One Third of the Nation

One Third of the Nation
By Jerome Grossman

On January 20, 1937, in his Second Inaugural Address, President Franklin Delano Roosevelt said “I see one third of a nation ill-housed, ill-clad, and ill-nourished. The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”

Roosevelt, the wealthy aristocrat, was defending the economic and social policies he had introduced in 1933 in relief of the dire condition of the American worker. His New Deal established the federal government's responsibility for protecting farmers, workers, and the unemployed while actively regulating the economy to prevent another crash.

To avert national collapse, Roosevelt introduced legislation that he had worked for as governor of New York: minimum wage to lift purchasing power for those with bottom incomes; laws strengthening workers right to unionize thus raising incomes; unemployment insurance to avoid starvation; Social Security providing minimum income for the aged; farm policy guaranteeing a fair return to family farmers.

In retrospect, the Great Depression is a staggeringly unique event. But today's economic numbers show today’s workers in similar distress with about the same percentage of the population hurting, their situation made barely tolerable only by the Roosevelt reforms and initiatives.

Today the official unemployment rate is 10.2%. However, the unofficial rate accepted by most economists is 17.5%, the difference composed of workers employed part time in their regular jobs, those employed below their level of experience and training, discouraged workers unemployed for such a long period that they are no longer looking for work, and those formerly employed by businesses that have collapsed or moved abroad, etc..

Based on the 17.5% unemployment rate, figuring only one worker to a family, the number of unemployed are about 27 million workers. Assuming that each unemployed worker is the breadwinner for a family of four, the number of people “ill-housed, ill-clad, and ill-nourished”, is approximately 100 million, about the same percentage of our current population of 300 million as the “One Third of the Nation” described by Roosevelt.

Roosevelt and the social workers around him who helped make policy, Frances Perkins, Harry Hopkins, Harold A. Ickes, farmer Henry Wallace, focused on relief for “The Forgotten Man.”. They saved the banks from bankruptcy while installing serious regulations but spent most of their energies and assets on the workers. Today President Obama says his $787 billion stimulus is working but where are all the jobs? Since taking office, his administration, in contrast to the Roosevelt administration, has studiously avoided paying people to go to work, which could be accomplished by subsidizing private-sector employment or by creating new government paid jobs. There are programs in some states that financially compensate employees who cut their hours to prevent broader layoffs at their companies. Unemployed workers could be paid for going back to school to further their education and to learn new skills. The list of creative activities to support and improve the workforce is endless and requires only the will and orientation of the president’s advisers who seem to be more worried about Wall Street and banks “Too Big to Fail.”

Obama’s Treasury Secretary Timothy Geithner and the president’s chief economic adviser Lawrence Summers are not oriented in the same direction as Roosevelt’s Labor Secretary Frances Perkins and Relief Administrator Harry Hopkins, and that's a pity.

Will the Obama Stimulus Work?

Will the Obama Stimulus Work?
By Jerome Grossman

President Obama won the battle over the American Recovery and Reinvestment Act of 2009, (also known as the economic stimulus bill) passed by Congress in February. Obama’s supporters consider the passage of this legislation a great victory. That evaluation may be premature. The stimulus must actually work to get our economy out of the doldrums. Then Obama can be congratulated for his political and economic smarts. Of course, it is too early to appraise the result.

The economic stimulus bill will cost the grand total of $787 billion designed to make up for the 6% decline of the U.S. Gross Domestic Product. However, $787 billion represents only 2% of GDP, but the administration expects that gap to be filled by the “multiplier” effect as the 2% is used and reused in the economy. Some economists think $787 billion is too small because 40% goes to tax cuts which have only a small multiplier effect and the expenditures on roads, bridges, buildings, infrastructure etc. may take years to organize.

Then there are those who believe that no stimulus is necessary, that the economy is a self- stabilizing system, that in a downturn, even if nothing is done, normal employment and production will someday return, propelled by the fact that 70% of our economic activity is spent on domestic affairs, mostly food, clothing, shelter, transportation, the military and related services.

The difference between conservatives and liberals lies mostly in whether the stimulus policy can speed up the recovery significantly and whether the enormous expenditures will lead to inflation. Conservatives worry more about the deficit and taxes to pay for the stimulus as well as the inevitable waste in the rush to recovery.

The liberals believe that every month of recession inflicts pain and suffering on millions of people, a condition that must be avoided if possible. They worry less about the deficit and taxes on the grounds that the faster the economy recovers, the smaller the deficit and the higher the tax revenues. Liberals also point to the immediate relief offered by the stimulus’s extension of unemployment insurance benefits, more money for food stamps, etc.

Obama has won the first round. He has his stimulus package. Is it big enough to carry out liberal theory? Will it work in the multiplier effect? Will the economy suffer an additional collapse that will overcome this first rescue attempt? We are in unexplored territory. The lessons and stimulus of the Great Depression of the 1930s may no longer apply. Obama needs to win the second round within a reasonable time to justify his policy. The kind of recovery achieved will be decisive.
Will the Obama recovery be in the shape of V, an immediate bounce off the low point to normality, or U, a delayed recovery, or the dreaded L, an extended recession/depression with no end in sight?

The Recession and the Election

The Recession and the Election
By Jerome Grossman

The dominant issue in the fight for the Democratic nomination for president in 2007 was the war in Iraq: illegal, fraudulent and imperial that wasted thousands of lives and billions of dollars. Senators Biden, Clinton, Dodd and Edwards, all candidates for president, voted in October 2002 to authorize this unnecessary and brutal travesty. Barack Obama, then an obscure State Senator in Illinois opposed the war, achieving special distinction in the presidential field. At the Democratic National Convention in 2004, the party nominee, John Kerry, who also voted for the war, gave Obama the opportunity to express his opposition to the war, something that Kerry was afraid to do himself. The Iraq war plus Obama’s remarkable rhetorical gifts and personality propelled him to front runner status.

In 2008, Iraq is no longer the dominant issue for Democrats or the nation. The war continues with obscene death and destruction, Americans want it ended, but Iraq is now on the inside pages, part of the daily news, intensity of feeling diminished, the occupation likely to continue for a generation. Bread and butter issues affecting many more Americans are challenging the confidence of the country in a way that Saddam Hussein could not.

Recession, economic decline and even a depression are confronting the United States and the voters of New Hampshire were the first to sense the dangers. Perhaps that is why the voters defied the polls and gave Hillary the victory. The political effects of this new round of voter concern are fairly obvious. Hillary’s wrong vote on the Iraq war has become less important. Her experience in government becomes more important. She can cite the prosperity of the nation under the Bill Clinton presidency and promise to install the same economic team that brought full employment. Hillary can offer an economic package with a degree of credibility. Her age and experience become an advantage over Obama’s attractiveness and inexperience.

In this new situation, Obama’s inspiring call for hope, unity and change may appear less relevant and lacking in specificity. The voters will want to know what the candidates will do to save their jobs, their homes, their financial futures. Worrying voters will have little patience with rhetoric no matter how brilliant. Even charisma and personality will be downgraded as assets. Abraham Lincoln and FDR became icons only after they solved the problems of their eras, not before.

There will be, indeed there are now different and strongly held views about solving the current economic crisis. The Republicans, led by President Bush, will want to extend the tax cuts of 2001 and 2003 that favor the investors, eliminate estate taxes, cut capital gains tax, lower corporate tax, install investment tax credits, etc. The Democrats will suggest a stimulus package putting money in the hands of lower income people who will spend it quickly: extending unemployment benefits, grants for home heating, suspension of the gas tax, tax rebates to people with low income, etc.

The next president cannot leave the difficult decisions to the experts. They are notoriously divided in their recommendations and affected by their political orientation. Herbert Hoover had plenty of experts. So did George Bush the Father. Both were slow and indecisive in making economic decisions and paid the price in the next election.

The political question in this time of economic malaise is -- which Democratic candidate can best address the problems, which party can end the recession quickly and effectively. The voters of New Hampshire sensed the problem while the pundits were analyzing nuances. Maybe that is why their answers were Hillary and the Democrats, Hillary because of experience and the Democrats because of their historic attention to the masses. These questions will dominate American politics for the rest of 2008. Once again, it’s the economy, stupid.