Tag Archives: History and Politics

Coalition of Holdouts

Note: this is a cross-post from The Realignment Project.


While I have never been intellectually attracted to centrism, and while I've made my distaste for High Broderite bipartisanship-for-the-sake-of-bipartisanship very clear, I haven't yet addressed one major element of what I call “process politics” that I think is pernicious – the cult of “reasonableness.”

The idea of “reasonableness” as it plays in politics is that the party of government (not necessarily the party “in” government, but the party that believes in government) has to behave in a reasonable manner, passing budgets on time, playing by the procedural rules, and make compromises to make things happen, even if it means making compromises before legislation is even introduced, so as to seem “reasonable.”

My problem with “reasonableness” stems from the fact that it stands in direct opposition to the way that politics actually works.

Lessons of '09:

While the fate of the current health care reform is still up in the air – although signs that a robust public option will pass the House and some form of a public option will be included in the Senate bill are welcome – one thing that I think will be a historically significant outcome of the effort will be the emergence of the Congressional Progressive Caucus as a functional pressure bloc within the House of Representatives, and the Congress more broadly.

This is somewhat surprising to say the least, because the Congressional Progressive Caucus hasn't had much of a great track record over the last twenty years. To be fair, for much of that period, the CPC was struggling with a major structural roadblock – namely, for eight years out of those twenty, they had to deal with President Clinton, who would use them to “triangulate” off of, and for another eight, they were stuck with a Bush administration that any Democratic legislation more or less an academic question. However, even if we look back to the beginning of this year, we saw a Progressive Caucus that was essentially ignored on the stimulus and the budget, sidelined on the banks and to a lesser extent on the bailouts (at least in relation to the auto bailout), and beaten up over housing and credit card reform.  What these defeats had in common was that the Progressive Caucus was in support of the underlying idea, wanted the Obama administration to succeed, and could essentially be counted on as supporters. As a result, they were essentially taken for granted, while conservative Democrats were able to win huge concessions despite being far less numerous as a caucus.

So what's different about the health care debate?


  • Focusing on a Particular Political Object: in previous legislative fights, the Congressional Progressive Caucus has tried to play the slightly odd role of a reasonable pressure group, focusing on writing alternative legislative proposals that never went anywhere. The leadership never picked these up, they often weren't introduced as amendments, and in general they were dismissed out of hand as being too far to the left to ever gain enough moderate votes to pass. At the same time, the comprehensiveness of these alternatives made it rather difficult for non-experts to understand what the particular fight between liberals and leadership was about, unless they took the time to read comparisons. By contrast, in the health care fight, the CPC picked a single and concrete political object – the “robust” public option – and chose to make their stand there.* This had several advantages:

    1. It meant that the leadership was now confronted with a single “ask” which they would have to accommodate and omission of which would be much harder to spin away as “well, we tried, but this is the best we can do.” Either it's in and you have the CPC's votes, or it's not and you don't. This also makes accountability for party leadership easier to enforce.
    2. It made the policy conflict translatable into media-speak – the issue was “the public option,” was it in or not, something simple that could be easily crammed into a 30-second news spot, instead of requiring a long-form magazine article to unpick each aspect of the difference between the CPC's bill and the other bill.
    3. It made it easier for the CPC to exert political pressure by simplifying internal decision-making process. Instead of the agonizing difficulty of trying to balance, on the stimulus for example, an extra few billion for high-speed rail made the bill worth voting for, or whether $50 billion less for schools was worth junking the bill and trying to get all eighty-odd members of the Caucus to agree on a single metric for making these calculations, there's just one criteria for whether the CPC should support the bill.

    * It should be pointed out that picking an issue to focus on doesn't mean giving up on the rest; the CPC hasn't stopped pushing on the expansion of Medicaid, or improving affordability, or the like, but the spotlight on the public option gives an overall strategic focus that otherwise would be lacking.


  • Drawing Bright Lines: in previous legislative fights, the Progressive Caucus was never able to portray itself as a potential defector, and was thus unable to gain the political leverage necessary to insist on getting its own way. Economic stimulus, or a budget that increased social spending was seen as something that the CPC would “have” to vote for – and thus, the CPC could basically be ignored while leadership focused on winning over the Blue Dogs and New Democrats. In this sense, the Blue Dogs' unreliability was an advantage – because they were widely perceived as not reliable votes, their threats could be taken seriously when they drew a bright line on “less than $800 billion” or similar issues. In this case, when the CPC took an early vote to not vote for a bill that didn't fit within their “bright line,” they gave themselves a huge amount of leverage by showing that they were not going to naturally support anything, and that there were particular provisions that could attract or repel their support en masse (instead of a more abstract assessment of whether something was “liberal enough.” The lesson from this is that in the future, the CPC should always begin their legislative process by taking an early vote that they will vote on the bright line or not at all, regardless of whether they are generally in favor of the underlying bill.


  • Leveraging Whip Counts: because the CPC's “veto” threat was taken seriously on health care, a factor that hadn't been in place in previous fights now came into effect – the relative size of the CPC compared to the Blue Dogs. In previous fights, the CPC's 80-odd membership had an undersized influence because people in the leadership viewed them as unlikely to bolt or to act collectively, and the Blue Dog's 50-odd membership had an oversized influence because people in the leadership viewed them as likely to bolt as a group. So when the CPC were able to push through a whip count with sixty or more votes against any bill without a robust public option, and the Blue Dog's whip count showed a fifty-fifty split, the CPC were able to literally throw their weight around, forcing the leadership to recalculate their vote counts in a way they didn't have to do before. And this is perhaps the most hopeful sign of all – there are many more Progressives than Blue Dogs in the Democratic Party, and as long as the leadership actually has to court Progressive votes, they can exercise much more political “gravity” in the future.

Theory of Power:

In politics, we tend to focus a lot on analogies to explain the legislative process – bartering, contract negotiations, poker games, and the like. One of the things these analogies tend to have in common is a process that often involves compromises and rational calculation. And all of this fits in very well with the cult of “reasonableness”'s exaltation of the statesman as compromiser.

But when you look back through the history of legislative groups, the most successful ones are the ones that combine collective action with implacable patience. The Radical Republicans were always a minority within the Republican Party of the 1860s, but they acted in concert, they were absolutely unshakable in their pursuit of the total abolition of slavery, and they were willing to wait as long as it took. The Dixiecrats, despite being a minority in the Senate, were able to block civil rights legislation for well over forty years, simply because they acted in a completely unreasonable fashion, filibustering even the mildest legislation.  The Home Rule Party in the British Parliament – famously held together by a list of undated letters of resignation held in Parnell's safe as an ultimate “party whip – were able to force Home Rule legislation onto the Parliamentary agenda three times, despite being a clear minority in Parliament, precisely because they were willing to bring down governments over their one issue.

In short, in politics, brinkmanship works – most of the time.

Applying The Lesson of '09:

At the very least, the CPC needs to apply this lesson on upcoming major pieces of legislation – financial regulation, EFCA, immigration, and perhaps climate change (although the passage of Waxman-Markey through the House may have screwed up the timing on this one) – and pick a key legislative item to focus their efforts on, make an early statement of “bright line” support/non-support, and get to whipping those votes.

Other progressive groups at different levels of government should also apply this lesson to their political efforts, and some state and local groups have already been doing this for a while. The Working Families Party in New York, bolstered by their rare ability to push from both within and without the Democratic Party proper, succeeded in forcing the state to balance the budget through progressive taxation instead of cuts-only as has been the case in other states.

Critically, I think California progressives in the state legislature need to learn this lesson. While the California legislature is one of the most progressive in the country by the numbers, the state's policy direction has been much more conservative. In part, this is a structural legacy of the 2/3rds requirement on budgets and taxes, but there's no denying that California's Republican state legislators have been incredibly successful in applying their limited numbers in concerted actions to force concessions from the ruling party, and it doesn't help that the Democratic leadership isn't facing the same kind of pressure on its left that it is on its right. For all the noblest reasons – a sincere belief that government is important, a desire to protect the poor, the elderly, children, women, and other vulnerable groups – the Democratic majority gets hustled into enacting conservative legislation in order to pass budgets and keep the state's public institutions extant.

While California's state government is in need of a lot of different reforms – from majority rule to establishing an oil severance tax to eliminating billions of dollars in corporate tax breaks to fixing our broken property tax system – it is also the case that California needs a “caucus of holdouts” in the state legislature who are willing to serve as a countervailing force against the Republican minority, to bring pressure on the leadership wherever possible to confront the state's structural problems and force systemic change.


The idea of democracy as a noble, deliberative process is a fine one, but it is in the end nothing more than a fairytale. Throughout our history, whenever you look behind the rosy glow of hindsight, our selfless statesmen turn out to be just as ambitious, brawling, compromised, and underhanded as the politicians we see today.

So why shrink from the messy humanity of democratic power?

As Requested: Job Insurance: A Blueprint For Full Employment

Note: This is a cross-post from my group blog, The Realignnment Project.

This is a more thorough examination of the job insurance concept, done on a national level, but you can easily scale it to California or any other state. 


In my previous posts about unemployment insurance reform and 50-state Keynesianism, I made brief reference to something called “job insurance.” Several people requested a fuller explanation, which is only fair considering that I had rather tacked on the idea without fully developing what I meant.

So here is a blueprint for how job insurance is supposed to work, as a major solution to the problem of declining job growth and increasing economic insecurity. To start with, let me explain what job insurance is not – it is not the temporary “transition trade assistance” (inadequate and ill-conceived at the best of times) referred to by most workers as “burial insurance.” It’s not the “wage insurance” that semi-penitent neoliberals have dreamed up to compensate for the fact that the new jobs being created by their post-industrial economic order pay less than the blue collar factory jobs of the past.

What job insurance is, in reality, is the missing link in our Social Security system.


Background – The Committee on Economic Security, 1934

As I discussed previously, the idea that the current Social Security system was handed down on granite tablets from on high is quite wrong. As with any piece of legislation, the Social Security system emerged as a compromise measure from a series of competing alternatives, one of which was an idea for job insurance, developed by the Federal Emergency Relief Administration (FERA) staffers who were alumni from the Civil Works Administration (which had employed 4.27 million men for the previous six months) and who would go on to lead the Works Progress Administration (WPA). They 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.”

At the heart of their arguments for why Job Insurance would be superior to Unemployment Insurance was an understanding of the social meaning of work. It’s not something we think of very much, but work is a central part of our modern identities – the first question you’re likely to ask someone when you meet them (after their name) is the ubiquitous “so what do you?” Our social status is highly determined by the kind of work we do – do we do manual work or work in an office? Are we classified as unskilled worker or professionals? Do our wages allow us to afford a “middle class” lifestyle? Beyond this, even in our politics, we associate being a good worker as being a good citizen, productive, taxpaying, self-providing, and those who do not work are labeled implicitly as bad citizens. The welfare cheat, the malingerer who fakes injury to get on worker’s comp, the deadbeat debtor – these are the stock characters of our modern morality plays.

And as social investigators like E. White Bakke in the United States or William Beveridge in the U.K demonstrated, and as the FERA administrators as former social workers turned welfare bureaucrats knew intimately, there is a social disconnection and degradation that comes from unemployment, even if you have unemployment insurance.  Think about how your work structures your life – you wake up in the morning at a time designated by your commute, you read the morning paper to learn about things going on that might be relevant to your life, you make your commute and engage in a mass experience, surrounded by thousands of other people doing the exact thing whether you’re walking down the sidewalk, sitting on the train or the subway, or stuck in traffic on the freeway. And this is where our public is created, with the flash of the morning headline, with the chatter of pamphleteers and the railing of drive-time radio hosts, a sensation of being part of the world. Then you arrive at work, and you’re again part of a group. The workplace, with its office gossip and politics, with friends and enemies and acquaintances all jostling alongside , the idle chatter around the coffee machine or the water cooler, a shared smoke or lunch – this is where solidarity begins, where you develop an identity of yourself as a worker.

To be cut off from that is to be left behind as residential neighborhoods empty out. As Beveridge put it, “The worse thing we can do to an unemployed man is to heap indignity upon indignity, because the loss of work in itself is a bad thing. I have seen fine, brave men reduced by continuous, enforced unemployment to a state in which they feel they are forgotten, unwanted, thrown on the scrap heap.”

So in 1934, the expert-activists of FERA tried their level best to give the unemployed more than just a check. For eight years, until 1943, they were brilliantly successful. In 1945-6, they came within an inch of making their endeavor permanent.

A Proposed System of Job Insurance:

In 2009, we could finish the job.Here’s how.

The Concept In a Nutshell – to establish a permanent fiscal structure for public employment programs, provide workers with the genuine protection against economic crisis, and move towards the ultimate goal of the government serving as “employer of last resort” in times of crisis. How to Finance It – a $20 per month contribution, split 50-50 between employer and employee, from all 150 million people in the American workforce would generate $36 billion per year (roughly the equivalent needed to directly create 1 million jobs), which in good times could be saved in a Job Insurance Fund operated by the Federal Government (probably by the Social Security Administration, since they already know how and would avoid duplication). This $36 billion, if saved over five good years, would turn into $180 billion, which is enough to put 4.5 million unemployed back to work and probably a sufficient reserve level that could be spent in times of rising unemployment and cover all but the most extreme of job losses, even without additional Federal contribution (a Federal contribution of $18 billion a year, for example, would reduce the premiums to $10 a month, or provide for a full reserve in three years rather than five).

Scenario – Implementing It Now: Obviously, in our current recession, we lack the time necessary to build up a reserve at the same time as we have lost more than five million jobs. In order to reverse our current job losses and bring unemployment down from 9.5% (officially) to 6%, we’d need to spend $200 billion to put those five million newly unemployed to work for a year. However, with a job insurance system, you could pay that off in 10-11 years (if the fund payed back the government at $18 billion a year, allowing it to continue building up funds), making a potential Jobs Bill deficit-neutral. In this scenario, it would still be useful for the Federal government to kick in $18 billion a year to keep the Job Insurance Fund filling up on pace.

What Do You Get for $20: in return for $20 a month, you would get the right to a public job at any point in the future when you were laid off. This job would pay about $20-24k a year, with a six month contract (renewable if, after a job search at the end of  six months, you’re unable to find a new job). That’s not great, but it is enough to keep a family out of poverty, especially if there’s a second earner. Eligibility would be automatic the week after your last FICA payment, and application for a job should be convenient, consisting of no more than a questionnaire about your work experience and skills that could be done over a toll-free call, or over the Internet, or at any government office. In most recessions, you should be able to move directly from your previous job to your new job, but even in a very sudden and sharp recession, you could give people work in some fair fashion (order of date of unemployment, random lottery, order of application, etc.) and people would have UI to cover the temporary gap.

Economic Impact – Job Insurance would thus function as a new “automatic stabilizer,” kicking in at any time when when a recession pushes unemployment above some level determined by our democratically-elected government as acceptable – 4% has been considered a healthy rate for the last twenty years, but we could probably follow Beveridge’s suggestion of 3% or less as “full employment.” When this rise in unemployment occurred, the Job Insurance Reserve would begin to release funds to be spent employing workers on public projects, in step with the pace of layoffs to prevent a sudden surge of layoffs and the attendant drop-off in demand.  In most recessions, if it was able to act in a timely fashion and catch the economy in the early stage of a recession, you probably wouldn’t need to hire more than 2-3 million people. The resulting Keynesian stimulus from new wages as well as the strong market signal sent to retailers and their suppliers should be able to either avert an oncoming recession, or at least make it shallow and short enough for more traditional Keynesian methods to be applied in a less dire scenario than they were in January 2009.  As the economy improved, the six-month term and required job search could be used to gradually downshift the number of public employment project workers at less than the speed of job growth (an important point, you don’t want to see another 1937).

In essence, what job insurance would create is a new social contract, both between citizens and the government, and among citizens. The individual worker is assured of protection from unemployment as long as they contribute to the fund and are willing to work in return for their paycheck; the society is assured that the government will provide for full employment and full economic growth. And citizens, both the employed paying in their contributions and the unemployed working for their paycheck, will assure the other that their monthly contributions will serve, not only to protect them against job loss, but will also enlarge the commonwealth and beautify the public square.

50 State Keynesianism – Part 2

Note: This is a cross-post from my group blog, The Realignment Project, and part 2 in a series about how to bring Keynesian economic policy to the state level.


In this post, I'm returning to a theme I initially explored in June, back when California was grappling with its budget crisis.

Now, after nearly two months of additional struggle, we finally passed a bill that cut $26 billion and raised no new revenue, and now we learn that the governor has possibly illegally cut a further $500 million, taking the axe to children's welfare ($80 million), health care ($400 million), Cal Grants (cut in half), HIV/AIDS Prevention and Treatment ($52 million), and domestic violence shelters (cut by 80%). In addition to the moral insanity of attacking the most vulnerable of our citizens at a time when they are most in need of support one must add the economic insanity of believing that you can reduce government spending by $31 billion in the course of a single year (including both the February and July cuts)  and not effect the state's economic recovery.

Lest this be seen as merely a California problem, a recent report by the National Governors Association notes that the collective budget shortfalls of the fifty states comes to a collective $200 billion shortfall. Given that the total Federal economic stimulus for this year only comes to about $400 billion, we are forced to recognize that our system of state government budgeting and finance is creating a massive economic undertow, weakening the impact of Keynesian stimulus by cutting spending and raising taxes (although they've been doing a lot more of the former than the latter).


Why is it the case that America's state governments have become so strongly pro-cyclical? The basic reason is that all but one state in the Union (Vermont being the exception) have some form of a balanced budget or debt limitation requirement, which makes it impossible to deficit spend during recessions.

Many of these requirements date back over a hundred years, following the Panic of 1837, which caused nine states to default on their “internal improvement” (i.e, transportation infrastructure) related debts in 1842, which prompted a wave of anti-debt measures. The state of New York, for example, adopted a new constitution in 1846, which required a 2/3rds vote for appropriations bills and a 3/5ths vote for any bill that would raise taxes or incur debts. Illinois' 1848 constitution required a 2/3 vote for appropriations, a balanced budget requirement, and a $50,000 cap on state debts. Similar waves of constitutional redrafting tended to follow other major recessions in which states suddenly were unable to finance their debts, such as the Panics of 1857 and 1873 (triggered by the failure of banks that had over-speculated on railroads).

The question is why we allow a “hobgoblin of little minds” over a hundred and seventy years old to continue to rule over us? Why, when even a total economics amateur like myself can pick up Keynes and learn about the “paradox of thrift,” do we continue to allow the political cliche that “well, families have to balance their budgets, so the government should too” to be the conventional wisdom of the stump speech? (Incidentally, given the fact that most American families are horribly in debt and are relying on their credit cards to make ends meet, this couldn't be less accurate).

A 50-State Solution:

One of the things that's often puzzled me about the progressive movement is our lack of willingness to use the initiative process to our advantage in both achieving policy ends and mobilizing the electorate – consider the way in which the Republican Party used anti-gay marriage propositions in 2002 and 2004 to gin up their right-wing base, change the political debate from economic issues to their wedge issues, and attack the civil rights and civil liberties of queer Americans. In 2006, we saw a little bit of this strategy on the progressive side, using minimum wage initiatives to increase working class turnout in states like Ohio, but to the best of my knowledge it hasn't become a standard part of the Democratic Party political toolkit.

Hence, the first step in establishing “50-state Keynesianism” is to promote, state-by-state an “Anti-Recession Budget Reform Initiative.” (if anyone has a better name for it, I'm open to suggestions). This initiative should amend the state constitution's balanced budget requirement to allow the state, when the economy is in recession (i.e, two quarters of negative economic growth) to run a limited deficit (two years maximum) for the purposes of funding counter-cyclical stimulus programs (limited to say, 5-10% of state GDP).  We should begin our push in those areas which are deep blue states and which tend to have weaker balanced budget requirements – New England would be a good starting place, especially with Vermont as the lone non-balanced budget state sitting there as a model for how deficit spending won't destroy western civilization. The Rust Belt states that have been especially hit hard, like Michigan or Ohio, would probably be receptive to a message that it's better to spend money to create jobs than to balance a budget by throwing teachers and other state workers out of their jobs. As usual, the major prizes would be New York and California, given their size and political weight.

Second, in order to build state capacity for Keynesian economic policy, we should also push for the creation of State Reserve Banks.  Here, I really have to credit Ellen Brown over at the Huffington Post for promoting this idea and bringing it to my attention. This amazingly simple yet powerful idea takes its example from, of all places, the state of North Dakota, which has operated the Bank of North Dakota since 1919. It works like this – the state charters a public bank, and instead of placing its reserves, tax revenues, deeds for public lands, and so forth in a variety of state banks (as most states do), it puts all of them in the public bank to act as the bank's capital base. (Note: as long as the bank only circulates U.S dollars, it's perfectly constitutional, avoiding the Article I, Section 10 bar against states issuing coin or bills of credit) The bank then acts like a reserve bank, using the power of “fractional reserve lending” (i.e, that a bank can generate much more money in loans than it keeps in its vaults, thus multiplying many times over its actual reserves, as long as it keeps back a portion to redeem deposits) to generate loans, act as a local “lender of last resort” (thus buttressing the work of the Federal Reserve and FDIC during credit crises), and (this is the key bit) allowing the State to borrow money in order to deficit spend in a recession without relying on the ideologically-biased bond market and the credit agencies who've taken a hammer to state bond ratings while maintaining A ratings for AIG and Lehman Brothers. The State could then use these loans (which would be much cheaper than ordinary bonds, given that its essentially paying interest to itself) to maintain public services and fund public works and other stimulus measures in a recession.

Third, as I've suggested before, one of the best ways to fight a recession is to create jobs directly. Hence, with all this new fiscal and monetary muscle, we should set up a WPA-like system of State “Job Insurance.” While the Federal government is best suited to this task, in that it has superior powers to deficit spend and print money, state governments could run their own permanent job insurance systems, establishing State J.I Funds, contributions from workers and employers, and assistance from the general fund. The idea would be to create short-term jobs (say 6-month duration, with a right to re-apply after a job search at the end of 6 months) at $10 an hour – the number of jobs directed at reducing unemployment by whatever proportion (say, 50% in the example below) needed to keep unemployment at or below a specific level. As the economy turned around, these jobs could be gradually eliminated (at 1/2 the rate of job growth, for example) in order to not damage the recovery as happened when the WPA was suddenly downsized in 1937-8. In return for a monthly contribution, workers would have a right to one of these jobs, as allocated by some fair procedure (order of application, random lottery, etc.).

Let's take California as an example. The state has a normal workforce of 18.5 million people, of which 2.146 million are currently unemployed (a rate of 11.6%). The objective of a new job insurance system would be to create enough jobs to bring the rate down to an acceptable level – say, by 50% down to 5.8%. (Note, while I would consider 5.8% unemployment to be unnecessarily high, and while we may want to consider ultimately lowering the official “acceptable rate,” for the moment, let's consider simply meeting the immediate crisis). In order to create 1,073,000 jobs, the state would need to spend approximately $40 billion (taking into account wages, payroll taxes, and non-labor costs such as equipment, materials and land – although the state would probably require counties and localities to put up at least part of the latter two items).  Now, if we were simply to fund this off of Job Insurance contributions, you’re looking at $200 a month, which is quite high, although I imagine that it would be affordable for middle class folks and up. However, if you were to split the costs between contributions and State Reserve Bank lending (and/or general fund contributions), you could drop it to $100 a month (50-50), or $33 a month (say, 33/66 or, 33/33 and 33 from general fund).

Note that this is the cost if you have to do it all in one go – if we think about this a system to prevent the next recession, you can implement the Job Insurance system in economic good times, and build up a reserve, which would allow you to run the system on still lower job insurance premiums. Moreover, if you create a target for jobs to be created when unemployment grows to a certain level, the lower the level, the cheaper the program. If, for example, California had done this back in October 2008 when unemployment was only 8%, it would only have cost $29.6 billion to reduce the unemployment rate down to 4%, which would have buoyed consumer spending, forestalled foreclosures, and prevented further job losses in the private sector.

Now, I fully acknowledge that this would be a radical transformation of state economic policy, and that certain elements, especially the Anti-Recession Budget Reform Initiative, would be politically tricky to thread the needle on. But I would say that if you can't sell the public  job insurance that costs $33 or less a month, can't persuade people that freedom from economic uncertainty is within their grasp, can't tap into people's desperate desire to be free from the fear of destitution, you shouldn't be in politics.

“The Balance Wheel of Social Machinery” – Universal Public Higher Education

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

“Education, then, beyond all other devices of human origin, is the great equalizer of the conditions of men, — the balance-wheel of the social machinery. I do not here mean that it so elevates the moral nature as to make men disdain and abhor the oppression of their fellow-men. This idea pertains to another of its attributes. But I mean that it gives each man the independence and the means by which he can resist the selfishness of other men. It does better than to disarm the poor of their hostility towards the rich: it prevents being poor.”

– Horace Mann, 12th Annual Report to the Massachusetts State Board of Education (1848)

In my previous post about education, I mentioned that the education reform debate has largely skirted the problem of affordability of higher education, preferring to direct their attention more towards college preparation and the K-12 system. As I said at the time, one of the things that unsettles me about the “Educational Equality Project” type of education “reformer” is the extreme economistic trend of their thought – education is about getting jobs and making the workforce more production, hence the extreme emphasis on reading, writing, math, and science, as opposed to anything about art and music, or history. I may be overly broad here in my description, and if I am, I apologize, but it's to a point. The purpose of public education is not to meet the needs of the labor market – it is to meet the needs of democracy.



Obama's recent proposal to pump an additional $12 billion over the next ten years into community colleges speaks to something of this tension. On the one hand, he makes the economic argument that “We will not fill those jobs, or keep those jobs on our shores, without the training offered by community colleges;” on the other, he ties the public investment in education to the broader goal of democratizing the economy. “Time and again, when we placed our bet for the future on education, we have prospered as a result …that's what happened when President Lincoln signed into law legislation creating the land grant colleges, which not only transformed higher education, but also our entire economy.  That's what took place when President Roosevelt signed the GI Bill which helped educate a generation, and ushered in an era of unprecedented prosperity.  That was the foundation for the American middle class.”


Obama's invocation of the Morrill land grant colleges and the GI bill should remind us that one of the great American virtues, almost from the beginning, is a faith in the virtue of democratic education. George Washington was a lifetime proponent of a National University, the purpose of which, he said, was “the education of our Youth in the science of Government. In a Republic, what species of knowledge can be equally important? And what duty, more pressing on its Legislature, than to patronize a plan for communicating it to those, who are to be the future guardians of the liberties of the Country?” In his repeated addresses to Congress on the topic, Washington linked the establishment of a national public institution of higher education with the future of the Union itself: “In the general, juvenile period of life, when friendships are formed and habits established that will stick by one, the youth from different parts of the United States would be assembled together and would, by degree, discover that there was not just cause for those jealousies and prejudices, which one part of the union imbided against one another.”

The Morrill Land Grant Act of 1862 was not merely about establishing agricultural programs. Co-written by a merchant's clerk who never attended college and a schoolteacher and signed into law by a President who had perhaps one year of formal education at a time when only the sons of gentlemen attended college, it was also an aspirational statement about the kind of society that the party of “free soil, free labor, and free men” wanted to build – one where higher education would be “accessible to all, but especially to the sons of toil.” In its own way, too, the City College of New York, the oldest free public institution of higher education, was a radical institution from the very beginning. Its founder called upon the state of New York to “Open the doors to all… Let the children of the rich and the poor take their seats together and know of no distinction save that of industry, good conduct and intellect;” its first president summarized CCNY's mission thusly – “The experiment is to be tried, whether the children of the people, the children of the whole people, can be educated; and whether an institution of the highest grade, can be successfully controlled by the popular will, not by the privileged few.”

And of course, in 1960, Governor Pat Brown's Master Plan for Higher Education in California grounded its call for a revolutionary three-stage system of the University of California, California State University, and Community Colleges on the principle that “state colleges and the University of California shall be tuition free to all residents of the state.”

The point of this extensive exegesis is that the purpose of public higher education has always been about, contrary to Obama's speech, more than even just democratizing the economy.  It has always been about making a more democratic society, whether it be forging a national identity, abolishing social distinctions, state provision of a universal public good, or providing a vehicle for the children of the poor to seek their education freely.

Current Situation:

So where does this noble legacy of democratic education stand today? Well, two weeks ago I received the following email from UC President Mark Yudof, effectively sending out a fiscal SOS to the UC community:

“In the past 20 years, the amount of money allotted to the University through the state budget has fallen dramatically: General Fund support for a UC student stood at $15,860 in 1990. If current budget projections hold, it will drop this year to $7,680.

Moreover, it now appears likely the UC system, in this current fiscal crisis, will be ordered by Sacramento to absorb yet another $800-plus million in additional cuts. Its 2009-10 core budget will be reduced by an estimated 20 percent. This will bring the amount of state investment in the University down to $2.4 billion – exactly where it was in real dollars a decade ago.”

This then is the bitter fruit of the compact signed between Governor Schwarzenegger and then-UC President Dynes, which supposedly at the time was going to “bring the promise of renewed fiscal stability for public universities in California.” The ultimate result, however, has been a near-perfect execution of Shock Doctrine, effectively destroying a decade's worth of efforts to improve and expand public funding for higher education – a slow-motion privatization, if you will. At the same time that the U.C has been struggling with one funding crisis after another, despite the promises of the compact, the result has been a massive shift of economic burdens from the state and the university onto the student body. As I noted previously, the cost of attending the U.C has now doubled, from the less than $4000 per year in 2003 to more than $8000 in 2009. At the current rate of progress (10% increase in tuition per year), the U.C's in-state tuition will be indistinguishable from the private university average in twelve years. In my eyes, this constitutes an enormous tax on the student body and their families.

And this is hardly just a California story. As this article points out, the University of Washington's 26% cut also drops its state funding back by a decade, the University of Illinois' fee increases are on-pace with the U.C's, and SUNY is even outpacing the U.C with a 14%. The larger problem is that the limited fiscal capacity of states to deal with recessions, the Federal inattention to the cost of higher education for the last eight years, and the broader anti-tax politics that have gripped this nation have meant tha public university is an easy target. State and federal legislators looking to make cuts-only budgets see institutions that can raise private funds and increase fees and hand down cuts that would be unthinkable in other areas, banking on fund raising and tuition hikes to keep the public universities running.

This crates two larger problems. The first is the privatization of the public university – a public university is a public trust, a place that is supposed to cultivate democratic citizenship, to create the expertise that governments can make use of in making public policy decisions, and a place which embodies the ideals of a better society. The second is ever-increasing inequality –  as the burden of education increases on students, the result is a generation whose future life choices are increasingly determined by the pressures of ever-mounting debt, and increasing class inequality between those whose families can pull the full freight and those who must support themselves. As research has shown, the children of the affluent go to college at a higher rate than the children of the poor – even when the children of the poor perform higher academically than the children of the rich. Compare, for example, the difference in attendance rates between the 4th quintile (highest-achieving) students from families making less than $20k a year and students from the 3rd or 2nd quintiles from families making more than $100k a year. Clearly, it is better to be born lucky than smart.


While the gross disparities between the richest and the poorest ought to shock the conscience of any American who cherishes our national mythos of opportunity, egalitarianism, and meritocracy, it's also true that people everywhere often show a less sharp concern for the plights of others than their own misfortunes. But take a second look at that chart, and you see than class inequality goes all the way down the line, with the children of the merely affluent doing less well than the children of the rich, and the children of the middle class less well than the children of the affluent, and so on – even with children of roughly equal ability and achievement. Rarely have I seen a more clear case for a cross-class community of interest.

So how do we move, as it were, forward to the past?

Morrill 2.0 – Universal, Public Higher Education for All:

  • Federal/State Endowment Assistance – given the many failures of the existing per-student assistance system and the way that it has bogged us down in a patchwork of student loans and aid, and the vulnerability of this system to economic shocks, instead we should establish a system whereby the Federal governments and the states collaborate to provide a one-time $5 billion addition to the endowment (to be held in long-term T-Bills, no investing the money in derivatives or other fashionable ventures) of each state university, gradually phasing it in university by university over the next ten years (yearly cost – $25 billion). This money should be based on a guarantee of tuition-free education based on in-state rates, with modest fees for out-of-state students.
  • Independent Financing of State Universities – along the same lines,  moving the state universities from a miserly yearly appropriations to a steady source of public funds, one alternative that presents itself is A.B 656 in the California state legislature (or whatever version of A.B 656 might become a proposition), which proposes an oil excise tax to fund higher education in California, similar to the way that oil taxes fund the University of Texas. Obviously, not all states have major oil revenue, but most states do have some industry that is the center of the economy, and it is only fair for the industry in question to kick in some money to pay for the education of the college graduates it needs. Hence, I could see a small tax on stock transactions to fund SUNY, since Wall Street needs huge numbers of college grads, and so on and so forth. This industry excise tax should also be balanced with a guarantee to keep tuition low and enrollment expanding (as well as the number of campuses) to maintain access to public higher education.
  • Exporting the Brown Model – the evolution of the Morrill land grant colleges has meant that, in a country supposedly dominated by federalism, we actually have a rather standard pattern of having a single state university that more often than not is a large, Research 1 institution. However, I would argue that we need to, over the long term, popularize the three-tier system of state universities, state colleges, and a unified system of community colleges across the 50 states, if we are to truly expand higher education to all students who are ready and interested in furthering their education.
  • Higher Education Means Vocational Education Too – in my previous post, I talked in general terms abou the lack of attention paid to vocational training and technical education and the somewhat veiled contempt that some education reformers seem to have for non-academic higher education. Simply put, not everyone wants to go to college or will ever be happy in college, and while generally our economy is becoming more reliant on education, it would be a mistake to assume that we are going to move to 100% of the population with a college diploma and a white-collar job. To begin with, the current situation masks the extent to which problems with our K-12 education system has led employers to use bachelor's degrees to substitute for high school diplomas in straining their candidate pools for people who are literate, numerate, and know how to do basic tasks like use a computer, write a memo, operate a spreadsheet, read technical documents, give a presentation, etc. Secondly, as the American economy develops, we are going to need more and more skilled labor  that require some form of certification that is not college-oriented – as we develop a “green economy” based on “alternative energy,” we're going to need a lot of electricians to install new grids, new wiring systems, solar panels and wind farms, and so forth, and you don't go to a traditional 4-year college to learn to be an electrician. Hence, I would recommend extending our guarantee of higher education for all to be a guarantee to technical education, vocational education, and apprenticeship/job training programs, paying the way at, say, state college or community college rate for any student who agrees to stick through the program. But the point is that the choice to go into academic or technical education should be freely chosen, without the consideration of cost.

“The Front Line of Defense” – Unemployment Insurance Reform

“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.”


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.


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.


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.

The People’s Bank

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.

FDR’s Second Bill of Rights and the Progressive Mission

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


In the spirit of the best 4th of July speeches, which like Frederick Douglass' peerless effort seek not to satiate with platitudes but rather to challenge and provoke, today I offer a reflection on America's past and its future.

At the end of “Resurrecting Henry George,” I argued that a national housing assistance program would “help to make one more of FDR’s Second Bill of Rights, “the right of every family to a decent home,” a legal reality. I would argue, and I will argue in future posts, that the longer-term mission of the progressive movement in America is (and has unconsciously been) the realization of the Second Bill of Rights.” So today I intend to explain what I meant.

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).