line.” He was also offended “when our wives, mothers and daughters” meet “discrimination in the workplace and… fear domestic violence.” His solution: raising and indexing the minimum wage, and having Congress pass both the Violence Against Women Act and the Paycheck Fairness Act.  That was and is a vital start, but it is hardly a finish.

• And finally, the old-chestnut of housing and foreclosures: on this the President seemed to think the problem was rapidly vanishing. “Today,” he told Congress, “our housing market is finally healing from the collapse of 2007. Home prices are rising at the fastest pace in six years, home purchases are up nearly 50 percent, and construction is expanding again.” Fortunately he did recognize that “even with mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected. Too many families who have never missed a payment and want to refinance are being told no;” but he seemed to think that a bill currently before Congress “that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today’s rates” was an adequate policy response to any housing problem that is left.  But it is not.

Why are these policy responses inadequate? They are inadequate because of the scale of the problems they address but fail to match.

• Poverty. At the last count by the Census Bureau (December 2012) the official poverty rate across the United States as a whole remained stuck in 2011 – unchanged from 2010 at 46.2 million. That is 15% of the entire U.S. population: more than one American in seven. ‘The poverty rate in 2011 for children under age 18 was 21.9 percent:”[1] more than one American child in five. For African-Americans, the poverty rate was 27.6 percent – nearly 11 million people. For Hispanic Americans, the poverty rate was 13.2 million – over 13 million people. And those numbers could well have been higher if the way we measure poverty was not so outdated;[2] if now-threatened programs like the Supplemental Nutrition Assistance Program hadn’t kept many millions more out of poverty;[3] and if more than one million people – mainly young, male and disproportionately African-American – were not locked away in a jail population that exceeds any other in the advanced industrial world.[4] With more than 20 million Americans surviving on less than half the poverty level,[5] and 17 million children currently in households that are officially food-insecure,[6] there is one thing of which we can be certain: there is no strong state of the union for those Americans even if there is a strong union for others! And the second thing of which we can be certain is that guaranteeing pre-school places to all of those food-insecure children, however desirable that may be, will not by that act alone transform their poverty.

• Low Wages. There is a lot of low pay in the contemporary American economy, indeed more now even than before. On the latest data, “the number of low-income working families increased to 10.4 million in 2011, up from 10.2 million a year earlier.”[7] That means over 47 million Americans living in families – nearly a third of all working families – where week-by-week they “may not have enough money to meet basic needs.”  Why? Because although many in those families are returning to work, “they are often taking jobs with lower wages and less job security, compared with the middle-class jobs they held before the economic downturn.” As the Working Poor Families Project Policy Brief puts it, “these low-wage jobs typically offer limited opportunities for advancement, few (if any) benefits, and create challenges for parents trying to balance work and family responsibilities.”[8]  Even manufacturing employment – much sought after as a solution to unemployment by this Administration – does not currently pay what once it did. Manufacturing wages are down in an economy denuded of trade unions, and subject to growing and significant income and wealth inequalities.[9] Right-wing commentators may deny the reality of a stagnant middle class,[10] but they are wrong.[11] Right now almost half the adult population – 44 percent of all Americans – quite simply “don’t have enough savings or other liquid assets to stay out of poverty for more than three months”[12] if they lose their jobs. Their state of the union isn’t strong. At the very best, it is deeply insecure and financially pressed. A better minimum wage will help, but strong trade unions and access to cheap adequate child-care would help more.

• Foreclosures. True, the volume of foreclosures is down this year on last year: but only from the 3.9 million a year in 2010 & 2011 to a projected 2.3 million in 2012. America has seen more than 17.2 million foreclosures and 5 million home-repossessions since 2007, the bulk of them on the President’s watch.[13] As the remarkable paper by Dan Immergluck has recently documented so fully, foreclosure prevention measures under this Administration can and should be seriously faulted: “for being too reliant on marginal incentive payments, for failing to provide a key policy, bankruptcy modification, which would have encouraged lenders to modify loans more aggressively, and for not sanctioning servicers more aggressively for poor performance or noncompliance.”[14] This is an Administration that is concerned about the unemployed, but it is also an Administration “too captive to the policy preferences of the financial services industry” to act directly to help the “fully 42 percent of the foreclosed” who “reported that members of their household had lost jobs in the past two years.”[15] There is an irony and a sadness in the fact that the unprecedented presence of an African-American family in the White House should have coincided with a recession and foreclosure crisis that has entirely obliterated the wealth of at least a third of all black households. That foreclosure crisis has hit all sections of middle-America, of course, but it has hit Hispanic and African-American households more heavily than others:[16] and yet still this Administration tinkers with the housing market only on its edge. Be in no doubt,  a bill to facilitate refinancing will not cut it when the loss of wealth has already been this severe.

As I listened to the Address last night, I could not help thinking of the contrast between what we can do militarily and what we choose to socially. It is a remarkable feature of our modern condition that we possess (and apparently regularly use) a military technology that can locate, identify and destroy an al Qaeda operative living in the midst of crowds thousands of miles away; at the very time when many of our political leaders seem incapable of locating – let along attacking – the mass poverty that is staring them in the face every time they go outside their office door. After all Washington DC is not just the nation’s capital. It’s also home to 630,000 people, half of whom are African-American and one in five of whom is actually officially poor! That’s a higher poverty rate for the capital city of a Union that is apparently strong than for any state in that Union other than Mississippi. To politicians blind to the inequalities which surround us, the state of the union may look great inside the beltway, at least if you’re not one of the 19% of Washington DC’s residents who are struggling with low pay or unemployment.[17] But please, can we stop pretending that it is possible to be genuinely progressive in modern America without making the alleviation of poverty our absolute top priority. And can we stop pretending too that if we create “ladders into the middle class,” the problem of poverty will somehow vanish.  It will not. Ladders only help people leave poverty behind. They don’t remove poverty; they simply enable a favored few to escape from it. Societies only remove poverty by eradicating it – by raising the floor for everyone – and that eradication, and thereby the creation of a genuinely strong union, requires policies that are far more radical than any that surfaced in last night’s Address.

Last night there was poverty aplenty in the state of the union: poverty in policy and vision in Washington, to match the poverty of so many of our neighbors in the rest of America. Last night was an opportunity lost.