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The current conventional wisdom for many in the U.S. is that the less government is involved with the economy the better. But this is precisely the moment in history when more government is needed. Without government intervention, the recovery will continue to stagnate, the economy as a whole will remain off balance, and we won’t be able to meet the challenges facing the country.

Originally posted on NewDeal20.org

I have been proposing a different way of looking at an economy than the traditional, neoclassic one. In my view, each industry fits into a wider system, as say trees or deer or bears fit into a wider forest ecosystem. In the same way, goods manufacturing, machinery industries, service industries, infrastructure, and the myriad other parts of a functioning society — including the health and education systems — have to work properly in order for the economy as a whole to function, with manufacturing functioning as the central sector. All industries are co-evolving, dynamically growing, concentrated within discrete geographical regions. And it is the responsibility of government to help orchestrate this interaction, or else it can turn into an ugly riot.

But at the root of the neoclassical world view is the idea that the economic system is self-regulating, that is, if the economy is pushed off course by “external” forces, then it will become stable by itself — without government interference. And yet we know that economies are constantly growing and changing — that is, they are not stable — and they are often under threat of recession and depression. That is why governments always have to be part of the solution. They are needed in order to support economic growth, maintain the right structure of the economy, and intervene when the economy goes bad.

FDR’s presidency is the perfect example of this. When he became president, Herbert Hoover had just spent several years trying to reverse the Great Depression with market-based solutions, but FDR championed a set of governmental policies that turned the country around. To deal with unemployment, FDR established the Works Progress Administration, or WPA, which was not only designed to employ one fully able member of each household in which no one could find work, but also to build up the country’s physical infrastructure. Building infrastructure is what governments do best. In fact, one could say that civilization started when the first governments constructed the irrigation and drainage systems that enabled agriculture to flourish. The United States, like every successful country, has a long and rich history of infrastructure building, without which the country would have very likely stayed poor. From canals like the Erie Canal before the Civil War, to the railroads after, from the dams that even conservative Republicans like Calvin Coolidge initiated, to the WPA that built libraries, schools, airports, roads, and other structures in virtually every town, to the Interstate Highway System championed by a Republican president, the United States has kept itself at the forefront of the global economy by making the building of transportation, energy, communications, water, education, and other systems the foundation of prosperity.

Partly as a result of his interventions into the economy, FDR was able to lead the nation into World War II by fundamentally transforming the economy to produce military equipment. At its height, one third of the country’s GDP was devoted to the war effort, with millions fighting overseas. That’s five trillion dollars in today’s economy. In other words, even assuming the continuation of a one trillion dollar military budget in the face of no wars of necessity, the economy has four trillion dollars left over to remake itself while providing for a comfortable standard of living for its inhabitants.

Instead of learning this lesson of history, however, our current political class seems determined to follow Herbert Hoover, not FDR. Meanwhile, the long-term domestic problems we face are worse than what FDR confronted. In the 1930s, the US was by far the leading manufacturing power and the top producer of oil; now the manufacturing sector is sinking fast, and not only do we import almost two-thirds of the crude oil we process, the global supply of oil is becoming harder to produce and is shrinking. In addition, we desperately need to eliminate the use of fossil fuels and transform agriculture and forest management in order to avoid the worst of global warming. The path forward is clear: we need an electric transportation system based on high-speed rail for long-distance travel, electric rail for freight, transit and small electric cars for intra-city movement, wind and solar power for electricity generation, recycling on a serious and massive scale, a densification of urban areas, and a more labor-intensive, localized, organic agricultural system. And these could provide the market for a revived manufacturing sector.

Only the government can build all of these systems in the time needed to both save the economy and save the environment. Incentives can go part of the way, but not fast or far enough. Taxing carbon or trading rights to carbon won’t solve global warming or decrease the use of oil as quickly as we need them to; lowering taxes or reducing the deficit won’t bring the manufacturing sector back. Government-as-builder does not mean government-as-warrior or government-as-Big-Brother. It is possible to have a strong government that is peaceful, democratic, and not beholden to our economic royalists, as we currently are.  But maintaining democracy is never easy; the political system is no more a self-regulating system than is the economy.  At least we can have a clear vision of where we are heading.

History doesn’t care if the political conversation of the United States won’t allow for talk about large-scale government intervention into the economy. The path to economic and ecological collapse is paved with “realistic” intentions. If the conservatives can be audacious enough to threaten policies that will further destroy the middle class and poor for the sake of the superwealthy, why can’t progressives draw on a rich American history, from before FDR and after, to rebuild a once mighty nation and help the rest of the planet move toward a sustainable future?

This is the last of a series on a manufacturing-centered economics.  The previous entries on DailyKos were:

Introduction

Economic growth

Globalization

In addition, I wrote a post on Why Manufacturing is Central to the Economy

My book "Manufacturing Green Prosperity: The power to rebuild the American middle class" expands on these themes.

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Comment Preferences

  •  I guess people here at Kos must agree (0+ / 0-)

    There probably isn't much potential for a pie fight here, since most people are probably in agreement on this.

    I think the argument that is roiling the political atmosphere is not about economics, but about power.

    The multinational banks are incredibly powerful, relative to any sovereign government.  Just last night, on the PBS Newshour, the brilliant guests were all in agreement on the assumption that the new head of the IMF could step in and solve the Greek monetary crisis.  

    I mean, woa!

    To me, the problem that you have if you are President of the United States is that multinational financiers operate with tens of trillions of dollars in investment, and probably hundreds of trillions.  From a financial standpoint, this overshadows the US government entirely.  It doesn't address complex social issues or the need to maintain infrastructures that support a viable society.  But it is a lot of money.

    The President has to deal with the fact that these people mean to exert their power.

    Thus, in the public sphere there is an argument about whether there should even be government power relative to the economic sector.  It is in the air because it is the effect of millions of dollars by "think tanks" and millionaires who like to spend money to roil the public arena.  

    It is in the air because those people who graduate from colleges and universities with English and Journalism degrees who have public relations skills need jobs.  There are a lot of professional jobs working under hire to roil the public arena.

    Wall Street will punish anyone severely for suggesting that they need to be scrutinized, through thousands of media outlets and a whole network of sour old seniors sitting at their computers cranking out emails and blog posts.  

    The purpose of this, aside from a kind of massive pranksterism, is to leverage more public sector services into private hands, so that Wall Street can profit.  It will push back against the call for regulation.  It will push back against calls for Keynesian stimulus spending.  It will reduce the tax obligations for the corporate sector.  Certainly it deflects attention away from any culpability in bringing about the recession on the part of the financial sector.  

    The Grover Norquist following seems to be a crowd with an idee fixe, the idea that shrinking government to a size small enough to drown it in a bathtub is in the public interest.  

    This idea seems to have caught on with people who haven't thought through what it might really mean.  There seem to be an awful lot of people who have gotten elected to state legislatures and to Congress who think along those lines as well.  

    This is the economic equivalent of Creationism and the drive to have it taught in schools.  

    hope that the idiots who have no constructive and creative solutions but only look to tear down will not win the day.

    by Stuart Heady on Wed Jun 29, 2011 at 10:28:52 AM PDT

    •  LOL, should just post your comment instead (0+ / 0-)

      There don't seem to be any intellectual counterarguments to the onslaught against government -- in fact, in a way akin to the problem in manufacturing, there was never much of an attempt, although John Kenneth Galbraith tried a bit with his idea of "countervailing power" (His son Jamie Galbraith has occasionally done it too, but in asides within other articles).  So there isn't even an ideas counteroffensive.  Maybe people just think it's futile, I don't know, I hope not.  

      The problem historically is that government has been something to oppose, because they are screwing things up -- like the Vietnam war, or torture, or other manifestations of the national security state, so that progressives are very suspicious of government from that point of view.  So you get a libertarian outlook, which is good to some extent, but then when it comes to the economy, there is no way to articulate that the government should do something.  In other words, it's not a very popular thing to do to stand up for the government, particularly the current one, so you're in teh position of having to argue for a government that doesn't even exist.  Although that's what the "founding fathers" did...I think its' called a revolution, although in this case, it would need to be an evolution.

      Apparently I need to rework how I frame this.

      •  Economic Literacy (0+ / 0-)

        My awareness of this was awakened purely by accident.  I had always thought that economics as just too boring.

        I got a temp job in San Francisco in the International Headquarters of Wells Fargo.  I could type, so they put me to work tending a particular file drawer and typing telexes and memos to go into some of these files.

        The lowboy filing cabinet seemed to have a couple of hundred files that were each on huge mega loans.  The bank had, the year before, been granted a federal authority to operate loan syndications.  You can Google this term.  Essentially, every local S&L, every lending institution everywhere was already part of a system that could put individual banks together in large packaged deals.  One bank cannot lend more than a small percentage of its entire capital in one agreement.  To create a massive pool, it is necessary to form a syndication with many banks.  So, these syndicated loans were all in the hundreds of millions.

        They were all to centralized dictatorships, such as the Pinochet regime.  This was in the mid 1970s.

        The loan payback periods were in excess of 200 years.

        They were not looking at the short term or local situations.
        When I brought up the President and the US Government, I got a sense that they were nothing but contemptuous.

        The atmosphere on these upper floors is like Graduate School Heaven.   The interior decoration is extremely beautiful, and replete with top drawer artwork, vases and expensive woven carpets.  The people there all have great educations from the world's best universities and they can talk about extensive travel, books, the theater and are just wonderful people.  You never want to leave.

        When you look out the window, you see people on the streets below, antlike, busy and apparently unaware of what is going on the tall buildings where people who really matter are dealing with matters that really are important to the future of the world.

        You see the map of the hemisphere and the world in a different way.

        That isn't what you get from any economics class in college.

        Unfortunately, the elitism of this atmosphere added to the sheer economic power on a global scale, lends a great hubris to this sector.  

        The average voter needs to be much more aware of this.  I would call that basic economic literacy.

        hope that the idiots who have no constructive and creative solutions but only look to tear down will not win the day.

        by Stuart Heady on Wed Jun 29, 2011 at 11:32:00 AM PDT

        [ Parent ]

        •  Well, Pinochet did fall... (0+ / 0-)

          ...although Chile is probably still paying back the debt.  The financial system has turned into an enormous resource transfer machine, that's the big problem, maybe obviously.  The real wealth is in production, so we need some industrial literacy as well, while the financial system skims off the surplus from the production system and wastes a considerable part of it, and of course makes things much worse in many cases, both environmentally and economically.

          •  This all operates without anyone knowing (0+ / 0-)

            I think the battle that is taking place in our minds is projected there by the forces at work in this, who want us focused on certain aspects and not others.  

            What we think we see going on, in the public arena, and what is really going are are likely to be two different things unless we have a grasp of the dynamics involved.  

            The trick in discussing this is to not focus on the academic argument, but on the punch and judy show and how it connects to what is motivating it.  

            hope that the idiots who have no constructive and creative solutions but only look to tear down will not win the day.

            by Stuart Heady on Wed Jun 29, 2011 at 01:13:14 PM PDT

            [ Parent ]

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