Me on the CBC, Sunday
I’m scheduled to be on Sunday Edition on CBC Radio One this Sunday, discussing the debt melodrama with Jack Mintz of the C.D. Howe Institute, a right-wing think tank. Recorded it this afternoon. Canadian right-wingers just don’t seem as rabid as ours do.
Wild budget math
In 2000, we spent 3.7% of GDP on the military. The Pentagon didn’t have to hold bake sales. We’re now spending 5.4%. Merely going back to 2000 would save 1.7% of GDP, or $255 billion. If over the next decade we spent 3.7% of GDP instead of 5.4%, we’d save $3.6 trillion. That’s close to what many of the deficit hawks are aiming for. Let the Bush tax cuts expire and bump up the top rate a few points and everyone could have free child care and free college tuition!
Of course to do that would be unAmerican.
Heritage Foundation: severely truth-challenged
I usually shy away from mocking the right—it’s too easy, it’s overdone by liberals, and it’s often a gateway to apologetics for the Democrats. But this is a doozy.
In an effort to prove that Obamacare is responsible for the recent weakening in the economic recovery, James Sherk of the Heritage Foundation presents this graph:
Seems odd, doesn’t it, that the average of the first segment, January 2009–March 2010, is +67,600 a month when the graph is below 0 for almost the whole time? Well, yes it is. The actual average change in private sector employment for that period is a decline of 327,000 a month, almost 400,000 below what Heritage says is the average. The average gain for the second period, from April 2010–June 2011, is 136,000 a month, almost 130,000 above what Heritage says it is.
It looks like what Sherk did was to take the slopes of the two trendlines and compare them. But for the first period, there was only one month of actual job gain—the last month, March 2010. Sherk’s trendlines are telling you we went from deep job losses in early 2009 to modest job gains starting in early 2010, and have more or less stayed there since. Which, if you were a Dem propagandist, you could use to sell Obamacare, not damn it. Of course, Obamacare—a mostly terrible thing—has almost nothing to do with these employment trends, but then again, Heritage seems to have only an accidental relationship to truth.
It will be interesting to do a similar graph in a year or two with the passage of the debt deal as the dividing point. Fiscal tightening in an already slowing economy is not a good idea, but don’t expect the Heritage Foundation to say that.
Varieties of exhaustion
Having become the de facto leader of the Republican party, at least when it comes to fiscal policy, Obama is now turning—again (didn’t he do this before? I recall some nonsense about a “hard pivot”)—to job creation. And he’s going to do what needs to be done: take a bus tour of the Midwest and do a few photo ops at factories. You might think that with a stalling economy and a high unemployment rate that could start drifting higher any month now, that he might want to try something more aggressive than hopping a ’hound. But no: “Mr. Obama is unlikely to unveil any major new stimulus proposals, since he has exhausted most of the obvious policy options.”
A very obvious option would be a jobs program. But no—the de facto leader of the Republican party can’t even mention that. The best he can do is more free trade agreements and patent law reform. This guy makes you nostalgic for Bill Clinton—or at least the late 1990s. The dot.com era was nuts, but it was a helluva lot more fun than this hair shirt epoch.
Austerity = moral renovation
Writing in today’s New York Times, Jennifer Steinhauer explains the politics of the debt melodrama: the parties are “jousting over the moral high ground on imposing austerity, with seemingly none of the political or practical motivations that have historically driven legislation.” Leaving aside the fact that half of one party (the Dems) have happily embraced the premises of the other—and also leaving aside the fact that the “high ground,” moral or otherwise, hasn’t much in evidence during this idiotic fight—Steinhauer is inadvertently onto something.
Over the centuries, the period after the bursting of a bubble has often been time of self-reproach, a time of self-questioning and even self-flagellation. Those have notably been absent in the U.S. during the post-bubble periods of the early 1990s and early 2000s. Now we’re apparently getting some of it, but it’s looking like the austerity party plans to punish people other than those who profited during the bubble. Will Goldman Sachs partners be taxed to repair the damage? Heavens no: the victims of this program of moral renovation through austerity will be such notorious high livers as the poor, the chronically ill, and graduate students. Moral renovation is always more fun when you’re prescribing it for the other guy.
Oh, and apparently this is only the beginning. The austerity party is already pushing for more.
New radio product
Freshly posted to my radio archives:
July 23, 2011 James Galbraith on deficit hysteria and the single-volume collection of four books by his father, John Kenneth Galbraith, published by the Library of Amerca
July 16, 2011 Amber Hollibaugh, interim director of Queers for Economic Justice, on the limits of same-sex marriage (see here for more) • Jeff Madrick, author of The Age of Greed, on the emergence of today’s icky economic order
July 2, 2011 Christian Parenti, author of Tropic of Chaos, talks about the effects of climate change amidst state collapse, plentiful weaponry, and neoliberalism
PS: The Riksbank is right
I got a couple of emails asking me whether I agreed or disagreed with the passage from the Riksbank’s philosophy of money that I quoted yesterday. I agree. I guess that makes me a tough customer too—a hard-money Marxist, you might say.
Sweden: no paradise of monetary ease
Several people have commented that my characterization of the Swedish central bank—Sveriges Riksbank—as a pretty tough customer is wrong. They point to a rapid response to the 2008 financial crisis, more dramatic than that of the U.S. Federal Reserve.
Yes, the Bank moved quickly to counteract the implosion. It flooded the system with liquidity—and briefly resorted to negative interest rates (though this was a largely symbolic gesture, since Swedish banks rarely borrow from the Riksbank). This is exactly what a central bank should do in the midst of a crisis. It also began withdrawing stimulus in early 2009 (see p. 11 of this IMF document) and has already begun tightening to fight inflation (Minutes of the Executive Board’s monetary policy meeting on 4 July 2011.)
Sweden is in a very different situation from the U.S. It got caught up in the financial crisis mainly by a hit to exports—it’s a very trade-dependent economy. It doesn’t have all the deep structural problems of the U.S. So its recovery was relatively quick and strong. Not so the U.S. But the Fed remains indulgent, and is likely to stay that way for months to come.
Sweden had a major financial crisis and deep recession in the 1990s—but its government moved to nationalize the banking system and clean it up. It was a model of how to approach a banking disaster, but it was done mainly through fiscal mechanisms and not magic monetary interventions.
But reactions to crises weren’t what was at issue. It was whether a long-term policy of easy money is either desirable or effective. And here is what the Riksbank has to say on that topic:
It was also noted in the preparatory work on the Sveriges Riksbank Act that monetary policy cannot be used to influence real economic quantities such as growth and employment other than in the short term. A central bank thus cannot lastingly increase growth and employment by conducting systematically expansionary policy. A systematically expansionary monetary policy would lead to high inflation and probably ultimately entail a poorer development of the real economy. It is therefore neither useful nor appropriate to set lastingly high growth or high employment as targets for monetary policy. Growth and employment are determined in the long term by other factors, such as technological advances, the supply of labour and the functioning of the economy. However, monetary policy can affect the average development of the price level and thus the average inflation rate. Accordingly, the statutory and thereby overriding objective for monetary policy is to maintain price stability.
In other words, the Riksbank believes that there’s not much that monetary policy can do to affect the long-term path of an economy. It can do a lot to prevent crises from getting out of hand, but outside crisis moments, its stated responsibility under Swedish law is price stability. (By contrast, the Fed has what is usually called a dual mandate —price stability and “maximum employment.”) I’ll stick with my characterization of the Riksbank as a tough customer.
The Economist, a “newspaper,” weighs in
Although for some reason I still subscribe to the thing, I’ve mostly stopped reading The Economist. If you read a good daily newspaper or three—I know, so old-fashioned—who needs all that attitude?
I was reminded of why I don’t read the thing by reading a post from one “W.W.,” responding to the great Yglesias-Henwood debate, as excellently amended by Henry Farrell. It includes this remarkable observation:
[F]rom my point of view the problem with jobs programmes, as compared to textbook monetary policy, is not that they increase the power of labour relative to capital. It’s that they do little to sustainably increase demand for labour. And nothing reduces the power of labour relative to capital more than low demand for labour.
This reminds me of the current undergraduate habit of arguing through feelings, not evidence. Why does W.W. hold this opinion? We don’t know, but presumably we should trust him, because he writes for a very important magazine that calls itself a newspaper.
Earlier in his lighter-than-air post, W.W. doubts there’s such a thing as a “neoliberal.” I’ve long had mixed feelings about the word. But insofar as it has a definition, it means something like an intensified form of capitalism that came into prominence throughout the world in the wake of the Reagan–Thatcher–Volcker counterrevolution with the undoing of the previous Keynesian–social democratic regime. Aside from the fact that the U.S. was never much of a social democracy, my reservation about the word is that it is a weak synonym for capitalism. The undoing of buffers against the harshness of the labor market is significant, but we’re basically talking about a system where 80–90% of the population in the richer countries lives has minimal savings and so essentially from one paycheck to the the next. In more social democratic regimes, this discipline is somewhat muted. But in many, if not most, richer countries, these buffers have been weakened.
But W.W.’s definitional confusion is a mere scenic overview on the way to this conclusion:
Liberal and social-democratic political theory both are marked by a peculiar hopeful naivete about the possibility of one day arriving at some sort of ideal self-equilibrating politico-economic system. But it’s never going to happen. Until the heat of all creation is spread evenly over the whole cold void, everything always will be unbalanced. Here in the hot human world, it’s certain that sooner or later someone will invent or say something that will make comrades enemies and enemies friends. All we can do is our best for now. If sound technocratic, monetary policy (or neoliberalism, whatever that comes to) is the best we can do for now, it doesn’t matter that it generates no long-run self-sustaining political constituency. Nothing does. So, for now, we should try to sustain it.
You’re going to die, but that’s no reason to stop eating.
My god. Who said anything about an ideology leading to some kind of self-sustaining institutionalization. Farrell’s point is that good politics (or bad politics, for that matter) requires some sort of “organized collective action.” There’s nothing automatic about it. Left neoliberals—by which Farrell et al mean the likes of Yglesias, who seem to want a somewhat more humane social order, but are rather confused about how to get there—seem to think that all we need is a better set of technocrats to take us there. Wall Street and the Fortune 500 have a very well organized and impressively sustainable set of institutions—among them The Economist.
Apparently W.W. doesn’t see himself as part of that machinery. But isn’t that hegemony for you? When you’re a comfortable cog, it all looks natural to you. Which, I suppose, is why he ends his post with a metaphor out of nature, not society.
Yglesias & neoliberalism
Matthew Yglesias regrets that his original commentary on monetary policy, and my disagreement with it, got hijacked by Henry Farrell and turned into an analysis of the limits of neoliberalism. (I also stand corrected that Yglesias hasn’t written in favor of a jobs program in the past—apparently he has, though there was no evidence of it in the piece I responded to.) I like what Farrell has to say, and agree with him: there’s a kind of liberal, or neoliberal technocratic approach to politics that boils down to, as Adolph Reed once put it, let’s just get all the smart people together on the Vineyard and we can solve everything. As much as I admire John Maynard Keynes, you could say something similar about his approach to politics.
Farrell writes:
I see Doug and others as arguing that successful political change requires large scale organized collective action, and that this in turn requires the correction of major power imbalances (e.g. between labor and capital). They’re also arguing that neo-liberal policies at best tend not to help correct these imbalances, and they seem to me to have a pretty good case. Even if left-leaning neo-liberals are right to claim that technocratic solutions and market mechanisms can work to relieve disparities etc, it’s hard for me to see how left-leaning neo-liberalism can generate any self-sustaining politics.
I dig absolutely, as Leonard Bernstein put it in a somewhat different context (though it was part of a conversation about achieving full employment).
But I want to focus on a smaller point, Yglesias’ strange claim:
I think that better monetary policy, though hardly the solution to all of America’s ills, could do a lot to reduce unemployment. His view seems to be not just that a more thorough economic restructuring would be desirable, but that it’s strictlynecessary to achieve recovery. In my view, that’s factually mistaken. Better monetary policy over the past several years would, I believe, have produced a much shallower and shorter recession….
I really don’t know what he expected the Fed to do. Just before the Lehman crisis, the Fed held about $900 billion in assets. (See first column, here.) Within weeks, it held over $2 trillion. Now, it’s close to $3 trillion. They bought all kinds of stuff, guaranteed trillions more. They cut interest rates to zero and made it clear they’d stay there for a long time. They did it in a secretive and unaccountable way, but they can hardly be accused of passivity. Would it have made a big difference if they’d said, “Gosh, we wish inflation would rise to 3%”?
What would have made a big difference is if we had a bigger, longer-term stimulus and growth package centered around a jobs program and infrastructure spending, without all the tax breaks. I understand that getting that through Congress—even the old, pre-November 2010 model—would have been nearly impossible, but that’s another story. A story that would take us back to Henry Farrell’s point about the need for a self-sustaining movement.
Radio commentary, July 2, 2011
[I’ve gotten out of the habit of posting these. Here’s last week’s — this week’s to come later today.]
U.S. economic slowdown • the depressing debt ceiling debate
slowdown
The mostly weak tone of U.S. economic data continues, following the precedent of disappointment set by the torpid employment report for May. First-time claims for unemployment insurance fell only slightly last week, and the four-week average remains quite high—not at recession levels, but at stalling recovery levels. And the number of people continuing to draw benefits, which had been in a long downtrend, stalled in April, and is now flat. At least it’s not rising, but if the recovery weren’t losing oomph, it would have extended its decline from its still-high levels.
Meanwhile, the news from the housing market—whose recovery is probably a prerequisite to any decent broad economic recovery—continues to be ugly, with sales depressed and prices continuing to fall. (It’s weird when declining prices for one of life’s essentials, shelter, is considered bad news, but that’s they way our housing market works.) There are about five different measures of house prices in common use, each of which sings a different variation on the same basic theme: after stabilizing early last year, house prices began falling again late in the year. There are still too many vacant houses and houses in foreclosure hanging over the market to allow prices to recover. Since just about every economic recovery in modern times has been led by housing, this is not good news.
Neither is the continued erosion of the Economic Cycles Research Institute’s weekly leading index, designed to forecast turns in the economy several months out. It’s still positive, but for every one of the last ten months, at a less positive rate than the month before.
As I’ve said before, I don’t think we’re headed back into recession—though that’s always possible. Instead, I think we’re experiencing a textbook post-bubble economy, lifeless, unable to get out of its own ways. There are too many structural pathologies—inequality, debt, hollowing out (though the strength in manufacturing is surprising, and hopeful for the longer term)—that are unacknowledged and unaddressed. All anyone can do now is talk about cutting government spending—local, state, and federal.
debt ceiling
The melodrama over the debt ceiling in DC is seriously depressing. It’s a fact that if the Treasury were unable to make an interest payment on its bonds, all hell would break loose in the financial markets. Not only are Treasury securities considered the safest in the world, a reputation that would be destroyed by default, but there are many complex arrangements that depend on the flow of Treasury interest to remain solvent. Any disruption of that would cause interest rates to rise dramatically, and derail what little recovery we’ve had. Republicans seem willing to risk all that because they see the threat as a way to cut the budget viciously—it’s a form of blackmail, really. And the threat is directed against someone, Barack Obama, who is famous for pre-emptive compromise.
But it may be wrong to see Obama as simply weak. He would almost certainly gain politically by saying publicly, loudly and frequently, that the Republican plan is a way of forcing cuts to immensely successful programs like Medicare and Social Security that could not past muster without the threat of a crisis. But maybe he’s really not opposed to such cuts. He may be hoping for more moderate ones than Paul Ryan is suggesting, but not opposed to the cuts in principle. When people consistently behave in ways that look irrational, you may just be missing the rationale behind their behavior.
McKinsey was mostly right (cont.)
When McKinsey released its survey showing that many employers were likely to drop coverage rather than comply with the mandates of Obamacare, there was a round of criticism from administration apologists saying the consultancy had gotten it all wrong. Even this august blog was hammered for credulously circulating corporate propaganda, or something like that, by reporting the study (Bye-bye employer health insurance) and declaring its findings “more right than wrong.” Paul Krugman, who is often critical of the Obama administration, nonetheless got into the act, criticizing McKinsey using some second-hand sources— thereby making it clear that he hadn’t read the original.
Now comes fresh proof that McKinsey had a point. Under the law, employers with more than 50 workers will be required to offer “affordable” coverage to full time employees or pay a penalty to the IRS. The Wall Street Journal reports today that big firms are already lobbying to weaken the insurance mandate, using arguments that hint at their future strategy to evade the law. What’s full-time? The law says more than 30 hours a week—but over how long a period? Employers want to average out workweeks over a year, so that turnover and seasonality depress the headcount. (Turnover at fast food joints is around 100% a year, so few workers would last long enough to qualify if the probationary period is long enough.) If they can’t get what they want, look for serious growth in the share of the workforce working 29 hours a week.
And also look for this, as a trade association with the remarkable name Employers for Flexibility in Health Care*—with members including Walmart, The Gap, and UPS—wrote in a letter to the IRS: “Failure to allow a full look-back to employers…may lead to employers dropping the coverage because these employees will be eligible for subsidized coverage through the Exchanges. The ultimate result would be increased costs for the federal government.” Which is pretty much what McKinsey predicted would happen.
And what’s affordable coverage? The law says that the workers’ costs—employers only have to pay 60% of the premiums, and can make workers pay the balance—can’t exceed 9.5% of household income. But how can employers know what a worker’s household income is without invading their privacy? (Of course, it’s not an invasion of privacy to make them pee in a jar for a drug test.) All these “uncertainties” are “worrisome for our members,” the National Restaurant Association wrote recently in a letter to the IRS. Look for lots of challenges on “affordability” too, then.
There will be lots more of this to come. Once again, McKinsey: more right than wrong.
_____
*Usage note: the presence of the word “flexibility” in a political context is almost always a tipoff that rich people are looking for a way to screw nonrich people. It’s hard to think of any exceptions to this rule. The letter from Employers for Flexibility uses the word 22 times.
Jobs follow-up: limits of monetary policy
A follow-up to the previous, inspired by another question from Corey:
I should have said in there that the reason that quantitative easing hasn’t worked well is that monetary policy is ineffective when an economy is this sick. It’s the classic “pushing on a string” situation. Corps have lots of cash – they’re just not investing or hiring. The financial markets are flush. You need fiscal policy to mobilize all that festering cash. Inflation is now about 4% – all because of commodities, because “core” inflation (ex food and energy) is only around 2%. It’s also clear the Fed isn’t going to go crazy and tighten out of a fear of inflation anytime soon, thank God. Some yahoos would love that, but Bernanke’s too smart and historically informed to do it. I think I’ll do a blog post a little later about Bernanke and the rot among our ruling class that will approach this from a different angle.
LBO News from Doug Henwood 
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Posted on July 16, 2011 by Doug Henwood
The limits of easy money
[I delivered a condensed version of this as my July 16 radio commentary. It’s a rewrite, with some additional material, of the easy money vs. jobs program debate presented in fragments below.]
I’ve been involved in some internet polemics—remember internet polemics, back before the Facebook “like” button made everyone sweet and nice?—that I thought might be worth recounting here. It all started when my friend (and occasional Behind the News guest) Corey Robin, a professor of political science at Brooklyn College, asked for comments on a piece by the liberal blogger Matthew Yglesias, a contribution to a debate hosted by The Atlantic magazine’s website on the single-best thing we can do to spark job creation. (For Corey’s own thoughts on the issue, along with links to other disputants, see here.) The “debate” itself was a remarkable collection of tiny little “ideas”—expand the R&D tax credit, offer entrepreneurs the welcome mat (I’m surprised they were treated any other way in this very capital-friendly country), increase the amount of money in circulation, fire the bad teachers (that from former DC schools chief Michelle Rhee, who didn’t put it exactly that way, but that’s what she meant), offer a tax credit to employers for hiring the long-term unemployed), and so on. Yglesias’ contribution was suggesting that the Federal Reserve should adopt a higher inflation target, which although not explicitly stated, is now probably 2%. This suggestion is all wet.
Raising the inflation target implies that the Fed has been too tight, when in fact it’s been anything but. It’s been pumping like crazy since the financial crisis broke out. We’ve gone through two rounds of quantitative easing (which basically means the Fed bought gobs of long-term Treasury bonds, which it usually doesn’t do). This extended program of indulgence has set the loons of the right aflame, leading them to fulminate about currency debasement and hyperinflation, when in fact it’s done little but encourage commodity speculation.
In fact, the BLS released the June inflation numbers on Friday morning, and they provide an interesting perspective on all this. The headline CPI number was down for the month, because energy prices have been falling. The year-to-year rate was 3.4%, the highest it’s been in three years, just before the Great Recession and the collapse in oil prices took it down below 0. Leaving out food and energy, core inflation is running just under 2%, also the highest it’s been in three years. Despite this modest rise in inflation, which is what you’d expect from a commodity price spike and something of a recovery from utter collapse, the economy is losing steam, not strengthening.
hating jobs programs
Back to the more theoretical level. Orthodox types—and I’m including Yglesias, who describes his political leanings as “neoliberal” on his Facebook profile page—usually prefer monetary to fiscal remedies. Why? Because they operate through the financial markets and don’t mess with labor or product markets or the class structure. A jobs program and other New Deal-ish stuff would mess with labor and product markets and the class structure, and so it’s mostly verboten to talk that way. From an elite point of view, the primary problem with a jobs program—and with employment-boosting infrastructure projects—is that they would put a floor under employment, making workers more confident and less likely to do what the boss says, and less dependent on private employers for a paycheck. It would increase the power of labor relative to capital. I’m not sure that Yglesias understands that explicitly, but it’s undoubtedly part of his unexamined “common sense” as a semi-mainstream pundit.
Jobs programs and infrastructure investment can be very potent economic tools. Economists use the concept of a multiplier to estimate the effects of fiscal policy on the economy. For example, a multiplier of 1.5 means that for every dollar the government spends, GDP would increase by $1.50. The multipliers on jobs programs and infrastructure are quite high. According to Economy.com, such spending has a mulitplier of about 1.6 to 1.7—meaning that for every $1.00 spent on such programs, GDP increases about about $1.60-1.70. (Economy.com is run by Mark Zandi of Economy.com, who advised John McCain during the 2008 campaign, so these multipliers are not from some pinko source.) The multipliers on tax cuts are much much lower – under $0.40 for extending the Bush tax cuts or giving corporations tax breaks (meaning that they increase GDP by less than half what they cost). The multiplier on the payroll tax holiday is higher—around $1.20 – because the working class spends all it gets, but the upper brackets don’t. Infrastructure spending has a big kick not just because workers spend so much of what they get, it also involves buying lots of raw materials and equipment, meaning large spillover effects beyond the site of the initial spending.
So aside from putting the unemployed to work, a compellingly humane goal in itself, and spiffing up our rotting environment, jobs programs and infrastructure investment would boost broad economic growth dramatically. But we can’t do that, because the yahoos don’t like it (high-speed rail = Europe = fags) and because jobs programs might lead the working class to develop an attitude, and we can’t have that. Therefore, respectable people don’t suggest such things.
populism
There’s also a strain of populist thought, prominent in U.S. political history, that embraces inflation and easy money as some sort of curative strategy. I don’t agree. Easy money is really a cowardly substitute for redistribution—over the long term, Milton Friedman was more or less right that loose money can’t change the economic fundamentals. It can’t spark much growth, it can’t raise real wages—it’s mostly just froth. To spark growth and raise wages you need serious spending, better labor laws, and stronger and more pervasive unions. Or, to put it another way, the best that loose money can give us is more of the same; jobs programs and infrastructure spending can give us child care and high-speed rail, and not just more consumer goods and carbon dioxide emissions.
The embrace of inflation and easy money as good things has a long tradition in American populism—which makes sense, given its roots in a petty bourgeois love of small business, which wants easy money without higher wages, tighter regulation, and unions that might come with a more class-conscious agenda. Or, as I said earlier, it leaves the structure of class relations largely untouched.
Sure, we need a central bank that doesn’t tighten to make sure that unemployment doesn’t get too low, as the Fed has done in the past. But that’s about it. I don’t want a monetary policy that encourages inflation. It doesn’t work as a stimulus, and it can have bad results. Over time, people find inflation very destabilizing, and can lead to a taste for an authoritarian solution, to counter the sense that things are out of control. That was an important part of the rightward turn during the 1970s—and not just in elite opinion, but popular opinion as well. It contributed mightily to the election of Reagan and Thatcher.
redistribution?
Some partisans of the loose money/higher inflation view (e.g. Josh Mason) argue that such policies could be redistributionist—shifting wealth from richer creditors to poorer debtors by eroding the real value of the debt over time. But that position assumes that high personal debt levels are desirable and/or eternal. Debt has been used to offset stagnant wages and, up until a few years ago, inflated housing prices. Permanent inflation can’t increase real incomes and it can’t improve the quality of life.
Josh also argues that high real interest rates—market interest rates less the inflation rate—are hallmarks of neoliberalism, so presumably low real rates would be anti-neoliberal. Yes, high real interest rates were part of the early days of neoliberalism, but they haven’t been so much since. Real rates on 10-year U.S. Treasury bonds averaged 4.9% from 1983-95—but from 1996-2006, they averaged 2.6%, not much higher than they were in the 1960s, 2.3%. Since 2006, real long rates have averaged 1.6%.
Things were surprisingly not so different in a real social democracy, Sweden. Real long rates averaged 4.8% from 1983-95, just 0.1 point lower than the U.S., and they were 4.1% from 1996-2006, 1.6 points *higher* than the U.S. Real long rates in Sweden during the 1960s were 2.0%, just 0.3 point lower than the U.S. Yet for just about every period in modern history, Sweden’s real hourly earnings have grown faster than the U.S.: 1.3 points faster in the 1960s, 1.2 points faster during the early neoliberal era (1983-95, when Swedish real interest rates were almost identical to the U.S.’s), and 1.6 points faster during the later neoliberal era (1996-2006, a period during which Swedish real rates *exceeded* U.S. rates).
The Swedish central bank, the oldest in the world, is a pretty tough customer. But what made the difference in Sweden—why their wages increased while ours stagnated—were all the other, real sector institutions, like redistributive fiscal policies (tax-funded welfare state benefits), active labor market policies (which promote employment aggressively), and union-friendly labor law.
Finally, the politics of loose money are intriguing. Proponents act as if the bourgeoisie won’t notice if the value of their bonds is being eaten away by rising inflation. Or if they notice, they won’t care. So it’d take considerable political strength to push a central bank into actively inflationary policies. But if you have that sort of strength, why not go for the stuff that can really make a difference—the social democratic package I mentioned for Sweden? Or, in the context of this original debate, a jobs program and serious infrastructure investment rather than loose money?
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