Wednesday, July 7, 2010

The political paralysis of Keynsianism

Two party politics is destructive about war, jobs and the treatment of the poor. It pursues a reactionary two step in which the reactionary party, supported by the commercial media, exerts constant pressure. Thus, the American occupation of Iraq - never a popular war, but even here Obama plans to retain 100,000 soldiers and mercenaries after he "withdraws" - continues; thus, in the face of high unemployment, there is neither renewed stimulus nor even an extension of unemployment benefits. For the Democrats, also, cater to and are funded by oligarchs. The two party system responds only to great pressure from below. During the depression, that pressure was supplied by the unemployed councils, sit-down strikes, industrial unionism, anti-racist campaigns and the communist party.

It is worth taking in just how bad the sudden cut-off of unemployment benefits in May was. It has so far lasted 35 days, and punished 1.7 million people who have been unemployed for more than 6 months. As Arthur Delaney puts it here,

"The 2009 stimulus bill and subsequent legislation had given the unemployed up to 99 weeks of checks. Without the federally-funded extended benefits, which lapsed at the end of May due to congressional deficit concerns, layoff victims in most states are eligible for only 26 weeks of help. The average duration of unemployment is 35 weeks."

Yet as Paul Krugman (below) and David Leonhardt here point out, the main lessons of Keynsianism from the 30s – that FDR’s attempt to balance the budget in 1936 sent America deeper into the depression and cost at least the well-being of hundred of thousands of poor people – are right. What can be done is known, and even in the stimulus, experimented with – there are new bike lanes and bridges for light-rail, built with stimulus money, as one drives around highway 285 and along 6th avenue east into Denver. Yet like a Cheshire cat, this promising alternative is failing before our eyes.

Capitalism can achieve equilibrium with high levels of unemployment and underemployment. “Full employment” is in recent times 4% unemployment. That is close to 10 million people. Today, the real unemployment rate, as Leonhardt has suggested in the New York Times, is over 17%, counting those who have given up looking for work and those who are employed part-time who would take a full time job if offered. A more standard estimate (not obviously a more accurate one, by David Rosnick of the Center for Economic and Policy Research suggests that this “recession” is worse than the 1982-83 one – see here.

The American economy desparately needs government provision of employment – for example, 300,000 teachers and many other government workers below are being laid off in 2010 (see third article below) – to both educate students and put money into the economy. Every dollar that goes to a teacher circulates through her expenses, employing others (the multiplier effect). This demand leads to increased production and jobs for others. But a laid-off teacher has no money to spend and thus, a reverse multiplier effect.

Similarly, a stimulus to the economy which results in employment is good (say, tax breaks for small business which make new hires). But public employment (the Works Progress Administration of the 1930s) is more direct and could do many useful projects. Remember that bridge that collapsed near Cleveland, killing a driver, a couple of years ago. Such employment could even be at minimum wage, construct projects to serve a common or public good and be a fraction of what American spends on occupations and aggressions abroad ($708 billion is the current budget, nearly 3 times the Cold War level (see here). In fact, the military – and the huge war complex – is nothing but an example – a largely harmful and negative one – of government spending. But for the remainder – nearly a fifth- of the population in the civilian economy, as Krugman puts it, 5 people are looking for work for each person who finds a job.

As an antidote to depression, Keynsianism was both a great discovery and is no longer rocket science. Even the New York Times has spoken for it. Krugman was on the Colbert Report Monday night and put the issue very clearly. Yet Democrats in Congress know what is true, but cannot act.

My father. Richard Gilbert, was the first Keynsian economist in the United States. He taught at Harvard before entering the Roosevelt administration to work for Harry Hopkins at the Department of Commerce in 1937. His students like John Kenneth Galbraith, Walter Salant and Eddie Cooper (about whom see the poem 1937 here) played a role in bringing government spending as an anti-depression measure into the administration and disseminating this core understanding about alleviating capitalist cycles above. He debated the conservative senator Robert Taft about public spending, argued controversially that the US could produce both “guns and butter” at the onset of World War 2 – in the event, the US produced much more than even he envisioned – and helped create the new consensus on what is straightforward about Keynsianism: that government spending has to make up for the inadequacies of private capitalism in a depression. Of course, war, not the commitment of FDR's Democrats (dependent on the segregationist South) to ordinary people, set the economy on a new and different course.

But Reaganism and laissez-faire economics have now changed this. That is less a matter of argument, or fear of the dangers of inflation once the economy grows rapidly, than it is a brute fact about the power of capitalists. The war complex – the military-industrial-commercial media-Congressional-think-tank expert complex – as well as the medical complex, oil, and reactionary politicians combine to produce a continuous strain of boosterism for unbridled capitalism. Ideology trumps evidence and argument. I should add that the cost to ordinary people and the poor, as Krugman rightly indicates at the end of his article below, is becoming reminiscent of Dickens. Or as he says last Sunday in “Punishing the Unemployed,”

“By the heartless, I mean Republicans who have made the cynical calculation that blocking anything President Obama tries to do — including, or perhaps especially, anything that might alleviate the nation’s economic pain — improves their chances in the midterm elections. Don’t pretend to be shocked: you know they’re out there, and make up a large share of the G.O.P. caucus.”

“By the clueless I mean people like Sharron Angle, the Republican candidate for senator from Nevada, who has repeatedly insisted that the unemployed are deliberately choosing to stay jobless, so that they can keep collecting benefits. A sample remark: ‘You can make more money on unemployment than you can going down and getting one of those jobs that is an honest job but it doesn’t pay as much. We’ve put in so much entitlement into our government that we really have spoiled our citizenry.’”

“Now, I don’t have the impression that unemployed Americans are spoiled; desperate seems more like it. [once again, there are 5 applicants for every job, Krugman informs us]. One doubts, however, that any amount of evidence could change Ms. Angle’s view of the world — and there are, unfortunately, a lot of people in our political class just like her.

Krugman is trying to appeal to the “confused,” the Blue dog Democrats, by making the straightforward point that government benefits to the unemployed stimulate the economy, for example.

But this stand of the political class against the truth of Keynsianism in a depression in not just a problem of the big banks and the financial crisis – a case of corruption so massive that no one can miss it - but a deeper and more sustained story. In the United States, we have had a long era of government war expenditures and a war complex that is now the heart of American production and politics. Reaganism eschewed non-military American manufacturing and productivity. It decimated the American working class (or one might say “secure” middle class) of the 1960s and unions. Not so long ago, Detroit was a symbol of workers who could be prosperous and send their kids through college, of a stable, middle class life. This was to some extent an illusion even then (the struggle of the League of Revolutionary Black Workers and others indicated its limitations). But as if to illustrate Marx’s point in the first volume of Capital that capitalist development undermines reforms won through great battles – that this system is incapable of decency in the long run toward working people - Detroit is gone.

Detroit’s destruction is a symbol of the crime of Reaganism (and at least of a certain kind of capitalism). Universal health care – still a pipedream here - might have kept the American auto industry competitive and workers employed, for example. But no such steps were taken, and much of the decency of Obama's Health Care bill was knocked out of it by the reactionary/medical complex attack.

As Krugman, Bob Herbert, Leonhardt and a Times editorial last week point out, there is a need to spend on jobs, to revive the economy. They put it cautiously - Leonhardt and Krugman are for moving to deficit-reduction over the middle term. None speaks to the elephant in the room – the need to cut the military economy, aggressions and borrowing from China, and provide decent jobs, say in education and green manufacturing, at home. But in general, they offer the right advice. It is not as if the Times and the Obama administration don’t know what is true about government spending in a depression. It is that current politics – that of a capitalism characterized by a war complex, a financial casino and increasingly centralized media – makes these truths, even in the Obama era, an era of seeming promise, impossible to act on.

As Martin Luther King put it in his courageous speech "A Time to Break Silence," given a year to the day before he was assassinated, see here and here,

"A true revolution of values will lay hands on the world order and say of war, 'This way of settling differences is not just.' This business of burning human beings with napalm, of filling our nation's homes with orphans and widows, of injecting poisonous drugs of hate into the veins of peoples normally humane, of sending men home from dark and bloody battlefields physically handicapped and psychologically deranged, cannot be reconciled with wisdom, justice, and love. A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual death."

The funds which might have been available for LBJ’s war on poverty had vanished then given the expenditure of war as if, King said, sucked up by some “demonic suction tube.”

This thought is as profound an understanding as the core Keynianism above. War both makes us more insecure – the losing American occupations in the Middle East coupled with Israel’s brutality toward the Palestinians – see here - all create hostility and, as an outlier, terrorism – and sap the money with which the government could counter the depression and put the poor to work. Now the Obama administation sinks deeper into Afghanistan, having replaced McChrystal with Petraeus; now there is no money to employ people at home. The domestic harms to working people and a common good, repression in place of reform, as a result of imperial foreign adventures is the theme of my Must Global Politics Constrain Democracy? (Princeton, 1999).

The ideology of laissez-faire has also taken hold internationally. Europe, led by Germany and England, never spent enough to fight the financial crisis last year, and has moved now to “balancing the budgets.” Cameron is a decent leader in England – see his statement apologizing for the British murders on “bloody Sunday” in Northern Ireland, his stance towards gays and lesbians, and his call for a legal inquiry into torture, among other matters – but is under the spell of laissez-faire ideology. The G-20 recently had a meeting calling for halving deficits by 2013. There were as usual noble protests from below against these leaders by ten thousand people, greeted by heavy police surveillance and belligerence. These meetings are always a study in government indecency and the protection of the politicians of the rich against democratic protest from below. But even these protests did not focus sharply on the issue of jobs. Now China and India and Brazil will have to provide a counterforce in the world economy if there is to be one.

Andrew Sullivan with whom I often agree has taken a special dislike to Krugman,* and favors balancing the budget. To his credit, he agreed with the first stimulus – he rightly worries that official unemployment would today be over 12% without it - but now is moving toward Cameron. He has suggested, along with Ross Douthat in the Times, that Keynsianism is just “theory.” True enough, but so is laissez-faire, the religion of free markets, and the idea of balancing budgets in a depression.

The real point is: only one of these theories is true. The other is an ideology. The argument about government spending to get the economy moving is plain enough. The laissez-faire view has now FDR’s 1936 move into deeper depression as a sharp counterexample.

Sullivan is apologetic for his belligerent imperialism in the run-up to the Iraq war. But he is here working toward a second ideological and moral error of a very large sort. He speaks rightly of a conservatism of doubt, one that attends to specific circumstances and derives from Michael Oakehott. Perhaps everyone’s politics, when intelligent, is of this sort (I have been for the last several years an all out defender of habeas corpus and the rule of law and against torture, a conservative position, defended most strikingly, for example, by Sullivan and Scott Horton in opposition to the party of authoritarianism and reaction – the Republicans - and now sadly, the emerging bipartisan police state, see here and here). But Sullivan’s stance against getting people jobs when it counts – and Cameron’s in Britain – are no examples of the conservatism of doubt.

In yesterday's Times, David Brooks makes the same point, cleverly renaming – a good ad-man - Keynsianism as “demand side economics.” He conveniently forgets the massive Bush deficit spending on war and borrowing from China that got America into the crisis and which he supported. Telescoping to a strange account of the last two years – when government spending has saved jobs, again before our eyes – he produces the following shocking sentences: “It could be that government spending is a weak lever to counter economic cycles. Maybe monetary policy is the only strong tool we have.” Citing individuals, sometimes powerful ones, who are skeptical, and sniping at Krugman, however, will not make doing nothing in a depression decent. To his credit, Brooks does finally suggest extending unemployment benefits and giving aid to some teachers. But Bob Herbert (see below) has a striking article on one part of the stimulus – temporary assistance to needy families, which subsidizes employers in hiring them, and has employed, say, 200,000 people. It, too. is about to expire. But Brooks does not even canvass important ideas about public spending on his own editorial page...

Obama had a chance to emphasize jobs as the central part of his program. As Bob Herbert, points out (see here), he wobbled around about this. Initially, he had powerful ideas about rebuilding America as a green economy, and, admirably, got the stimulus passed. This was the best peacetime measure in the United States for many years. It provided decent work and not a dime for the Pentagon. But it was too little – what Obama could get in mainstream politics at that moment but not the $1.2 trillion economists generally thought would produce a major decline in unemployment, say to 8% officially or less - and not sustained. Again, it is sad that contemporary elite Keynsians find 8% unemployment (some 15% in real terms, many millions of people looking for jobs) an acceptable goal to fight for. One does not have to understand Rawls and the original position to realize that each of these human beings has a valuable life to lead, has infinite worth. Krugman, however, in column after column, does fight for what he can fight for and names the character increasingly of those who “punish the poor” (the title of yesterday’s column). So does Bob Herbert.

Obama also made the right argument at the G-20 a week and a half ago – but was rejected – and has not, as Herbert underlines, made it central to his program. For this reason, he has cost himself not only becoming a transformative president, but risks losing after one term. For the economy is at an unstable, resting place, with nearly 1 in 5 unemployed, but in danger of falling into something far worse. Obama may be remembered as a somewhat innovative (he is the first black President, spoke eloquently in the campaign on race, and has done some good things), but in the end, ineffectual President.

The reactionary two-step of mainstream American politics heightens this weakness. As they fight for war, the Republican – or authoritarian – Party battles all out against doing anything about depression. They seek to help malefactors – Joe Barton suggesting an apology to BP, destroyer of the Gulf of Mexico. They scorn the opportunist Michael Steele when he says something intelligent about Afghanistan; the Democratic National Committee leaps in, a la Rove, to claim that Steele was "against the troops" – against them by imagining saving their lives rather than wasting them. Two buffoonish parties of war: it is only corporate ownership of the media and the war complex which it serves that sustains their lies. Any effort at serious journalism (cf. Glenn Greenwald, Amy Goodman, Joe Conason, Scott Horton and the like) highlights the mass media’s destructiveness.

But as part of the recactionary two-step, the Blue Dog Democrats go along. So now 1.7 million of the long-term unemployed have lost benefits and 300,000 teachers will be laid off. As Republican Governor Arnold Schwarzenegger has rightly said (see the third article below), this policy is a disaster.

Against two party competition, many in the thirties opted for single party, one leader rule. If only one could attain the rule of the intelligent man, they imagined (this thought is still today the first impulse of political Straussians and neo-cons)…But every example of this has led to horrors, fascism obviously, but also communism. Russia under Stalin defeated Germany in World War II (the US and England would not have). There is certainly a need for leadership in such crises. But the horrors of Stalin’s rule are obvious enough. That as an alternative, one should opt for nonviolence from below, the strongest guarantees of equal basic rights, some sort of separation of powers, and the rule of law seems, now, far more promising. But a capitalist oligarchy with parliamentary forms increasingly undercuts this promise. What to do about the depression is well known even in the New York Times. But the Obama/Democratic government can not even extend unemployment benefits or give money to the states to employ teachers.

Within our system, Obama seemed a very promising leader. But he was enough under the influence of laissez faire ideology –and pushed by the war complex - not to focus on green jobs and Keynsian strategies for full employment…This is so far, as Herbert, points a startling error, one of great cost to the unemployed, especially the long-term unemployed.

In the late 1940s, my father wrote an essay in a book edited by his friend and colleague Seymour Harris called Saving American Capitalism. When I became a radical, he suggested that I “not give up on capitalism” (a formulation directed more to himself than me; he had been a Wobbly as teenager, and his first economics class at Harvard was taught by the distinguished chairman of the Department named Carver, who announced “every strike is an act of revolution). He came to think, rightly it seems to me, that Keynsian economics can head off the worst of a depression if it is politically possible. It is that core undestanding, clear even in so many high places, which mainstream politics has forfeited.

In recent times, socialism has fallen into discredit. In the strange, mainstream American, intellectual universe, ordinary government programs which serve capitalism are supposedly connected with abolishing it: “socialism” in this inane idiom. But the real party of big government and deficit spending has been that of Reagan and Bush – accelerated military and intelligence expenditures, and tax cuts for the rich. Yet Republicans pretend themselves (or recruit people silly enough to imagine themselves) people who balance the budget. Their idea of budget cutting is, however, to remove only common-good-serving expenditures, say, social security or medical care or unemployment benefits or jobs. This is a party of bloated militarists mouthing contradictory slogans – “more war" ( meaning to them: aggression somehow involves no 'government-spending'); “all government-spending is 'socialist' and harmful.” Given the rule of money (that the Democrats are the world’s second most enthusiastic capitalist party as Republican consultant Kevin Phillips once put it), the Democrats often go along.

American capitalism and two party competition are now so self-destructive – and contributing to decline in the world economy at the expense of so many – that they seem determined to make ”old-fashioned” radical alternatives alive again (I leave aside, for the moment, global warming and wars). For they make true insights in economics – Keynes’s about countering depression and providing jobs for millions of ordinary people – utopian. There are fewer and weaker unions now, little and not so effective organized radicalism to push the government from below for jobs. Yet there is a mass anti-globalization movement, a movement against global warming, against racism and war (one which just showed up again at the G-20). Such a movement has great democratic potential: we all need opportunities to work and decent incomes.

Still, there is an enormous danger in America of a move to the dictatorial Right (Obama headed off some of the worst aspects in the Bush-Cheney regime, has adopted others, and look at what is waiting in the wings…). There is an increasingly fierce conflict between capitalism and democracy of two sorts.

First, the truth in Keynsianism is known. Public spending (and even tax breaks for workers and lower middle class people) provide a stimulus, a way out of depression. But the politics generated by capitalism, as we can see before our eyes here and in England and Germany are what holds this back. Common sense written in the New York Times by Krugman, Leonhardt, Herbert and on the editorial page, is frustrated. Obama knows what to do; party competition, extending into his own party, given the war-complex, palsies his hand.

The second is, under pressure of the war complex, the medical complex and finance, there is a tendency toward tyranny (excessive in Bush-Cheney, but still present).

Morally and politically speaking, not just in terms of aggressions abroad, but domestically, capitalism, one might say, is not sustainable.

The Third Depression
Published: June 27, 2010

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.
So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

A Jobs Program That Works
Published: July 2, 2010

Is it possible that there is a federal stimulus program that is putting many thousands of struggling individuals to work and is getting rave reviews not only from Democrats but from officials in conservative states like South Carolina and Mississippi?

It may be hard to believe, but it’s true. The program, part of the American Recovery and Reinvestment Act, allows states to use federal dollars to temporarily subsidize the salaries of individuals placed in private- and public-sector jobs. More than 30 states are participating.

The program, though small, appears to be working exceptionally well. States expect to have placed more than 200,000 individuals by this coming autumn. Some of those workers would otherwise have landed on welfare.

The catch — there is always a catch — is that the program will expire at the end of September if Congress does not act to extend it.

The U.S. is trapped in an agonizing period of sky-high unemployment and the latest data from the Department of Labor offers no cause for optimism. A program that is actually putting people to work, and thus helping families fend off destitution, ought to be looked at closely for what it can teach us about employment expansion. It makes no sense to simply let it die.

States have embraced the subsidy program with tremendous enthusiasm. “It has been amazing,” said Linda Martin, director of South Carolina’s Division of Family Assistance. “I think at this point we’re kind of astounded at how well it’s working.”

The federal money is made available through the $5 billion TANF (Temporary Assistance for Needy Families) Emergency Fund. States can use the money in a variety of ways, and many have found the subsidized employment approach to be the most efficient and effective.

South Carolina uses the money to cover 20 hours a week of employment at the minimum wage for each individual who is placed in a job. The subsidy lasts for six months.

To the surprise of state officials, private employers across a wide front have welcomed the program. The employers sign an agreement to keep the workers on after the subsidy runs out if there are no serious problems with the workers.

“We are placing people in the kinds of jobs we were never able to crack before,” Ms. Martin told me. “They’re getting jobs with a large grocery chain, and with McDonald’s, Wal-Mart, CVS pharmacy. We actually have more employers asking for placements than we have eligible folks to be in those jobs.”

This is not the kind of job creation that will break the back of the nation’s employment crisis, but it has succeeded in bringing down the welfare rolls in South Carolina, which were heading straight up at the height of the recession. It is keeping food on the tables of seriously strapped families. And it is offering work experience to some people who have not had a lot of it.

Other states have adopted a different approach. Mississippi has made it a priority to find jobs at small businesses. The subsidy there covers the full salary for the first two months and then gradually declines to one-fourth of the worker’s salary in the sixth and final subsidized month.
Gov. Haley Barbour has called for an extension of the program, which he said has provided “much-needed aid during this recession.”

LaDonna Pavetti, who monitors the program for the Center on Budget and Policy Priorities, described it as the “best-kept secret” of the federal stimulus effort. Illinois, she said, is placing 500 people a day in jobs under the program. The crush of job-seekers trying to get in has been so great that state officials have had to stop taking applications.

In Los Angeles alone, 10,000 people have been placed. There have even been 600 job placements in Montana.

Ms. Pavetti’s worry is that without more attention being paid to this effort, it will vanish at the end of September. That, said Mark Zandi, chief economist at Moody’s Analytics, would be “particularly inopportune given that unemployment will likely still be in or near double digits, and more workers will have exhausted their benefits.”

He recommended extending the program for another year.

There has been a peculiar reluctance in this country to move full speed ahead on all feasible ways to increase employment, which is what is needed to get the economy back in shape, to begin reducing budget deficits, and, most important, to alleviate the suffering that so many individuals and families are enduring.

I asked Ms. Martin of the Division of Family Assistance in South Carolina what would happen in her state if the job subsidy effort were allowed to lapse. She didn’t hesitate: “It would really just kill us if we had to shut this down,” she said.

Tuesday, June 29, 2010, The Washington Independent
As States Cut Public Workers, Congress Is Reluctant to Act
by Annie Lowrey

For tens of thousands of America's teachers, it is the start of an endless summer. In the past month, the Los Angeles Unified School District has sent pink slips to 693 employees. The Detroit school system has laid off 1,983 teachers, including Michigan's 2007 teacher of the year. And Greensboro, N.C., has received national attention, as its supervisor has fired or reassigned more than 500 teachers in a district serving just 71,000 students.

In 2010, the Obama administration has estimated, school districts across the country might lay off as many as 300,000 employees, many of them teachers. That would be five times the number of layoffs in 2009, and ten times the number of layoffs in 2008.

These pink-slipped teachers are just the first and most noticeable wave of public-sector employees getting the chop as states slash their budgets. (Schools need to notify teachers that they might be laid off at the end of spring or beginning of summer in order to officially let them go before school comes into session in the fall.) As state and local governments prepare to begin their new fiscal year on July 1, they are frantically cutting not just teachers, but social workers, firefighters and police officers. Oakland, Calif., is firing 80 police officers, more than 10 percent of the current force. New Jersey and New York are bracing for state-wide cuts in governmental offices.
The reason? Last year, the federal government provided stimulus funds for states to make up their yawning budget gaps. (Every state save for Vermont is required to keep a balanced budget.) This year, Congress has declined to step in.

It looks like 2010 might be the annus horribilis for those state budgets, according to the Center on Budget and Policy Priorities. "Even though state tax revenues are starting to rebound a little bit, the absence of the federal assistance from last year and the need to pass the [state Medicaid funding] and education assistance is huge," Jon Shure, the deputy director of the CBPP's state fiscal project, explains. "There's reason to believe this year will be the worst."

The teachers and other public-sector employees might be just the start. The CBPP has estimated that if states cut their spending from 2009 to 2010 the same level they did from 2008 to 2009, it might cost as many as 900,000 public- and private-sector jobs - swelling the ranks of the unemployed by five percent or more.

While the outlook this year is bad, it is hardly better down the road. "Usually after a recession ends it takes a couple years for state revenues to rebound," Shure says. "If it normally takes two to three, and this recession is among the worst ever, we're really in uncharted territory."

Now deep in that uncharted territory, states crafting their third straight recession-era budgets have no recourse but to slash services and jobs. For schools, "the cuts are definitely going to hurt a lot more and deeper in poor urban districts," says Elena Silva, senior policy analyst for the think tank Education Sector. "The teachers there are much more important, much more urgent for those kids. If they lose a year or three months [of educational gains], it hurts a lot more for kids in struggling schools than suburban kids. It's a double effect: In cities, there are more teachers laid off because of budget gaps, but the kids in those cities are most vulnerable and most likely to be hurt by budget cuts."

Facing overstuffed classrooms and reduced police patrols, the Obama administration has led a furious charge to convince Congress to help the states meet their budget needs. In a letter to the majority and minority House and Senate leaders earlier this month, President Obama wrote, "I am concerned ... that the lingering economic damage left by the financial crisis we inherited has left a mounting employment crisis at the state and local level that could set back the pace of our economic recovery." He continued: "If we allow these layoffs to go forward, it will not only mean hundreds of thousands fewer teachers in our classrooms, firefighters on call and police officers on the beat, it will also mean more costs helping these Americans look for new work, while their lost paychecks will mean less tax revenues and less demand for the products and services provided by other workers."

But despite the efforts of individual members of Congress and the administration, the House and Senate have come up short on delivering aid to the states. Democrats cut extended stimulus funding for Medicaid through the end of this year - not, as many states had anticipated, through June 2011. On Thursday, centrist deficit hawks finally refused to vote for the trimmed-down jobs bill.

Take Alabama, for instance. The state's legislature had already adjourned for the fiscal year, its budget set with an expected $197 million in federal Medicaid money. Much of that money is now gone.

California, too, is reeling. "I support restraining federal spending, but cutting the only funding designed to help states maintain the very safety-net programs Congress mandates us to preserve will have devastating consequences," Gov. Arnold Schwarzenegger (R-Calif.) wrote in a letter to his state's congressional delegation in response to the funding drop.

The reduced Medicaid funding has not only meant the end of special programs, such as anti-domestic violence initiatives, daycare and mental health services. It will end up costing teachers and other public-sector workers too. States such as Pennsylvania are reacting to the Medicaid funding cut by rearranging their budgets - and sacking workers.

And other, bolder provisions to save local jobs are dead in the water. Rep. George Miller's (D-Calif.) Local Jobs for America Act would have provided $75 billion to local governments to keep employees on the payroll. It is stuck in committee. Sen. Tom Harkin's (D-Iowa) proposal to grant $23 billion to keep public-school teachers in their classrooms, the Keep Our Educators Working Act, one of several such edu-jobs proposals, has foundered despite support from Education Secretary Arne Duncan and the White House.

As of yet, the Senate has no plans to authorize any additional funds to help states close their budget gaps - and with teachers unions protesting and citizens starting to question the cuts, Silva, of Education Sector, sees a "huge political mess" fomenting for the fall.

"A lot of people running for office now are not going to be in really good shape," she notes. "If you watch those districts where there have been significant teacher layoffs, unpopular layoffs, it will be interesting to see where the blame falls."

*Krugman was all-out for Hillary Clinton – sometimes quite offensively - and tone-deaf about Obama. That one is wrong - even tone-deaf - about some important matters does not mean that he is wrong about depression and its costs.


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