“Unemployment compensation, as we conceive it, is a front line of defense, especially valuable for those who are ordinarily steadily employed, but very beneficial also in maintaining purchasing power. While it will not directly benefit those now unemployed until they are reabsorbed in industry, it should be instituted at the earliest possible date to increase the security of all who are employed…”
– Report to the President, Committee on Economic Security (1935)

In a previous post, I discussed the need to improve the payroll tax, and noted that one of the reasons we need to do this is to fix the unemployment insurance (UI). Our current UI system is fundamentally broken. As I wrote on the 12th, “at a time when nearly one in ten American workers are unemployed, only half of them qualify for Unemployment Insurance, to the extent that the program no longer adequately functions either as a safety net or an “automatic stabilizer.””

If I didn't have the time and the space to say it at the time, let me say it now. The fact that a majority of workers are no longer protected, nearly seventy-five years after the passage of an act that was meant to protect every worker from” one of many misfortunes” of economic life, is a moral failure of the highest order. The idea that governors in America would reject stimulus funds in the middle of a recession because those funds would make it easier for temporary or part time workers to gain access to UI suggests the total moral bankruptcy of the American conservative movement. Not for nothing did FDR say:

“Governments can err, presidents do make mistakes, but the immortal Dante tells us that divine justice weighs the sins of the cold-blooded and the sins of the warm-hearted on different scales. Better the occasional faults of a government that lives in a spirit of charity than the consistent omissions of a government frozen in the ice of its own indifference.”

Background:

Seventy-five years ago, UI was probably the most important, the most important, and legally and politically the most difficult piece of FDR's agenda that the Committee on Economic Security (CES) wrestled with. The sheer burden of the task was daunting – twenty million Americans were living on Federal relief, so demand for UI would be high, but unemployment was still at 14% and wages had been badly hammered so where would the funds come from to establish a reserve? Politically, the right thundered against creeping socialism and an un-American dole and the left visions of plenty if we “shared the wealth. Legally, the Supreme Court had set its face like thunder against the New Deal and all its works. And the progressive movement was split.

At the core of the CES's divisions over UI was a struggle between two halves of the progressive spirit -on one shoulder, its conservative, sober, evolutionary side, wary of government handouts, suspicious and somewhat fearful of an unruly working class, and confident in the ability of educated regulators to force the market into acting morally;  on the the other, its visionary, expansive, and radical side, impatient with the old nostrums of laissez faire and limited government, firm in their faith in the liberatory capacity of an activist state, and deeply hostile to all malefactors of great wealth. From each side came a plan:

• The Wisconsin Plan – the Wisconsin Plan was the result of one of the most creative and productive experiments in state-leel progressivism in American history, marked by the political and policy alliance between progressive economists at the University of Wisconsin lead by Professor John R. Commons and the LaFollete political dynasty, including the legendary “Fighting Bob” LaFollete and  his sons, Progressive governor Philip LaFollete, and  Senator Robert LaFollete Jr. In 1932, Wisconsin adopted the first unemployment insurance system in American history, drafted by John R. Commons. Under the Wisconsin Plan, each corporation was required to build up its own UI reserve, paid for out of a payroll tax. The rate of the payroll tax would vary company by company depending on how successful the company was in maintaining a stable level of employment and not resorting to layoffs – in this manner, the Commons school of economists hoped to tame the business cycle by re-shaping employer's incentives, making it good business to be a good employer.

• The Ohio Plan – the Ohio Plan was established the same year as the Wisconsin Plan, but differed from it in two regards. First, the Ohio plan instead of setting up individual factory plans established a single, statewide plan, which pooled contributions from all employers, thus allowing the strong and the big to subsidize the weak and the small. Second, the Ohio plan, unlike the Wisconsin Plan, required contributions from both employers and employees (the Wisconsin Plan only taxed employers). The kernel of the Ohio plan was picked up by several progressive economists, including Abraham Epstein of the American Association for Old Age Security, future Senator Paul Douglas of the University of Chicago, and I.M Rubinow of Columbia University.

In the political struggle within the CES, the Ohio plan was easily defeated. Frances Perkins, the Secretary of Labor and Chairwoman of the CES appointed a number of Commons-trained Wisconsin economists to staff positions, including Edwin E. Witte (later called “the father of Social Security”) and Arthur Altmeyer (the future first chairman of the Social Security Board. Under their leadership, and with the political support of many other New Dealers, the CES was persuaded to support a system whereby a re-funded Federal payroll tax could be used to push other states into establishing Unemployment Insurance systems on the lines of the Wisconsin Plan. The advocates of the Ohio Plan, shut out from direct participation by their Wisconsin rivals, lobbied the CES' Advisory Board on behalf of a single, national pool run by the Federal government.

In the end, neither side totally won out. The UI system would be state-run, in part merely to get around objections from the Supreme Court, but on the other hand, the insurance pools would be single, state-wide, and not the factory-level plans envisioned by John R. Commons. In this way, however, a deadly weakness was built into the system.

Situation:

The fact that only 46% of workers are eligible for UI is not an accident. The more workers are eligible for unemployment insurance, the higher a payroll tax must be levied to cover them, and thus states perversely compete to lower coverage to attract employers with their low cost of doing business. The fact that the majority of gubernatorial opponents to taking the stimulus and the attached strings of UI reform come from low-wage, low-tax, Republican/corporate dominated, Southern states shows the way in which the politics and economics of state-run unemployment insurance combine. If you've been paying attention to the news, not only would you see that some governors had to be bullied into doing what is not merely morally right but economically necessary in a recession, but you would also note that many states have drawn down their UI reserve funds to the point where they are a few months or a few quarters away from running out of money.

This is simply untenable. We have nearly 10% unemployment. Our recoveries are becoming increasingly long and jobless recoveries. We have to have a functioning unemployment insurance, and we need it now.

Solutions:

So how do we get this done?

1. Fixing UI Means Nationalizing UI – the National Employment Law Project's proposal for a “New National Economic Security Plan for the 21st Century” is a good start: it combines state level reforms (coverage expansion, 12 weeks of paid family and medical leave, subsidized COBRA insurance, a home protection fund, and credits for education/training) with federal reforms (expanding trade assistance, a permanent Federal Extended Benefit system tied to national recessions, establishing disaster-related unemployment insurance, and creating “transitional jobs”). Ultimately, however, the state-run model of UI is simply outdated and ill-designed and needs to be replaced. From the beginning, the state-level program was created to get around Supreme Court doctrine against Federal economic intervention that is no longer good law. State-run systems create perverse incentives to deny coverage and underfund the system, and in general, states lack the counter-cyclical capacity to deficit spend in recessions that UI should enable. The current system, whereby supplementary Extended Benefits are passed by Congress during recessions, has shown itself to be too slow, too prone to political delays, and too limited in scope. Unemployment is a national problem, it requires a national solution. We already have the administrative structure in place to make the transition. There is no excuse for delay.
2. Wage Insurance Is NOT the Answer – there are some who counsel the creation of wage insurance as a means of dealing with the additional problem that, when the unemployed do find new work, often (especially in the case of older, skilled workers) their new jobs tend to pay much lower wages than the declining, industrial, and unionized jobs they once held. This is a fundamentally flawed and compromised idea, an undeclared recognition that the jobs being destroyed and created by free trade, globalization, and outsourcing are not of equal quality, and a surrender to the epidemic of wage stagnation that is the underlying cause of America's long-term economic weakness. Creating a system that pays 1/2 the difference of lost wages simply creates an incentive for employers to fire their workforce en masse, rehire them later at lower wage rates, let the Federal government pick up the tab, leaving workers to suffer continually if only gradually declining wages. We do not need Speenhamland for the 21st century.
   
3. Job Insurance IS – Luckily, we do have another way to deal with the shortcomings in UI, one that was designed within the Committee on Economic Security, present at the moment of creation. In addition to the Wisconsin and Ohio economists, there were also a group of policy advocates from  the Federal Emergency Relief Administration (FERA), who were busy designing what would become the WPA (of which I have often written). In a series of running bureaucratic battles, FERA staffers like Jacob Baker, Emerson Ross, Corrington Gill, Aubrey Williams, Alan Johnstone, Nels Anderson, Eveline Burns, and Josephine Brown argued for the establishment of a system of “job insurance” to replace the Wisconsin school's “unemployment insurance.” In a memo titled “A Public Work Program As a Means of Economic Security,” Emerson Ross proposed three different systems of “job insurance:” option one “involves the use of contributions for protections against unemployment for a work program — employment not restricted to those making the payments. This conception regards the funds collected as an additional source of revenue collected and is based on the belief that employees will willingly make payments in return for the protection offered them by a large work program when unemployed,” essentially replacing unemployment insurance altogether, while combining contributions from a payroll tax with general Federal funding. Option two contemplated “wages on a work program as a means of paying all unemployment benefits,” in which a public job would be “a matter of contractual right to…wages paid for work performed.” Option three envisioned a combination of UI with job insurance, in which workers who exhausted their limited UI benefits would then become eligible for a public job, dividing responsibilities between short-term and long-term insurance.

Either of the three proposals would be superior to our existing system of unemployment insurance. Critically, by establishing a separate and dedicated tax and reserve fund for job insurance, the Federal government could create a permanent fiscal structure for a jobs program, which would form the nucleus of a Federal commitment to full employment for all.

Note: this is a cross-post from my group blog, The Realignment Project.

From Whence We Came:

As much as some people cling to the idea that the United States has always been a land of anti-government, laissez-faire bustling capitalists, the fact is that the specters of democratic statism haunt the chronicles of American history, all the way from the beginning. One of the oldest and most powerful phantoms is the Bank of the United States that died and was reborn, again and again through the history of American politics like the immortal monsters of slasher horror films.

Because the Bank was there from the beginning – Hamilton drafted it, Washington signed it, and Adams maintained it. Even when the anti-central government Democrats took possession of the Presidency in 1800, Jefferson maintained the Bank and Madison actively promoted it (due to the support of Albert Gallatin (the Secretary of the Treasury and a Democratic-Republican who had begun to learn the virtues of Federal activism in such matters as the Bank and Federally-funded public works). The Second Bank of the United States was established in an era of Democratic-Republican dominance, suggesting that the Bank of the United States had a rough political consensus between 1800-1832. Now, two caveats should be made – first, that the original bank was a public/private venture, and second, that the Bank was highly politically controversial, leading to thirty years of Jacksonian decentralized state banks – but the larger point remains that the Federal government of the Revolutionary Generation was not some libertarian paradise of limited government that left the economy to laissez faire.

The second half of the 19th century saw an enormous explosion of central banking. The Civil War gave us the Second Banking System, whereby the Republican Party, strong nationalists that they were, created for the first time a single, national, paper currency, a system of national banks with reserve requirements (held in Treasury securities), regulated by the Comptroller of the Currency.  When this system began to fail (largely due to the requirement to back all notes with Treasuries and the lack of a lender of last resort, as well as the restrictive monetary policy of the era), the Federal Reserve was called into being. However, what few people realize is that the public-private nature of the Fed was the result of a political bargain struck between conservative Republicans like Nelson Aldrich (who wanted a 100% private Fed), Progressives (who wanted a 100% public Fed), and conservative Democrats (who wanted a decentralized and private Fed).

This was not a single grand vision, but a messy compromise, and there remains in the history books, the vision of a Fed that might (and should) have been, a People’s Bank exercising political authority over the economy.

Where We Stand Today:

This brings us to our current dilemma. In the last twenty years, the so-called FIRE sector (finance, insurance, and real estate) of our economy has metastasized out of control – helped along by deregulation, regulatory capture, and refusal to establish new regulations to keep up with a changing industry. The vast increase in essentially paper value of derivatives, collateralized debt obligations (CDOs), mortgage-backed securities (MBSs), asset-backed securities (ABS), credit-default swaps, and other financial instruments have dramatically raised the stakes of a potential financial collapse, while making some Wall Street firms and their chief executives wealthy on a scale that puts the Gilded Age to shame. Rockefeller and Morgan were rich as they came, but they at least had the good sense to not order gold-flaked ice cream for dessert.

All of this would be merely troubling if the financial industry was merely off in its own little world making up imaginary money, if it wasn’t for the fact that the financial industry has begun to infect the rest of the economy with a dangerous instability. As Matt Taibbi’s piece on Goldman Sachs shows us, the financialization of the economy has had a predictable effect – with too much money chasing too few vehicles for investment, the financial sector begins to create speculative bubbles in new and untried areas of the economy. In the late 90s, they turned to the internet and tech stocks as their new bubble, because investors who might be wary of new and untried firms in something they understood, like steel or cars, promising massive and infinite returns didn’t know what this magical thing called the Internet might do – maybe their stocks really were worth their weight in solid gold. Then it was the housing bubble, where the massive profusion of new investment vehicles (MBSs, default swaps, etc.) and the deliberate compromising of ratings agencies were used to hide the on-the-ground reality (that money was being flung at mortgages on the expectation that home values would never fall, so it didn’t matter that people couldn’t afford their mortgages) behind the illusion that you could slice up debts into risk-free chunks, hedge yourself with insurance so that you couldn’t lose money, and that prices were only ever going to go up.  Even more recently, it’s been commodities futures, where speculators have been bidding up the price of oil and other basic commodities, leveraging the huge sums they now control to pump up prices in a fashion that Jay Gould would have approved of.

All this has huge consequences in the real economy – if you over-invest in internet and tech companies, you get the boom and bust in Silicon Valley, which made some people rich, left a lot of computer programmers and engineers high-and-dry, and somehow we’re still behind the rest of the advanced world when it comes to broadband. When you turn the housing industry from a way for people to buy homes into a gigantic casino/piggybank, then people can’t afford to live where they work, sprawl accelerates, net savings turn into massive net debt, and when it all goes belly up, we have huge foreclosure rates, ghost towns, millions of people’s homes “underwater,” homelessness, nosediving public revenues, and Depression-level unemployment in areas dependent on the real estate industry. When oil contracts are traded twenty times between production and sale, oil prices go up to $145 a barrel and $4-5 per gallon at the pump, the price of everything else (because we generally burn oil to transport goods) goes up, consumers’ purchasing power goes down, and the economy sours. You know things have gotten bad when we’re actually considering limiting speculation in oil.

And every time we try to fix the mess they made, the financial industry sticks a gun to its head and threatens to pull the trigger unless we give them trillions in public funds. So they make money when the bubble goes up, they make money when it goes down, and they make money when someone else is stuck with the cleanup. Meyer Lansky would be proud.

How Do We Get Out of Here?

Someone like Matt Taibbi can feel comfortable telling people there’s nothing we can do. It’s the journalist’s prerogative, well-honed since the days of H.L Mencken, to stand back and cynically chuckle as the world burns. But as an activist, I don’t feel that I can leave it at that. I think there are things that we can do, or at least try to do. A lot of ink and pixels have been spent talking about the need for new regulation, and I don’t really have much to add there for the moment.

But one idea that I do want to explore is to return to where we should have gone with American central banking – the idea of a public finance sector, a People’s Bank. In my imagination, the People’s Bank would focus on three key areas where we need an active, not-for-profit public presence:

1. Secure Deposits, Open to All– despite the success of the FDIC in making people’s savings and checking accounts more secure than they used to be, the large numbers of bank failures in the recent crisis suggests that we have a need for something even safer than an FDIC-insured bank – a Federal bank where you can put your money without ever having to be afraid of losing it. However, I wouldn’t be a very good progressive if I didn’t extend this idea one further to explore a whole area of the “shadow financial sector” which really hurts people who don’t make enough money to be worried about losing it.
   1. Free Checking/Savings Accounts –  Twenty-eight million Americans don’t have either a checking or a savings account . Usually, this is because they don’t have enough money on hand to make it over the minimum required to open an account, or because they live so close to the line that they can’t wait three days for their paychecks to cover it, or because they’ve become overdrawn and hit with so many bank fees that they owe more than they can put in. Thus, the working poor are forced to turn to check-cashing companies who charge up to 391% interest for their services.  Simply by giving working people a way to put their money in a safe place, we would be increasing the net income of twenty-eight million working poor people by hundreds if not thousands of dollars a year.
2. Availability of Basic Transactional Credit – in addition to being exploited when it comes to simply getting access to their own paychecks, many Americans, including the working poor but also comprising vast swathes of the working class, are also routinely victimized by their lack of access to basic transactional credit. Instead, they turn to  payday lenders, who charge up to 911% interest, and auto-title lenders who charge up to 300% interest. These companies, together with the check-cashers discussed above, collectively rake in $8.5 billion a year in fees. And if the financial crisis’ underbelly – the racial profiling of subprime loans revealed in the Wells Fargo lawsuit in Baltimore,  the abuse of so-called NINJA loans by middle-men, the ridiculous spectacle of the banks defeating cramdown legislation and watering down credit card interest rate reform – has shown us anything, it’s that the so-called legitimate finance industry isn’t so much better in how it deals with working and middle class Americans. Thus, the second basic function for the People’s Bank – one that I have to give credit to Matt Yglesias for linking to – is Steve Waldman’s suggestion that the government should provide “basic transactional credit as a public good…Every adult would be offered a Treasury Express card, which would have, say, a $1000 limit. Balances would be payable in full monthly. The only penalty for nonpayment would be denial of access of further credit, both by the government and by private creditors…Unpaid balances would be forgiven automatically after a period of five years. No interest would ever be charged.”
3. Non-Profit Yardstick Home Lending –  in the wake of Fannie Mae/Freddie Mac, it would seem counter-intuitive to argue for a public institution to guarantee home loans. However, I would argue that the failure of those two institutions is more an argument against privatization – for decades, the two institutions worked well at what they were supposed to do, namely guarantee long-term loans; it was when they tried to chase the subprime money (which they came late to) that they went belly-up. So if we’re going to have an institution designed to make it easier and safer to buy mortgages, and as we just spent huge amounts of money rescuing these two institutions, let’s actually do the job right. In the wake of the failure to cramdown mortgages or otherwise deal with the foreclosure crisis, let’s have an institution that values homes correctly (one of the other market failures of the housing collapse was the corruption of home value assessors), that lends wisely, that provides long-term fixed rate mortgages to people who need primary residences…perhaps even using the returns on middle-class loans to make loans affordable to working people without creating crooked sub-prime practices.
4. A Truly Public Fed – finally, and this would be the largest, most politically fraught, and most unlikely reform, we need to fold the Federal Reserve’s central banking powers into the People’s Bank. An institutional accommodation from 1912 left us with a central banking partly public and partly private, and we all know what happens to a house divided. I believe in central banking, and of the various political groups out there, I have the most contempt for the gold-standard loving Fed-abolishers. But the essence of central banking – controlling interest rates, managing the supply of money, acting as a lender of last resort, and regulating financial institutions – is an exercise in public authority over the economy. I would argue that much of the current lack of faith in the government’s attempt to reboot the financial system stems, among other things, from the hidden nature of the Fed’s operations, how the Federal Reserve as an institution has the singular authority to loan trillions of public funds without any democratic control, accountability, and virtually no oversight. (on a side note, I would also argue that the public-private nature of the Fed is why it for so long has focused on inflation over unemployment, as well as its habitual paranoia over wage growth) So if we’re going to have a central bank, as we should, let’s forgo the inane illusion of laissez-faire, and actually have a people’s bank.

January 11, 1944:

When Franklin Delano Roosevelt gave his State of the Union Address on January 11, 1944, the United States was engaged in the largest two-front war of its, or any nation's history. In the European theater, Allied forces were bogged down in Italy south of Monte Cassino and Operation Overlord was still in the planning stage. In the Pacific, Allied forces were advancing through New Guinea following the bloody Battle of Tarawa.

And yet, in the middle of a crucial address at a time when the successful outcome of the war was still very much in doubt, FDR spoke instead to what would come after, in what might have been the last New Deal speech he ever gave. The theme began with him pledging that:

We are united in determination that this war shall not be followed by another interim which leads to new disaster- that we shall not repeat the tragic errors of ostrich isolationism—that we shall not repeat the excesses of the wild twenties when this Nation went for a joy ride on a roller coaster which ended in a tragic crash.

Roosevelt continued by re-framing the objectives of the war as “not only physical security which provides safety from attacks by aggressors. It means also economic security, social security, moral security.” The invocation of Social Security, the seemingly jarring transition from foreign to domestic policy was the opening movement of a speech whose moral center was the home front. In the bridge of his speech, FDR decried the “uproar of demands for special favors for special groups,” and recognized that “we have not always forgotten individual and selfish and partisan interests in time of war,” a rather unusual tone for a period we prefer to remember in glowing, sepia tones.

Even more unusually, he went on to challenge an even more sacred cow than national unity – individualism. Far from being an expression of American rugged independence, Roosevelt argued that “In this war, we have been compelled to learn how interdependent upon each other are all groups and sections of the population of America,” following the thread of prices and wages from farmers and workers and factory owners to “teachers, clergy, policemen, firemen, widows and minors on fixed incomes, wives and dependents of our soldiers and sailors, and old-age pensioners.”

Shifting to explicitly addressing the issue of the post-war world, FDR explicitly returned to the theme of his 1936 Inaugural Address, the theme that more than any other idea than “security” defined the New Deal – “one third of a nation.” The first condition for a new America, the first war aim would be not merely the achievement of economic prosperity but rather the leveling upwards of the poorest of Americans towards a universal minimum standard of living. (Sadly, the first, more anodyne goal of GDP growth would become the standard for post-war liberalism, while the second and higher aim would be marginalized)

It is our duty now to begin to lay the plans and determine the strategy for the winning of a lasting peace and the establishment of an American standard of living higher than ever before known. We cannot be content, no matter how high that general standard of living may be, if some fraction of our people—whether it be one-third or one-fifth or one-tenth- is ill-fed, ill-clothed, ill housed, and insecure.

America could not be content with a return to prosperity because of the re-discovery of economic interdependence, he argued. This economic reality, once hidden behind the veil of the free market, was being made plain to Americans, and just as the recognition of political community had reshaped an America in 1776, he believed that the recognition of economic community in 1944 would engender similar results in the post-war America:

This Republic had its beginning, and grew to its present strength, under the protection of certain inalienable political rights—among them the right of free speech, free press, free worship, trial by jury, freedom from unreasonable searches and seizures. They were our rights to life and liberty.

As our Nation has grown in size and stature, however—as our industrial economy expanded—these political rights proved inadequate to assure us equality in the pursuit of happiness.

We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. “Necessitous men are not free men.” People who are hungry and out of a job are the stuff of which dictatorships are made.

Linking the Depression to the rise of the Nazi ideology and movement that it empowered, FDR here linked the cause of economic security to the cause of the war, bringing the theme of the home front into unity with the reality of a world war against fascism.

And then he introduced the Second Bill of Rights:

In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race, or creed.

Among these are:

   The right to a useful and remunerative job in the industries or shops or farms or mines of the Nation;

   The right to earn enough to provide adequate food and clothing and recreation;

   The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;

   The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;

   The right of every family to a decent home;

   The right to adequate medical care and the opportunity to achieve and enjoy good health;

  The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;

   The right to a good education.

It has been argued in the past that America has been exceptional in defining rights solely as legal and political in nature, and avoiding the economic and social rights spelled out in later 20th century constitutions. FDR's speech stands as a powerful rebuttal to this argument, a momentary glimpse of another America. Because Roosevelt did not intend this Second Bill of Rights to be a mere legal letter; there was instead a legislative movement to enact them into law, through the combination of the Wagner-Murray-Dingell Bill (universal health care plus a national cradle-to-grave welfare state), the Full Employment Bill (establishing full employment and the right to a job through Keynesian planning and the government as employer of last resort), and what would later be the Housing Act of 1949. This political drive was blocked in Congress, but for a moment in 1944, the United States seemed to be moving to a new recognition of human rights.

And for Roosevelt, the Second Bill of Rights really were about the United States and the world at the same time. We often forget that American politics and public policy doesn't happen in a vacuum, that there is a conversation that goes on across oceans and national borders. And 1944 was a time when there was a Trans-Atlantic conversation about what the post-war world should look like. In the United Kingdom, John Meynard Keynes had established his economic theories into government practice and William Beveridge was in the process of writing his two famous reports, the 1942 Beveridge Plan for a National Health Service and a cradle-to-grave welfare state, and Full Employment in a Free Society (1944). In Sweden, Gunnar Myrdal and the Stockholm School were solidifying the intellectual foundations for the Swedish social-democratic model. Throughout every occupied country in Europe waiting for Operation Overlord, people imagined a new, better world to come. And here was FDR, speaking with the world.

All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.

America's own rightful place in the world depends in large part upon how fully these and similar rights have been carried into practice for our citizens. For unless there is security here at home there cannot be lasting peace in the world.

July 4, 2009:

In the sixty-five years since FDR's Second Bill of Rights, the larger historical mission of the progressive movement in America has really been the adoption of the Second Bill of Rights for all Americans, regardless of race, class, and gender. Truman's failed Fair Deal was built from the intellectual foundations of the Second Bill of Rights. The Great Society and the War on Poverty were incomplete attempts to establish health care, education, and protection from poverty; the Civil Rights Movement's call for “Jobs and Freedom” and the 1963 “Freedom Budget” echoed even more deeply the spirit of Roosevelt. And even in the darkest years of the left's nadir, when America seemed to be permanently the land of Reagan, the “dream that will never die” that kept people going ultimately is that same dream.

So where do we stand today?

   * The Right to a Job – here, we've made the least amount of progress at the time when we have a nigh-unprecedented need for it. Even in the wake of the first stimulus bill, 9.5% of the country is officially unemployed. Unofficially, the number's more like 18.4%. After health care, this must be the goal of our political efforts, because it has become all to clear that each future recovery will become even more of a jobless recovery.
   * The Right to a Living Wage – here, we actually have made some progress, both in terms of restoring some of the lost value of the minimum wage, and on a state and local level, establishing a living wage as the legal minimum. As I have said before, I think this is an important and productive part of our politics, a ritual of reconsecration to social justice.
   * The Right to Farm – ironically, here we succeeded far more than we ever intended to, and the result has been a permanent system of subsidies to agro-business and a distortion of our agricultural, energy, and food policy by the sheer political gravity of corn.
   * The Right to Freedom From Monopolies – if the financial crisis has shown us anything, it's that we need a return to stronger anti-monopoly regulations.
   * The Right to a Home – as I've said before, we really need to work on extending this to mean something more than Federal subsidies to middle-class suburban home construction.
   * The Right to Health Care – after the successful scoring of the HELP committee's new bill and the AMA's endorsement of a public option, I feel more confident than ever before that we will finally enact this right into law.
   * The Right to Social Security – while we did establish a system of old age, disability, and unemployment insurance, it is in desperate need of improvement, especially in regards to unemployment insurance (more on this later).
   * The Right to a Good Education – while we have made some steps in the right direction in improving and expanding public education, a lot more is needed to make this right a reality for all (more on this later).

“O reason not the need! Our basest beggars
Are in the poorest thing superfluous.
Allow not nature more than nature needs,
Man’s life is as cheap as beast’s.” (Lear, II iv)

The Problem:

If there is any one area of American life that best expresses the adage “poverty in the midst of prosperity,” it must be housing. Even as thousands upon thousands of homes now stand empty, vast swathes of speculative suburban developments along the highways and hills of California turned into ghost towns, homelessness has increased. In Washington D.C, the number of homeless families has increased in the last year by 15%, with similar figures being reported in New York City and other metropolitan centers. Even when the sub-prime boom was spreading home-ownership wide and far and actually beginning to make headway against the unequal distribution of housing in America, in 2006, 8.8 million households were paying more than half their income in rent (I was probably one of them). Major systemic problems (the lack of affordable housing and workforce housing near where people work, the need to in-fill versus sprawl, racial and class discrimination) were not being addressed, even when the market was flush.

It isn’t flush now. If ever there was a need for proof that “spatial mismatch” and “credit discrimination” exist, we can find it in the fact that at a time when thousands of houses are empty rotting shells, that people who want and need housing are being turned away by banks who have suddenly become paragons of fiscal rectitude.

At the same time, the national unemployment rate currently stands at 9.4%. Within the construction industry, unemployment stands at 21%. Within California, the situation is even worse, with an overall unemployment rate of 11.5%, and a construction industry that’s down 150,000 jobs from last year. While I fully expect that the stimulative effect of the American Recovery and Reinvestment Act of 2009 will begin to ameliorate this situation within the next six months, I personally was calling for an even larger jobs bill at the time.

I think we can tackle both problems at the same time.

The Solution:

Public employment programs – like the Works Progress Administration (WPA)- have a special affinity for has been called “light construction.”  In its eight year existence, the WPA built nearly 40,000 public buildings, and rehabilitated or improved another 80,000, despite the fact that most WPA workers actually did road construction. Those 120,000 buildings included 6,000 new schools, 2,170 school expansions, and 31,000 school modernizations, 322 new or improved hospitals, and 6,400 public office buildings. Even if you divide it up yearly, it still comes out to 15,000 buildings a year, done with only a fraction of its 3.5 million strong workforce. In my own research, I have found that the one thing that the WPA wasn’t able to do, that administrators and experts within the WPA like Emerson Ross, Jacob Baker, Alan Johnstone, Nels Anderson and a handful of other almost completely forgotten New Dealers wanted to do, was build housing.

As you can see in the above memo written by Jacob Baker, the plan to expand the New Deal’s employment program to 3-6 million men (far bigger than the WPA eventually managed),  also went hand in hand with an attempt to deal with the chronic market failure to provide affordable housing in the city core. This insight, the drive to kill two birds with one stone, is one that we should follow today.

My suggestion would be for the Federal government, along with the state and local governments, to go into areas where the housing market has failed (large proportions of renters paying more than 50% of income in rent, housing values far out of sync with median incomes, large numbers of abandoned foreclosed properties, or a lack of affordable housing in general) and do three things: first, to restore and rehabilitate derelict housing and second, to build new housing units where new housing is needed in central cities, and third, to destroy “ghost towns” that are now nothing of blight in such a way that as much of the materials can be saved as possible.

If we were establish a Housing Progress Administration (HPA) to employ 5 million unemployed workers (many of whom would no doubt be former construction workers) to do this, and we paid $24k a year (assuming an overhead rate of 30%, which is actually 10% higher than the WPA”s historic 20% rate), making a deal with states and localities to pitch in for the cost of land and materials, it would cost approximately $155 billion per year. If we kept the program going for the next two years, at which point economic growth would start to transition into employment growth, it would cost $310 billion – less than half the cost of the stimulus bill. And it would create at least 5 million jobs, nearly the total number of jobs lost in this recession.

Now the question becomes, what do we do with this new housing? I have a few suggestions:

• Selling At/Below Cost – the wonderful, undiscovered virtue of the public sector is that it doesn’t have to make a profit. If we were to sell the new/reclaimed housing at or below the cost of construction, we could begin to reverse the impacts of the sub-prime collapse, by getting low to medium income families back into housing with low-rate, FHA-backed mortgages, instead of crooked, ballooning loans. Moreover, by moving thousands or even millions of people back into housing would help defray the cost of the construction program, pushing it well below $155 billion.
• Giving Away Housing – in cities with high rates of homelessness, one of the most successful recent programs has been to simply give homeless people housing for free. For the 17% of the homeless who work, it simply gets them over the obstacle of putting together first-and-last plus security deposit; but for many more, getting a mailing address and a phone number, a place to clean their clothes, and so forth is a huge helping hand towards getting a job and staying off the streets. Even if we don’t make any money back on giving away housing, we would be solving a major social problem and a major human crisis.
• Establishing Rental Co-ops – finally, we should recognize that home-ownership is not the only route to economic security, and that our public policy needs to do more to ensure that renters get the same kind of government assistance that home-owners get from the FHA, HOLC, tax breaks, and other public policies. Thus, in addition to providing new housing for sale, the HPA should also create a variety of apartment buildings and single homes for rent, working with local housing groups (yes, like ACORN) to establish local rental co-ops who would operate and maintain the units.

In the face of manifest human need and the gross waste of our current system, what else can we do but help?

Note: this is a cross-post from my group-blog, The Realignment Project.

Background:

Yesterday, the Economic Policy Institute held an event, co-sponsored by the “Broader, Bolder” education reform group, on reforming No Child Left Behind. This fact was commented on in a post on Crooked Timber, and within eight poss, you could read that ” The goal of NCLB was not to improve education, it was to destroy the teacher’s unions and take away the hard won rights including tenure and the ability to act as professionals…One group sees education as a way to instruct the young with the essentials of the society and turn them into docile citizens who will provide the workforce and consumer base that the elite depends upon. This group favors an authoritarian, top down, approach to instruction,” and “the “Broader, Bolder Coalition”—whose manifesto openly embraces using education policy as a stalking horse for a broad political agenda…has little to do with educational standards.”

And there, in a microcosm, is the state of our current education reform debate: one group, loosely grouped around the “Broader, Bolder” coalition, and another group, loosely grouped around the Education Equality Project and they hate each other worse than Communists hate Trotskyists, and with the same sectarian flair. Apparently the Broader, Bolder folks are either your standard left-of-center education policy wonks and activists who emphasize the need to tackle the social environment of schools or a stalking horse for the teachers unions out to destroy education reform. Likewise, the Educational Equality Project people are either a very similar group of wonks who focus on the achievement gap between white students and students of color, or a neoliberal plot to destroy teachers unions, force students into becoming standardized-tested drones, and privatize the public education system. Oh, and they’re both the only true “reformers.”

Problems With Existing Reform Groups:

Personally, I think that the state of debate has become so poisonous, so tainted by mistrust and (more importantly) unspoken ideology wrapped in the flag of “science-ism” that I’m reluctant to dip a toe into these waters. But I feel that something is being missed here and in some important ways both sides are wrong. (I know that comes off as a hideous high-Broderite splitting the difference, but I actually have a point here)

I think the overarching issue here is that we have two different views about what education should be about: making kids into good citizens, and making kids into good workers. And while the knee-jerk reaction might be to say, in fine Deweyian fashion, that education should only be about the latter, that’s actually wrong. You can’t have a Deweyian citizen (someone capable of engaging in democratic discourse, of using their powers of pragmatic reasoning to sort through the pros and cons of elections and public policy, someone who reads the newspaper and writes letters to the editor, and who can stand on a street corner or go door to door) if they’re illiterate and innumerate. Especially if you believe in John Dewey’s views about the importance of education for democracy, you need people who have the training to be “virtuous” citizens – and that training requires a rigorous grounding in academic skills, because in Dewey’s view social change, the kind of social change actually needed to transform the social environment around the schools that the “Broader, Bolder” folks see as the major problem in education, requires active citizens to do the work of changing it.

Likewise, the Educational Equality folks, for all that their emphasis on abolishing the achievement gap is laudable, have a giant gaping hole in their theory of educational reform. (At this point, it doesn’t matter whether they’re genuinely progressive or neoliberal) No matter how well you drill your students, no matter how many students you get to college level, unless you actually change the socio-economic order, you’re just trying to bail the ocean with a sieve. The idea of education as the leveling force in American society is an attractive illusion, buttressed by our constructed histories of worthy marginalized communities (be it Jewish-Americans, Asian-Americans, or even the black middle class) pulling themselves out of the ghetto by pushing for educational excellence. But it is just an illusion. There are larger social forces  – the structure of persistent discrimination in the real estate and employment markets, the structure of housing and job availability (whether there are enough affordable homes close to living-wage jobs out there to go around), and the way that the credit and financial system exacerbate these problems – that education policy is not strong enough of a lever to shift by itself.  At best, what you’ll end up with is a situation where you have a larger black and Latino middle class, who still face an income/wealth/promotion/housing/education gap with whites, who are still perched in a fragile economic situation in segregated middle-class black or Latino suburbs,  and the people left in a shrinking ghetto will be in an even more dire situation, and their schools will get even worse.

As a last note in this section, I would also add that the label of “reform” is being used in a very evil way here, in that it is being used to create a narrative of the heroic, selfless reformer (on the side of the poor, downtrodden, and passive minorities) against the evil institution, no matter which side is using it. The problem is that “reform” can be applied to anything, any change no matter how good or how bad, so calling for recruits to the cause of “education reform” is in my mind a highly suspect political effort.

Why This Is Important:

What makes this sorry state of affairs all the worse is that we actually desperately need a society that is actively democratic. You take a look at any major poll,and you can find signs that the electorate think that you can have a free lunch,, or are willing to toss away or defend civil liberties depending on the phrasing of a question. We need a citizenry that can actually parse through the spin – although I will say that the growth of the internet and the blogosphere is a reassuring trend, and I believe that if John Dewey was alive today, he would be one of the leading bloggers in America in his spare time.

At the same time, however, we also need a society that is more economically egalitarian, both for economic and democratic reasons. Dewey’s vision of an active democratic society was also a world in which working people were economically secure enough that they could take the time to read the paper, self-educate through public libraries and evening courses, go to political meetings and engage in debate. And as much as it is a thin reed, education does seem to be one route to boosting wage income. I would still dispute whether the college wage gap is a function of supply vs. demand, and whether expanding college graduates towards 100% of the population will actually lead us to a more egalitarian economy or just depress the wages of college graduates.

How to get past the mistrust is something I still haven’t worked out. The EEP people have a nasty tendency to bash unions and be far too cosy to conservative privatizers and voucher-floggers, and at least to this union member (UAW 2865, representing 12,000 teaching assistants, tutors, and readers of the University of California) that makes me leery of them. The Broader, Bolder people get accused of wanting to whitewash the manifest problems of a racially and socially unjust system, and that their political efforts lend towards the preservation of the status quo. I’m biased in their favor, but I at least want to recognize the claims.

Where To Go:

Regardless of whether these two groups can get past their problems with each other, I think there are some issues that have fallen off of the education agenda that I believe are crucially important for making education “reform” genuine reform sans scare-quotes.

• The Affordability Question Has Fallen Off the Radar – here at the University of California, which was at its inception a truly Deweyian institution dedicated to the proposition that higher education was a right of all citizens, the price of a college education has doubled in the last six years, from less than $4000 per-year (in-state undergraduate) in 2003, to over $8000 per-year in 2009. This situation is replicating itself across the public universities across the country, as cash-starved legislatures de-fund and privatize their state universities to balance their budgets. And yet, we don’t hear anything much coming from the EEP folks (who should be outraged at the fact that  a major reason why the poor students and students of color that they strive to place into college don’t graduate on time is because of money issues) or the Broader, Bolder folks (who should be absolutely on the ball about such an obvious social problem) about this. Simply put, this should be at the top of the education reform agenda: public higher education should be free of charge.
• We Need to Do Something About Vocational Education – while I fully believe in college for all, I also know that there are plenty of good careers that don’t involve going to college, and I’ve known people who were frankly miserable in college because they didn’t want to be there. One of the problems in American education that’s not being addressed is that we treat vocational education like the last resort for people who’ve failed, at the same time that technical schools are exploding in numbers, largely because they’re replacing the kind of career tracks that used to be represented by a union apprenticeship. Yet neither side is talking about ensuring that technical colleges and training programs should be regulated or evaluated to ensure that they’re not just fly-by-night diploma mills, and neither side is talking about how we need to restore the social status of skilled labor, that becoming an electrician or a welder or a plumber is a viable and honorable means of economic mobility. Bottom line – vocational education needs the same kind of resources and oversight that academic education gets now.
• If We’re Going to Train Citizens, Let’s Bloody Well Train Citizens – there’s often a lot of talk from the Broader, Bolder style of reformers that our education systems should be training students to be citizens, but not a lot of follow-through. The fact is that we need to be teaching real civics – by which I mean teaching people how to form political groups, how to use Roberts Rules to structure a meeting, how to put out a press release or a flier, how to use the media and spin your story, how to organize a protest and put pressure on the political system, how to run a block-by-block get out the vote campaign, how to blog – the nuts and bolts of how to exercise political power. But beyond that, we need to inculcate a certain attitude towards power and authority, namely a proprietary one. As citizens of a democratic republic, we own the state and we employ its officers, and that begins by teaching our students that when you see someone breaking the rules, you don’t just accept it, you blow the whistle and go to the media; that when someone abuses their power, you should push back by using every right you have available to you.
• A Radical Suggestion – MORE Union Control of Education – one idea that has occurred to me in the past is that one of the fundamental blocks to reform is that the teachers, through their democratically-chosen unions, don’t trust their administrators, governments, or outside reformers (which they see as, well, management). They view the teacher quality “movement” as a cover for union-busting. By contrast, the EEP people see unions as inherently anti-reform. One suggestion: if the EEP really care above teacher quality above all else, let’s make a different bargain. Why not put the unions in charge of hiring, firing, and promotion through the time-honored method of the union hiring hall, with a quid pro quo of improved outcomes (in return for higher salaries and union job protection)? That way, the unions would have to deliver, and the EEP people would have to choose whether they cared more about teacher quality or administrator’s ability to hire and fire at will.

Note: this is a cross-post from my group-blog, The Realignment Project. Check it out, and if you see something you like, pass it on!

In thinking through my recent post about the California budget mess, and in following the politics of what is now the second full round of budget negotiations this year, one of the frustrating elements of budget politics (at least for progressives) is the lack of connection in the minds of the electorate between taxes (which they generally dislike or can be persuaded to vote against, although as progressives have pointed out, this is not always true) and spending (which they generally like, in pretty much all cases). Even though it’s impossible to increase spending on public priorities, cut taxes, balance the budget, and decrease borrowing at the same time, voters apparently would like to do just that.

The problem for progressives, though, is that this makes it very difficult to raise taxes, even when it’s going towards public policies that are really popular. Which is why I was pleasantly surprised to see the California state legislature ’s Budget Conference Committee increase the VLF (Vehicle License Fee) to save the state’s parks from being shuttered. Not only was this good in and of itself – parks are a public good that people should be able to enjoy, closing the parks loses a lot more in tourist revenue than it saves n parks dept salaries and maintenance costs – but it was also a rare case of a tax increase that’s explicitly targeted to a public policy. Henceforth, the debate over increasing the VLF, which was one of the factors that brought down Gray Davis and brought in Arnold Schwarzenegger, is no longer just a debate over whether taxes should be higher or lower, as the Republicans would prefer. Now it’s a question of which is better, $15 less on your VLF or state parks – and that’s a debate we can win.

Targeted taxes and special funds are a very wonky area of public policy that I think is criminally under-emphasized in progressive circles, precisely because these two things do the impossible: they directly link taxes with the programs they finance. Targeted taxes are something that people are generally familiar with – gas taxes generally fund transportation, cigarette and alcohol taxes generally go towards health care – but only on a small scale.  Likewise, we’ve all heard of special funds – budgetary pots of money that are reserved for specific policy purposes  – like the Social Security Trust Fund, I think that one way to solidify progressive taxation would be to sub-divide existing progressive taxation (income, property, inheritance taxes, capital gains, etc.) into separate targeted taxes: a Health Care Tax (made up of 1/xth of current income taxes, 1/xth of capital gains taxes, etc.), an Education Tax, a Public Transit Tax, and so on. Each of these would go into a Health Care Fund, an Education Fund, and so on.

In a purely technical sense, this is just accounting gimmickry, since the state’s General Fund and its different budget areas essentially do the same thing. But in a political sense, this has the important effect of dis-aggregating general taxes which fund the abstract entity known as the government, and making our policy priorities visible and concrete, forcing people to think about the ends of public finance. Now instead of railing against taxes that are too high and wasteful spending int he abstract, which conservatives love to do because it allows them to mobilize people’s dislike of taxes without running afoul of people’s approval of specific government spending, conservatives would be forced to argue for cutting specific taxes that fund specific programs. Now instead of having to defend the abstract principle of government and the take-your-medicine argument for the necessity of taxes, progressives can go out and say “we want to expand health care coverage, lower college tuition, and put solar panels on every house in California – so go out and vote for an increase in the Health Care Tax, the Education Tax, and the Environment Tax.”

In a sense, what this would do is to take the chaotic process of ballot-box-budgeting, where priorities are set randomly, without a view to the overall picture, and bring it into the legislature in a way in which public priorities can be debated, voted on, then presented to the voters. This would also allow the legislature to explain in a absolutely straightforward way what they did and why, and sell the budget as a progressive document to the electorate.

The image above is an example of how this could change the politics of budgeting – it comes from a 2002 Washington State Budget, and even though the idea for it came from a group of Third Wayist policy advocates who I dislike, I think the idea can be repurposed for genuinely progressive ends. Because what this does well is to break down the health care budget into what it actually covers, and shows the implications for increasing and decreasing spending – and there, progressives can use the public’s support of social policy ends to our advantage – by showing that budget cuts (and therefore, tax cuts) would mean cutting off X number of people, or shuttering programs A, B, and C, or cutting back on quality of services. And here again is a debate we can win.