Recent news about the contraction of the economy confirmed what many of us have suspected: the recession has morphed into a depression. Given that so many Americans are dejected and angry, how do Liberals turn this moment into an opportunity?
In mid-September the financial crisis will have lasted two years, the length of time required for a recession to be defined as a depression. There has not been the hoped-for crisp L-shaped recovery, but one that looks like a limp noodle, where things seemed to get better for a period and then didn't. The US is stuck with high unemployment, tight money, and low consumer confidence; we've entered our third depression
The two previous depressions, were the Long Depression in the nineteenth century and the Great Depression in the 1930's. During the latter, the Carter Family recorded the classic No Depression in Heaven:
I'm going where there's no depression,
To the lovely land that's free from care.
I'll leave this world of toil and trouble,
My home's in Heaven, I'm going there.
The word "depression" denotes both an economic and a psychological malady. An economic depression is "an economic downturn more severe than a recession." A psychological depression is a mood disorder characterized by "severe despondency and dejection." What the US is going through meets both criteria. Consumer confidence is low and sixty percent of Americans feel the country is headed in the wrong direction. Voters are in a foul mood.
How can Liberals turn the situation around?
First, it's important to recognize that many of us, particularly progressive economists like Paul Krugman and Joseph Stiglitz, thought 2009's stimulus package was too small and there should have been a massive job creation initiative like FDR's WPA. We advocated this because we thought 2008's financial crisis has broken the spine of the consumer economy: whereas Americans had typically gone into debt to make purchases, because of the crisis they had begun saving and lowered their consumption, thereby causing businesses to close and workers to lose their jobs.
In testimony before the House Committee on Financial Services,Economist Richard Koo described our current malaise as a "balance sheet recession", noting: "In order to regain their financial health and credit ratings, households and businesses in the private sector are forced to repair their balance sheets by increasing savings or paying down debt, thus reducing aggregate demand." Based upon his analysis of a similar balance sheet recession in Japan in the nineties, Koo stated, "Fiscal stimulus is... needed to make monetary policy work during a balance sheet recession."
To remedy our balance-sheet depression, Liberals must advocate a three-part recovery plan: First, there has to be a second stimulus package that rebuilds the US infrastructure and supports America's teachers and public safety workers. Most economists now recommend fiscal stimulusover alternatives such as deficit reduction.
Second, there has to be a massive redistribution of income by increasing taxes on both the wealthy and financial institutions (particularly those that were at the heart of 2008's economic meltdown).
Third, the Obama Administration has to take more responsibility for economic policy. The last thirty years has demonstrated that it's insane to assume the free market will do this. We've learned the market follows the path of least resistance and prescribes actions solely based on greed. What are needed now are economic policies that produce decent jobs for average Americans: manufacturing strategy that picks corporate winners and losers; protection of the rights of unions and workers in general; and strict enforcement of trade laws, ensuring that China and India and other trade "partners" honor existing wage and environmental agreements.
An aggressive Liberal stance on the economic recovery would provide a stark contrast with the vacuous statements made by conservatives, who promise to reduce taxes for the rich, reduce government spending by eliminating programs yet to be specified, and "stand with the American people back home." So far in 2010, the most complete Republican plan was delivered by House Minority Leader John Boehner. His speech contained no job creation ideas but instead consisted of spurious claims that Democrats plan to raise taxes, pass "job-killing" legislation, and increase the Federal bureaucracy.
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The US is stuck in its third depression. What are needed are crisp ideas about job creation. Liberals have these ideas.
Conservatives don't. They're regurgitating failed ideas, depicting the Bush Administration as a halcyon era where the economy worked for everyone - a golden age American can return to by cutting taxes and reducing the size of government.
That's a lie. During the Bush presidency America got off track. While the rich got richer, working Americans saw their dreams slip away. Democracy morphed into Plutocracy.
This balance-sheet depression is an opportunity for Liberals because we have answers while Conservatives only have platitudes. Indeed, the most compelling Conservative promise is that there will be no Depression in Heaven.