As the global economy fishtails down the road, it's becoming clearer that fundamental changes are going to be required to avoid another crash. This economic crisis was caused by stagnating wages, which have eroded household stability and caused many more to turn to debt to make up the shortfall. The incomes of the top 1% have grown dramatically over the last 30 years, but for everyone else they haven't. Lacking any other choice, people took on debt to try and afford housing, cars, education, and often basic necessities. Debt levels became too high by the mid-'00s, and when oil prices spiked and the housing market collapsed, the hollowed-out economy skidded into the ditch.
What we're experiencing is a classic balance sheet recession - where a revulsion against debt leads households to deleverage as rapidly as possible to get their heads back above water. The problem is that stagnant wages, still-frozen credit markets, the collapse in housing values and the scarcity of work are all making it extremely difficult for people to pay off their loans. Left alone, this deleveraging will go on for quite a long time, perhaps a decade, and only when the debts are paid off will recovery be possible. Countless lives will be ruined, productive and creative years lost, and who knows whether the American political system can handle the stress of such a long period of Depression.
There are several possible ways out of the crisis. Debts can be forgiven - cramdown legislation and mortgage principal modifications are especially useful here. People can declare bankruptcy and wipe out their debts, although this leaves most who go through the process very unwilling to risk their financial security again by spending or taking on any new debt. (It can also ruin any chance of getting work.) Debts can also be inflated away. The best answer would be using a combination of massive government stimulus to put people to work, and new regulations and fiscal policies to break up large concentrations of power and wealth in order to grow wages to help people get rid of their debts. Whatever the answer, progressive economic recovery policy has to include debt relief as a major, perhaps even the central element. The broader rebooting of the American economy along sustainable and democratic lines won't be possible until the debt is purged.
Economists like UC Berkeley's Laura D'Andrea Tyson are calling for just this kind of policy:
In a balance-sheet recession caused by too much private-sector debt, the government should also use its resources to catalyze debt workouts and debt reductions.
In the United States, where mortgages account for most of the private debt overhang, the federal government should enact stronger measures to reduce principal balances on troubled mortgages and to make refinancing easier. These measures would help stabilize the housing market, would prevent future defaults and would free money for borrowers to use to pay down their debt or increase their spending.
This would translate into stronger private-sector demand and more jobs.
In a balance sheet recession, the biggest threat is deflation. Falling wages make it much more difficult to pay down debt, prolonging the misery. Deflation works very well for people who already have a lot of money, since it preserves their position atop society. Rentiers continue collecting their interest, and with laws in place making default and bankruptcy very difficult (student loans cannot usually be discharged in bankruptcy), their income streams are not significantly challenged.
Battling deflation, debt, unemployment and wage stagnation seem like obvious necessities if a prolonged Depression is to be avoided. And while the elites have the money and the political connections to try and block these things, there are more of us than there are of them. In theory, the great mass of Americans who are suffering from the economic crisis caused by the financial elite should be ready and willing to unite in support of the progressive solutions described above.
And yet that hasn't happened. Working Americans are deeply divided into two camps, right and left, Tea Party and progressive. As David Atkins points out these two groups have a lot in common:
Tea Party crazies and progressives--i.e., the real people in the real economy who spend the most time obsessing over and paying attention to politics, as opposed to those encased in the D.C. or Manhattan bubbles--know that Thomas Friedman and friends are horribly out of touch. Tea Partiers and progressives have radically different theories of politics and governance, and radically different explanations for why Friedman and friends are wrong, but each camp definitely agrees that the demise of this sort of sophomoric neoliberal commentary would be a great thing for democracy. Both Tea Partiers and progressives can see the economic destruction of the American way of life, and agree that it's being destroyed on behalf of elites. The two camps differ greatly in who they believe those elites to be, but both camps know this: Thomas Friedman and friends lie to serve the interests of the elites, not of ordinary working people.
Instead of embracing progressive solutions, however, the Tea Party is vehemently pro-deflation. Texas Governor Rick Perry caused a firestorm of controversy when he called Federal Reserve Chairman Ben Bernanke "treasonous" for even considering quantitative easing policies that might reverse a slide into deflation. (Quantitative easing is not sound policy for many reasons, but its attempt to stop deflation is one of its few benefits.)
Michelle Bachmann has made deflation a core policy objective, arguing that money should never lose its value:
The shorthand way of describing to you what quantitative easing is is a license to print money without any value behind it...In the last two years of the Obama administration, if you pull a dollar out of your pocket, you have lost 14 percent of the value of that dollar. That means the federal government has stolen that money from you… They’ve been printing essentially valueless money and flooding it into the money supply. I don’t stand for that. A dollar in 2011 should be the same as a dollar in 1911. A dollar should be worth a dollar.
Think Progress called her claims "laughably uninformed," and yet it hasn't hurt Bachmann. That's because Perry and Bachmann have their finger on the pulse of a very deeply seated right-wing hostility to anything that smacks of inflation. If progressives are going to build a popular front to attack the economic crisis, they have to understand and confront the right-wing's love of deflation.
Some progressives dismiss conservative fear of inflation as being nothing more than an expression of right-wing servility to the wealthy elites. But that misses the mark, and doesn't properly explain why fear of inflation - and therefore love of deflation - is so visceral to not just right-wing populists, but to many Americans.
The conservative populist worldview is not so difficult to understand. To them, what matters is whether or not someone deserves to be prosperous. In their world, those who work hard and succeed on their own - without any visible means of assistance - are the only ones who deserve success. There will always be winners and losers, that's the natural order of the world (or so they believe). Those deserving winners are seen as constantly struggling against those who are not successful and who are always out to take what the successful have. The overriding goal for conservative economic policy, then, is to ensure that the losers can never stop the winners.
Since the 1960s American progressives have been trained to see how this worldview plays out with regard to race. White conservatives are convinced that people of color (who are always seen as "losers") are not capable or deserving of success, and so they're out to take the wealth of successful whites. White conservatives therefore vehemently oppose any programs that are designed to benefit people of color.
Progressives haven't always understood that white conservatives are also quite happy to apply these very same rules to other whites. Right-wing hostility to President Barack Obama's health insurance reform wasn't because they thought people of color would benefit - they opposed it because they didn't want someone who hadn't earned it would benefit from the reform at their expense.
This logic was never hard to find as the 2000s bubble was unwinding. Right-wingers had an easy narrative for the housing crisis - people who didn't deserve to own a home were able to get loans because of lax policies by the banks, bought more than they could afford, and couldn't pay their mortgages, causing the crash. This was sometimes racialized, but it often wasn't. I've heard many conservatives back home in Orange County criticizing other middle-class whites for this "reckless" behavior. Irresponsibility by people who tried to get success the wrong way, without working for it and earning it, was the cause of the crisis.
And because irresponsibility on the part of the undeserving caused the crisis, it was illegitimate to do anything to help those people. In fact, any effort to help relieve the suffering of those facing foreclosure was seen as robbing the successful to help the unsuccessful. The very people who created the problem were going to be bailed out and once again it would be the successful people who paid the price. If the undeserving losers couldn't afford to pay their debts, they shouldn't have taken on the debt in the first place. Suck it up and deal with it alone, the right-wing populist says, lest you make a winner help a loser.
One could and should respond that those "successful" people have also benefited from a lot of government aid, from public education and infrastructure to the mortgage deduction. But that doesn't faze the right-wing populist, who believes that those things are legitimate because they deserve those benefits by virtue of their own hard work. By this logic it's easy to see how taxation gets seen as illegitimate, because it's the best example of all of the losers taking from the winners. And it's easy to see how government gets seen as illegitimate, because it is the institution making the "theft" happen.
Questions of inflation and deflation, then, have to be viewed with the issue of "deserving" in mind. Right-wingers believe they succeeded all on their own. They prize what they gained. They are deeply attached to the value of what they possess, because they believe it is theirs. If what they own loses value, it is a direct shock to the right-wing populist, because they do not see any legitimate way to recover the lost value. If they sought government aid, then it's a sign they're no longer a deserving winner but an undeserving loser.
Inflation causes a visceral hatred, then, because it is impossible to square with the right-wing populist's worldview and is a direct threat to their concept of individual success. Deflation is a great thing, because it gives a further advantage to the winners. Whether the losers suffer is immaterial, because either the losers will be motivated to work hard and succeed, or they won't and can be simply forgotten. Any fiscal or monetary policy act that even risks deflation will be attacked with that same visceral hatred. Any fiscal or monetary policy that is seen as a guarantee against inflation will be worshipped - which explains the right's fetish for gold. (Ironically, as Nouriel Roubini enjoys pointing out, even gold can be devalued.)
Right-wing ideology is notoriously impermeable. There's no way any progressive can break through it, except in individual cases owing to specific circumstances (like a progressive getting through to a conservative relative). So the goal here shouldn't be to convince the right, but to understand their arguments so we can win over the persuadables - those who aren't rigid right-wing ideologues - to a progressive populism.
That has to begin with a rejection of the concept that society only has winners and losers, that everyone is atomized and succeeds or fails on their own merits. Collaborative and collective institutions and relationships have to be the networked basis for progressive populism to spread, because those forms already have the basis for undermining the right-wing narrative that prevents action to grow wages and purge debts.
None of this knowledge is new. This is precisely the same issue that populists and progressives faced over 100 years ago, during the Long Depression from 1873 to 1897. Anti-inflation policies prolonged the downturn for nearly 25 years. Activism during the Gilded Age and the Progressive Era was characterized by building new institutions that could connect people and overcome the atomization of the American economy. Many of their policy goals weren't won until the New Deal, when some of the most powerful institutions and movements oriented around collaboration and connections - particularly labor unions - hit their stride.
What this analysis suggests, then, isn't just that progressives need to develop narratives that prevent persuadables from embracing right-wing policies that will prolong our suffering. It suggests that collective organizing and collaborative institutions are as important, if not more so, to the success of progressive economic policy.
We break down the notion of winners and losers, of deserving and undeserving, if we build a movement whose values and practice are ones of working together toward a common end. That's not to say that individual goals are gone, far from it. We work together so that each of us can achieve our own brilliance, whatever that may be. But we recognize that individualistic policies lead to prolonged misery, and collaborative policies lead to prolonged happiness.