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The Progressive Economics Forum

Why Obama is Bound to Fail (?)

I found this piece by David Harvey to be an absolutely brilliant and compelling analysis of just how difficult it will be to get out of this crisis, especially now that the global economy is visibly in free fall before our eyes. His argument is that there is no adequate political base in the US to sustain a solution radical enough to deal with the problem. I hope he is wrong but, as they say, you have to have illusions to be disillusioned. (Harvey’s history of neo liberalism is to my mind one of the very best critiques of the world the right built … and events certainly vindicate his position that a fundamental transformation is needed to turn things around.)  I have no view on Harvey’s judgement that China will ride to the rescue – bringing about a huge tectonic shift in the contours of global capitalism.

http://www.socialistproject.ca/bullet/bullet184.html

I recommedn the full version but here is a key extract:

“In the United States, any attempt to find an adequate Keynesian solution has been doomed at the start by a number of economic and political barriers that are almost impossible to overcome. A Keynesian solution would require massive and prolonged deficit financing if it were to succeed. It has been correctly argued that Roosevelt’s attempt to return to a balanced budget in 1937-8 plunged the United States back into depression and that it was, therefore, World War II that saved the situation and not Roosevelt’s too timid approach to deficit financing in the New Deal. So even if the institutional reforms as well as the push toward a more egalitarian policy did lay the foundations for the Post World War II recovery, the New Deal in itself actually failed to resolve the crisis in the United States.

The problem for the United States in 2008-9 is that it starts from a position of chronic indebtedness to the rest of the world (it has been borrowing at the rate of more than $2-billion a day over the last ten years or more) and this poses an economic limitation upon the size of the extra deficit that can now be incurred. (This was not a serious problem for Roosevelt who began with a roughly balanced budget). There is also a geo-political limitation since the funding of any extra deficit is contingent upon the willingness of other powers (principally from East Asia and the Gulf States) to lend. On both counts, the economic stimulus available to the United States will almost certainly be neither large enough nor sustained enough to be up to the task of reflating the economy. This problem is exacerbated by ideological reluctance on the part of both political parties to embrace the huge amounts of deficit spending that will be required, ironically in part because the previous Republican administration worked on Dick Cheney’s principle that “Reagan taught us that deficits don’t matter.” As Paul Krugman, the leading public advocate for a Keynesian solution, for one has argued, the $800-billion reluctantly voted on by Congress in 2009, while better than nothing, is nowhere near enough. It may take something of the order to $2-trillion to do the job and that is indeed excessive debt relative to where the U.S. deficit now stands. The only possible economic option, would be to replace the weak Keynesianism of excessive military expenditures by the much stronger Keynesianism of social programs. Cutting the U.S. defense budget in half (bringing it more in line with that of Europe in relation to proportion of GDP) might technically help but it would be, of course, political suicide, given the posture of the Republican Party as well as many Democrats, for anyone who proposed it.

The second barrier is more purely political. In order to work, the stimulus has to be administered in such a way as to guarantee that it will be spent on goods and services and so get the economy humming again. This means that any relief must be directed to those who will spend it, which means the lower classes, since even the middle classes, if they spend it at all, are more likely to spend it on bidding up asset values (buying up foreclosed houses, for example), rather than increasing their purchases of goods and services. In any case, when times are bad many people will tend to use any extra income they receive to retire debt or to save (as largely happened with the $600 rebate designed by the Bush Administration in the early summer of 2008).

What appears prudent and rational from the standpoint of the household bodes ill for the economy at large (in much the same way that the banks have rationally taken public money and either hoarded it or used it to buy assets rather than to lend). The prevailing hostility in the United States to “spreading the wealth around” and to administering any sort of relief other than tax cuts to individuals, arises out of hard core neoliberal ideological doctrine (centered in but by no means confined to the Republican Party) that “households know best.” These doctrines have broadly been accepted as gospel by the American public at large after more than thirty years of neoliberal political indoctrination. We are, as I have argued elsewhere, “all neoliberals now” for the most part without even knowing it. There is a tacit acceptance, for example, that “wage repression” – a key component to the present problem – is a “normal” state of affairs in the United States. One of the three legs of a Keynesian solution, greater empowerment of labour, rising wages and redistribution toward the lower classes is politically impossible in the United States at this point in time. The very charge that some such program amounts to “socialism” sends shivers of terror through the political establishment. Labour is not strong enough (after thirty years of being battered by political forces) and no broad social movement is in sight that will force redistributions toward the working classes.

One other way to achieve Keynesian goals, is to provide collective goods. This has traditionally entailed investments in both physical and social infrastructures (the WPA programs of the 1930s is a forerunner). Hence the attempt to insert into the stimulus package programs to rebuild and extend physical infrastructures for transport and communications, power and other public works along with increasing expenditures on health care, education, municipal services, and the like. These collective goods do have the potential to generate multipliers for employment as well as for the effective demand for further goods and services. But the presumption is that these collective goods are, at some point, going to belong to the category of “productive state expenditures” (i.e. stimulate further growth) rather than become a series of public “white elephants” which, as Keynes long ago remarked, amounted to nothing more than putting people to work digging ditches and filling them in again. In other words, an infrastructural investment strategy has to be targeted toward systematic revival of three percent growth through, for example, systematic redesign of our urban infrastructures and ways of life. This will not work without sophisticated state planning plus an existing productive base that can take advantage of the new infrastructural configurations. Here, too, the long prior history of deindustrialization in the United States and the intense ideological opposition to state planning (elements of which were incorporated into Roosevelt’s New Deal and which continued into the 1960s only to be abandoned in the face of the neoliberal assault upon that particular exercise of state power in the 1980s) and the obvious preference for tax cuts rather than infrastructural transformations makes the pursuit of a full-fledged Keynesian solution all but impossible in the United States.

In China, on the other hand, both the economic and political conditions exist where a full-fledged Keynesian solution would indeed be possible and where there are abundant signs that this path will likely be followed. “

Enjoy and share:

Comments

Comment from Paul Tulloch
Time: February 13, 2009, 2:48 pm

I posted this article in a comment a couple of days ago.

It is by far the most sober perspective I have read yet, that outlines what could be done, but most likely will not be done.

I think the key point here that Harvey mentions is the extensive need for state planning vs the US ideological/ cultural entrenchment against state planning. Or as Harvey makes the point, do households know best?

It will be a long time in hell before you hear an American say socialism is good for you.

However, fundamentally there is a space that Harvey overlooks in the solution space.

Capitalism’s inherent strength towards survival. However it comes back to Polanyi’s notes towards the double movement’s ability to reshape the fundemental contradictions that are growing and becoming much much louder now that it is coming apart at every nail.

I guess the “end of history” was but a chapter in a quite lengthy book.

What we do need is to develop some space for optimism within a state planning transformation.

I guess the proof will be in the pudding. That is, if the US is unable to swallow state planning red pill like Harvey comments, and instead takes the blue pill of its current piecemeal meandering through transformation, those states that chose the state planned approach should fair better.

The transformation and systemic innovation towards an economy that the future holds forth can be optimistic and it will take a mix of both State planning and houselholds making more informed choices within that state planning space.

However stopping the spiral down and whatever does it will undoubtedly leave some huge impressions for future generations to ponder.

What we need is a solutions that focuses on constructive forces and not destructive forces that our past has so many time failed in getting us thorugh such economic crisis.

Can the US get outside their shackles? It would be nice to think that they can, and I believe the whole wave of Obamamania was a sign that the double movement was taking a sharp turn to the left.

Comment from hysperia
Time: February 13, 2009, 11:58 pm

I’d like to think what you think, Paul. If Obamamania was symbolic of a sharp turn to the left, so far, that’s all it was. The fractured left is going to have to push him far harder than it has thus far shown any inclination to do if he is going to be expected to push for policies that embody their beliefs. That is, if there is a cohesive “left”, left, to do the pushing.

Comment from Tom Walker
Time: February 15, 2009, 10:06 pm

A distinction needs to be made between “Keynesianism” (even Harvey’s “strong”, “true” or “full-fledged” Keynesianism) and what Keynes actually thought about economic stimulus and full employment.

Keynes viewed government investment in infrastructure as “only one particular application of an intellectual theorem”. The other two were consumption and reduction of the hours of work. We hear about the first two applications, consumption and investment, incessantly but it was the third strategy, working less, that Keynes pronounced the “ultimate solution” to full employment. See his 1943 Treasury Department memorandum on “The Long Term Problem of Full Employment” and his 1945 letter to the poet, T.S. Eliot.

Keynes was concerned with full employment, not with economic growth. It was his successors who shifted the emphasis from the one to the other. They did so, I would argue, to suit their mathematical models more than anything. Be that as it may, in the 1970s Fred Hirsch showed how economic growth drained resources from both non-market activities and even from final consumption goods. Increased competition for scarce positional goods diverted resources into intermediate goods.

There remains a taboo against talking about work-time reduction as a possible response to the crisis. Dean Baker (he who ‘called’ the housing bubble in 2002) wrote a pair of op-ed pieces a few weeks ago in the Guardian and the New York Daily News calling for tax breaks for work time reduction. I have seen no uptake of Dean’s suggestion from the stable of liberal Keynesian economists — Krugman, et. al.

I’ve put together a submission to the “White House Task Force on Working Families” that tries to connect the dots between work-family balance, climate change, economic growth and working time regulation. I’ll post the executive summary in a separate comment.

Comment from Tom Walker
Time: February 15, 2009, 10:10 pm

Submission to the White House Task Force on Working Families: Executive Summary

Introduction

The key to addressing the issues of work and family balance, labor standards, equitable distribution of the fruits of economic progress and protection of the environment lies in understanding the crucial social contribution made by regulating the hours of work. In the absence of countervailing union pressure or government policy, there is a structural bias that leads to the prevalence of socially and environmentally harmful long hours of work. A promising policy innovation to redress this imbalance is featured in the section on policy directions.

Families and Work

Although American families have changed substantially since the 1960s, many policies aimed at providing income security have remained unchanged since the New Deal of the 1930s. Today, two-thirds of all families with children are either single-parent or dual-earner families. Between 1979 and 2000, the hours worked per year by married couples with children increased by 16 percent, or nearly 500 hours. Jared Bernstein and Karen Kornbluh have noted that without that increase in hours worked, the incomes of middle- and lower-income families would have stagnated or declined. This conclusion overlooks the possibility that the increased supply of hours may itself have contributed to the wage restraint through a treadmill effect.

Instead of confronting the issue of the hours of work head-on, most work-family advocates in the U.S. have focused on the need for family-friendly policies such as child care, paid family leave and flexible scheduling that mitigate the effects of a seemingly immutable working time regime. “The challenge,” though, as Kornbluh has noted, “is to frame work-life balance as a broader political economy issue.”

Full Employment and Shorter Hours

Historically, work-life balance was framed as a broader political economy issue in labor agitation for shorter working time. For nearly a century, from the 1860s to the 1950s, American labor unions also put forward the reduction of working time as their focal strategy for combating unemployment. The eight-hour day theory articulated by Ira Steward posited leisure and leisure time consumption as major tools of economic stimulus, driving both higher wages and improved productivity. After the Second World War, though, the unions’ enthusiasm for shorter hours faltered. Instead, the AFL-CIO primarily focused its efforts on urging government action to stimulate economic growth and only sought shorter hours as a “last resort.”

Keynesian Fiscal Stimulus and Economic Growth

What changed between the 1930s and the 1960s was the acceptance of the idea that government deficit spending could stimulate economic growth. Although popularly referred to as “Keynesianism,” Keynes himself did not accept the idea that boundless expansion of production and consumption was worthwhile for its own sake. Instead, he specified working less as the “ultimate cure” for unemployment. The imperative for growth was a notion added by later economists, Harrod and Domar, who believed that full employment could only be realized in the context of growth. That constraint, however, may have been a feature of the model they used to analyze the problem rather than an essential aspect of the problem of full employment itself.

By the mid-1970s, the idea that governments could “fine tune” economic growth through tax cuts and deficit spending had fallen out of favor due to of the emergence of stagflation – the bothersome coexistence of inflation and unemployment. Notwithstanding such disenchantment, the U.S. Government has run deficits totalling nearly five trillion dollars in 27 of the last 31 years, most of which were not recession years.

Social Impacts of Growth

Continued economic growth, fostered by government demand management strategies, has led to an increase in effective demand for, and consequently the relative cost of what Hirsch called positional goods – that is, “…all aspects of goods, services, work positions and other social relationships that are either scarce in some absolute or social sense or that are subject to congestion or crowding through more extensive use.” Competition for these socially or physically scarce or congested goods draws resources away from the output of final consumption goods and also exacts a personal cost in terms of time pressure. Individuals are compelled to spend more time in market activities and thus have less time to spend in non-commercial pursuits such as production for home consumption, leisure and sociability. “This has helped to upset a long-held expectation about the potential fruits of economic growth – namely, that they will be taken increasingly in the form of relief from material pursuits.”

Environmental Side Effects

Rosnick and Weisbrot estimated that if European countries adopted the long working hours prevailing in the U.S., they would consume 25 percent more energy. Conversely, if the U.S. adopted working times closer to the European average, it would consume 20 percent less energy. Assuming that the intensity of greenhouse emissions per unit of GDP continues to decline at a rate consistent with the historical trend, economic growth averaging 2.5 percent annually would increase emissions by around 75 percent over the next 30 years. The climate consequences will eventually impose abrupt reductions in living standards beyond the control of either government or private individuals. Meanwhile, poverty and unemployment will creep steadily upward. The alternative to continual economic growth and a resulting environmental and/or social catastrophe is to reduce the average hours of work for the bulk of the working population and increase employment opportunities for the unemployed and the underemployed.

A New Economic Paradigm

In a very real sense, “the new paradigm” is not all that new. Simon Kuznets, who developed the national accounts system, had cautioned in his first report to Congress in 1934, “… the welfare of a nation [can] scarcely be inferred from a measure of national income…” Too often, though, public debate about economic growth has assumed the very thing that Kuznets had warned could scarcely be inferred.
Another unwarranted assumption has crept unheralded into our calculations about economic growth and national welfare. That assumption, branded naïve by Lionel Robbins eighty years ago, is that industrial output rises and falls in proportion to the number of hours worked. So, even in terms of material commodities, working more doesn’t always make us better off. Not only could we potentially have improved welfare with less total economic activity but also we could enjoy greater material prosperity along with less waste of resources and greater opportunities for leisure. The key is distinguishing between growth (for growth’s sake) and actual improvement of national welfare.

Policy Directions

Dean Baker has proposed government subsidies for shorter hours and vacation pay as part of the economic stimulus plan.

“The government could give employers an incentive to provide paid time off now by giving tax breaks to cover all or most of the paid time off…

“This is a neat form of stimulus because it directly gives employers an incentive to hire more workers, as can be easily shown…

“If employers of 50 million workers took up the deal, then this 6 percent would translate into 3 million jobs…”

There would undoubtedly be considerable technical challenges to implementing a scheme such as that outlined by Baker. But there are challenges to implementing any stimulus package or policy reform.

Comment from Paul Tulloch
Time: February 17, 2009, 12:35 am

Excellent work Tom.

I too feel the shorter work week is not covered well by policy considerations.

However, I do want to make this point, and it is a quite valid argument of why shorter work weeks are not on the radar right now.

It is somewhat two fold.

First up, the whole notion that there is a shortage of work is a misnomer. And I am not arguing that you are making that point, but in general people make that inference.

However given the situation of the world, there is more work that needs than ever. That is, with the lack of diffusion of waged work into the tasks of all that which needs to be done, and the potential of what could be done, in a constructive sense, we as progressives are aiming too low with such a policy. Reducing hours to handle such measures is a short run solution that does have merit, and a very long long run solution at best. However in between those two time frames, the key problem is, the lack of market determined work that centers on the traditional model of civil society and regulated labour.

So we get back to this key high level contradiction.

We are not at the end of work, in fact we are only at the beginning of creating human centric work, and there is more work to be done than ever.

As I just read in Leo Panitch’s recent interview, this crisis will be fought in out on the backs of workers. That is how much more can be gained from workers in a manner that the contradictions can be socialized into acceptability, without creating a monumental swing in the forms of a counter movement, that will bring with it, sweeping transformations in the regulation of labour.

Once this occurs, then potentially we can have realistic discussion about reducing the workload.

This leads to the second part.

The key for me during the crisis moving forward is the ability of capital to extract even more gains from flattening labour through marginalizing worker and maintaining adequate profit levels. Which they have done quite well over the past few years as precarious work and disorganized labour has become the sign posts of the neo-liberal of the economy. the first signs are already upon us. Workers are the first to get whacked, in the form of government mandated wage roll backs in the auto sector, which if successful will establish the pattern.

Whether it be integrating a globalized heterogeneous labour supply, automation, passing anti-union and anti-worker labour laws, whipsawing across labour jursidictions, the neo-liberal assault over the past 30 years, has somehow been culturally smoothed debarbed, and swallowed by the developed economies and their workfers. Potentially less so in some labour juridictions, but they would be the exception rather than the norm.

So as Leo points out, it will be how we as workers, labour leaders, organizers, progressives, and the other side of the Polanyi’s double movement that regulates the “self- regulating” markets in which the future for such policies have potential.

Obama, has the capacty and I would say the will of the people to start carving out this space and pushing such a movement. However, as many have been questioning on the progressive side, how far will he go in attempting a re-regulation of labour and how successful will a movement to counter this crisis, inform, educate and mobilize the required response.

It is pretty obvious that getting Obama in power was a great first step or so it would seem.

So I am not so sure if the question is will Obama fail, it is more like will progressives reach a critical mass to enable a counter movement to push back the regulation of labour and the other such progressive issues such as the environment.

Without a whole lot of resources, support and organizing I am not so sure the current state of the progressive movement can handle such a task.

So I am not real optimistic at this precise moment, however it is early in the morning so potentially I am wrong. However I just finsihed being involved in a very lengthy labour strike, and I can say this about the local level and the national level of organized labour in Canada, wow dudes, you need a lot of work to be done at many levels. the media, the public, the public policy, the costs, the lawyers, the communication infrastructure, the politicians, and even the threat of violence was all quite one sided against the local union.

Potentially it was an outlier however it was a real eye opener on where we have gotten. As I stated, it thankfully there is passion, as that is what is keeping the motor running.

pt

Comment from Tom Walker
Time: February 27, 2009, 4:21 pm

Paul,

I’m grateful for the response. I certainly agree that there is an enormous amount of work in the world that needs to be done that isn’t being done. However, the work that isn’t being done isn’t being done because it is not industrial work for which an employer is willing to pay a wage to an employee. When we talk about shortening the workweek, we are referring specifically and practically to the kind of work for which employers are willing to pay a wage, not vaguely and philosophically to the kind of work that needs to be done but isn’t.

Comment from Paul Tulloch
Time: February 27, 2009, 8:46 pm

I understand Tom, and agree that a shortened work week is a tangible and practical goal that over the past many decades we have made real gains.

So I do repsect this goal.

It is just a point about the system in general and the whole process of how we determine what gets culturalized , ritualized and finally accepted into waged work and that which does not.

Kind of a point that, given the green shift, we need to take a lot more time thinking about and potentially thinking outside the generally notions that rationalize our somewhat profit minded needs and wants.

Alienated as a producer and alienated as a consumer gets me where I want to in my point. But working less to be an alienated consumer is a positive step there is no doubt.

pt.

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