A year ago, Daily Kos was the scene of a great deal of back-and-forth about whether or not the economic recession was over and, if so, what that meant for the average American. Based on my observation, it meant little. Today, other diarists and columnists are wringing their hands over persistent unemployment, even as corporations reap enormous profits and sit upon a Smaug's hoard of cash. Wealth still flows exclusively to the uppermost tier of our economic hierarchy, jobs are still being exported overseas, and our trade deficit is still ballooning as the goods we import overwhelm those we export.
Little has been said of what all this means for us as an economic power and a nation. If it keeps up -- and it shows no sign of abating -- very soon we won't be either. And the reason is, we're falling deeply into economic backwardness. The real danger we face, and have been facing for the last decade, is regression.
Our regressing economy
Jane Jacobs put her finger on the problem in her 1983 book Cities and the Wealth of Nations: Principles of Economic Life. Trying to explain the "stagflation" of her time -- a combination of inflation and unemployment which, according to conventional economics, couldn't exist, because each ill was supposed to vary inversely with the other, like the ends of a seesaw -- she hit upon an insight while contemplating the "economic discomfort index" of Arthur M. Okun:
Just so, we can think of stagflation as a coherent condition in its own right: a condition of high prices and too little work.
The moment we think of it so, we instantly realize that this condition is not abnormal or unprecedented. Rather, it is the normal and ordinary condition to be found in poor and backward economies the world over. The condition is abnormal only in economies that are developing and expanding or have been doing so in the recent past, which of course are exactly the economies which have harbored, among so much else, economic scholars and thinkers from Cantillon right down to Milton Friedman and Arthur Okun.
From this she concluded:
If I am correct, the emergence of stagflation in formerly developing and expanding economies is appalling in its implications and portents. It is not just a problem of inflation to be gotten under control along with a problem of unemployment to be dealt with by mastering inflation, or vice versa. It is a condition in its own right, the condition of sliding into profound economic decline.
What indications do we have that this is going on in America now? The obvious one is unemployment. Between our most recent low, in November 2000, and our most recent high, in April 2010, the official unemployment rate (U3), which counts only unemployed workers actively seeking full-time employment, rose from 3.9 percent to 9.9 percent, while the U6 rate, which also includes "discouraged jobseekers" and underemployed workers, rose from 6.8 percent to 17.1 percent. The years 2001 through 2003 were particularly bad for the U3 measure, as full-time workers lost their jobs at a relatively higher rate (in other years, U3 and U6 have tracked each other closely).
Inflation is a less visible factor, largely because of how we choose to measure it -- i.e., without regard to quality of goods and without accounting for certain intangibles. In 2005, Sylvia Allegretto of the Economic Policy Institute wrote:
[T]he poverty measure is woefully outdated and little has been done officially to remedy the situation. For instance, the current methodology for poverty thresholds was designed over four decades ago in 1963 and has only been updated using the Consumer Price Index. Academics, policy analysts, and social scientists -- most of whom overwhelming agree that the Census poverty measure is seriously outdated -- have been engaged in dialogue and debate about alternative measures for some time.
Most analyses of alternative poverty measures find that an updated poverty measure would increase the percentage of those classified as poor (Bernstein 2001). Hence, one barrier to redefining poverty thresholds is political, with most presidents reluctant to have official poverty numbers revised upward during their administrations.
Allegretto engaged in her own redefinition: She calculated a basic family budget consisting of housing priced locally at the 40th percentile, food according to the USDA's "low-cost" plan for nutritional adequacy, the cost of owning and operating one car, child care for children ages 4 and 8, a weighted average of health care expenses, and the cost of clothing, personal care items, household supplies and other miscellaneous necessities from the Bureau of Labor Statistics' Consumer Expenditure Survey. What she found was that, for a family of two adults and two children, a basic household budget would range from $31,080 in rural Nebraska to $64,656 in Boston, with a national median of $39,984 -- more than double the official $19,157 poverty threshold for a family of four. Nationwide, 28 percent of families fell short of this line.
A 2008 update of Allegretto's story found an increase in the median basic budget to $48,778, ranging from $35,733 in Marshall County, Miss., to $73,345 in Nantucket, Mass., with most of the increase accounted for by housing, health care and child care. The official poverty threshold was $21,027, meaning that the basic budget now cost 2.3 times the defining poverty income, and the percentage of families falling short of it had inched up to 29.8. Undoubtedly, it's higher now.
So we have high unemployment, and ironically, given our obsession with obtaining everything as cheaply as possible, we have high prices relative to what we can afford to pay. This, according to Jacobs' theory, is an indication that the United States is in deep economic decline.
What's the nature of this decline? Essentially, a reduced ability to provide for our own economic needs and generate future wealth-producing capacity. Jacobs posits that economic growth is driven by the local manufacture of goods formerly bought from someplace else. This process of import replacement requires innovative spirit and the ability to operate independently on a small scale. It ignites a cycle of economic activity:
- Replacements stimulate more replacements, not only of finished goods but also for goods used in the production process.
- The wealth retained permits expansion, so that the replaced products can be exported as well as consumed locally.
- The capital raised from these exports funds more innovation and allows the purchase of other imports, which may themselves be replaced later.
The generation of capital in this manner allows an economy to adapt when another economy becomes able to produce the same goods more cheaply -- it simply stays ahead of the curve, producing something else that it can consume domestically and export. This cycle allows the economy to expand in five ways: enlarged markets for imports, job growth, transplants of city work into exurban locations, new technology and growth of capital.
Places that stop replacing imports with domestic production lose capital, are overtaken technologically, suffer from high unemployment and reduced buying power, and over the long term "sink into hives of rural subsistence" and gradually even lose the knowledge of past innovations, such as craft techniques. Or they become exploited monocultures or outposts of transplanted industries, or their workers abandon them for more prosperous economies. Their bonds with other advanced economies dissolve. In short, they are no longer in charge of their own economic destiny; they become dependent on others.
Thus, a decade of exporting our manufacturing facilities and technological knowledge and of hoarding wealth for private gain rather than reinvesting it in job creation and research has amounted to eating our seed corn. We're losing both the capital and the actual, physical production activity necessary to pull our economy out of its tailspin.
But it's even worse than that: We've allowed our economic vitality to be drained by spending that doesn't feed into the import-replacement growth cycle, specifically defense spending, welfare spending and something Jacobs didn't foresee: a perpetual-motion financial sector built on making money by making money.
Welfare spending is a moral obligation in our society, but it's one that's better met by creating productive jobs for everyone than by handing out money for nothing. As for defense spending, military bases absorb the products of economic activity but send nothing back out; the research and development that have produced such benefits for consumers, such as the Internet, could have been accomplished just as easily, and with greater economic efficiency, by funding it through universities and private companies. War is an even bigger drain -- one might as well take all the money that's spent and literally burn it. The $2 trillion spent on the war in Iraq is lost to us forever. And the finance sector? Aside from becoming an increasing source of friction in the economic engine, rather than the lubricant it's supposed to be, it's wandered off from the real world of necessary goods and useful services to play in a world of fantasy and invention, betting piles of real people's real money on virtual products and abstract measures of market behavior -- with some ugly real-world consequences, including the creation of an artificial worldwide wheat shortage.
Whatever further money and effort are spent on economic recovery, they must be targeted at increasing the amount of productive activity. That means jobs, particularly in manufacturing and technology research, but also in the infrastructure creation and repair that our nation needs so badly. There's so much work to be done, and there are so many people available to do it . . . the only thing missing is the mechanism to pay those people to do that work.
Somebodies and nobodies
So why has this crisis been allowed to happen? Surely this is just as bad for those at the top of our economic ladder as it is for those at the bottom, isn't it? Well, no, apparently not. As I mentioned before, 30 years of productivity gains have produced no increase in yearly wages for the mass of U.S. workers, and the wages of those at the bottom have in fact declined, while all the gains have gone to those at the very top. This crisis we're in right now was only acknowledged as a crisis when it began to threaten the luxury lifestyle of the executive elite. As soon as the "worst [was] over," according to the "leading economic indicators," Wall Street went back to business as usual.
This is a problem. And the root cause of the problem is a failure to acknowledge the personhood of ordinary Americans like you and me. In the language of the author Robert Fuller, we're nobodies. We lack the rank, the status, the power that grants us the right to be acknowledged. Corporate executives, Wall Street traders, senators and pundits are somebodies. They have rank, status and power, which gives them access to wealth, access to the rules about how wealth may and may not be accumulated, access to the means of production, access to the message machines that broadcast their point of view -- and the privilege of abusing and exploiting us nobodies without remorse or consequence. Barack Obama captured the essence of this state of affairs in The Audacity of Hope: Thoughts on Reclaiming the American Dream: "It's hard to imagine the CEO of a company giving himself a multimillion-dollar bonus while cutting health-care coverage for his workers if he thought they were in some sense his equals." Then, at least, he understood.
When the stimulus bill was passed, President Obama spoke forcefully of helping Main Street as well as Wall Street, but this has not come to pass. The somebodies have reasserted their dominance over the nobodies -- not just with respect to the economy but on health insurance reform, climate change, labor rights, you name it.
Unfortunately for us, with the exception of the hiccup of 2008–09, the existing system has worked well for the somebodies, and they see no reason to make any fundamental change to it. Unfortunately for them, they're in the same leaky boat we're in, even if they're in first class and we're in steerage. If it sinks -- or if it's attacked by pirates -- we're all done for.
But in the short term, don't expect them to see this. Though backward economies have never served the majority of their people well, they've typically been good to those at the top. Other than Tsar Peter the Great (whose attempt to modernize Russia failed because of that country's utter lack of import-replacement capacity), you won't find too many historical somebodies who've given much thought to the impact of economic backwardness on the well-being of their peoples. On the contrary, you'll find a plethora of examples of a maxim of Frederick Douglass: "Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them." We're finding that out again today. How much economic regression will the American people quietly submit to? Shouldn't we be refusing to submit right now?
Fall down go boom
Any person who wants to call himself well-informed needs to read Collapse: How Societies Choose to Fail or Succeed by Jared Diamond. It's not an especially easy or lively read -- it took me a couple of tries before I got into it -- but I don't think it's hyperbole to suggest that it may be the most important book ever written, at least with respect to our nation's future, so the effort must be made.
Diamond analyzes a number of societies over the course of history -- societies that fell, societies that stagnated, societies that survived and even prospered while their similar neighbors fell apart, societies that struggle on the margins of stability today. What he finds is that there are five major threats that can bring a society down. Actually, a sufficiently resilient society can survive any one of them at a time, but they don't always come one at a time. Two at a time can cause a society to go into prolonged decline and stagnation. Three at a time is rarely survivable; societies facing such a "perfect storm" disintegrate, sometimes messily.
These five threats are environmental degradation, climate change, attacks by hostile neighbors, abandonment by friendly allies, and rigid ideology.
Let's take stock. Climate change? That one's coming. We know it's coming. If we had a goddamn ounce of sense in our heads, we'd be preparing for it instead of putting a bucket over our head and running around in circles. Environmental degradation? A year ago, that was more of a regional problem than a nationwide problem, but then came the BP gusher, destroying an ecosystem that produced food (and created jobs), beaches that attracted tourists (and created jobs) and confidence in the industry that supplied our main source of energy (and created jobs). Who knows what further damage it might do -- or what other catastrophic incidents might compound the damage? Hostile neighbors? Fortunately, we no longer have an administration that goes around picking fights with any nation or culture that doesn't kowtow. Similarly, I think we have less cause to fear that our allies will abandon us . . . unless . . .
It's that fifth one that's going to kill us. Rigid ideology. Somebodies and nobodies. American exceptionalism. The addlepated, misplaced reverence for the "free market" (read: privatized profit and socialized risk). Our political servility toward the reactionary, out-of-step South and what Jake McIntyre hilariously called the "insane vuvuzela of Republican fringe lunacy." Nothing dooms a society heading toward the precipice like an unwillingness to change course. Moreover, the probability approaches 100 percent that if we find one of those other threats bearing down on us, our rigid ideology will provide the catalyst that blows everything to smithereens, whether it be alienating our allies by refusing to act on climate change, inciting a new wave of terrorism through economic and cultural imperialism, or, through greed and negligence, allowing a wide-scale environmental catastrophe to . . . hey, wait a minute.
As worried as I am about the long-term effects of our rigid ideology, I'm even more worried about the American public's lack of willingness to stand up to it forcefully. The Declaration of Independence was never so right as it is today: "[A]ll experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed."
These threats are dangerous enough even in a healthy economy. The further we allow our economy to regress, the more acute all these threats become. We'll lose the resources we need to clean up environmental disasters or invest in climate-neutral energy. We'll have less global influence with which to deter enemies. We'll be left behind by our closest trading partners. And you may have noticed that the political machinery in nations with backward economies tends to be reactionary, self-serving and repressive, not forward-thinking and adaptable.
Where do we go from here?
Despite my railing against rigid ideology, there are some consensus opinions that I think we're right to cling to and that we must not let go of, however fierce the pushback: We must not let go of our national identification with human rights and dignity. We must not abandon the idea that the right to govern flows from the consent of the governed, or that every citizen is entitled to a voice in his government. Our civil liberties are nonnegotiable.
But Thomas Jefferson's follow-up to the words quoted above are compelling: When citizens are subjected to "a long train of abuses and usurpations" from their government, "it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security." Is there any doubt that our current economic crisis has been caused by "a long train of abuses and usurpations" of working people, of citizens, of every "nobody" in this country, at the bidding and at the hands of economic elites?
Jefferson called it "self-evident" that all human beings are entitled to life, liberty and the pursuit of happiness. I'd like to add a second triad of rights to his, an economic triad: that just as all people, as political beings, are entitled to life, liberty and the pursuit of happiness, all people, as economic beings, are entitled to security, flexibility and opportunity.
Security: the assurance that misfortune won't knock us off the ladder into the economic abyss.
Flexibility: the freedom to choose a different role, a different field, a different way of making ourselves socially useful, or to continue in our current role and field while dealing with other commitments in our lives.
Opportunity: the power to advance ourselves and elevate our condition based on effort and merit, and the right to be informed of our options and properly prepared for them.
What kind of economic system should we aspire to, work toward and demand from our leaders? One that takes this nation's wealth -- less vast now than it once was, but still vast -- and puts it to productive use, replacing imports, creating jobs and researching new technologies. One that treats everyone -- employer, employee and unemployed alike -- as a somebody, deserving of dignity both in the workplace and outside it. One that reduces and eventually eliminates the need for welfare by providing meaningful work for every able-bodied adult. One that not only respects but promotes security, flexibility and opportunity for all.
It may be capitalist, it may be socialist, it may be a social-democratic mixed economy, or it may be something entirely new. But it must be all the things described above, for the sake of our economic well-being. There is nothing more essential at this moment in time than reversing the regression of our economy. All the other things we pin our hopes on -- workers' rights, universal health coverage, climate change prevention, energy independence, affordable housing, job creation, support of small and independent businesses, school improvement, rescuing states and municipalities from bankruptcy -- depend on our re-creating a self-sustaining domestic economy. The alternative is ever-increasing poverty and unemployment, ever-dwindling dignity, a hollowing out of our democracy, and America's eventual collapse.
Thus, in addition to a new economic system, we have to aspire to, work toward and demand a new political system as well. One in which no American is a nobody, and in which every American can be heard, both by his elected representatives and by his fellow citizens. One that respects the will of the majority and doesn't allow a reactionary minority to exert disproportionate influence. One with the foresight to see catastrophe on the horizon and the adaptability to steer clear of it. One in which no corporation has the right to prosper at the expense of the general welfare.
Let's not allow the dispiriting setbacks of the last year and a half define our politics or drive our economy any longer. Let's insist on a healthy and self-sustaining economy that creates wealth and work for all of us. Even if the "recession" is over, there's still work to be done. The end of the Great Regression begins when we insist that our representatives, our employers and our news media acknowledge us as somebodies.