The Clintonites were wrong

[one...two...tree 2,762]

Neoliberals have to admit that before they can stop the bleeding

By Michael Lind

Is the American economy facing a lost decade? That is the wrong question to ask. The right question is this: Is the United States facing another lost decade? During the past 10 years, inflation-adjusted wages have stagnated or declined for working Americans; net job creation has been zero; and temporary, bubble-driven gains in the stock market have been erased.

This isn't what Bill Clinton and the other "New Democrats" of the 1990s promised us.

Remember "the new economy"? In the second half of the 1990s, after years of stagnation, the U.S. economy briefly boomed. Members of the New Democrat wing of the Democratic Party, associated with the Democratic Leadership Council (DLC) and the Progressive Policy Institute (PPI), made a number of claims.

First: The source of the boom was not a bubble associated with tech stocks, but rather a permanent increase in U.S. productivity growth produced by the information technology (I.T.) revolution. Second: Foreign money was pouring into the U.S. as a result of well-informed expectations that the U.S. would lead the world in economic growth for a long period to come. Third: Increased inequality in the U.S. was a result of the global market rewarding skilled Americans at the expense of unskilled Americans, and could be cured by more higher education.

Something like this was the cheerful and optimistic New Democrat party line in 2000, the last year of the Clinton administration. How do things look from the perspective of 2010?

It is now clear that the boom of the second Clinton term was driven by the temporary tech stock bubble. It did not mark the beginning of a "new economy" fundamentally different from the old.

It is true that official statistics showed a trend toward a higher level of U.S. productivity growth in the late 1990s and 2000s than in the period of prolonged slow growth from the 1970s to the mid-90s. But Michael Mandel and other economists (pdf link) have argued that government statisticians have exaggerated the rate of productivity growth in the Clinton and Bush years by mistaking the falling prices of imported ingredients from low-wage countries like China for gains in productivity on U.S. soil.

Between 1997 and 2007 U.S. productivity growth might have been overstated by as much as 20 percent. If this revisionist critique is right, then actual U.S. economic performance, when the stock and housing bubbles are factored out, has been much worse than anyone would have believed a few years ago. The illusory wealth generated by overpriced tech stocks and houses temporarily obscured the grim picture, but now its depressing outlines are becoming clear.

What about the claim of neoliberals in the 1990s that foreign money was pouring into the U.S. based on rational expectations of a permanent, technology-driven American boom? That pet theory of the New Democrats has been discredited by events (pdf) as well.

Investments in emerging markets have done better than investments in the U.S. in the 2000s. China and Japan have continued to buy U.S. debt, not because they are impressed with Silicon Valley's growth potential, but in order to cripple American manufacturing by keeping the dollar artificially high and the yuan and the yen artificially low. Their debt purchases are part of their strategic industrial policies on behalf of their own export-oriented manufacturers, not a vote of confidence in future American economic dynamism.

Another New Democrat myth, endlessly repeated by Clinton in the 1990s and by President Obama today, is the theory of skill-biased technical change (SBTC). SBTC held that the growing polarization of U.S. society was the result of irresistible global technological forces, not local factors with political causes, like the de-unionization of the American labor force or the inflation-caused decline of the minimum wage.

The New Democrats and like-minded Republican conservatives told us again and again that the huge gains going to CEOs and investment bankers reflected the premium attached to skills in the global "new economy."

Even in the 1990s, this explanation made no sense. After all, the skills of CEOs and investment bankers have undergone no significant change in the last half century. If the SBTC theory had been correct, you would expect scientists and engineers and office-tech specialists to be making the great fortunes, not bankers and corporate managers.

What's more, you'd expect the same forces -- technology, globalization -- to produce the same explosion of incomes at the top in similar countries. But other industrial countries, apart from Britain (dominated, like the U.S., by its swollen, parasitic financial sector), have not seen anything like America's growth in inequality.

As the economist Brad DeLong points out, "The big rise in inequality in the U.S. since 1980 has been overwhelmingly concentrated among the top 1 percent of income earners: Their share has risen from 8 percent in 1980 to 16 percent in 2004. By contrast, the share of the next 4 percent of income earners has only risen from 13 percent to 15 percent, and the share of the next 5 percent of income earners has stuck at 12 percent. The top 1 percent have gone from 8 to 16 times average income, the next 4 percent have gone from 3.2 to 3.7 times average income, and the next 5 percent have been stuck at 3 times average income."

DeLong notes that this pattern does not fit the story of college-educated workers in general deriving a wage premium from the new economy. To make matters worse for the new economy school, from 1998 to 2007, earnings for Americans with B.A.s were practically flat after inflation while the youngest college graduates suffered a slight decline in real wages.

Here's what the New Democrats of the DLC and PPI who chattered enthusiastically about the "creative class" of "knowledge workers" in the "new economy" failed to understand: The main jump in income inequality took place in the 1970s and the 1980s, before the alleged new economy created by the tech revolution.

The relative decline of wages at the bottom had little or nothing to do with technology or the global economy and everything to do with the weakening of the bargaining power of American workers vis-à-vis their employers thanks to declining unionization, an eroding minimum wage and the flooding of the low-end labor market by unskilled immigrants from Latin America, both legal and illegal.

Having misdiagnosed the problem, New Democrats, including Clinton and Obama, have consistently prescribed the wrong medicine: sending more Americans to college. According to the Bureau of Labor Statistics, most of the occupations with the greatest number of openings in the foreseeable future require only a high school education or an associate's degree, not a four-year B.A.

The most effective way to raise wages at the bottom would be to increase the bargaining power of workers, by unionizing the service sector and by tightening the labor market through restricting unskilled immigration. That would probably spur genuine productivity growth over time as employers substituted technology for more expensive labor.

But more widespread unionization is opposed by the corporate sponsors of the New Democrats. And while progressives spend oceans of ink on the effects of outsourcing on the small number of workers in the manufacturing sector, they are silent about the effects of mass unskilled immigration on the much greater number of low-wage workers in the domestic service sector.

The experience of the last decade discredits the claims of New Democrat neoliberalism. But it does not necessarily vindicate progressives. Many progressives assumed along with the neoliberals that the economy really was growing rapidly and that business in general was robbing labor of its fair share of what were believed to be huge gains.

One of the few progressives to question this orthodoxy was James K. Galbraith, who argued that most of the spike in inequality was explained by a small number of Silicon Valley and Wall Street tycoons. The crash made it clear that a significant amount of the wealth of the super-rich in the 2000s had in fact been imaginary all along.

The grim truth is that the new economy promised by the New Democrats never materialized. Yes, we have the Internet and iPhones, but the gains in productivity that have resulted so far from I.T. have been pretty minor compared to the results of the introduction of the steam engine, electricity and the internal combustion engine.

Yes, you can use Google to shop for items and order them via Amazon.com, but the factories that make them and the ships and the trucks that bring them to you would have seemed familiar to engineers in the 1950s.

The moment when much-hyped alternative energy sources like wind and solar become competitive with fossil fuels and nuclear energy seems to perpetually recede into the future. The all-renewable energy sector is 30 years away -- and always will be. A decade ago, there was a national debate about outlawing germ-line engineering of humans, on the expectation that large-scale genetic engineering was imminent. Instead, progress in biotechnology has been slower than opponents feared and supporters hoped.

The glib New Democrats who chirped in the 1990s about the wonders of the new economy were dead wrong. If ever a school of political economy has been discredited by events, it is Clinton-era neoliberalism. And yet the Obama administration's economic team is made up of recycled Clintonites, the very people who misunderstood the actual trends in the U.S. and global economy for the past 20 years.

An acknowledgement of their mistakes would be in order. But they would first have to recognize that they were indeed wrong about the central issues of our time.

http://www.salon.com/news/us_economy/index.../04/new_economy

[scandal 951]

Steve,

There are some grains of truth in your quoted article, but I think there is far more fallacy than truth. Here are some selected critiques that come to mind as I read it.

First: The source of the boom was not a bubble associated with tech stocks, but rather a permanent increase in U.S. productivity growth produced by the information technology (I.T.) revolution. Second: Foreign money was pouring into the U.S. as a result of well-informed expectations that the U.S. would lead the world in economic growth for a long period to come. Third: Increased inequality in the U.S. was a result of the global market rewarding skilled Americans at the expense of unskilled Americans, and could be cured by more higher education.

1. Yes, productivity gains during the late 90s were almost certainly overstated. Productivity is a notoriously difficult thing to quantify and like most economic statistics, the measuring criteria are hotly debated.

2. Foreign money is invested in US due to our trade imbalance, and due to the continued perception by foreign investors that our markets are liquid and provide competitive return on capital, as compared to investments elsewhere. In any event, I don't think this is particularly relevant to the "new economy" mantra.

3. This guy is blind if he cannot see that education and improved skills are the only way to advance in the modern economy. Never mind the labels of "new economy" - the facts remain: (a ) it IS a global economy (b ) it IS a service-driven economy. The days of blue collar manufacturing jobs leading to the comfortable upper middle class lifestyle accustomed to many Americans during the post WWII boom are long, long over. Petulantly pouting for the return of the labor unions of yesteryear will NOT bring back those days. Even the labor unions have recognized this basic fact, and are aggressively recruiting in other fields. Nobody shut down the unions, no scabs or truncheon wielding thugs busted them up, no legislation defeated them. What ended the golden age of unions was the rise of our modern economy. You don't have to like it. I'm not even claiming it's a good thing. But it is true, and to deny it is to deny reality.

The grim truth is that the new economy promised by the New Democrats never materialized. Yes, we have the Internet and iPhones, but the gains in productivity that have resulted so far from I.T. have been pretty minor compared to the results of the introduction of the steam engine, electricity and the internal combustion engine.

Yes, you can use Google to shop for items and order them via Amazon.com, but the factories that make them and the ships and the trucks that bring them to you would have seemed familiar to engineers in the 1950s.

That's simply ridiculous. This person has obviously not stepped foot on a modern factory floor. He's got no idea of how deeply embedded IT is in every single facet of "traditional" factory processes. Everything from the robotic assembly lines to the B2B supply chains and JIT inventory management systems, to the automated payment and invoicing systems, to the advanced R&D labs behind our manufacturing innovations are powered throughout by IT. It's embedded software and silicon as far as the eye can see.

[one...two...tree 2,762]

Steve,

There are some grains of truth in your quoted article, but I think there is far more fallacy than truth. Here are some selected critiques that come to mind as I read it.

3. This guy is blind if he cannot see that education and improved skills are the only way to advance in the modern economy. Never mind the labels of "new economy" - the facts remain: (a ) it IS a global economy (b ) it IS a service-driven economy. The days of blue collar manufacturing jobs leading to the comfortable upper middle class lifestyle accustomed to many Americans during the post WWII boom are long, long over. Petulantly pouting for the return of the labor unions of yesteryear will NOT bring back those days. Even the labor unions have recognized this basic fact, and are aggressively recruiting in other fields. Nobody shut down the unions, no scabs or truncheon wielding thugs busted them up, no legislation defeated them. What ended the golden age of unions was the rise of our modern economy. You don't have to like it. I'm not even claiming it's a good thing. But it is true, and to deny it is to deny reality.

Hey Ron. I'm glad you read this piece as I thought it was a good read. I won't argue your points about IT as that is not an area that I know enough about to have an opinion either way. However, I have thought for awhile now that if the largest job growth over the last decade has been in service sector jobs, the way to help close the income back is to work toward the unionization of those workers, which the unions have been working hard to do.

I'll tell you that I didn't finish college until just over a decade ago at the age of 32. Prior to that, I had worked most of my adult life in service sector jobs and mostly for a grocery retail chain, Fry's Food Stores in Arizona. While I worked there, I belonged to the union, UFCW. At the time that I left (1996), the top wage for a non-management store clerk was just over $13/hour. We also had a decent pension plan and excellent health insurance with no monthly premiums. Arizona is a right-to-work state, yet Fry's over the 15 year span I had work there had become the state's prominent grocer, beating out many other grocers who came into the state as competition. We would not have enjoyed those type of wages and benefits without the union.

There is no conceivable reason why other retail chain employees cannot enjoy those same type of wages and benefits by unionization. But the largest retailer, Walmart, has been so anti-union, they have shut down stores where the employees voted to unionize, rather than recognize their employee's constitutional right to organize. Walmart could not only survive with unionized employees, they would not continuously see the kind of public backlash for their business model.

The reality is that a large percentage of Americans work these kinds of jobs and if we are going to lift all boats, service sector labor needs the type of bargaining tools for fair wages and benefits that unions provide. Right now, if Walmart is the only big retail store in a small rural town, those employees have no way to negotiate their wages...and that has been key to the success of the Walmartization of this country. It was a well calculated plan to undermine the bargaining power of unions in this country for blue collar workers. I know that Walmart is not the only retailer that has done this, but seriously, if you look at their rise to power over the last 20 years, you will see how it has contributed to the growing income gap.

I don't think we can simply tax ourselves out of this disproportionate redistribution of wealth that has been created under such an environment. Labor has to organize if it is to be able to ever bargain for better wages and benefits.

Edited January 5, 2010 by Galt's gallstones

[Pooky 3,930]

The other side of the coin is that the unionisation of blue-collar service sector workers will benefit only those who still have a job at the end of it. If you drop down the scale from the Walmarts of this world, who can no doubt afford to cover the increased costs, to the smaller operations, you will inevitably see a drawdown in the workforce and a reduction in the number of employers, as smaller businesses fold due to the increased costs of unionised labour.

If the economy was on a significant upswing, I could see a justification for pushing unionisation, but we are nowhere near an upswing at the moment. From my particular viewpoint (construction), there is unlikely to be an upturn in the industry much before 2Q11, which is an extended period of pain. SOme industries are more robust and may pick up sooner than that, but I'm not a betting man. Pushing unionisation now, when the rise in unemployment is slowing, would be misguided, as the net result could be the second dip in a double-dip recession.

[NickD 203]

All I know is from the mid to late 80's, in the automotive electronic markets, we finally were able to favorably compete with the Japanese. Gathered with all the goodies the Japanese were manufacturing, their people wanted that stuff too demanding higher pay. We could beat the Japanese both in quality and price. Then Clinton comes in with that unsolved question about his campaign contributions from the Chinese, but opens the doors to Chinese automotive parts manufacturing.

We saw this stuff popping up in the market place, was pure garbage, but eventually and over a ten year period, they managed to improve their quality with prices no where in hell we could compete with. Hell, we had to deal with the EPA, ERA, IRS, high property taxes, inventory as profit, OHSHA, the ever increasing prices on health care cost, inflation. Well the Chinese took it all, leaving literally thousand of Americans out of work. The Chinese do not have to deal with our hundreds of agencies and we charge no equalizing tariffs on the ####### we buy from them.

In regards to servicing their #######, forget it, many components are unique and protected by our US patent laws, can't get them and those you can get cost more than the complete unit itself. Causing quite a jam for recycling their #######.

As far as I am concerned, our leaders, Reagan, Bush, Clinton, Bush, and Obama now, he isn't doing a damn thing, sold us out. Our property taxes are skyrocketing because the state is going broke, the only place left for them to make a killing. Plus adding sales taxes with higher rates on everything. We are getting screwed double.

The playing field may level over years with China as it did with Japan, but instead of 17 years may take well over a hundred, we will be dead broke by then with the Chinese taking over much of what we have left. Japanese got a good hunk of us.

As far as I am concerned, all of our leaders should be tried as traitors to this country, they sold us out.

[lostinblue 1,989]

They have not stopped selling us out.......

http://www.telegraph.co.uk/earth/copenhage...lobal-fund.html

Hillary Clinton, the secretary of state, offered $100 billion from the US for the countries most affected by climate change.

This is what is going on and will go on while the GW crowd has warm fuzzy feelings running down their legs. Case in point

Yasser arafat.....

http://www.cbsnews.com/stories/2003/11/07/...ain582487.shtml

Arafat for years would cry poor, saying, 'I can't pay the salaries, we're gonna have a disaster here, the Palestinian economy is going to collapse,'" says Indyk. "And we would all mouth those words: 'The Palestinian economy is going to collapse if we don't do something about this.' But at the same time, he's accumulating hundreds of millions of dollars."

The stockpile went well beyond the portfolio. Arafat accumulated another $1 billion with the help of -- of all people -- the Israelis. Under the Oslo Accords, it was agreed that Israel would collect sales taxes on goods purchased by Palestinians and transfer those funds to the Palestinian treasury. But instead, Indyk says, "that money is transferred to Yasser Arafat to, amongst other places, bank accounts which he maintains off-line in Israel."

Until three years ago, Israel put the tax revenues into Arafat's account at Bank Leumi in downtown Tel Aviv, no questions asked. But why?

Like a Chicago ward boss, he still doles out oodles of money; Fayyad says he pays his security forces alone $20 million a month, all of it in cash.

All told, U.S. officials estimate Arafat's personal nest egg at between $1 billion and $3 billion.

Arafat may have $1 billion, but he sure isn't spending it to live well. He's holed up in his Ramallah compound, which the Israelis all but reduced to rubble a year-and-a-half ago. Arafat has always lived modestly, which you can't say about his wife, Suha. According to Israeli officials, she gets $100,000 a month from Arafat out of the Palestinian budget, and lives lavishly in Paris on this allowance.

This global warming money hundreds of BILLIONS of our money will never go to help the poor . Just more scam artist like arafat. This is how the world works people. 3rd world dictators will further supress their people with the help of our global warming tax dollars.

[scandal 951]

Arafat died in Nov 2004. That was more than 5 years ago.

[one...two...tree 2,762]

Arafat died in Nov 2004. That was more than 5 years ago.

pfffft....I was hoping for a nice response to my nice response to your earlier response.

[DEDixon 39]

interesting comments, thanks.

[I AM NOT THAT GUY 5,715]

Why do you hate Bill and Hillary?