recovery

A few of you have called me harsh in my criticism of Obama. Perhaps I am. Allow me to expand a little on why I have the opinion I do. My narrative goes this way:

My worldview is largely informed by my own experience and education. No news in that. But it is heavily influenced by my interpretation of my family’s recent history. I use that history as a measuring stick. My grandmother plays a pivotal role since she is the farthest back that I can reach. She thus becomes the starting point in my analysis.

She started adult life as a servant in a small time aristocratic English family home. Think “Upstairs Downstairs”. She married the aristocrat’s personal jockey, who died before I was born so I have no memory of him. At some point she escaped the life of a servant and established herself as a single mother, self reliant and, as I recall, very independent. She successfully raised my mother and her 5 siblings on what was a meager living, and at a time when single mothers were not well received by society. She became the first woman in her town to vote. And she was the first woman in her town to own her own home. She had to suffer through the humiliation of “being allowed” to own a home as a single woman. Such was the backward attitude of society back then.

By “back then” I mean the 1920’s/1930’s. Not that long ago.

Since then my family has progressed steadily. First my parents emerged into solid middle class status, and then I was able to go even better. At least in terms of affluence. So I look back at this trajectory and see a family throwing off the shackles of working class limitation, and achieving, in less than 75 years, a typically well-off middle class life style. The question becomes what next?

And that’s where my anger at Obama surges to the surface.

As I survey the economy and America in general I see many families like mine. And I see far too many in retreat. The progress that my family has made in three generations is in jeopardy. We are at risk of falling backwards for the first time in a century. In the face of this retreat I can hear my grandmother’s words ring clearly in my ear:

“Peter” she told me once “Be careful, they can always take this way from us. We have to fight for everything.” And she meant “fight”. She didn’t mean discuss.

Why I needed to know this, I was around ten years old, I have no idea. But her words echo strongly nowadays. Because they are taking it away from us.

For thirty plus years the American middle class has plunged into a slow motion suicide. It has fallen prey to the illusion that it doesn’t need the help and protection of government in order to maintain its progress. This is despite all the evidence from the 1950’s and 1960’s when the growing affluence of the new middle class was underwritten entirely by constant intervention by the government in economic affairs. The returning World War II veterans were educated by the government; trade, and other policies were established to help recovery; huge stimulus was pumped into the economy to prevent the return of depression – one of the greatest fears coming out of WWII was that a slump was almost certain; and a stand-off between unions and management made sure that a good share of the surge in postwar productivity flowed to workers. Times were good and well balanced.

Keynesian economics was built in an attempt to protect capitalism form its self destructive tendency. A tendency amply demonstrated by the depressions of the 1800’s and then in the 1930’s. Keynes’ great project was to fend off the tendency towards extremism engendered by the fear felt by the middle class when its wealth is threatened. He realized that the poor have different fears – they have little to lose. And he realized the wealthy don’t care – they have the resources to protect themselves. It is the middle that is most vulnerable because its grip on wealth is the most tenuous. It is this middle that can swing rapidly towards extreme politics in an attempt to protect itself from the decline back to poverty. His big lesson was that stable democracies need to protect the middle class from predation by the elite. To do that he argued the government needs to play a role in maintaining economic stability.

Else “they can take it away from us.”

The problem is that during the boom of the post war era the memory of the fight for affluence faded. Affluence was taken for granted as if it were the natural state of an modern economy. The machinery that enabled the creation of the middle class was derided as inefficient and corrupt. The culminating event that allowed “them” to retake power was the oil shock of the mid 1970’s, after which normal economic policy appeared to fail. The postwar boom faded and the middle class was threatened. It sought reassurance that it would not fall back. This opened a chink for the right wing resurgence. Keynesian economics was attacked by the ideologically-driven alternative spelled out by Milton Friedman and his disciples – most of all Robert Lucas – at the University for Chicago. They argued for a return to classical economic theory that had no place for the government. Between them they articulated a theory of economics that enabled and legitimized the Reagan illusion. The purpose was to cut away the Keynesian style props, and allow the economy to fly free. The elixir sold to justify this was the great tax cut scam.

Reagan cut taxes and was the first President in American history to plunge the country into a peacetime debt. We prefer not to remember that now, especially given Reagan’s saintly status with his followers. But he sold the middle class a bill of goods. The facts are simple: since Reagan started America on its debt binge the only reason the middle class has not relapsed to prewar poverty is the steady accumulation of debt. Both private and public. Keynes would have been horrified since he argued the government should pay down debt when the economy was going well in order to be able to go into debt to stave off depressions. And his key disciples – notably Hyman Minsky – also argued that a reliance of finance, which a debt based economy becomes, is highly unstable due to the very nature of the way in which banking takes place.

We chose to ignore the wisdom drawn by the likes of Keynes from his direct experience of the Depression. We chose to ignore the warnings of people like my grandmother who had lived through the fight for equality and a chance to be free of poverty. We bought the illusion.

But all illusions end. Mostly in unhappy circumstances.

That’s where we are today.

The bubble burst. The middle class has learned that its reliance on debt to maintain its lifestyle is a sure road to ruin. Yet it reflects on its hard work and wonders where the rewards are. Why is it that education and health costs have spiraled out of control? Why is it that wages have not kept up with inflation for three decades? Why is it that home prices surged, then crashed? Why is it the we hear about endless deficits even while we are supposed to be rich and powerful? Why is it that America has reputedly poor education despite the money we spend? Why is it that our infrastructure is decaying? Why is it that we don’t live as long as our European cousins? Why are jobs so insecure? Why are profits booming even as we see unemployment rising? Why, in short, are we so insecure?

Because of the illusion.

We fell for the bait and switch.

We forgot that it is only the government – we the people – who have the collective strength to ensue that we are not taken advantage of.

We forget that untrammeled capitalism – true “laissez faire” – has been tried and rejected everywhere precisely because it undermines the middle. Nowhere in a true laissez faire economy is there room for a middle. All you end up with is a very small privileged top and a vast bottom. To give some dimension to that statement: the current estimated wealth of the family of the founder of Wal-Mart is equivalent to that of the poorest 120 million Americans added together. One family. Our very own aristocracy.

My grandmother would shudder.

We have worked so hard to escape massive and debilitating inequality, why would we willingly go back?

But go back we did.

America is now the most unequal society in the West. It suffers as a consequence. Poor people tend to be sicker, more stressed, and live shorter than rich people. Sure we can hide from the steady decay of standards for a while, but sooner or later, when enough middle class folks have fallen backwards things catch up. That’s where we are. At a tipping point. The degradation of the middle class life has reached a critical level. The loss of government help has steadily removed our lines of defense and now we are truly exposed.

The last two recessions have both been followed by jobless recoveries. Our economy now creates a bulk of low paying jobs balanced by a few very well paying ones. Our educated elite cluster into those well paying jobs and is thus able to pretend that nothing is amiss. Indeed our elite is now able to skim of the rewards of growth for itself: the distribution of incomes and wealth has returned to there prewar levels. American society is bifurcating at an alarming rate. The quickening of productivity over the last two decades has gone into profits not wages, which is the exact opposite of the experience of the early postwar years. There are no unions to force a better distribution. And government has been sidelined. Banks who were destitute two years ago, and entirely reliant on taxpayer aid have just – in 2009 – had their best year of profits ever. Ever. Yet we are mired in a crisis of their doing.

No wonder America is angry. No wonder the Tea Party attracts the white middle class. The fear is palpable. And Weimar Germany warns us that the political fall out of a betrayed middle class can be extreme.

Using my family history as yardstick: we have let my grandmother down. We have let “them” take it away. The postwar trajectory has been interrupted. The illusion is exposed as a fraud.

Or it should be.

And this is where Obama enters the story.

There is nothing novel in my narrative. Countless books, essays, and papers have been written about the demise of middle class America. The story is over-dramatized for effect, but contains the seeds of truth. A decade ago we could be accused of naysaying for attention. Nowadays it is hard not to say I told you so. The degeneration was foreseeable. The facts were accumulating. It was too easy to sell voters on the free market myth: after all why should we begrudge the wealthy their just due from their efforts? Isn’t that the American way?

Well no.

It never was.

There was always a healthy push back against inequality. Especially when it reached excess. American populism rears its head whenever the economy fails to benefit a big enough section of the voting public. Like now.

Obama could have seized this moment of populist upswell and channeled it into a constructive reconstruction of the role of government. He could have led us back towards a better division of the spoils or our collective hard work. He could have punished the banks for bringing down the economy, and thus he could have drawn the sting from the anger the industry justly created. He could have redirected our attention back to the days when America was not a military based economy – he could have heeded Eisenhower’s warning. He could have poured his political capital into fighting the free market myth from the outset, instead of restricting himself to policies that admitted defeat before they were announced. His was an opportunity to rebuild the middle class and stop its suicidal tendency.

He failed.

He didn’t put up much of a fight.

He tacked and trimmed.

He let the decline continue.

He let my grandmother down. Her legacy, and those of millions like her, is in doubt. He failed the very constituency who so dearly wanted him to succeed. The betrayal is enormous and probably irreparable.

Why?

Because his was the moment we could arrest the spread of extremism. His was the chance to make positive what was tending towards the negative. The continual shift to the right of the Republican party is a danger for us all. We need an intelligent right of center party. The health of democracy requires dialog and debate, not vitriol and hate. It requires sober argument and understanding, not pure obstructionism and volatile thoughtless riposte. He could have drawn a line and told the country that anything beyond that line was beyond the pale of decency. He could have offered a rehabilitated left of center narrative – the kind that Eisenhower as well as Truman would have recognized. He could have engaged on our behalf, and given expression to the accumulated frustration of those in the middle class who are not persuaded by the Tea Party.

He didn’t.

So the voices of unreason continue to build and we treat the affront of the recent gathering on the anniversary of Martin Luther King’s great speech as something we cannot fight.

We are leaderless at a time when leadership is both needed and crucial to the very fabric of the country.

I look around the Upper East side and see the vast array of wealth flaunted there. I see the new rich with their nannies and other help. I see a service economy manifest in the return to the days when my grandmother was a servant. Only we dare not call these nannies servants, even though that is exactly what they are. We fought so hard to create an economy where people like my grandmother could avoid being in service to others. Where jobs were available to provide a dignified and reasonably prosperous life for the mass we call the middle class. That was the achievement of the two generations before mine. And what have we done? Regressed to the days of inequality. We gave up. We sold my grandmother down the river.

The elite sold out. They are the ones with the servants now. Why should they protect us? The intelligentsia never had it so good, why should they attack inequality? But as the gap yawns wider the reaction is setting in. The Tea Party may be a minor phenomenon, but I wonder just how minor it will be if the drift towards greater inequality continues.

In the face of the threat of extremist politics we have a choice: fight back or capitulate. Obama capitulated.

That’s his failure: no fight.