Tampering with the American Dream

...UNEMPLOYMENT AS AN OBJECTIVE Tampering with the American Dream BY PAUL DAVIDSON A recent New York Times article focused on a sheetmetal worker at the TWA facility in Kansas City who was excessed during the 1991 recession...

...This country's economic problems are resolvable...

...For more than a quarter of a century after World War II, the Federal Reserve and the politicians cooperated in opening the middle-class gates wider so that more Americans could pass through them...

...After the election, these economists urged the new President to take up their proposal...

...But if we are to truly revive the American Dream in a global economic context, new strategies are critical...

...In the unlikely event that a cooperative agreement among the major trading nations cannot be secured, we must develop a policy to insulate the U.S...

...The televised Hillary-Greenspan connection, with its deficit reduction overtones, made Clinton's $17 billion infrastructure request appear to be primarily a sop to his liberal constituents...

...Greenspan and Clinton have forgotten that while the Federal Reserve deliberately kept interest rates low, President Harry S. Truman pursued a series of policies—some inherited from Franklin D. Roosevelt's Administration, some developed to meet the new conditions of the day (e.g...

...So history has already proved that Greenspan's fears are unfounded...

...It eliminates "adequate" slack (idle plants and workers) to dampen inflationary wage demands and limit profitable price increases...

...The appeal of a properly designed new one would be its providing incentives for significantly better global economic performance...

...Like the Jews wandering in the desert for 40 years, the American people sense that their situation is better today than it was under the previous regime...

...Candidate Clinton ran on a platform calling for the active pursuit of policies that would restore the growth of high-paying jobs...

...Because the current economic recovery is exemplified by the case of the former TWA worker—statistical improvements in employment and output notwithstanding—a line from Clinton's stock campaign speech is still all too accurate: "Those who play by the rules are working more but earning less...

...A lean productive entrepreneurial system does not require subjecting over 6.5 per cent of our labor force to bouts of unemployment...

...to the fires of inflation...

...Thus, for the umpteenth time since the Kennedy-Johnson years, the Federal Reserve showed itself ready to sacrifice the American worker and small business entrepreneur in the endless battle against inflation...

...Irangate) could severely dampen the country's prosperity...

...This, plus the Federal Reserve Board's simultaneous boosting of interest rates, soon had the economy languishing...

...President," NL, January 11, 1993), I suggested an innovative policy that would both reform the international monetary system and tame domestic inflation...

...Eager for a continuation of deficit-spending (remember George Bush's "Read my lips: No new taxes...

...3. It could induce foreigners to buy more products from domestic enterprises —i.e...

...But they may not realize that given the stewardship of the economy, this generation will not make it to the land of milk and honey...

...The story went on to note that last year this family's income was less than what the husband alone had earned at TWA, even though he worked full-time both driving a school bus and for a McDonald's, while his wife restocked shelves in Toys "R" Us and worked for the same McDonald's...

...Leanness and meanness are the desirable attributes, and to foster them the economy must be pushed back into the depressing shadows of weak markets...

...Unless it abandons these strategies for bolder initiatives, the glory days of the American economy will become a faint memory...

...Similarly, they hoped to spur export demand by pushing for the adoption of Bush's North American Free Trade Agreement as well as unleashing Trade Representative Mickey Kantor and Japan-bashing Treasury Secretary Lloyd Bentsen to "talk down" the dollar against the Japanese yen...

...In the same period, prices rose an average of less than 3 per cent per annum...

...My wife and I have four of them...

...The week the relief package was wending its way through Congress, the Federal Reserve raised interest rates, having conjured up the specter of future inflation...

...all we need is the resolve...

...And the persistent growth of those jobs, especially for some three decades following World War II, is what permitted the development of the prosperous middle class that represents the American Dream...

...even what retains some viability must be adapted accordingly...

...It is attempting to solve joblessness by wooing the Federal Reserve in the hopes of keeping down interest rates, and by exporting unemployment via international trade...

...Merely imitating the successful policies of the '40s, '50s and '60s clearly is not the answer...

...Trade troubles could undermine any drive to restore prosperity in the United States through fall employment...

...The U.S...

...At the minimum, we have to explore approaches to reforming the international payments system in a manner that will encourage more rapid global economic growth...

...Barely a year later, though, on February 12, the President signed a bill allotting $8.6 billion—without offsetting taxes or cuts in other allocations—to rebuild the private and public sector infrastructures damaged or destroyed in California's January earthquake...

...the GI Bill and the Marshall Plan)—that made the American Dream a reality...

...George Santayana observed long ago that those who cannot remember the past are condemned to repeat it...

...White House advisers reckoned that by advocating a serious deficit reduction, the President could strike a Faustian bargain with Federal Reserve Chairman Alan Greenspan to drop interest rates enough to offset any contractionary pressures shrinking the deficit might release...

...Options 2 and 3, separately or together, may very well produce substantial progress toward the desired goal in the long run, yet as John Maynard Keynes warned, "In the long run, we will all be dead...

...Infusing half the sum Clinton originally intended for the whole country into California means that until the money runs out this summer, one state will experience a miniboom recovery from the recession...

...There are three options open to an administration determined to achieve that objective...

...became the strongest economy in the world—not the sloppiest or the greediest...

...If we start with the attitude that it is too difficult to change the awkward mess we are mired in, we will condemn ourselves and our children and grandchildren to wandering aimlessly in the desert of unemployment...

...the American people overwhelmingly voted for Reagan's heir apparent...

...The result was not a slovenly, indolent population...

...Asked if he was happy with how the Clinton Administration was fulfilling its election promise to generate new jobs (over 3 million have been created since January 1993), the man responded, "Yeah...

...Never mind that the Federal Reserve's preemptive strike dealt a sharp blow to millions of Americans for whom a continuing advancement toward full employment is essential if they are to retain their middle-class status—not to mention the millions trying to pull themselves out of poverty and into the middle class...

...The Midwest's industrial rust belt of the Jimmy Carter and early Reagan years was revitalized, and California's military-industrial complex once more boomed with relatively high-paying jobs...

...In the light of the Ross Perot factor and the lack of strong White House pressure, Congress rejected the package, declaring it a "budget-buster" that would damn the U.S...

...The single-shot stimulus was designed to give the economy a short-term lift while a long-term scheme for job creation, based on Options 2 and 3, was put into place...

...If, instead, we explore proposals for promoting global economic growth and enabling as many people as possible to enter the middle class here and in the nations willing to cooperate with us, then good employment opportunities will be available to everyone who wants to work...

...But since 1990, heavy losses have been registered in higher-paying blue-collar manufacturing, white-collar clerical and middle management positions...

...Less than 1.5 million new jobs were produced during Bush's watch...

...Ronald Reagan, despite his balanced budget rhetoric, seemed to understand the choice before him...

...In March 1992, 100 economists (including six Nobel Prize winners) recommended that President Bush recommit himself to Option 1 via a vigorous multi-year Federal spending program that would reverse his anemic performance on the employment front...

...Combining supply-side tax reductions with increased military expenditures (sometimes referred to as "Keynesian militarism"), he strongly committed his Administration to Option 1. As a direct consequence of his monumental deficit budgets from 1982 through 1988, over 16 million new jobs were created...

...The existing international system, which has been in place since the breakdown of the Bret-ton Woods Agreement in 1973, has produced stagnation...

...If the February 20 New York Times is to be believed, the Federal Reserve was "relying on intuition" and "anecdote," rather than computer printouts, in deciding inflation was imminent...

...Happy economic times were here again...

...In the Fed's picture of the Promised Land, full employment is something to be avoided...

...The challenge facing today's stewards of the American economy is how to recapture the vitality it once enjoyed...

...The Clinton Administration has so far opted for the traditional conservative policy prescriptions...

...economy from adverse balance of payments (or trade deficit) constraints...

...The drive to full employment need not mean inflation...

...The immediate effect of its action was to destabilize the financial markets, because people holding stocks and bonds worried that there would be further interest rate hikes...

...Instead, Clinton set forth a very modest one-year $17 billion plan to finance investment in "infrastructure...

...As such anecdotal evidence suggests, much of the vaunted increased employment under Bill Clinton has been in low-paying and part-time service jobs...

...2. It could lower interest rates to step up capital investments and new home construction...

...By 1990, however, the Bush Administration abandoned the last vestiges of Reagan's Keynesianism and dedicated itself to reducing government spending...

...Nor does it require having millions of others take two jobs to stay ahead of the bill collector, and leaving still more millions discouraged to the point where they have given up trying to find work...

...Also necessary is a politically acceptable incomes policy to curb domestic inflationary tendencies that might otherwise get out of control on the way to full employment...

...Nevertheless, Greenspan apparently felt Congress and the President were reneging on their agreement...

...Our "practical" central bankers and bond market participants were distilling their frenzy from the old economic homily that the slightest increase in government spending is not just inflationary, it is a mortal economic sin...

...Our central bankers are concerned about full employment and prosperity turning Americans into a fat, lazy, greedy lot...

...1. It could increase the annual Federal deficit by expanding government spending on goods and services directly, and/or cutting taxes to stimulate additional private sector expenditures, thereby providing greater sales for employers who could then confidently hire more workers at good wages as full employment is obtained...

...Not a voice in Congress was raised regarding the potential "budget-busting" impact of the one-time deficit increase...

...Only Option 1, though, can assure our reaching the Promised Land before the turn of the century...

...Disturbed by the illusion, Chairman Greenspan and his cohorts rushed to cool off the economy with a dose of higher interest rates...

...Paul Davidson, a past NL contributor, holds the Holly Chair of Excellence in Political Economy at the University of Tennessee, Knoxville, and is editor of the Journal of Post Keynesian Economics...

...A cooperative agreement among the major trading nations of the world should be possible to obtain...

...At Clinton's first State of the Union address, Chairman Greenspan sat next to Hillary Clinton—clearly signaling to the gnomes of Wall Street that he had accepted the President's economic soul in exchange for at least a 1 per cent decline in the long-term interest rate...

...broaden export demand...

...Neither a sharp stock market drop (in October 1987) nor foreign policy scandals (e.g...

...On the contrary, it was a highly motivated labor force that worked with a flourishing business community to bring about historically unprecedented improvements in productivity and output...

...In a previous article in these pages ("It's Still the Economy, Mr...

...The Clinton Administration saw lowering interest rates and raising the level of exports as the way to restore the American Dream in its political lifetime...

...The frenzy seems to have produced a mirage of galloping inflation on the economic horizon...

...Circumstances have changed...