Politics of Despair

The New York Times has commissioned Adam Davidson to write a column for its Sunday magazine “to demystify complicated economic issues – like whether anyone (C.E.O.’s, politicians, people running for the presidency) can actually create jobs.”  Lest you not read the later columns, he tells you how they’ll come out: “The fact is that creating [jobs] in a far-too-sluggish economy is practically impossible in our current capitalist democracy.”

In one of his own columns and also in the New York Review of Books, the Washington Post’s veteran Washington analyst Ezra Klein has come to a similar conclusion about the Obama administration.  Given the opposition of the Republican party and the Democrats’ tenuous control of the Senate, Obama did pretty much all he could have done to stimulate job creation.  His stimulus package helped forestall another 1930s-type depression and lowered the unemployment rate by several percentage points, but now unemployment is stuck at nine percent and nothing further can be done.

The politics of despair has taken over.

Let’s not forget, however, that there is a way to create jobs in a sluggish economy:  government spending.  The New Deal did it in the 1930s.  During its iconic 100-day (reconvened) session in 1933, the 73^rd Congress financed two job programs (the Civilian Conservation Corps and the Public Works Administration) as well as relief for the poor and unemployed and the refinancing of residential mortgages to avoid foreclosure.  After Congress had adjourned, FDR created the Civil Works Administration (CWA) under which the government itself hired four million people for what turned out to be a very bitter winter.

CWA led in 1935 to the more permanent WPA (Works Progress Administration) that over the course of the next eight years spent 11 billion dollars employing 8½ million different people on well over a million projects that rebuilt the country’s infrastructure.  None of these programs cured the unemployment problem, but they did create jobs for workers that the private sector wasn’t hiring.  They put money in the empty pockets of previously unemployed people who promptly spent it, thereby stimulating the private sector to create more jobs to sell the products that the people who were temporarily employed by the government bought.

That as I understand it is what Keynesian stimulus is about.  During a recession reinforced by reduced spending on the part of insecure and out-of-work consumers, if the Federal Reserve has lowered short-term interest rates as much as it can, meaning close to or at the “lower bound” of zero percent, without inducing the private sector to produce enough output and create enough jobs to restore full employment, the economy is caught in a “liquidity trap.”  The surest way out is government spending not only to compensate for the inadequacy of private sector spending but also to stimulate the private sector to spend more.  During a liquidity trap, government can borrow at dirt-cheap rates and spend without driving up inflation or “crowding out” private sector spending.  It therefore makes economic sense for government to utilize idle workers to improve the economy’s infrastructure, as WPA did, while seeding the economy’s recovery to full output and employment.

Of course, FDR had advantages that Obama didn’t.  One was that the depression was much worse than our current recession and had lasted much longer when FDR took office.  As a result, he had overwhelming Democratic majorities in both chambers of Congress and a strong public mandate to do something – anything – to make things better.  Having served four years as Governor of New York that included the depression years and several years during World War I virtually running the Navy Department, he had experience and confidence that Obama lacked.  And while FDR was as fiscally conservative by nature as Obama seems to be, his concern for the needs of working people was greater than his conservatism.

FDR capitalized on these advantages and took swift and decisive action.  By the end of the 100 days, although economic conditions had actually gotten worse, “the feeling everywhere was so much better,” one of his close advisors wrote, and “good will [for FDR] spread like a benison over the land.”  Although FDR never got unemployment below ten percent until the huge stimulus of World War II, average Americans came to feel that FDR was trying to do something for them and stopped despairing.  The Democrats’ reward was long-lasting.  Voters kept them in control of the government for 18 of the next 20 years and in control of the House of Representatives for 58 of the next 62 years.

I suspect that the next opportunity for a Newer Deal, if it comes, will not occur before 2016.  By then the 99 percent will have suffered through eight years of despair and stagnant recovery and resistance to change by the one percent.  If they vote, they will control whether the country changes direction or stays the course.