There is a long list of issue areas in which the Obama Administration has – to put it politely – so far under-performed. Housing policy is one.[1] Holding bankers accountable is another.[2] Extracting us from unnecessary wars is definitely a third.[3] But the big domestic issue on which the Administration’s impact has been weakest is surely poverty and unemployment. The Administration might justifiably claim that things would have been even more awful, had a Republican president been in charge – and that anyway, so much of what they have tried to do has been blocked by Republicans; but that can be of little comfort to the literally millions of Americans who currently remain trapped in poverty, excluded from paid work, or forced to survive on temporary and part-time contracts that no longer pay a living wage. For them, the Administration could have done more, should have done more, and better start doing more – and doing more now – if a President elected with such grand promises in 2008 isn’t to find himself out of work come January.

• The poverty statistics are appalling.[4] When Barack Obama took office, the official U.S. poverty rate stood at 14.3% and the number of the American poor stood at a record 43.6 million. In the most recent poverty figures available to us (for 2010), those numbers have actually risen – to 15.1% and to 46.2 million. And inside the general numbers, the scale of poverty affecting particular minority groups is even more severe. There are  more than 46 million people (one American in seven)  currently in receipt of food stamps, 15.5 million children living in poverty, and 21 million students receiving subsidized lunches (up from 18 million in 2006-7). Both political parties spent the prosperous 1990s “ending welfare as we know it:” but the limits on welfare provision created then are now operating in an economy only slowly emerging from recession. Cutting welfare rolls by 10 percent or more, as at least 11 states have done since 2007, simply throws the entire burden of poverty back onto the most vulnerable among us – especially onto the shoulders of single mothers with young children. Right now, “one in four low-income single mothers nationwide – about 1.5 million – are jobless and without cash.” As Congress failed to act on poverty throughout 2011, research showed that “the share of households with children in a given month living on less than $2 per person per day…has nearly doubled since 1996, to almost 4 percent.” So that “even when counting food stamps as cash…one in every 50 children” in the contemporary United States “live in such a household.”[5]  These numbers are truly awful, and raise the question: how much worse must the poverty figures become before solving poverty rises to the very top of Washington’s political agenda? It should be there now, but it certainly isn’t.

• One reason for this increase in poverty is the persistence of large-scale unemployment pushing more and more Americans towards or into the ranks of the officially poor.[6] When Barack Obama took office, the unemployment rate in the U.S. economy was 7.6%, and very quickly thereafter became 10.2% (November 2009). It is now down to 8.1% – some small success – but 8.1% still leaves 12.5 million Americans out of work and the ratio of job-seekers to vacancies still in excess of 4:1.[7] Currently, over 5 million Americans have been out of work for over 27 weeks (the figure in 2007 was 1.2 million)[8] and the unemployment rate among workers under the age of 25 is running at 16%.[9] Since January 2009, the ranks of the unemployed have been swelled, for the first time in a generation, by cuts in public sector employment – 611,000 state and local employees, including 196,000 educators, culled since the Obama term began[10] – cuts that fall particularly heavily on African-American workers[11] and on women. Unemployment among African-Americans, at 13%, is nearly twice that that among whites (7.5%). 683,000 women have lost their jobs since 2009.[12] Overall indeed, the unemployment situation is now so dire that as recently as November 2011, more than half of all unemployed Americans had exhausted their unemployment benefits – benefits that the Census Bureau estimates keep more than 3 million people from just slipping below the official poverty level for their size of family.[13]

• Why this persistence of unemployment? Mainly because job creation has slowed significantly in the contemporary U.S. economy. The rate of job creation has slowed in the immediate period: in April 2012 only 115,000 jobs were created, when a minimum of 125,000 a month is required merely to keep pace with population growth. That the unemployment figure actually fell slightly in April in spite of such a low volume of job creation (from 8.2% to 8.1%) reflects the growing despair of more and more unemployed Americans – some 342,000 of whom simply dropped out of the job market altogether that month, no longer looking for work. And well they might, for the long-term job creating capacity of the contemporary U.S. economy is also slowing down. Large U.S. companies are creating jobs again now, but those new jobs still remain disproportionately located overseas.[14]  And when such companies expand their output domestically, their lack of confidence in future levels of American demand persuades more and more of them to either extend the hours of existing employees or hire temporary and part-time staff, rather than hiring permanent workers on strong salaries on the scale that both economic recovery and social justice now require. The contemporary U.S. economy remains a remarkable 10 million jobs short of the number needed to get back to pre-recession levels; and equally remarkably, a huge proportion of the jobs created since June 2009 (maybe 9 in every 10) have been purely temporary in nature.[15]

• The result is that even those currently employed face growing pressures linked to inadequate pay, lack of worker rights and rampant job insecurity. It is worth noting here that unemployment is not the sole source of poverty in contemporary America. Low wages make a powerful contribution too. The 2010 poverty data showed that “three out of four of those below the poverty line work: half have full-time jobs, a quarter work part-time. Only a quarter do not work at all.”[16] Yet on the Obama watch thus far, middle-class incomes have completely stalled. “Real median household income in March was down $4,300 since Obama took office in January 2009, and down $2,900 since the June 2009 start of the recovery.”[17] (What is not down is the scale of debt accumulated by the middle class young. On the contrary, “total student debt outstanding appears to have surpassed $1 trillion late last year” according to the new Consumer Financial Protection Bureau.[18]) Alongside falling housing values and slow job growth, the other great driver of continuing economic stagnation is this slow pace of income growth: a slow pace set in motion by the steady erosion of manufacturing wages and the disproportionate concentration of new jobs in sectors that traditionally pay poorly. According to the latest Bloomberg Briefing, 70% of all the new hires in the last six months have been in such sectors: “concentrated in restaurants and hotels, health care and home health care, retail trade and temporary employment agencies.”[19]  The President talks about creating good paying jobs. The task now is to get that creation underway.

• Instead of coinciding with rising middle class incomes, the first term of the Obama Administration has been marked by yet another period of growing income and wealth inequality.  In contemporary America, as middle class families struggle to cover their bills and the ranks of the poor continue to swell, the gap between productivity and wages goes on rising,[20] and the difference between pay at the top and pay at the bottom gets ever wider. The numbers are again shaking. In 2010, the first year of the recovery from the great recession, a staggering 93% of the total income gain in the U.S. economy went to the top one percent of income earners;”[21]  and  in 2011 (the second year of the recovery) “CEOs were paid, on average, 231 times more than workers ….By comparison, the CEO-to-worker compensation ratio was roughly 20-to-1 in 1965.”[22] Jamie Dimon, chief executive of JPMorgan Chase, earned $23.1 million in total compensation in 2011. John Stumpf of Wells Fargo netted $19.8 million, Vikram Pandit of Citigroup $14.9 million:[23] more proof, if more was still needed, that the U.S. economy continues to be scarred by incredible levels of greed at the top – greed which then generates desperate levels of deprivation at the bottom.

Is there an electoral price to be paid in November for some/all of this? It seems more than likely that there will be. It is not, of course, that the Republican Party would reverse any of this poverty if their candidates sweep all before them in November. Just the opposite: from top-to-bottom, the current Republican Party is proposing to shift cuts out of the military budget and onto poverty programs. House Republicans are actively canvassing for reductions in Medicaid, food stamps, unemployment benefits and child tax credits.[24] These Republicans tell us regularly that it is Obama who is taking us in a European direction, when the truth is that they are. The austerity measures canvassed by Washington Republicans are exactly those now being pursued inside the European Union, in the process creating massive unemployment in southern Europe and a double-dip recession in the U.K. We surely don’t want any more of that here.

No, if poverty relief is to come, it must come from the Democrats – but it will only come from them if economic and social policy fundamentally changes. The Obama Administration needs to recognize the urgency of that need for change. It also needs to recognize that the direction of policy change has to be away from the agenda which the Republicans are attempting to set – and not towards it – away towards a new deal for the poor and unemployed in America.

Tackling poverty and unemployment of this scale requires new and radical policy on at least four fronts.

l. A direct assault on poverty – a new “war on poverty” – that will send significant amounts of federal funding into urban renewal, school renovation, labor market training, child-care provision and strong programs of affirmative action: reinforced by changes to the tax code to guarantee a minimum but real living wage to all Americans.

2. The financing of that program by a serious policy of income redistribution and the strengthening of worker rights. Excessive incomes should be taxed, corporate tax loopholes closed, outsourcing penalized, trade union negotiating rights reinforced, and the minimum wage raised.

3. The design and implementation of a new stimulus package, this time designed to protect public sector employment at the state level, and to generate private sector permanent full-time employment on an ever increasing scale. Last time, the stimulus money was too limited in scale and permanence, and was too often used to finance an increase in working hours rather than employment levels.[25] Not this time round.

4. A fundamental assault on the forces currently slowing the rate of economic recovery. The main blockage on that recovery right now is an inadequate level of consumer demand, and an associated lack of confidence among would-be investors about future demand capacity. Restoring that confidence requires first that policy restores consumer demand: by moving swiftly to end the foreclosure crisis, to end public sector job-culling, and to pull federal spending back from wars overseas to the building of infrastructure at home.

Back in the 1930s, it took FDR two goes to get his New Deal up and running. It is time for the Obama Administration to take heart from that, and have a second go itself. A genuinely radical New Deal please – campaigned for now, won in November, and put in place during a ground-breaking second term.

The Republican Party likes to pretend (even to itself) that it doesn’t have an industrial policy. It also likes to pretend that the U.S. economy is currently in such deep trouble because the Democratic Party does.

Not so. Both parties have industrial policies whether they acknowledge them or not.

The American economy is in trouble now primarily because the industrial policy to which the Republican Party currently subscribes remains hugely influential and entirely inadequate.

Not that you would know it, of course, if all you listened to was the campaign. The campaign rhetoric is always the same. The U.S. economy is safer in Republican hands, Mitt Romney regularly tells us, because Democrats over-tax, over-spend and over-regulate. Republicans, by contrast, do none of those things. They get government out of the economy. They set the private sector free.[1] They reward rather than penalize initiative, innovation and success.[2] They don’t pick winners and losers. They let market forces do that. They don’t put their trust in bureaucrats.[3] They put their trust instead in the ingenuity and genius of the American people. Like Ronald Reagan before them, modern Republican lawmakers don’t see government as part of the solution. They see it as part of the problem.

Oh that it was that simple, but it is not.

It is not now, and it was not in Ronald Reagan’s day.

It is true that there was a fierce debate within U.S. governing circles in the 1980s between those who favored an active industrial policy geared to strengthening U.S. manufacturing in the face of Japanese competition, and those who did not – and that the latter won that debate, and won it decisively. The Democratic Party under Walter Mondale favored an active industrial policy. The Republican Party under Ronald Reagan didn’t; and the Democrats were so heavily defeated in the 1984 election that for a whole generation thereafter the Reagan position held total sway across both parties. The rhetoric of the Reagan position was that U.S. economic recovery required small government and free markets. The rhetoric was anti-government, even moderately libertarian: but the substance of policy was not. The Reagan Administration was quite willing to use the global weight of the U.S. economy to initially force quotas onto the Japanese, and then to trigger a major revaluation of the Japanese yen – a revaluation that significantly eased international competitive pressures on US-based manufacturing industry. The Reagan Administration was also quite willing to spend heavily on defense, to subsidize oil and agriculture, and to systematically deregulate Wall Street. The Reagan Administration had an industrial policy alright. It was one later characterized (and criticized) by Reagan’s own principal trade negotiator with Asia as:

to over-consume, and to promote weapons production, financial services, construction, medical research and services, agriculture, and oil and gas consumption and production. Further, it [was] both to offshore production and provision of all tradable manufacturing and services as well as, increasingly high-technology R&D, and to expand the domestic retail, food service, and personal medical services industries. At the macro-level, the strategy [was] to run up massive debt and to borrow as much and as long as possible.[4]

Such a gap between rhetoric and reality is always there when Republicans play the “small government” card, because public policy cannot avoid having both a major direct and a major indirect impact on the workings of the private sector. Public policy has an inevitable direct effect on any industry that the federal government privileges by taxation, purchasing or deregulation. Public policy also has an unavoidable indirect effect on the entire private sector, depending on the nature of public policy on each and every aspect of the economy’s physical and social environment. (From public policy on education, training and labor rights on the one side, to policy on consumer protection and environmental regulation on the other.)

We should never fall for the argument that the public and private sectors are necessarily in tension with each other: the case for federal and state economic activity as a supplement to, and a support, for private sector prosperity and growth is well-established.[5] Nor should we fall for the claim that one major American political party does both direct and indirect industrial policy while the other only does indirect. As voters this November, we need to be much more savvy than this. We need to ask all the candidates a set of key questions: what industries do your policies directly favor? How indirectly supportive of economic growth will your entire program actually be? What are the major disagreements on industrial policy between you and your political opponents?

In alerting ourselves to an unavoidable industrial policy debate, there are at least three lessons to be learned from the Reagan years.

• The first is that the federal government can be a very effective leader of industrial change, if it has the institutional capacity and political will to play that role. Don’t let free-market rhetoric mislead you: the United States has long done state-led industrial growth, and it has long done it extremely effectively. It just happens to do it these days primarily in support of America’s global imperial role rather than in support of its domestic economic priorities. In the Reagan years – and indeed since – the Pentagon has acted as the U.S.’s main industry department, and has proved highly effectively at sustaining the global competitiveness and superiority of the American military-industrial complex.[6] There has been no arms-length relationship between government and industry where armaments are concerned. On the contrary, a close public-private partnership has maintained world leadership:[7] so if that partnership works there, why not elsewhere in the U.S. economy also.

• Manufacturing matters. Employment in the service sector is never an adequate substitute for a strong manufacturing base. There can be no long-term strength for an economy that lets its manufacturing base slip away. As the debate around the 1984 election campaign made clear – and recent evidence has merely reconfirmed[8] – manufacturing industries remain the great drivers of productivity growth and high wages in the economy as a whole,[9] and the core centers of crucial linkages that sustain strong service provision and support industries in integrated regional economies.[10] Letting manufacturing relocate abroad corrodes those wages and weakens those linkages: and rebuilding strong regional economies within the territorial United States is hugely more difficult than sustaining the regional economies already in place.[11] Letting manufacturing relocate abroad also drags down American wages across the economy as a whole, and puts in jeopardy the long-term financial security of the entire American middle class.[12]

• Direct and indirect industrial policy come together in an overall growth package – and it is the quality of that growth package that ultimately counts. An industrial policy that deregulates financial institutions and labor markets, tolerates outsourcing and privileges military production over civilian manufacturing, can ultimately only generate an economic growth strategy based on increased income inequality, stagnant wages, and rising personal and international debt. Rakes’ progresses of the kind described by Prestowitz always end in misery. The Reagan growth model, the one that both the Clinton and the Bush administrations then slavishly followed, certainly did: which is why now again, as in the 1980s, it is worth debating whether we need a new set of policies – direct and indirect – to lift the U.S. economy back onto a sustainable growth path.

Is such a set of policies readily available? It is certainly not from the party of Paul Ryan, John Boehner and Mitch McConnell, or from the ever more conservative Mitt Romney.[13] What all these leading Republicans are currently offering is effectively Reagan II: protection of military spending, further deregulation of banking and labor markets, cut backs in public spending on education, infrastructure and healthcare[14] – what The New York Times this morning called “callous choices in the House.”[15] That particular package gave the U.S. economy a period of sustained growth in the 1990s, when the Japanese economy was stalled and China still struggling to shed its Maoist past: but the package hasn’t worked since, and the whole economic edifice it sustained came crashing down in 2008 at great cost to the majority of working Americans. Or rather, the Reagan growth package worked well both before and after 2001 for the CEOs who finance the Republican Party, but not for the bulk of the American electorate, including not for that section which votes Republican because of social agenda concerns.

Is such a set of policies available from the Democrats? Well, not if the Clinton-era orthodoxies remain in place. But then the Reagan-inspired orthodoxies are beginning to erode.[16] The latest Clinton economic plan was definitely a move in the right direction.[17] So was the tone of the 2012 State of the Union Address;[18] and now we have just heard an explicit call for an active industrial policy from the very top of the Obama Administration – from Gene Sperling addressing the Conference on the Renaissance of American Manufacturing. “The economic evidence is increasingly clear,” Sperling said:

…that a strong manufacturing sector creates spillover effects to the broader economy, making manufacturing an essential component of a competitive and innovative economy…when a manufacturing plant chooses to invest in a county, the investment result[s] not just in new production at the site of the plant, but actually increased productivity of other firms in the surrounding area – a concept that economists refer to as an ‘agglomeration spillover.’ Other economic studies reinforce the insight that the location of manufacturing impacts who benefits from such ‘knowledge spillovers.’…such spillover benefits decline with distance, indeed by over half when they are more than 700 miles away…More than any other industry, manufacturing firms account for a disproportionate share of innovative activity in the U.S. – 70 percent of private sector R&D and over 90 percent of patents issued. As a country, it matters where those benefits occur.

The President is on record as wanting further spending on education, on labor training, and on infrastructure. He is on record as wanting to reward manufacturing companies bringing employment back to the United States. No one is campaigning for the reconstruction of low-skilled low-paid textile manufacturing in the U.S. Such industries are presumably permanently and happily gone. The fight now is to attract and sustain the new manufacturing sectors based on sophisticated technology and high labor skills: in industries as important as alternative energy and biotechnology. The President is on record as enthusiastically supporting policies that will bring the U.S. back up to speed on just these industries – the ones now developing rapidly in competitor economies abroad.[19] The President is on record, but are his opponents? If they are, are the policies to which they are wedded likely to be more or less effective than his?

This is one of the big questions for November. Will the U.S. rediscover its capacity for global economic leadership simply by tax-cutting the rich, further deregulating Wall Street and pruning public provision of education, training and infrastructure? Or will that rediscovery require active and sophisticated industrial policy – beginning with infrastructure spending and labor reskilling, and stretching out to new policies on industrial location and income distribution, even perhaps to the questioning of free trade? This choice is surely a no brainer.[20] If only to maintain competitive standing in a world increasingly occupied by overseas economies benefiting from active industrial policy, we need to follow suit. And to pull decent jobs and wages back to the U.S., we need to get ahead of the curve. Markets reward winners and penalize losers. The U.S. has spent a decade losing manufacturing employment and manufacturing wages. Do we really want to spend the next decade doing the same? I sincerely hope that we do not.

            As we await the verdict of nine Supreme Court Justices on the constitutionality of all or part of the Affordable Care Act (ACA), it is worth asking what the remaining Republican Presidential nominees would create in its place. We know that they would have to create something, because each is committed to the rapid abolition of what they insist on calling “Obamacare”. Mitt Romney’s Plan for Jobs and Economic Growth is quite clear: “An Order to Pave the Way to End Obamacare,” it tells us, will be the first of “five executive orders for Day One” of a Romney presidency.[1] Newt Gingrich would be similarly engaged on the first day of his presidency. So too would Rick Santorum and Ron Paul. All four remaining Republican presidential candidates are enthusiastic First Day Abolitionists!

But what we don’t know in any detail is what exactly would follow on Day 2, if any of them were elected in November. We know some things, but we do not know anywhere near enough.

• We know that Mitt Romney would “direct the Secretary of Health and Human Services and all relevant officials to return the maximum possible authority to the states to innovate and design health care solutions that work best for them.” We know that he has changed his position from “pro-choice” to “pro-life”;[2] and that he now supports the Blunt proposal allowing employers and insurers to limit coverage of contraceptives if they have religious/moral objections to that provision. We also know he is proposing to return Medicaid spending entirely to the states, that he would raise the Medicare eligibility age by one month per year during his presidency, and that he would offer Medicare recipients (by 2022) a choice between “the traditional, fee-for-service government health-care program and a new option to purchase private insurance, with the cost partly supported by the government.”[3] Since so many of those proposals also appear in the 2012 Ryan budget passed by the House in March, we also know that Romney has declared that budget “a bold and exciting effort, very much consistent with what I put out earlier.”[4]

• We know that Rick Santorum – ultra-conservative as he is on abortion, gay marriage and even contraception – would, as his website has it, “repeal and replace Obamacare with market based health care innovation and competition to improve America and America’s health and create jobs.”[5] We know too that he would work with Congress, as he told the Wall Street Journal, “to replace Obamacare with competitive insurance choices to improve quality and limit the costs of health care, while protecting those with uninsurable health conditions.”[6] We also know that Rick Santorum dismisses Romney’s health care proposals as eleventh hour conversions from his (Romney’s) own equivalent to the ACA. ‘The bottom line,” as he told Romney during the February 22 debate in Arizona, is “you used federal dollars to fund the government takeover of health care in Massachusetts, and then Barack Obama used it as a model for taking over his health care system in America.”[7]

• We have some insight into Ron Paul’s thinking on these matters from the candidates’ debate in September when Wolf Blitzer asked him what we should do if someone who had chosen not to take out health insurance suddenly needed long-term care. “That’s what freedom is about, taking your own risks,” was Paul’s reply. The audience went even further. To Blitzer’s follow up question – “Society should just let him die?” – they broke into cheers and shouts of “Yeah!”[8]

• And we know that late conversions to conservative positions are not a Mitt Romney monopoly. As recently as 2007 Newt Gingrich was proposing that “Congress should require anyone who earns more than $50,000 to purchase health insurance or post a bond;”[9]  and in 2011 Gingrich criticized the Ryan proposals that were later endorsed by Mitt Romney as too radical a piece of conservative social engineering.[10] That is not quite the Gingrich we have seen on the campaign trail these many months.

• Well might Gingrich have criticized Paul Ryan, for in the 2011 budget, House Republicans proposed not simply scrapping the ACA. They also proposed replacing Medicare entirely with a voucher system, one in which seniors would receive federal money to help buy private insurance but also one in which any top-up costs would be borne by seniors themselves. In 2012 Ryan and the House Republicans modified that proposal slightly, allowing future Medicare recipients to choose between staying in the program or receiving limited help to buy private health insurance. For in 2012, Ryan’s main target was not Medicare but Medicaid – with the new budget proposing immediately to scrap the extensions of coverage mandated by the ACA, and to restrict the federal role in Medicaid thereafter to the writing for each state of a single check (indexed for inflation and population growth) which state officials could spend on the medical needs of the poor as they saw fit. The Ryan 2012 budget also proposed reducing the total growth in the amount of those Medicaid checks by $810 billion over the next decade – in effect cutting total federal spending on the medical needs of the poor by 20%.[11]

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We also know one other set of things – about “Obamacare” itself. Although the Affordable Care Act has already been scaled back in key ways,[12]  we know that certain of its provisions have already brought significant change to the U.S. health system, and that its remaining provisions promise even more significant changes to come.[13] So it is legitimate to ask whether Republicans in Congress and on the presidential stump are proposing to roll back any/all of the following ACA-initiated changes?

• CONSUMER RIGHTS Under the ACA, insurance companies are no longer allowed to exclude potential customers on the basis of pre-existing conditions. Nor are they allowed to alter premiums if their customers become sick, or to set lifetime/annual limits on payments for care. (This in the context of an American population in which, in 2007, as many as 36% of those seeking private health insurance were denied such coverage or charged higher premiums for just those reasons,[14] and in which more than 7 Americans in 10 currently support the retention of this provision.[15])

• INSURANCE FOR YOUNG ADULTS Parents are now able to keep their children covered on their health insurance until the children are aged 26. The EPI estimate that 490,000 young adults gained coverage between 2009 and 2010 because of this provision in the ACA, a twelve month period in which employer-sponsored health insurance fell for all other age groups in the U.S. population.[16] (This in the context of unemployment rates among 18—24 year olds currently running at over 20%, one in which at least 15 million 19-29 year olds lacked health insurance in 2009, [17]and one in five Americans aged 25-34 are reportedly now living back with their parents.[18])

• HEALTH-INSURANCE EXCHANGES From 2014, Americans unable to negotiate employer-provided health insurance cover will have access to state-level insurance exchanges in which they will be able to obtain private health insurance, with federal assistance if their income is too small. 30-34 million Americans are expected to gain coverage under this and other provisions of the ACA. (This in the context of a steady diminution in the percentage of the U.S. labor force with access to employer-provided health insurance – down to 58.6% in 2010, when it had been 69.2% in 2000[19] – and a continuing rise in the number of Americans without health insurance – up by one million in 2010 to just under 50 million.[20] Nine million working-age Americans lost their jobs, and with it their health coverage, between 2008 and 2010.[21])

• FINANCIAL HELP WITH INSURANCE PREMIUMS Americans earning up to four times the poverty level for their size of family will have access to federal funds to help pay for health care coverage. (This in the context of a distribution of income in the contemporary United States that keeps one American in three living within one tranche of the poverty level, and in which the cost of health insurance has far outstripped the rate of wage increase in the last decade –  health costs having more than doubled as wages have stagnated.)

• EXPANSION OF MEDICAID Americans living below the poverty line – and indeed those living up to 133% above it – will now be eligible for Medicaid, regardless of whether they do or do not have children. (This in the context of a poverty rate among all Americans of 15.1 percent, among African-Americans of 27.4 percent and among Hispanic Americans of 26.6%.[22])

• WOMEN’S HEALTH Women now enjoy increased access to preventive care services without copays and deductibles.  By 2014 insurance companies and Medicare will be obliged to provide a wide range of these services, including access to a full range of FDA-approved contraceptives, without any gender-rating of insurance premiums. “About 54 million Americans now have expanded coverage of at least one preventive service as a result.”[23] (This in the context in which 98% of Catholic American women regularly use some form of birth control, [24]and one in which, before the passing of the ACA, 87% of all individual insurance plans excluded maternity care on the grounds of it being “a pre-existing condition.”[25])

• AID TO SENIORS Senior citizens on Medicare now have federal help financing part of the doughnut hole in their purchase of prescription drugs. In 2011, 3.6 million senior Americans saved more than $2 million as a result.[26] The Act proposes closing the doughnut hole entirely by 2020. (This in the context of a Medicare population of over 48 million.)

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So there are questions to which the American electorate deserves clear and unambiguous answers from the men who would take the White House back for the Republicans in November.

1. At the very least, we deserve to know if “the abolishing of Obamacare on Day 1,” to which they are all committed, will involve the abolition of some/all of the detailed – and popular – changes already implemented or underway. Are the Republican candidates proposing to do away with the ban on pre-conditions? (Santorum, at least, is on record as saying the ban should go.[27]) Will children under 26 be covered on their parents’ policies?  Will Americans on low income receive federal funding to help purchase health insurance? Will the numbers of the involuntarily uninsured go up or go down if the Republicans win the White House? We need to know.

1. We also need to know where the candidates stand on the consequences of the Ryan budget. Where do the candidates stand on the CBO’s recent estimate that, when by 2022 Medicare has been replaced by vouchers, senior citizens will find themselves responsible for up to two-thirds of their total medical bills?[28] Do the candidates really support the detail of the Ryan budget when its proposed Medicaid spending limits are anticipated to take between 14 and 28 million poor Americans out of coverage by 2022, and when its associated cuts in food stamps would adversely impact the basic diets of the 47 million Americans now dependent upon them?[29] Is it the policy of the Republican presidential candidates, as it is of the House Republicans supporting this budget, to see federal spending on Medicaid, SCHIP and subsidies for private insurance be 75% lower by 2050 than they will be if existing legislation remains in place?[30] And how do Republicans square their advocacy of privatizing Medicare with their claim that seniors and the poor will not be adversely affected, when there is clear evidence, from the CBO and others, that privatization would “likely result in higher out-of-pocket costs and greater limits to coverage for many Americans.”[31]

1. And again, how exactly will the Republican proposals achieve better cost-savings than those projected for the Affordable Care Act?[32] Those ACA cost savings, as we know, would have been greater had not Republican legislators blocked the inclusion of a public option in the state-level health exchanges, and had they not also blocked the creation of a single nation-wide exchange. Even now, House Republicans are blocking the creation of the Independent Payment Advisory Board designed explicitly to reduce costs (the CBO had it saving $3 billion between 2018 and 2022.[33]) Unless the new requirements on preconditions and the individual mandate are dropped in any Republican-designed health care reform, how can that reform avoid a veritable explosion in the cost of insurance premiums? (“Insurance premiums would rise by as much as 25 percent if the healthcare law is implemented without an individual mandate, according to a new analysis from the Robert Wood Johnson Foundation.”[34]) Deregulated insurance companies have historically inflated health care costs in the United States,  putting profits before service to leave the U.S. with the most expensive health care system in the advanced industrial world. How exactly will market-based reforms avoid that fate in the future?

1. We need to know so many other things too. Why is the individual mandate – once the corner-stone of conservative proposals to reform the U.S. health care system – now so unacceptable to conservatives?[35]  Why are they so upset with this dimension of the ACA, when the individual mandate will apply to so few people – maybe 2% of all Americans at most?[36]  Why are conservative legislators so opposed to this example of privatization when they are so keen on other examples – not least the privatization of Social Security – whose constitutional legitimacy will also be brought into question if this key element of the ACA is indeed struck down?[37]  And why seek to replace Medicare with subsidized private insurance when the evidence is abundantly clear that Medicare is significantly cheaper to deliver and administer than any form of “managed competition” yet devised?

1. And of course we still to know why “Obamacare” was acceptable to Mitt Romney when he was Governor of Massachusetts, but is not acceptable to Mitt Romney when seeking the Republican presidential nomination. Why, when the Massachusetts experiment is actually working so well?[38] It was apparently obvious to Romney the governor that the market in health care and the market in broccoli were not the same – that by not buying broccoli Americans were not adding to the financial burdens of their fellow citizens, but that by not buying health care, they were.[39] So why the change: is this a matter of principle or of politics? If this is simply a matter of politics, what plans does Romney have in place to cope with the chaos which both a full and a partial striking down of the ACA will leave in place in a U.S. health-care system already beginning to implement so many of the ACA reforms? If however it is a matter of principle, then what is the Republican answer to the free-rider problem to which the individual mandate is one possible solution?  Are Accident and Emergency units in American hospitals to turn away those without insurance, or will those with insurance be expected to continue to cross-subsidize those without? We need to know.

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Political vandalism is always the easier route for parties and individuals when out of office. But with office come responsibilities – and the bigger the office, the greater the responsibilities associated with it. So those Republican politicians who would seek the highest office in the land have a particular obligation to be clear with those of us who would elect them.

• They need to tell us how a return to market-based insurance reform can hope to clear the way for access to healthcare for all, in an economy as scarred as this one is with income inequality and mass involuntary unemployment?
• They need to defend and justify their impoverished notion of freedom: freedom defined as the freedom from health-care responsibilities, and not as the freedom to live without the fear of catastrophic health care costs.
• They need to tell us how they – the political magicians they claim to be – can reduce healthcare costs without reducing the availability of coverage to the American poor; and they need to test that assertion, in all its detail, in the court of public opinion.

Healthcare is too important an issue – and too large a part of the American economy – to be discussed in clichés and sound-bites. In truth, it’s actually too important an issue to be resolved by nine unelected judges attempting to divine how long-dead eighteen century men would respond to twenty-first century problems. But there’s no avoiding that. The Supreme Court will have its say, and what those nine judges decide will seal the fate of the ACA one way or the other. So as we wait for them to do that, we do desperately need to know what would actually happen should the ACA be struck down and there be a Republican presidential election victory in November. We need to know all that well in advance.

Of course, as we saw earlier when reviewing Republican positions on taxes,[40] on business regulation[41] and on federal deficits,[42] to the degree that we do discover what a Republican victory in November will actually mean, the likelihood of that victory will diminish accordingly. That is presumably one rather important reason why the four remaining Republican candidates are not telling us, in the detail we require, what exactly they will create in the ACA’s place. We need to press them to do so.

Ask any of the  Republican presidential hopefuls in this long and drawn out primary season what in general is wrong with the economic policies of the Obama Administration, and they will each tell you that the economy is under-performing now because the current Administration intervenes in its workings too frequently and too heavily. They will each tell you that the private sector has not yet rebounded with sufficient vigor from the recession of 2008-9 because the footprint of the federal government is everywhere – everywhere too present and everywhere too controlling.

That standard Republican litany has one particularly unfortunate consequence – at least for potential Republican voters. It prevents any of the Party’s would-be presidential nominees from pointing to areas of American economic and social life in which current under-performance is caused by the lack of adequate federal intervention. Yet there are such areas, and they are areas of genuine Obama weakness. Two in particular spring to mind: inadequate intervention in the U.S. housing market,[1] and inadequate prosecution of banking folly and corruption.[2] Indeed the two are linked: the inability or unwillingness of the Obama Administration to adequately prosecute and control the economy’s major financial institutions is now one further cause of its inability to rapidly and effectively resolve the U.S. housing crisis.

And there still is a major U.S. housing crisis.

It is true that recently we have seen some small signs of recovery. Home re-sales in the U.S. were 0.7% higher in January 2012 than they were in January 2011,[3]  and building permits in February 2012 were back to their October 2008 level.[4] But straws in the wind are just that – straws. In the contemporary U.S. housing market adverse winds continue to howl.   House prices are still falling and the number of foreclosed homes is still going up – and in both cases by some margin.  In February 2012, the Standard and Poors/Case Shiller index of property values for America’s top 20 cities showed national housing prices generally down from their 2009 level, 33% down from their 2006 level, possibly even at their lowest level since 2003.[5] Federal Reserve calculations were similar: that 33% drop in house prices since their peak in 2006 has resulted “in about $7 trillion in household wealth losses and an associated ratcheting down of aggregate consumption.”[6] Meanwhile new housing starts, once running at 2.37 million a year, have fallen to less than 700,000. ‘Eighty percent of a major industry,” to quote Case, “just disappeared.” [7]  The only price currently going up in the contemporary U.S. housing market is the price of renting.[8] The average price (and indeed the average size) of new homes are not.[9]

The data on foreclosures – past, present and immediate future – is, if anything, grimmer still. Currently, “Moody Analytics estimates that 3.3 million homes are in or near foreclosure and another 11.5 million underwater homeowners are at risk of foreclosure if the economy or their finances weaken.”[10] That, in addition to the roughly four million houses that have already been foreclosed since early 2007.[11] To make matters worse, part of that impending foreclosure explosion is the product of the Obama Administration’s belated and modest attempts to penalize the banks for their mismanagement of the original foreclosure crisis. By recently settling with them for a modest $26 billion, the Obama Administration has freed the banks to unload the backlog of foreclosed properties onto which they were holding, pending the settlement. On the government’s own figures, there are currently 3.6 million vacant homes still being held off the market, homes that once released will likely be “priced at a deep discount.”[12]

—

It is not, however, that the Administration is indifferent to the housing crisis, or reluctant to intervene. On the contrary, the need for policy is widely recognized across the Administration. The notion that, as Mitt Romney put it, the housing market should simply be left alone to “bottom out,”[13] was explicitly rejected by Federal Reserve governor Elizabeth Duke in evidence before the Senate Banking committee in February. “Six years after aggregate house prices first began to decline, and more than two years after the start of the recovery,” she told the Senators, “the housing market remains a significant drag on the U.S. economy….the current recovery has not followed this script, in part because the problems in the housing market are a cause of the downturn as well as a consequence of it.”[14] Indeed in January 2012, the Federal Reserve took the unprecedented step of issuing a report on U.S. housing and its adverse effects on the wider economy, justifying its publication as part of the Fed’s general responsibility for economic recovery. The U.S. Housing Market: Current Conditions and Policy Recommendations proposed a series of measures to ease the housing crisis, and so remove a major barrier to sustained recovery and rapid job growth. In doing so, the Federal Reserve aligned itself, whether consciously or otherwise, with a string of liberal commentators (and with the President’s own Council of Economic Advisers[15]) who are similarly aware that, without a rapid recovery in the U.S. housing market, any general economic recovery will be slow and limited.[16]

Nor is it the case that the President himself is indifferent. He is not. We have plenty of evidence that “he has been dismayed by the failure of his programs to have even more of an impact, and disappointed by the results of federal investigations showing that banks routinely disregard the rights of homeowners facing foreclosure.”[17] As he said in Virginia last month: “I’ll be honest – the programs we put forward haven’t worked on the scale that we hoped.”[18]  That perhaps helps explain why, in his latest State of the Union Address, the President was adamant that “while government can’t fix the problem on its own, responsible homeowners shouldn’t have to sit and wait for the housing market to hit rock bottom to get some relief.” His solution: new policy to allow them to “save about $3,000 a year on their mortgage by refinancing at historically low interest rates.” [19] Such presidential frustration also lay behind his insistence, when delivering the State of the Union Address, on “no more runaround from the banks. A small fee,” as he put it, “on the largest financial institutions will ensure that it won’t add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust.” [20] More recently still (March 6^th), Barack Obama chose to open his first press conference of 2012 with what he termed “a few announcements about some steps we’re taking to help responsible homeowners who’ve been struggling through the housing crisis.” Those steps included the State of the Union proposal, plus the halving of the refinancing fees families pay for loans insured by the FHA, plus strong protection from wrongful foreclosure by banks for serving members of the armed forces.[21]

—

So why, given all this Administration concern, are we still in a housing crisis of such proportions? We are still in that crisis partly because of the lateness, modesty and overall inadequacy of the Administration’s attempts to solve it. We are still in that crisis also in part because of the Administration’s inability (or unwillingness) to see even its modest policies fully enacted by the agencies and institutions central to their delivery. Indeed, initially the problem of delivery was one of White House unwillingness to pursue housing market intervention on an adequate scale; but now, with that willingness enhanced, the barriers seem to lie more in the inability of the Administration to see its policies effectively implemented.

The roots of the present policy failures are ultimately three.

• The Obama Administration’s policy towards the housing crisis was initially limited by moral hazard concerns; and has only slowly – and very incrementally – moved beyond those limits.[22] It is true that the President “has unveiled more than half a dozen plans in recent months to help millions more Americans refinance their mortgages at lower rates, to reduce the debts owed by struggling homeowners and to expand existing programs to broaden the pool of borrowers eligible for government aid.”[23] It is also true that, under Administration pressure, the FHA, Fannie Mae and Freddie Mac now allow mortgage lenders the leeway to grant unemployed borrowers deferral of part or all of their monthly mortgage payments for six months (or with official clearance, even for a year).[24] But it is also the case that Administration policy in this key area has invariably followed developments in the housing market – never getting ahead of the curve (the administration’s plans seem “targeted at the housing crisis as it existed six months ago, rather than as it exists now.” was how Elizabeth Warren earlier described it[25]) – such that even now policy is primarily focused on lowering the costs of refinancing for those homeowners still in their homes. Yet “letting borrowers refinance only if they’re current on payments won’t help people on the verge of losing their homes. And refinancing won’t reduce principal, so underwater borrowers stay underwater.”[26] The Administration now estimates that lowering FHA refinancing fees might aid 2-3 million householders; but estimates of this kind were made regularly on earlier initiatives, all of which then seriously under-performed. The Administration’s flagship HAMP[27] program, for example, was supposed to save 3-4 million struggling homeowners from foreclosure. By December 2011, it was on track to save less than one million.[28] Modest as it is, there seems no reason why this latest small initiative should not under-perform also.

• A more extensive and effective intervention in the housing market was initially blocked by Treasury concerns about tax burdens. It would appear now to be blocked by the unwillingness of the FHFA to do the President’s bidding. The head of the FHFA remains Edward DeMarco, a Bush appointee whom the Obama Administration has tried unsuccessfully to replace with its own nominee, Joseph Smith. If press reports are accurate, serious disagreements on policy exist between DeMarco and HUD Secretary Shaun Donovan. HUD has been encouraging more principal write-downs, to enable people to stay in their homes – even if those mortgages are backed by Fannie and Freddie. But Fannie and Freddie answer to the FHFA, not to HUD; and DeMarco opposes write-downs, claiming other policies to be more effective. “Of the four principal foreclosure fighting powers available to FHFA,” Mike Lillis has reported, “reducing interest rates, extending the length of loans, principal forbearance and principal forgiveness, the last, DeMarco said, is the least valuable to regulators trying to repay the taxpayers who bailed out Freddie and Fannie more than three years ago.”[29] It is also, apparently, in DeMarco’s view, a policy “that would not meet the FHFA’s responsibilities as conservator of Fannie and Freddie….a statutory responsibility,” as he told Congress, “to preserve and conserve the enterprises’ assets.”[30] Though now at last there are signs that things may be improving – signs literally this weekend that FHFA flexibility may be on the increase[31] – it is still hard to avoid the conclusion that, although the U.S. taxpayer owns the two main GSEs, ownership has not yet turned them into pliable policy instruments for a progressive administration. Indeed, and on the contrary, at the very moment that the Administration is pressing Fannie and Freddie to do more to help struggling homeowners, the FHFA is planning to scale the GSEs back, initially by increasing the fees they charge to borrowers.[32]

• This policy inertia is now being compounded by the Administration’s reluctance to put heavy pressure on the banks to switch their practices from foreclosure sales to home maintenance. The evidence of extensive malpractice by financial institutions through the length and breadth of the foreclosure crisis is now overwhelming.[33] The evidence is so overwhelming in fact that the major banks have made two sets of settlements of late, in an attempt to head off prosecution and civil damages. Bank of America made a series of settlements in 2011 with the GSEs and with a string of private investors; and America’s five leading U.S. banks made a settlement in February 2012 with the U.S. Government and with 49 states’ Attorney Generals (all but California). Both settlements obliged leading financial institutions to make modest recompense; but neither settlement obliged the largest banks to so absorb losses on the mortgages they mishandled as to prevent an avalanche of foreclosures. In 2008-9, major banks in trouble were bailed out by American homeowners as taxpayers; but in 2012 American homeowners in trouble are not being bailed out by those same banks to anything like the same degree. This asymmetry is the product of both bank intransigence and lack of Administration pressure. What the most recent settlement does is exchange bank immunity from government lawsuits for $26 billion of relief, including principal write-downs, relief that will reach an estimated 1.75 million borrowers. The terms of the settlement are hardly commensurate, however, with either the scale of the wrong-doing or its consequences: $26 billion is simply a drop in the bucket when compared either to the losses on household wealth created by the housing price meltdown ($7 trillion at least) or to the value of mortgages still caught up in the foreclosure process ($254 billion).[34] Yet worse: the banks are allowed three full years to implement the deal; and they are obliged to compensate those foreclosed against between 2008 and 2011 only with a meager $1500-$2000. Try buying a house with that!

We need constantly to remind ourselves that behind the housing numbers stand real people and real lives – real people who are suffering mightily, and real lives that are being blighted daily, by policy failure of this kind. The vast majority of Americans now caught up in the housing crisis are both innocent victims of recession and unemployment and citizens who vote. So for reasons of electoral calculation as well as of common humanity, the Obama Administration would do well to move quickly and publicly to do more.[35] At the very least, it should prioritize the conversion of foreclosed properties into rentals [36] It should prioritize too the rights of the existing mortgage holder to become that renter, until personal circumstances allow a return to home ownership. More radically, the Administration should press the banks to write off the bulk of the principal loss – the banks, after all, are back to huge profitability again[37] – and so end, once and for all, this nightmare of job-loss being followed by house-loss for core American middle class families. I, for one, agree with William Greider – and hope you might too.[38]

“There is a solution….It is forgiveness – forgive the debtors. Write down the principal they owe on their mortgage to match the current market value of their home, so that they will be no longer be underwater. Refinance the loan with a reduced interest rate, so the monthly payment is at a level that the struggling homeowner can handle. This keeps families in their homes, with a renewed stake in their future. It gives homeowners incentives to keep up their payments, because once again they have some equity and the opportunity to accumulate much more….Forgiving the debtors is the right thing to do, because the bankers have already been forgiven.”

            The current frontrunners in the fight for the Republican presidential nomination vary far more in their personalities and leadership styles than they do in their problem analysis and policy prescription. Ron Paul apart, their explanation of what is going wrong in contemporary America, and what therefore needs to be done to put things right, is in all its essentials both simple and similar. Taxes are too high. Business regulations are too intrusive. Government programs are too generous. The federal deficit is too large. Their solution is similarly simple and shared: elect a Republican President willing to cut taxes, remove regulations, reduce government spending and bring down the federal debt – do that, and the revival of the American economy awaits us all, just around the corner. 

Oh that it was that simple. But it is not. The claims being made, and the policies being offered, are not just similar: they are also profoundly misguided.

We have already taken the Republican candidates to task for the inadequacy and consequences of their policy proposals on taxation[1] and business regulation[2] – inadequacies which have been confirmed by more recent data on both corporate taxation[3] and the anti-regulation crusade.[4] But we have yet to deal with what is potentially the most economically and socially damaging part of the Republican policy trilogy – the claim that by drastically cutting government spending, these candidates can stimulate private economic growth and reduce the federal deficit without doing serious damage to the already thin American welfare net. This claim is central to the campaigns of all four candidates. The current Romney stump speech invariably contains the mantra of “more jobs, less debt and smaller government”[5] and his economic plan talks of “a federal government that has become bloated to the point of dysfunctionality.”[6] The Santorum campaign is currently promising “spending cuts of $5 trillion over five years…budgets that spend less each year than prior years,” and reductions in “the nondefense-related federal work force [of] at least 10%.”[7] Newt Gingrich is promising to balance the federal budget within five years; and Ron Paul is more ambitious still: proposing to cut $1 trillion off the federal budget in the first year, close five cabinet departments and reduce the presidential salary to less than $40,000.[8]

But though regularly made, the claim that rapid budget cutting will bring down the federal deficit and open the route to sustained economic growth is both disingenuous in its content and dangerous in its consequences.

• There is definitely casuistry here.[9] The Republican presidential candidates regularly claim to be overwhelmingly concerned with the size of the federal deficit, and regularly paint horrific scenarios of debt burdens to be carried by generations to come if drastic action is not taken now. Yet , Ron Paul apart, they all combine that claim with proposals on tax reform that inevitably make the deficit worse – worse over both the immediate period and into the longer term. Deficits are, after all, the result of revenues falling short of expenditure, and yet each major Republican presidential candidate is determined to cut that revenue further. The taxation proposals of each of them generates a projected shortfall in revenue that is greater than that currently proposed by the Obama administration, and all four candidates have declared their support for the 2011 Ryan budget proposals, even though those proposals projected forward a greater deficit still.[10] The non-partisan U.S. Budget Watch analysis of the competing budget proposals and taxation reforms make all this abundantly clear. They report that by 2021 the federal debt would rise by $4.5 trillion under Santorum’s policies and by about $7 trillion under Gingrich’s, as against $2.6 trillion under Romney’s. Only Ron Paul, they tell us, would bring the debt level down: and only then by making $7 trillion of budget cuts (three times more sweeping even than the cuts to programs proposed by Newt Gingrich) to offset his $5 trillion reduction in tax revenues.[11]

• In these Republican deficit-reduction scenarios, achieving deficit reduction while simultaneously reducing the volume of federal taxation can only be achieved by cutting further and further into the number and range of government programs. Ron Paul apart, none of the Republican frontrunners is an enthusiastic cutter of the Pentagon budget. Far from it: Gingrich, Santorum and Romney are all on record demanding a more aggressive US foreign policy and the creation of a military capacity commensurate to that aggression. Their cuts must therefore of necessity come from the federal government’s entitlement and welfare programs – come from cuts in Medicare and Medicaid, cuts in Social Security, cuts in welfare payments to the unemployed and the poor, and cuts via the denial of healthcare coverage to the 34 million low-paid Americans likely to be covered by the Affordable Care Act.  Ron Paul’s proposed cuts are not qualitatively different in this matter. They simply achieve even greater spending reductions by, in part, going after a Pentagon budget that is sacrosanct to the rest. With federal spending divided between military spending, health care expenditures and entitlement programs in almost equal proportions, cutting federal spending (especially if the Pentagon is to be spared) must involvement substantial reductions in spending on health care, pensions and welfare.

• The standard sleight-of-hand now regularly being used here by all four candidates to soften that reality is one that treats cuts in entitlement programs and welfare provision as issues best resolved at the state level. The Republican  quartet regularly argue that the best way for the federal government to reduce its expenditures is to reset items like Medicaid as block grants to the states – where the resulting welfare programs can be implemented free of federal bureaucracy, and free of “one-size-fits-all” Washington insensitivity to local preferences and needs. Nowhere in this “back to the states” solution to federal spending, however, is there much discussion by the would-be presidential candidates of the constitutional requirement carried by most states to balance their budgets. Falling tax revenues within such a constitutional straitjacket can only bring forward even faster the erosion of programs vital to the American poor, and leave us with an even greater patchwork of uneven welfare provision than we currently possess – and what we currently possess is patchy enough. It is not simply that the achievement of debt reduction in these Republican presidential programs will take second place to tax reform. It is also that the burden of deficit reduction in these programs will necessarily fall most heavily on those Americans least able to bear it.

• All that might just about make long-term social sense if the underlying premise of the Republican argument on the determinants of current rates of economic growth also made sense, but it does not. Republican presidential candidates like to frame the U.S. economic growth story as one of dynamic private sector investment and job creation needlessly blocked by excessive government spending (and regulation). Take the government out of the equation, so the argument regularly goes, and private sector job creation will return at full speed. But given the fragility of the U.S. economic recovery now underway, nothing could be further from the truth. U.S. corporations are currently awash with both profits and cash, and right now the prime blockage on the reinvestment of those profits and cash is not government activity. It is lack of confidence in future levels of consumer demand.[12] Cut government programs to the American middle class and the American poor and you deflate that demand even further. So let nobody claim – certainly not a Republican presidential candidate – that economic growth is currently sluggish only because non-defense federal discretionary spending is soaring and out of control. It is neither. It is not soaring. Nor is it out of control. It is currently running at 8.4% of GDP, not significantly higher than the 7.7% of GDP it absorbed in the late 1970s,[13] and is on a downward rather than an upward long-term trajectory. “According to the CBO, if nothing is done the primary deficit will bottom out at 2.6% of GDP in 2018 and then rise to 7.4% of GDP by 2040” with “remarkably, every penny”[14] of the rise beginning in 2020 coming from health care spending.  If we want to find the key area of spending that is soaring and out of control, we should focus instead on health care expenditure (public and private) instead, and leave federal discretionary spending alone.

• For there is a powerful Keynesian counter-case to be made here, and made on economic as well as on social grounds. After all, it was public spending through the American Recovery and Reinvestment Act which prevented the private sector from shedding even more jobs in 2009, 2010, and 2011:[15] and the latest CBO reports continue to find the residue of that spending adding to (not detracting from) the employment numbers.[16] Indeed, we are beginning to hear reports of how the original stimulus would have generated more jobs had it been even bigger, and that it would have been bigger if wiser and more progressive counsel had prevailed inside the first Obama economic team.[17] The budget cuts later forced on a reluctant Obama administration by the post-midterm Republican majority in the House of Representatives has already cost at least 200,000 public sector jobs and acted as a “powerful drag on the economy as a whole.”[18]  (Paul Krugman, in making that claim, estimated that, had state spending grown at Reagan-era rates during the Obama years, the U.S. would currently have 1.3 million more teachers, firefighters and police officers than are currently in post. As he said, “We’re talking big numbers here.”[19]) Those budget cuts have also fallen on programs which disproportionately service the American poor [20] – and the Republicans proposals would simply make matters worse. More budget cuts of the kind now being canvassed by Romney, Santorum, Gingrich and Paul can only intensify that lack of confidence in consumer demand, add to the numbers of those laid off at state and local level, and erode still further the meager resources currently available to the American poor.

The best route to long-term deficit reduction is sustained economic growth. The best route to sustained economic growth is a linked expansion of private sector investment and well-targeted public spending. Cutting taxes to the American rich might just fuel demand in the US luxury goods market, and add employment in industries making private jets – though more likely it will simply increase the flow of private savings to the tax havens abroad to which those jets already regularly fly.[21] Cutting taxes to the American rich can therefore be, at best, only a very circuitous and slow trigger to long-term deficit reduction. By contrast, not cutting taxes on the American rich, and instead targeting those greater tax revenues into vital infrastructure development projects – will generate immediate employment and demand and long-term enhanced economic competitiveness. You have to be either intellectually-challenged or a Republican presidential candidate not to see which of those two policy scenarios makes most economic and social sense; but then these days intelligence is apparently not a premium requirement of Republicans seeking high office.

If intelligence won’t win the day, what about self-interest? Maybe that will. In their stump speeches, Republican presidential candidates like to create the impression that entitlement programs are things given to Democratic voters and paid for by Republican ones. But nothing could be further from the truth. The very programs whose size and viability are most jeopardized by their deficit-reduction proposals are often most heavily utilized in states with Republican majorities.[22] As early as 2004, the Tax Foundation issued a fascinating report documenting that 17 of the top 20 states receiving more in federal spending than they paid in federal taxes were red states, and that 24 of the top 32 were similarly states won by George W. Bush in 2000.[23] What was true then is true now: the New York Times reported[24] late last month that “blue states generally export money to the federal government,” while “red states generally import it.”[25]  Tea-party activists, when surveyed individually, seem well aware of that. There is no massive tea-party activist majority for the dismantling of Social Security, Medicare and Medicaid, even though those three programs make up the bulk of the discretionary expenditure so directly targeted by the four men currently seeking their electoral support. On the contrary, all the most careful recent research into the concerns and political priorities of tea-party activists shows that tea-party activists “are in general supportive of programs they see as helping Americans like themselves. In polls, nearly half of Tea Party supporters report receiving benefits from Social Security or Medicare, and a majority of Tea Party supporters think these programs are worth their cost to taxpayers.”[26]

The intelligence of Tea Party supporters should not really surprise us, for the evidence of the dangers of drastic federal spending cuts is readily available on the global stage if people care to look. The philosophy and policy proposals that would be launched upon us in 2013 if a Republican returns to the White House are already playing themselves out in the UK. The Cameron-led coalition government began life in 2010 with a drastic austerity budget that left the economy with negative growth in the last quarter of 2011 and unemployment at a 17 year high. Even The Wall Street Journal has recently reported growing pressure in the UK for renewed stimulus measures.[27] And if that is not evidence enough, there is always the Eurozone crisis and the appalling state of affairs in contemporary Greece, where the EU finance ministers imposing yet further austerity measures on the Greek Government were informed by their support staff “that even under the most optimistic scenario, the austerity measures being imposed on Athens risked a recession so deep that Greece will not be able to climb out of the debt hole over the course of the three-year bail-out.”[28] Excessive austerity measures deepen recessions. They do not solve them.

Anyway, we are not Greece. In Washington, unlike in Athens, borrowing is cheap. With U.S. five year Treasury bills selling easily at an interest rate of around 1% – a historic low, and effectively a negative real interest rate – it is currently less expensive “for the U.S. to finance its debt now than it was during the surpluses of the 90s.”[29]  With money this cheap, this is exactly not the time for the federal government to cut programs, but rather the time for the government to borrow to invest, the better to lay the infrastructure foundations for long-term competitiveness and private sector growth. Why cut now, when money is so cheap? It literally makes no sense.

So let no candidate tell you that cutting federal spending now is the surest route to rapid deficit reduction. It is not. No less a key player in the Republican drama than Mitt Romney inadvertently said as much in an ill-disciplined moment in Michigan last month. He was reported as saying that “if you just cut – if all you’re thinking about is just cutting spending – why, as you cut spending you’ll slow down the economy.”[30] He was right then. He is not right now. And why give him street credit for his accidental moment of truth, when the alternative is to support an administration which, for all the modesty of its spending plans, is not guided by the Republicans’ philosophical hatred of federal spending on entitlement programs. The spending and deficit reduction proposals now on offer from each of the would-be Republican presidential candidates need to be called out for what they are: economic and social vandalism masquerading as sensible policy. The Republican proposals on federal spending and deficit reduction need to be rejected as needlessly destructive of vital public services. The route to a better America does not lie through the infliction of greater pain on those among us least able to bear it. Millionaires may find tax increases painful, but if they really want to know pain, they should try living on welfare instead.

            In the standard trilogy of core commitments currently being made by Republican presidential candidates, the cutting of taxes and the pruning of government is invariably accompanied by the promise to deregulate business – and indeed to re-regulate labor. The Obama administration stands condemned, not simply for its tax-and-spend propensities, but also for its subordination to organized labor[1] and its associated over-regulation of private enterprise. Setting America free, restoring American prosperity, and defending the American way, is said by all four major Republican presidential candidates to require the same basic policy moves: the lifting of intrusive government controls on American businesses, the exclusion of the federal government from corporate bailouts, and support for right-to-work legislation in one state after another. We have already found weaknesses in the claims about tax cutting.[2] It is time now to examine the validity of the argument that American business will create growth and jobs just as soon as the heavy hand of federal regulation and intervention is lifted from its shoulders.

The claim is certainly center-stage in each of the policy-packages on offer to Republican primary voters.

Romney: “Regulations function as a hidden tax on Americans…and act like a brake on the economy at large.”[3] “The most active regulator is the EPA [which] continues to issue endless new regulations…that drive up costs, hinder investment, and destroy jobs….A Romney administration will act swiftly to tear down the vast edifice of regulations the Obama administration has imposed.”[4]

Gingrich: I will “remove obstacles to job creation imposed by destructive and ineffective regulations, programs and bureaucracies. Steps include: repealing the Sarbanes-Oxley Act…the Community Reinvestment Act…the Dodd-Frank Law….replacing the Environmental Protection Agency with an Environmental Solutions Agency…and modernizing the Food and Drug Administration to get lifesaving medicines and technologies to patients faster.”[5]

Santorum: I will “cut EPA resources for job killing regulations and return focus to commonsense conservation and safe and clean water and air….reduce funding for National Labor Relations Board for extreme positions undermining individual freedom.”[6]

Paul: “Repeal…Dodd-Frank and Sarbanes-Oxley. Mandate REINS-style[7] requirements for thorough congressional review and authorization before implementing any new regulations issued by bureaucrats. President Paul will also cancel all onerous regulations issued by Executive Order.”[8]

Indeed, Mitt Romney is on record as calculating what he terms “the hidden cost of red tape” at $1.75 trillion a year, and is currently promising “structural changes to the federal bureaucracy that ensures economic growth remains front and center when regulatory decisions are made.”[9] Not that that means that he is now the unchallenged leading deregulator of the four. He is not. There is fierce competition between all four candidates for the title of chief de-regulator. Rick Santorum for one has recently made much of his greater consistency in this area of policy – particularly in relation to bailouts. Both he and his main rival opposed the auto-bailout: “crony capitalism on a grand scale” was how Romney recently described it.[10] But that was not tough enough for Rick Santorum: “Governor Romney supported the bailout of Wall Street and decided not to support the bailout of Detroit,” he told a Michigan audience. “My feeling was that we should not support – the government should not be involved in bailouts – period. I think that’s a more consistent position.”[11]

But just because a thing is said, and said consistently, it does not by that process automatically become true. Repetition and truth are not the same things. The case for “freeing” American business of the heavy hand of government regulation and intervention can be challenged – and needs to be challenged – in at least the following ways.

• There is positive evidence readily available that carefully-designed business regulations can actually improve business performance, and that strategic federal interventions at moments of crisis can save whole industries from meltdown.[12] Contrary to Newt Gingrich’s claims, for example, the available evidence would suggest that Sarbanes-Oxley has largely worked. It has kept us free from the plethora of accounting frauds that prompted its passage into law: Enron, WorldCom, Tyco, Adelphia and the rest.[13] And the recent controversial EPA air quality rules, a major target of all four Republican presidential candidates, have been widely defended outside Republican circles, and not just by the liberal Economic Policy Institute.[14] The value of the new regulations has been underscored by research establishing a strong positive relationship between a decrease in ozone concentration and an increase in worker productivity.[15] That value has also been defended in Senate Hearings by the Congressional Budget Office:  defended there on the grounds that “the number of jobs created through investment to comply with the rules would exceed the number of jobs created due to alternative investment in the absence of the rules.”[16] That immediate job creation is a visible economic gain from well-designed environmental regulations even before other long-term effects come into view. “Clean air regulations, for instance, significantly improve the health of workers and children, resulting in lower health costs and more productive workers.”[17] Nor does the claim stand up to scrutiny that uncertainty about future regulations deters present investment and hiring. Nice try, but sadly for the anti-regulation case, the latest research data indicates that it does not.[18] Certainly the Economic Policy Institute, after a very thorough review of the impact of the existing set of business regulations, concluded that they “do not tend to significantly impede job creation,” and that “to the contrary,… regulations have generally and consistently struck a reasonable balance, with their benefits to health, safety, and well-being far exceeding their costs.”[19]  That should not surprise us, because the policies of the Obama administration have been far friendlier to American business than the U.S. Chamber of Commerce is ever likely to admit. Where, after all, would the US auto industry now be if the federal government had not intervened to orchestrate its restructuring (with federal aid) in 2009? Republican candidates may claim that allowing a market-led bankruptcy process to work itself through would have achieved better results, but that is pure conjecture.[20] The candidates cannot, by the nature of the case, demonstrate the validity of that assertion – no matter how regularly they repeat it: and they are stuck (as we are) with the clear reality that the federally-underwritten restructuring initiative did actually work. GM is currently the world’s leading car maker again.
• There is also powerful negative evidence against the de-regulation case, evidence of fundamental market-failure by private industries when freed of appropriate public control. Have the Republicans already forgotten the way in which lax regulation of the oil industry preceded the BP oil spill in the Gulf of Mexico?[21] Are these candidates really telling us that a deregulated financial sector will not replicate the behavior which, under Alan Greenspan’s light regulatory touch,[22] created the credit crisis of 2008? It would appear that they are – given their commitment to the immediate repeal of Dodd-Frank.[23] Yet we know – from all the official reports – that it was the lack of proper regulation, not the presence of over-regulation, which allowed systemic financial misbehavior prior to 2008:“widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets,” was how the Financial Crisis Inquiry Commission Report chose to put it.[24] We know too that Dodd-Frank is widely recognized, outside Republican circles, as in need of strengthening, not of repealing:[25] and that, as Wall Street institutions push back against the detail of the new regulations which Dodd-Frank imposed upon them, the signs are everywhere that financial misbehavior is returning. AIG, for example, is back in the market buying subprime mortgaged-back securities,[26] and high-frequency trading is back in vogue.[27] Indeed the “prices of some distressed bonds backed by subprime house loans” have already “chalked up double-digit percentage gains this year, with one prominent market index rising 14%!”[28] The regulated banking system may have slowly shrunk in scale since 2008, but the less-regulated shadow banking system, by contrast, is nearly back to its pre-crisis peak.[29] Are Republican Party political memories so short that they have forgotten that it was George W. Bush and Henry Paulson who intervened to save Wall Street from total implosion – a Republican team, not a Democratic one? Do these four candidates really want a repeat of the 2008 financial crisis on their watch, or are they simply prepared to say anything now, regardless of its consequences, in their desperate attempt to appeal to an ultra-conservative and ill-informed Republican Party base? You have to wonder.
• Robert Sadler of the Consumer Product Safety commission recently wrote this.

 What many of our critics really want to do is to stop government from regulating, period. They are invoking cost-benefit analysis as their weapon of choice – and to impose ‘paralysis by analysis.’ Unfortunately, they ignore a vital point: health and safety agencies rarely impose new costs on society when we issue safety regulations. We simply reallocate who pays the costs. Think about it: when we write a safety rule, we do so to eliminate or reduce deaths and injuries…. Those deaths and injuries impose significant costs on consumers…first as household tragedies and then as higher premiums for health insurance…Moreover, product related tragedies almost always result in lost economic productivity. Anyone who insists that regulations necessarily impose new costs on society shouldn’t be taken seriously. The costs are already there, in the form of deaths and injuries – and are often as much a drag on the economy as any safety rule. [30]

 Markets can and often do generate negative externalities. All economists are taught that. Unregulated competition between companies can create social costs which it is not in the interest of any one individual company to absorb; and because they do, there is a clear need for public policy to fill the gap. There is a clear need for public policy to prevent those externalities from accumulating, and a clear need for public policy to level the competitive playing field between companies, as they are obliged by sound regulations to absorb the social costs for which they are directly responsible. So for example, unless  there are regulations applied to all makers of toys – regulations removing, say, lead from things that children may put in their mouths – then the competitive struggle between firms will inevitably trigger a supply of unsafe toys from at least some manufacturers, to the market-disadvantage of the more socially-responsible producers. Are Republican candidates so wedded to their deregulation crusade as to be in favor of unsafe toys? Some House Republicans, pushing to restrict protections only to toys for children under age 7, clearly are.[31] There can be few clearer examples of ideologically rigidity generating policy blindness than that. Do these legislators not have children or grandchildren of their own? Why take the risk?

• Or again, can our rivers really safely be polluted by chemical waste, free of EPA prevention and punishment? Can our climate really keep warming as power plants fill the air with ever greater quantities of carbon dioxide, without some general agreement between governments on ways to slow those emissions down? These days, Republican presidential candidates are obliged to deny even the existence of man-made global warming, let alone the need to reverse it.[32] They are obliged to preach instead the virtues of unregulated private competition. But the climate is the one overarching economic and social resource that is necessarily shared by all of us: the one free resource that, unless regulated now, will be seriously and irreparably depleted by competition between companies and nations. That depletion, unless stopped now, will inevitably leave an impaired environmental legacy for this generation to bequeath to generations yet to come.[33] Republicans are invariably quick to point to debt legacies caused by public spending, and to enthusiastically denounce both the legacy and the spending. Why then are they so slow to recognize climate legacies caused by private spending, and so slow to support regulations to improve that legacy? They are so slow to do this, it would appear, only because ideological purity and short-term political advantage is more important in this debate between Republican presidential contenders than is scientific common sense and long-term public good.
• Yet there is one market that these Republican presidential candidates will gladly regulate – the market for labor. There, the zeal of Republicans for the break-up of monopolies and the protection of individual rights apparently knows no bounds. Candidates keen to defend the size and growth of large corporations (particularly financial ones) against the efforts of federal regulators to keep them in check, offer no such defense and advocacy for the size and growth of trade unions. On the contrary, Republican candidate support for legislation weakening public sector collective bargaining rights is unambiguous – support for such legislation in Wisconsin, in Ohio, in Indiana, in Arizona. Even Mitt Romney has come into line.[34] Yet labor markets are unique markets. They are not like markets for inert commodities, or for money. Leaving tins of beans unsold on the shelf, or cash unused in the bank vault, is not the same as leaving people unemployed on the sidelines. In labor markets, people sell more than their labor power. They also surrender a large part of their waking day and their personal autonomy, in return for a modest wage on which to build a proper private life for themselves and their families.[35] As bargainers in the labor market, individual workers have virtually no leverage over the companies that would hire them. Individual companies are free to hire and fire – with marginal impact on their viability but with an enormous impact on the lives of those they employ or dismiss. That asymmetry between company and worker is so great that unless workers can bargain collectively, the gradient of power is inevitably set steeply against them. Trade unions bring that power gradient down just a little.[36] Republican opposition to trade unions helps steepen the gradient against workers still further. With U.S. trade unions now so weak, and U.S. corporations so strong, are these candidates really telling us that the future profitability of American companies requires an even steeper gradient, an even more un-level playing field between employer and employee?[37] With corporate profits already so high, income inequality so great, and wage levels currently so stagnant, are they telling us that this economy needs even more inequality and wage loss? Why talk like this: when weakening unions and cutting wages can only push the economy deeper and deeper into recession, with companies unwilling to invest and hire because of the certainty that the extra products they produce will remain unsold. Deregulating business and re-regulating labor in such an economic climate is not sensible policy: it is class ideology run amok.

Republican presidential candidates like to present themselves as totally business-friendly, and to characterize President Obama as some closet socialist determined to replace American-style free enterprise with European-style welfare capitalism. Leaving aside whether that replacement would or would not be a good thing were it being canvassed, it is quite clear that it is currently not being canvassed. On the contrary, the Obama administration is as equally determined as its Republican opponents to remove unnecessary regulations on American business, a determination not always to the liking of the Democratic Party’s liberal base.[38] But fortunately for that base, what the Administration so far has declined to do is to so buy into the Republican “deregulation” crusade as to write out of the policy-calculus concerns with environmental quality, minimum worker rights and consumer protection. Obama is no European-style social democrat;[39] but at least he has a balanced approach to business regulation of a kind that was once bipartisan, but which Republican ideologues have now fully abandoned. That balance makes his administration infinitely preferable to any likely to be created by the four men left standing in the Republican nomination race.

In Arizona on Wednesday, Mitt Romney told his Republican audience that, by bailing out leading U.S. car companies, “the President gave the companies to the UAW,” and that “giving those companies to the UAW was wrong.”[40] But since the companies given to the UAW in that manner are now profitable and world-beaters again, why was “giving them to the UAW” so wrong? It can only have been wrong if error here is to be measured through the lens of narrow class interest rather than through the lens of broad national prosperity. Mitt Romney is a rich man. Clearly he dislikes strong trade unionism more than he likes an auto industry revitalized by the sacrifices of modestly-paid trade union members. Presumably he prefers industrial power to remain firmly in the hands of CEOs like himself. Those of us with a stronger sense of social justice must beg to differ. If giving industry away to the unions is so effective, perhaps some other industries should be given away in a similar fashion!

These arguments are developed more fully in

Making the Progressive Case (New York: Continuum Books, 2011)

One consequence of the Republican Party’s current propensity to select its presidential nominee by the political equivalent of American Idol is that we are regularly exposed to sound-bite answers designed to differentiate one candidate from another. Both the brevity of the answers, and the enthusiasm for differentiation, come however at a cost. They obscure the degree to which the candidates share common positions; and they obscure the extent to which each candidate already has a well-developed policy package to offer to the American electorate.

Regardless of the impression left by the endless debates and the perennial campaigning, these candidates actually agree more than they disagree on the issues that matter most to them:  taxation, regulation, and federal spending. They all want all three severely cut! Romney, Gingrich and Santorum share a common hostility to gay marriage and to a woman’s right to choose, even lately supporting new barriers to ease of access to contraception. Additionally, all the candidates advocate an end to bank regulation in its Dodd-Frank form, and the repeal of the Affordable Care Act; and all but Ron Paul offer basically the same critique of the Obama Administration’s foreign policy. They see it as weak, and insufficiently belligerent. Moreover, it is not just policy that they share. They also share silences and delusions. All of the men currently campaigning for the Republican presidential nomination say remarkably little about the home foreclosure crisis, beyond their willingness to see market forces enjoy full play; and all of them pretend that it is possible to prune federal spending heavily without eroding the already meager American welfare net, or without undermining the adequacy of pension provision for those not yet aged 55.

While the traveling Republican circus continues in its drawn-out pursuit of a winner, the policies which will be pursued by whichever Republican wins go largely unchallenged by a mainstream media preoccupied with the immediate details of the show. Yet the data to refute many of the policy claims made by the Republican presidential candidates already exists in abundance. So in a series of linked postings, of which this on taxation policy is the first, that data will be brought together in an organized and accessible form, hoping in that way to help tip the public conversation away from the beauty contest and towards its consequences.

TAXES

            Each of the main Republican contenders has a set of taxation proposals at the heart of his program[1] – proposals united by two shared premises: that current taxation is too high, particularly on the rich and on corporate America; and that reducing the rate and volume of taxation will trigger renewed private sector investment and associated job growth.

Mitt Romney would make the Bush tax cuts permanent, eliminate taxes on long-term capital gains for those earning less than $200,000, and reduce corporation tax from 35% to 25%.

Newt Gingrich would make the Bush tax cuts permanent, or allow taxpayers to pay a flat 15% tax rate while paying no tax on capital gains and dividends, and cut the corporate tax to 12.5%.

Rick Santorum would make the Bush tax cuts permanent, cut the individual tax rates to just two (10% and 28%), reduce capital gains and dividends tax from 15% to 12%, and cut the corporate tax to 17.5% (and to zero for manufacturing industry).

 Ron Paul would extend the 2001-10 tax cuts, eventually replace income tax with a flat tax, and cut the corporate tax to 15%.

 So what could possibly be wrong with that? This much at least:

1)      Current levels of personal taxation are not high by either historical or comparative standards. They have been higher in the U.S. in the past. They are lower in the U.S. now than in many of our major competitors; and neither here nor abroad did/do higher taxes correlate directly with poor economic performance. Just the reverse in fact. When the United States was creating more than twenty million new jobs in the 1990s, taxation was at the pre-Bush cut level; and as taxation went down in the eight years of the Bush II presidency, so too did the scale of job creation (not even four million overall).[2] The result has been that now – amid the highest level and most prolonged period of unemployment that we have seen in the entire post-war period – the U.S. tax-take is actually at a 60 year low. The proportion of GDP flowing to the federal, state and local governments in the form of individual and corporate taxation (28.3% in 2007) is at its lowest for 40 years, and the federal tax-take part of that – at only 14.4% in 2011 – is at its lowest level since 1950. That 28.3% figure is far lower than its equivalent in more successful economies such as Norway (43.6%), Germany (36.2%) or Sweden (48.3%): indeed in 2007, only Mexico, South Korea and Turkey of the OECD countries had a lower government tax-take than we did.[3]  Many more highly-taxed economies are currently more successful than we are, no matter what Republicans candidates tell their party faithful about the poor economic performance of “socialist Europe”. Unemployment rates in Norway are currently 3.3%, in Germany 5.5%, and in Sweden 7.4%. Ours is still well over 8%. And per capita income in Norway – at $54,600 in January 2011 – outstripped per capita income here in the United States by over $5000.[4] The low welfare economies of southern Europe are in crisis now – the Republicans are quite right about that – but the high welfare spending economies of the European north most definitely are not. They are currently outperforming us on growth rates and job protection: so much for the supposedly economic consequences of high taxation!

 2)      Taxation rates on the rich are not excessive. The actual tax-take from this economy’s very highest earners is certainly not as high as the official tax rates suggest, nor as those rates have been in the immediate past. The top tax rate in 1945 was 94%. It was still in the 90% range right through the fast-growing 1950s.[5] Dropping the highest rate of income tax to 25%, as the Republican candidates now plan, would take it to its lowest  level since 1931.[6] Moreover, as Republican Senator Tom Coburn recently documented in detail, the rich have many tax loopholes and subsidies which they alone are well-placed to exploit – all of which serve to bring the real rate of income tax on the rich down far below the official figure.[7] The super-rich rely far more than do ordinary Americans on income from capital gains, and that income is already taxed at a lower rate (currently 15%) than that on top rates of income (25% to 35%).[8]  Far from the U.S. tax code being particularly burdensome on the rich, it is actually progressive only for low-income earners: indeed the Congressional Research Service has recently calculated that “a large proportion of millionaires pay a smaller percentage of their income in taxes than a significant proportion of moderate-income taxpayers,” and that “roughly a quarter of all millionaires (about 94,500 taxpayers) face a tax rate that is lower than the tax rate faced by 10.4 million moderate-income taxpayers.”[9] Moreover, those at the very bottom  of the American income distribution – those earning too little to pay income tax at all – still pay other forms of indirect taxation, such that the percentage of their income “lost” in tax is ultimately as great/greater than that “lost” by the very rich.[10] All that in an economy and society in which income inequality is at historically high levels and is currently still increasing.[11] Mitt Romney’s own personal tax record is illustrative of this set of general truths. The bulk of his income comes in the form of capital gains. Some of that capital is tucked away in tax havens abroad. That which is not so tucked away is taxed at the lower capital gains rate; and though the Governor did pay income tax on his speaking fees in 2011, those fees (at $374,327) were themselves more than seven times larger than the U.S median income! Whatever loads the American rich are currently carrying, a heavy tax burden is certainly not one of them.[12]

 3)      Nor do U.S. corporations habitually pay the much cited 35% tax rate deemed by Republican politicians as the key to their current inability to generate employment.  The data on this is clear and unambiguous. Two-thirds of all U.S. corporations currently pay no federal taxation at all. Bank of America, for example, has paid no federal taxation in the last two years, in spite of receiving from the federal government $1 billion in tax “benefits” and a huge TARP bailout.[13]  Indeed, the number of “U.S. corporations organized as nontaxable businesses has grown from about 24% in 1986 to about 69% as of 2008, according to the latest available IRS data.”[14] Many large U.S. corporations go off-shore to avoid tax requirements here.[15] Some even combine substantial profits with IRS rebates! The examples are legend: a rebate of $156 million in 2009 to Exxon Mobil, $4.1 billion to General Electric, $19 million to Chevron – all companies making healthy profits.[16] Nor are their fellow corporations short of profits or indeed of cash,. On the contrary, they are unusually flush with both.[17] “In the U.S. non-financial corporate sector…the balance sheet recession has long been over. Profit margins are at record levels thanks to savage labor shedding and companies are awash with cash.”[18] What U.S. non-financial corporations are short of is a willingness to hire new staff; and that unwillingness – as a series of reports that take in small and medium size business as well as the large corporations[19] – makes only too clear, is rooted not in any tax burden but in a lack of confidence by business owners that they will be able to sell any increased output they generate. Lack of demand from the bottom of the economy, not an excess of taxation at the top, is the current key block on a return to rapid economic growth and full employment.

      The counter-argument to the candidates’ tax-cutting proposals should therefore be two fold. They and their supporters need to be told, first, that cutting taxes at this point in the economy’s fragile recovery is neither necessary nor desirable. They need to be told, second, that cutting taxes in the way they propose stands a fair chance of slowing down that recovery, by deepening still further the already excessive scale of income inequality in the United States. You don’t generate generalized prosperity by easing taxation on the rich and by pruning programs for the poor – trickle-down economics has a proven record of failure – yet benefiting the rich and hitting the poor is precisely what each of these candidates is planning to do. Each of their proposed tax packages is regressive. Each gives more to the rich than it gives to the poor.

Mitt Romney’s plan – the most moderate of the three – would give an extra $69 a year to anyone in the bottom 20% of income earners, and maybe save a middle-income American $1,400 a year; but it would save $146,000 a year for anyone in the top 1% of income earners.[20]

Rick Santorum’s plan’s, by contrast, would give top income earners an extra $341,000 a year;

Newt Gingrich’s plan would give the top 1% a $422,000 tax cut;[21]and though

Ron Paul is very difficult to pin down on this (he periodically talks of punishing those who got us into this mess) his proposed abolition of income tax would, if implemented, represent a huge reduction in the amount of taxation paid by those at the very top of the income ladder.

     Moreover, each tax proposal currently on offer in the Republican presidential race would add significantly to the very federal deficit that the Republican Party claims to be so determined to lower. “Relative to the inadequate revenue levels collected by current tax policies,” as Andrew Fieldhouse has recently noted, the tax plans of the four remaining Republican presidential candidates “would lose between $180 billion and $900 billion in 2015 alone – or between 1.0 percent and 4.9 percent of GDP.” The Romney plan is the least damaging to existing tax revenue levels of the four currently on offer. Ron Paul’s plan, and that of Santorum, are the most damaging: with, as Fieldhouse correctly notes, Newt Gingrich giving “Santorum a run for his money with a tax plan that would lose $850 billion, or 4.6% of GDP.”[22] And it is striking in this regard that the extreme concern that Republican presidential candidates purport to feel about the size of the federal deficit over the next decade has not yet persuaded any of them to support the abolition of the Bush-era tax cuts, even though it is those tax cuts which remain the key obstacle to any speedy return to fiscal sustainability.[23] The full continuation over the next decade of the Bush tax cuts they so fiercely defend will not only reduce federal revenues by $3.8 trillion (a cut of 9.1%). The full continuation will also add to federal expenditures – at $657 billion, a 15.5% addition to the total cost of servicing overall federal debt.[24]

All this tax largesse, while the four Republican contenders are simultaneously endorsing the full gambit of the budget proposals made by Congressional Republicans to reduce that deficit, not least those made by Paul Ryan. The Ryan budget passed by the Republican-controlled House in 2011 would have achieved its $6.2 trillion cuts in federal spending over a decade by phasing out Medicare as we know it in favor of a voucher scheme, gutting Medicaid spending by devolving it fully to the states, and obliterating a whole string of welfare agencies and programs that are vital to the social wage on which poor Americans rely to compensate for the inadequacy/absence of their private wage.[25] The class politics of the Republican Party do not come much clearer than this: all four Republican presidential candidates opposing the termination of the Bush-era tax cuts that erode federal tax revenue while tolerating severe cuts in welfare programs on the expenditure side of the federal ledger. The Republicans favor one rule for the rich, evidently, and a quite different one for the poor!

No, the tax proposals of the Republican presidential candidates make no sense. They are personally self-serving and economically destabilizing. The contrast between the Obama proposal to tax millionaires (including himself) and the Romney/Gingrich proposals to reduce taxation on capital gains, including their own, could not be starker.[26] “Vote for me, and give me another tax break,” might appeal to the most conservative amongst us. Let us just hope, however, that it will not appeal to the rest.

In any wars of words in an election season, truth is often an early casualty. The war of words between Mitt Romney and Newt Gingrich is no exception. The two Republican front-runners are currently telling each other carefully fabricated stories about their own pasts that cover tracks and reinvent reputations.[1] But in the end that is less damaging to the entire democratic process than the accidental and less contrived stories that, in passing, they are also telling us. Right now, as they attack each other with increasing venom, the four remaining Republican presidential candidates are collectively rewriting a critical part of our immediate past – and in the process are seriously misleading us as they battle with each other.

The main rewrite now underway in their twice-weekly televised clashes is a rewrite on housing finance. In Florida, and no doubt soon again in Nevada where the foreclosure crisis is even more severe, the men seeking the Republican nomination persistently blame the housing bubble on public policy and on federally underwritten regulatory agencies: on Fannie Mae and Freddie Mac, and on the evil impact of the Community Reinvestment Act.

They did so in Tampa last Monday in the first of their two Florida debates,[2] and they did so even more starkly in their second debate in Jacksonville on Thursday night.[3]  They said this:

Mitt Romney: [to Newt Gingrich, in Tampa] “You also spoke publicly in favor of these GSEs, these government-sponsored enterprises, at a very time when Freddie Mac was getting America in a position where we would have had a massive housing collapse….Freddie Mac did a lot of bad for a lot of people.” [Then, of Newt Gingrich, in Jacksonville] “Fannie Mae and Freddie Mac were a big part of why we have the housing crisis in the nation that we have….He should have stood up and said, look, these things are a disaster. He should have been anxiously telling the American people that these entities were causing a housing bubble that we’re seeing here in Florida and around the country.”

Rick Santorum [in Tampa] “There were several of us in the United States Senate back in 2005 and 2006 who saw this on the horizon, who saw the problem with Fannie and Freddie, and tried to move forth with a bill…we said, if you don’t constrain these two behemoths from continuing to underwrite this subprime mortgage problem, then we’re going to have a collapse. Unfortunately that proved – proved to be true.” [in Jacksonville] “In 2006…in warning of a meltdown and a bubble in the housing market, I stood out, I stood tall, and tried to get a reform….to gradually decrease the amount of mortgage that can be financed by Freddie – or underwritten by Freddie and Fannie over time, keep reducing that until we get rid of Fannie and Freddie.”

Ron Paul:  [in Tampa] “…in addition to that, it was an insult to injury, because they kept interest rates especially low with Freddie Mac and Fannie Mae, and there was a line of credit there, and it was a guarantee. As a matter of fact, I had introduced legislation 10 years before the bubble burst to eliminate that line of credit. But then the Community Reinvestment Act added more fuel to it, you know, forcing banks to make loans that are risky loans.” [in Jacksonville] “…we know how the bubble came about. It was excessive credit, interest rates held too low, too long, the Federal Reserve responsible for that. Community Reinvestment Act, which is Affirmative Action telling banks that they have to make these risky loans.”

In focusing on Newt Gingrich’s relationship with Freddie Mac in this fashion, his three main challengers offer us an explanation of the housing crisis that puts full responsibility for it (and its consequences) back onto the GSE’s, the Federal Reserve and the CRA; and they are not alone in this. Theirs is a view recently reinforced by the SEC decision to prosecute senior GSE managers for failing to disclose the scale of the subprime loans on their books;[4] by the widely-read newspaper articles of the GSE’s long-time critic, Peter Wallison;[5] and by the extensive coverage of the new book by Gretchen Morgenson and Joshua Rosner, Reckless Endangerment, one that singles out Fannie Mae for particular criticism and censure.[6]

The only problem with that view is that factually it is, in all its essentials, entirely misleading!

• Blaming a Community Reinvestment Act passed in 1979 for a crisis that emerged only three decades later was always a stretch. If the Act was guilty, its guilt certainly took a very long time to kick in; and it is a claim which recent research has entirely discredited. As Levitin and Wachter have reported on the basis of their careful survey of all the relevant research data, “there is little evidence that the CRA contributed directly to the bubble. CRA subject institutions made a disproportionately small share of subprime mortgage loans,” and “relatively few subprime loans even qualified for CRA credit ,either because they were made outside CRA assessment areas or were made to higher income borrowers.”[7] The findings of the Federal Reserve staffers Avery and Brevoort’s were similar: that “areas covered by the CRA experienced lower delinquency rates and less risky lending,”[8] not higher ones. “According to recent Fed data, 75 percent of higher-priced loans made during the peak years of the subprime boom were made by independent mortgage firms and bank affiliates not covered by the act.”[9] “Only 6% of…subprime loans had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend,” the Financial Crisis Inquiry Report noted, “were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law.” Which is presumably why the Report could definitely conclude, as it did, that “the CRA was not a significant factor in subprime lending or the crisis.”[10]

•  Timing matters too in relation to the GSEs and the development of a housing bubble. There is overwhelming evidence that the role of the GSEs in the explosion of housing prices and the spread of subprime lending was, at most, secondary and late. It was definitely not primary and early. The GSE’s did have an implicit government guarantee of solvency that enabled them to borrow at lower rates; and they did defend that special status with heavy lobbying. They also were the source of the securitization of mortgages that slowly transformed US housing finance from a “lend and hold” model of mortgaging to a “lend and sell on” one. But what they did not do was either initiate the lowering of underwriting standards that fueled the explosion of subprime lending, or spread those toxic assets through the U.S. and then global financial systems. Private lenders were responsible for the first of those two crucial drivers of the housing crisis, and private banks were responsible for the second. As Mark Zandi has recently noted, in 2002 before the housing boom, the two agencies held almost 54% of all mortgage debt. By summer 2006, at the peak of the bubble, their market share was down to 40%; and “it is difficult to see how the agencies could have been responsible for inflating the housing bubble at a time when they were losing a full 14 percentage points of market share.”[11] Only as private lenders ran into difficulties did Fannie and Freddie move in to take up the slack, jumping ‘back into the housing market at precisely the wrong time.”[12] It was in competition with private lenders, and in order to recapture market share, that eventually the GSEs did indeed lower their underwriting standards. But that belated lowering was a consequence of Fannie and Freddie being privately-owned, not of being government-sponsored. It was a lowering driven by shareholder pressure, demanded in order to compete with private-label mortgage backed securities “In contrast, the wholly public FHA/Ginnie Mae maintained their underwriting standards and ceded market share.”[13] It is data like this that led the Financial Crisis Inquiry Commission to report that, in their view, “the two entities contributed to the crisis but were not a primary cause.”[14]

•  In consequence we would do well to discount both the Wallison thesis, and that advanced by Morgenson and Rosner. The Wallison enthusiasm for the SEC decision to prosecute senior GSE managers – his assertion that the prosecution “has made it clear that the two government sponsored enterprises played a major role in creating the demand for low quality mortgages before the 2008 financial crisis”[15] – has been effectively rebutted by Joe Nocera. As Nocera noted recently: the “SEC complaint makes almost no mention of affordable housing mandates. Instead it charges that the executives were motivated to begin buying subprime mortgages – belatedly – because they were trying to reclaim lost market share, and thus maximize their bonuses.”[16] And even the Morgenson-Rosner volume, though widely recognized as a fine piece of reporting on misbehavior by senior figures within and around Fannie Mae in and after the Clinton years, would appear to mislead on the timing issue. To quote Robert Kuttner’s review – one of several to make the point – when Morgenson and Rosner wrote that “Fannie Mae led the way in relaxing loan underwriting standards, a shift that was quickly followed by private lenders,”[17] “they have that backward…. only late in the game did Fannie Mae seriously water down its standards.”[18]  “The GSEs did buy subprime mortgages in the 2000s, but contrary to the impression given by Morgenson and Rosner, their purchases were always a distinct minority of those sold by Wall Street;”[19] a fact that makes Kuttner’s judgment worth citing at length.

” It’s true — and appalling — that Fannie became the largest purchaser of subprime loans from one of the worst mortgage hustlers in the game, Jim Johnson’s pal Angelo Mozilo, the CEO of Countrywide Mortgage. But that was in the period from 2003 to 2005, when Wall Street had already provided the financing and created the securities market for subprime. Fannie was playing catch-up. So in the rogues’ gallery of scoundrels that caused the financial collapse, a fair reckoning would rank Fannie Mae fifth or sixth. Far higher on the list would be: Alan Greenspan’s Federal Reserve…; the Office of Thrift Supervision…; the Wall Street firms that bankrolled subprime lenders and turned their high-risk loans into securities; the credit-rating agencies that blessed toxic subprime securities with Triple-A ratings; the SEC’s failure to police those agencies; and, of course, the subprime lenders themselves.”

• So responsibility for the housing bubble needs to be placed instead squarely where it properly belongs: on the shoulders of inadequately regulated private financial institutions. As Mark Zandi put it “the biggest culprits in the housing fiasco came from the private sector, and more specifically from a mortgage industry that was out of control…lenders who originated home loans, investment bankers who packaged them into securities, rating agencies that misjudged those securities, and global investors who bought them without much, if any, study.”[20] Countrywide Financial was a case in point. Washington Mutual was another.[21] (Countrywide Financial was the largest single provider of mortgages in the United States in 2006. In 2005 it had accounted for 8% of all new asset-backed securities globally.[22]) Add to that list, flippers – real estate investors: recent research suggests that “in states that experienced the largest housing booms and busts, at the peak of the market almost half of purchase mortgage originations were associated with [such] investors.”[23] Moreover, “only one of the top 25 subprime lenders in 2006 was subject to affordable-housing laws. For the most part, private firms such as Countrywide Financial were issuing ‘non-traditional’ mortgages in order to package them off to Wall Street and make money.”[24]  And if you don’t believe that, try the FCIC Report instead: blaming the financial crisis the followed the housing bubble on “an explosion in risky subprime lending and securitization…widespread reports of egregious and predatory lending practices, dramatic increases in household mortgage debt, and exponential growth in financial firms’ trading activities.”[25]. Or the Levin-Coburn Senate Committee Report, “showing how high risk lending by U.S. financial institutions, regulatory failures, inflated credit ratings and high risk, poor quality financial products designed and sold by some investment banks, contributed to the financial crisis.”[26]  It is hard to know how many more blue-ribbon commission of inquiries the Republican presidential front-runners will need before they concede publicly what they must know privately: that blaming the GSEs for the housing bubble may be good politics (playing to their party base’s antipathy to effective public regulation of private markets) but it is bad history – bad because untrue.

• If there is anything that can be salvaged out of the Republican fairy tale on the origins of the housing bubble, it is the Federal Reserve’s low interest rate policy and its failure adequately to see the danger of a bubble and move to regulate it. That much of the Ron Paul case has merit. But what Ron Paul regularly omits to mention, when making that case, was that the Federal Reserve was then under the leadership of Alan Greenspan: the Ayn Rand enthusiast, the deregulation guru, and the advocate of the efficient market hypothesis thesis that so mistakenly reassured the banks amid their speculative frenzy.[27] The housing bubble arose not because the Federal Reserve was dominated by heavy-handed Keynesian interventionists, as the Republican candidates now imply. The housing bubble arose precisely because it was not so led.

The big problem with all this Republican rewriting of the record is that it makes it ever more difficult to design good policy for the future. The rewriting of history serves their immediate political purposes, but not our long-term needs. The Republican presidential candidates need to downplay the causal role of unregulated finance in the immediate past, and to overstate the role of Fannie and Freddie. They need to do both those things in order to justify still more financial deregulation in the future, and to undermine the credibility of GSEs that are now fully in public hands and so available for direct policy use. Santorum would close Fannie and Freddie. Obama might yet use them. Stopping that use is the subtext of the housing bubble story now being concocted in one Republican debate after another.

There was a telling moment in the Florida exchange that went largely unreported on which we would do well to dwell. In the midst of his criticism of Gingrich’s lobbying/consulting relationship with Freddie Mac, Mitt Romney actually agreed with Gingrich’s defensive response: that “there are many different kinds of government-sponsored enterprises, and many of them have done very good things…in the early years, those housing institutions were responsible for a lot of people getting a lot of good housing.”  Maybe that is why Republicans can’t decide between the two leading candidates. Each periodically and inadvertently lets a chink of reality penetrate the otherwise entirely fictional universe within which the Republican Party has chosen currently to organize its choice of standard bearer. There was no such concession to reality in the housing exchange in Jacksonville. It will be intriguing to see if reality creeps in again when the road show moves on to Nevada. Somehow, and sadly, I doubt it will. No ambitious Republican candidate is likely to make the mistake of honesty twice in a campaign as tightly fought and as factually ill-informed as this one would currently appear to be.

This argument is developed more fully in Chapter 10 of David Coates, Answering Back: Liberal Responses to Conservative Arguments (New york, Continuum books, 2010) and in Appendix 1 of his Making the Progressive Case: Towards a Stronger U.S. Economy (New York, Continuum books, 2011)

In Lewis Carroll’s Alice’s Adventures in Wonderland, the world discovered by Alice was one in which every aspect of reality was inverted. Big things were small. Small things grew big. The Cheshire cat faded into a grin.One side of a mushroom made you grow. The other made you shrink. It was also a world in which the Queen of Hearts had a simple solution to everything. “Off with his head!” Likewise in the world currently being created by the incessant chatter of Republican presidential wannabes, small characters want to be large, grinning is a substitute for substance, and all solutions are simple.  In the inverted world of Republican primaries, our present scale of unemployment is entirely Obama’s fault. Through the looking glass on offer from Romney and company, there was no unemployment before Obama shrank the economy by excessive spending, burdensome taxation and intrusive business regulation. Down the rabbit hole into which they would have us fall, a Republican Queen of Hearts can end unemployment at a stroke by taking those three evils away.

Oh that life was that simple, but it is not.

The Obama record on job-creation, spending, taxation and business regulation is not as the Republicans describe it. Nor are the causes of unemployment as straightforwardly remediable as they suppose. The clash on the record is well documented.[1] That on the underlying causes of unemployment is less so.  So instead of judging the job plans of any of the leading Republican candidates against a mythology of their own making, let’s instead examine them against the real causes of American job loss since 2008. Let’s set the tax-cutting, program-pruning, de-regulatory aspirations of Romney, Gingrich, Santorum and Paul against the full story of why this economy is no longer the job-creating machine it was in the 1990s.  That story is multi-layered and interconnected. The Republican policy proposals are not; and in that gap between story and solution lie all the reasons why a Republican victory in November’s general election can only make the unemployment problem in America significantly worse.

1. On the surface and in the most immediate sense, we face an unemployment problem that is cyclical rather than structural. People have lost their jobs and their homes because of a recession triggered by inadequately regulated housing and financial markets.[2] The resulting attempt to slow the recession by public spending added significantly to a federal deficit already large because of earlier tax cuts and an unfunded war; and the depth of the recession was such as to take that federal deficit to a level unprecedented in modern peace-time. If our current political debate engages adequately with any layer of our present difficulties, it does so with this one. Republicans endlessly deny that unregulated markets caused this crisis and are forever attempting to label the recession as Obama’s own, the better to obscure the degree to which the recession began when a Republican was in the White House and was brought on by an ill-regulated financial system. The Democrats have the better of the argument here. It is not difficult to demonstrate that this was a recession inherited by Obama rather than created by him, that it was a recession rooted in deregulation rather than over-regulation, and it was a recession eased rather than deepened by a Keynesian response.[3] Unfortunately for Obama, however, it is also easy to demonstrate that the modesty of his Administration’s policies[4] – his failure to simulate enough or to reform housing policy sufficiently radically – has indeed helped to prolong unemployment and weaken consumer demand.[5] And if that is so, the immediate restoration of American employment would appear to require an increase in the very federal spending and Fed largesse that existing levels of public debt make it ever harder to justify and to finance.[6] Level 1 of a four level conundrum.

 2. What then compounds the continuing weakness of the American labor market is unemployment of a structural kind. The United States faces a global economic order that is undergoing rapid change. The much-vaunted strengths of the Anglo-Saxon model of capitalism – with its low levels of state regulation of business on the one side, and its thin layer of job protection on the other – have left more and more Americans vulnerable to unemployment, and more and more American industries vulnerable to foreign competition. That competition has come from low wage economies in which state direction of industry is more prevalent and from welfare-based capitalisms with established track records on skill enhancement and high value-added manufacturing excellence. American jobs have gone off-shore.[7] American wages have stagnated under the weight of foreign competition; and American living standards have been maintained only by (and to the degree that) America’s overseas competitors have been prepared to reinsert their trade surpluses back into circuits of American finance. The long-term recreation of American prosperity requires, therefore, the regeneration of well-paying manufacturing jobs here in the United States, a recreation made more difficult by the weight of financial interests in the contemporary US economy, and the propensity of US-based corporations to outsource more and more of their basic production to state-guaranteed low wage labor markets overseas. Level 2 of the conundrum.

3. If that were not enough, the search for renewed and sustained American employment has to operate against the backdrop of two previous searches – two previous social compacts between capital and labor – each of which was temporarily successful but both of which have now failed. American prosperity in the immediate post-war period was generated by a compact between highly-productive American manufacturing firms and well-unionized semi-skilled American labor, a compact which raised working class wages in the United States to unprecedented (and globally unmatched) levels for a generation. In that first growth period, generalized prosperity trickled up, not down. The second, triggered by the Reagan Revolution, turned the U.S. economy into a job-creating machine by combining business-sector deregulation with a state-led weakening of American labor. Profits soared, wages stagnated, low-wage work proliferated, and American living standards were protected only by the vast majority of adult Americans working longer hours, regularly refinancing their homes, and relying on the general availability of cheap credit. In that second growth period, generalized prosperity trickled down, not up. Inequalities in the distribution of income and wealth increased. Rates of upward social mobility declined, and eventually the pace of job creation slowed to a trickle.[8] The oil crisis and productivity slowdown of the 1970s ended the first growth period and laid the grounds for the second. The collapse of the housing bubble and the credit-crunch of 2008 ended the second, and made vital the search for a third. Any serious political project to renew American prosperity, therefore, has to do more than generate short-term employment growth. It has to find a way out of the wreckage of the Reagan Revolution, a route to a new social compact between capital and labor in America. Level 3 of the conundrum.

4. Any serious political project to renew American prosperity has also to recognize, and retreat from, the huge costs of empire. We are not simply at the end of a growth period. We are also fast approaching a moment – seen in every major imperial system since at least the Romans – at which imperial overreach generates unacceptable levels of resistance abroad and unacceptable levels of economic and social distress at home. In the last seven decades, the United States has spent vast treasure abroad: wars in Europe, Korea, Vietnam, Iraq and Afghanistan; and bases established and maintained in every area of the global system outside the communist bloc. Policing the capitalist half of the cold war global system cost vast quantities of American resource, human and material.[9] Policing it created spaces in which competitor economies could and did grow. Policing it distorted and weakened the structures of the economy at home. Policing it generated a domestic culture vulnerable to hubris, accustomed to greatness, and prone to self-delusion. The costs of empire are now everywhere visible in post 9/11 America, but cannot yet easily be conceded by the vast bulk of a political class (and an electorate) whose political memory is far shorter than the seven decades of American global leadership. Ron Paul always strikes a chord with his audience when he speaks of this need to draw back troops and commitments, but is just as regularly and immediately dismissed as a serious political contender by the media and the Republican leadership because he does so. Finding a route out of empire into a post-imperial security and prosperity is America’s most basic long-term need.[10] It is also the one that an imperial political system of the kind that has built up in Washington since 1941 is least equipped adequately to address.

Even with a Democrat in the White House, politics in Washington now has the feel of Nero fiddling while Rome burnt.[11] Alienation from the superficiality of the daily political circus, combined with the inability/unwillingness of that circus to address some/all of the layered issues within which we all are obliged to live, is likely – unless Barack Obama lifts his game – to lock America into a series of one term presidents. For in such circumstances of political denial, campaigning is so much easier than governing. As Mario Cuomo once said, the first is poetry, the second is prose.[12] When those in power will not address the totality of the problems which surround them, then those out of power are easily able to point to the surface manifestations of the underlying problems, offer a superficial analysis of their cause, and win easy and brief power themselves: before inevitably falling victim to the next wave of cheap critics set in motion by their own failures to deliver when in office.

The only politics that will eventually sustain itself is one that is willing to go the full nine yards, and tackle all four levels of the conundrum simultaneously. That quality of politics is not on offer anywhere in the Republican Party these days[13] – even Ron Paul hits Level 4 but has nothing sensible to offer on the other three.[14] Maybe on the liberal wing of the Democratic Party, there are stirrings. But we are still waiting, even from them, for a genuine New Deal. We are waiting, and time is running out.

For a fuller outline of this argument, see

David Coates, Making the Progressive Case: Towards a Stronger U.S. Economy.

It is likely that 2012 will be long remembered as a watershed year in America politics. It certainly needs to be. Neither the country nor the world can afford much longer the gridlock that is presently immobilizing Washington. We all know that. Here we are, beset with a string of fundamental problems and bumping along the bottom of the most serious recession since the 1930s, frustratingly becalmed in a stalemate between political opposites, with the federal government unable to address the structural reforms that this economy and society so visibly requires. Currently, the width of the agreement on the seriousness of our problems is matched only by the depth of the disagreement on how best to resolve them. Given the depth of that disagreement, any effective resolution will inevitably take America off in one direction or in quite another, depending on which side of our entrenched political divide eventually prevails. When neither side does, as now, our problems simply intensify. We need therefore to go into 2012 clarifying the genuine choice of direction now before us as a nation, and we need to come out of 2012 with Congress and the White House in lockstep on the direction to take.

The Republican Party knows the package of structural reforms it would implement. It controls the House of Representatives. It wants to take back the Senate and the White House. The liberal wing of the Democratic Party has a very different, and to my mind, significantly superior package of reforms in its arsenal. They need the House back, and clear leadership from the White House to get it.

But will that leadership come?

It won’t if Obama’s re-election people fall into the trap of thinking, as they appear prone to do, that all they need to possess, in order to win in 2012, is superior organization: nothing about superior politics. They mislead themselves, and possibly us as well, if they think that all they need to do between now and November is to run some supped-up version of their 2008 campaign: putting workers on the ground and adverts on the airwaves in greater volume than their opponents. It won’t be that simple this time round.  Last time, all was promise. Now promise will be measured against performance. Performance has been, to put it mildly, uneven. This time, the Obama people are not fighting the Bush legacy. This time, they are fighting their own legacy. Whatever November 2012 will be, it will not be a shoe-in for the incumbent.

How then can the Obama Administration recapture the hearts and minds of progressive America? How can it demonstrate the superiority of its politics? Not by the President being statesmanlike, standing above the political fray, as The New York Times reported he may still be planning to do on his return from Hawaii.[1] He has already struck that pose too often and too long. Among other things, it cost Democrats the mid-terms. No, the hearts and minds of progressive America will only be recaptured by a President who – in the style of his recent Osawatomie, Kansas speech – is regularly prepared throughout 2012 to:

• put the blame for the current political impasse squarely where it belongs: not on Congress as a whole, but on the ideological intransigence of Tea Party Republicans, especially in the House;
• defend the progressive gains of his first term: access to health care for 30+ million Americans previously denied it, the beginnings of reform of a financial system badly out of control, and the ending of an unnecessary war in Iraq;
• remind Americans of the scale of the economic and military disaster left by the Bush Administration in 2008, and of the way Congressional Republicans have filibustered every progressive attempt to put the resulting recession behind us;
• call on independent voters and Democrats to unite behind an administration committed to using its second term more effectively than its first to create a fairer America, a more prosperous America, and an America progressively free of foreign wars; and so
• return from his Hawaiian Christmas prepared to launch a crusade for peace, jobs and equality.

Will Obama do that? Let us hope so. He certainly mustn’t return to Washington from his brief vacation simply offering business as usual. He must return with something new and dramatic. To save America from the horrors of a right-wing presidency, his administration has just ten months to remind Americans of just how many American households depend on at least one federal program for a key part of their income (maybe as high as one household in every two), and just how important active government is, on everything from food safety and environmental regulations to unemployment insurance and Pell grants.[2] Even more vital, the Administration has just ten months to re-establish Obama’s progressive credentials among independents and Democrats alike, by a burst of executive action and policy proposals designed to lock in key constituencies and to reinforce liberal Congressional candidates.

If the Administration fails to re-establish those credentials there is a genuine danger that, come next November, we will see power in Washington shift back to a Republican majority which will be even more reactionary in its domestic policy, and hawkish in its foreign policy, than were the Bush Republicans defeated by the untested Obama in 2008. If Barack Obama does not present himself in 2012 as a committed liberal, many progressives will simply decline to campaign for his re-election. Many might not even bother to vote for him. Some may even head off in search of a third party candidate, alienated to the point of indifference by the President’s failure to sustain his promised program of radical change.  The Obama Administration needs to recognize, and recognize as a matter of urgency now, that keeping Republicans out of the White House will require, at the very least, serious defensive politics by a broad coalition of the entire American Left throughout 2012. It needs to recognize too that mobilizing such a coalition for purely defensive purposes alone will be extraordinarily hard. Getting out the full progressive vote is invariably more straightforward when liberals can see, and actually like, what is on offer. It is invariably more difficult – much more difficult – when the only choice being canvassed is one between lack-luster alternatives, neither of which appeals, where the main reason for voting is to keep the other side out.

We need something to vote for, not simply something to vote against!

Which is why it would help the progressive cause enormously in 2012 if the Obama administration could start this election year with something akin to a new “100 days”: policies and programs well to the left of any that it has so far chosen to offer, designed to, at the very least:

•  halt the flood of foreclosures by an aggressive write-down of the outstanding debt on underwater mortgages;[3]
• increase the flow of low-cost credit to small and medium-size businesses in return for additions to their labor force;.
• slow the outsourcing of American jobs, strengthening American manufacturing by bringing middle-class jobs back to middle-class America;[4]
• bring employment directly to what otherwise might become a lost generation of Americans now in their 20s, through a public works program modeled on FDR’s New Deal[5] (this time perhaps, including trading the writing-off of student debt for work on urban redevelopment);
•  tax speculative financial transactions and excessive bank bonuses, explicitly to fund the re-employment by cash-strapped states of the teachers, cops and firefighters now being laid off;
• grant amnesty to the children of undocumented workers, and routes to citizenship for their parents;[6]
• bring troops back from Afghanistan at an ever increasing rate – replacing nation building abroad by a new round of nation-building at home.

Is any or all of this just a pipe dream? Sadly, I fear it mainly is, but I still hope it is not. For in truth our options are narrowing rapidly. As a nation, we can spend 2013 returning under Republican leadership to the inequalities and unregulated financial excess that brought us to our present impasse in the years of George W. Bush, or we can spend 2013 beginning to realize a new progressive deal for a resurgent America. The entire future direction of America’s economy and society is at stake this time around. Being wishy-washy in the center will no longer cut it. Which is why now is exactly the right time for the Obama Administration to get off the fence and clarify the choice, and clarify it by the introduction of a slate of progressive policies – so that America can eventually choose, and hopefully choose wisely, next November.