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    Rome lived on its principal until ruin stared it in the face. Industry is the only true source of wealth, and there was no industry in Rome. By day the Ostia Road was crowded with carts and muleteers, carrying to the great city the silks and spices of the East, the marble of Asia Minor, the timber of the Atlas, the grain of Africa and Egypt – and the carts brought nothing out but loads of dung. That was their return cargo…. Long Beach is the Ostia of our day, the gateway to the great American market….The imports are as numerous as the sands on the nearby beach, including everything from shoes and shirts to computers, autos, advanced telecommunications gear, and photo voltaic panels for generating solar energy. The exports, though, are few, consisting mostly of scrap metal and waste paper – this millennium’s dung, you might say.

    (Clyde Prestowitz, principal trade negotiator for Asia in the Reagan administration)[1]

                As Congress convenes for its lame duck session, Paul Ryan is poised to become a very important man. As the likely chairman of the House Budget Committee from January,  he is determined – as he told The Financial Times immediately after the mid-term elections – to see America “turn the corner” by maintaining “a firm focus on restoring the basic foundations of growth: low taxes, sound and honest money; fair, predictable and reasonable regulations; and, of course, spending cuts and reforms.” “Mr. Obama,” he wrote,” must now move quickly to join the growing bipartisan consensus calling for at least a two year freeze on all current tax rates. He should also join us to address our shared concern with the unsustainable deficit….Our fiscal and economic problems have been decades in the making – a bad situation made much worse over the past two years [which is why the President should] enact the spending cuts proposed in House Republicans’ ‘Pledge to America’. “We face a choice,” Ryan said, “between an opportunity society with a safety net or a cradle-to-grave social welfare state.”[2] Clearly he prefers the former.

                Personally, I prefer the latter – but that is of no consequence because no such choice currently awaits us. What awaits us instead is the interesting conundrum of a Republican Party cutting taxes for the rich while decrying the scale of the federal deficit. What awaits us is a House Budget Committee chaired by a man committed to resolving our current difficulties by repeating the policies that created them. And what awaits us is a Congress preoccupied with the wrong kind of debt.

                We certainly have a problem of debt.

    • Part of that debt problem is the gap between federal taxes and federal expenditures – a gap that opened up on the watch of a Republican President and Congress, not a Democratic one. A federal surplus inherited in 2000 was squandered well before 2008 by the tax cuts now due to expire and by the financing of a war of choice. The federal spending is larger now because of the recession triggered by a financial collapse that also occurred while the Treasury Secretary was a Republican. So it is simply untrue, and entirely disingenuous, to talk of “a bad situation made much worse over the past two years”, if by that is meant to signal that the Obama stimulus package deepened the recession. It did not. Arguably, the package should have been larger, the better to lift the economy from recession more quickly and to speed the flow of tax revenue again. Companies are slow to hire now not because they are over-taxed or over-regulated. They are not hiring now because their CEOs lack confidence in demand, and they lack confidence in demand because other companies share that same lack of confidence. With private sector confidence low, demand can only be increased by more targeted public spending rather than by less. To cut the federal deficit in the long term, the last thing sensible policy requires is its cutting now.[3]
    • But the main debt problem which currently besets the U.S. economy – the debt problem that keeps internal demand low – is not primarily a debt problem at the federal level, no matter what Paul Ryan claims or implies. It is a debt problem at the level of people’s personal finance. One of the “fiscal and economic problems decades in the making” to which Paul Ryan ought properly to refer, but which he does not, is the generalized stagnation of American hourly wages in the decades since Ronald Reagan was president, the intensification of American poverty over the bulk of that period, and the stellar rise in income and wealth inequality that has accompanied poverty and the lack of wage growth. One third of all Americans currently live on incomes that are within one tranche of the poverty level for their size of family. Indeed, the median income of average Americans has actually fallen in the last decade – down 4.8% according to the latest Census Bureau figures.[4] The mass and generality of American consumers have maintained their living standards for the last quarter century not by paying “low taxes [in an economy based on] sound and honest money,” as Ryan would have it, but by working longer hours, sending more and more of their family members out to work, and by maxing out their credit cards. “Research shows that credit card debt in America has quadrupled since 1989 and increased 41 percent just since 2000. American now owes more over $1 trillion in credit card debt.”[5] Money doesn’t come much less sound and honest than that.
    • The other debt problem that now besets the U.S. economy is debt at the international level. Over the last two decades we have become the global system’s consumer-of-last-resort. The U.S. began the post-war period (in 1945) as the global capitalist system’s major exporter and supplier of investment funds, as well as its major military protector. The military role remains and the dollar is still for the moment the global system’s major reserve currency; but U.S. export domination has entirely vanished. It is American debt, not American largesse, which now helps to sustain global economic growth. Our trade relationship with China is emblematic: a U.S. deficit that was a mere $10 billion in 1990 and $83 billion in 2000 has now soared to $268 billion in 2008 and $226 billion in 2009.  In 2008, the United States main export to China was waste and scrap paper – some $7.6 billion worth – more than we exported in oilseeds and grains (but oilseeds and grains were the third largest category of goods we exported to them).[6] So here we have the United States of America sending to China, a major trading partner, agricultural produce and waste, in exchange for manufactured goods and money loans. No wonder Arianne Huffington chose to call her latest best-seller Third World America because in many ways our trading patterns are beginning to resemble those of an imperial power in decline.[7]

    As we have argued before on this website,[8] since World War 2 the United States has known two sustained periods of economic growth. Both were based on different social settlements. Each has something to tell us about how, and how not, to go forward.

                The first period was that between 1948 and 1973. Abroad in those years the world was organized around a Cold War division and a nuclear stand-off. At home, prosperity was anchored in the spread of semi-automated production systems. Productivity per worker rose dramatically after 1948, as did the wages of unionized workers: north-eastern and mid-western wage militancy was crucial to the demand side of the 1950s economic equation. American manufacturing led the world, and blue-collar American living standards exceeded those of traditional middle class and professional families in Western Europe and Japan. Internal income inequality accordingly diminished: by 1970 average CEO compensation packages in Fortune 500 companies ran somewhere between 56 and 70 times higher than the median wage those companies paid. Throughout the bulk of that first growth period, the United States ran a balance of trade surplus (the world bought American goods) and a balance of payments deficit (dollars flowed out to keep global demand high), dollars distributed globally in no small measure through the placing of American military personnel abroad. It was a growth period book-ended by two wars – Korea at the outset, Vietnam at its end – military expenditure on the second of which eventually helped bring that first growth period to an end.

                Twenty years later, the U.S. economy experienced a second prolonged period of growth, one that was momentarily slowed in the immediate wake of 9/11 but otherwise sustained from 1992 to 2008. There was no Cold War this time: rather initially a peace dividend and then the confrontation with Islamic fundamentalism that triggered wars in Afghanistan, Iraq and now Afghanistan again. Productivity rose at home again as it had between 1948 and 1973, this time the consequence of computerization and the spread of new information technology. But there were no rising wages through strong trade unions in this second growth period; and no U.S. balance of trade surplus. Instead there was debt – increasingly foreign debt and personal debt – and there was greater income inequality Income and wealth distribution in this second growth period moved average CEO compensation packages in large corporations into a 200-400 percent ratio to median wage, depending on the state of the stock market, and helped fuel the credit bubble which broke so dramatically and with such serious consequences in September 2008.

                Paul Ryan’s “Pledge to America” proposes to take us to a third growth period by replicating the inequalities of the second. That cannot do. What this economy now needs is a scale of change far more fundamental than simply token tax cuts and the closing of federal programs. What the economy now needs is a new growth trajectory whose underpinnings more resemble the first period of post-war U.S. economic growth than they do the second. At the very least, we need somehow to scale back our global role, restore our competitive manufacturing base, and return to a lower and more functional level of social inequality. A leading Republican figure from an earlier age has recently compared the United States to Rome. Given the force of that comparison, it is hard to avoid seeing Paul Ryan, for all his new found importance, as fiddling with tax cuts for the rich while the rest of America hurts. Our economic strength is eroding and a social time bomb is ticking beneath our feet, which is why it is time to put the fiddle away and begin a proper conversation whose seriousness matches the hour.

    These arguments will be developed more fully in

     Making the Progressive Change: Towards a Stronger U.S. Economy,

    to be published by Continuum Books in 2011

    Originally posted at

    [1] Clyde Prestowiz, The Betrayal of American Prosperity, New York: Free Press, 2010

    [2] Paul Ryan, “How the Republicans can fulfill their pledge,” The Financial Times, November 4, 2010

    [3] For the argument in full, see The Poverty that Blights Us All; available at

    and (with Don Frey) The Inmates and the Asylum: the Madness of Cutting Deficits in the Middle of a Recession, available at:

    [4] On this, see Heidi Shierholz, A lost decade: Poverty and income trends paint a bleak picture for working families, Economic Policy Institute, September 16, 2010: available at

    [5] Quotation from the press release for the latest Demos report on credit card use, available at:

    [6] In 2008, the US exported $7.56 billion of waste and scrap to China, $7.3 billion of oilseeds and grain, $7.4 billion of semi-conductors and other electronic components, $5.5 billion of aerospace products and parts, and $3.5 billion of resin, synthetic rubber and artificial fibers and filaments. These were the major categories of U.S. exports to China in 2008. In 2009 the order switched slightly: oilseeds top, aerospace second, waste paper third.  (Source: USITC DataWeb. Top five U.S. exports to China in 2009)

    [7] Arianna Huffington, Third World America, New York: Crown Publishing Group, 2010

    [8] See Contemporary Poverty and the Tasks of the Left: available at


    Excellent post.  One of the best arguments I've seen for letting the Bush tax cuts on the wealthiest Americans expire.  And, as usual, I thank you for all the great footnotes. 

    The first period was that between 1948 and 1973. Abroad in those years the world was organized around a Cold War division and a nuclear stand-off. At home, prosperity was anchored in the spread of semi-automated production systems. Productivity per worker rose dramatically after 1948, as did the wages of unionized workers: north-eastern and mid-western wage militancy was crucial to the demand side of the 1950s economic equation. American manufacturing led the world, and blue-collar American living standards exceeded those of traditional middle class and professional families in Western Europe and Japan.

    As I have said before, it's easy to have a great and productive economy when most of the rest of the world is not yet industrialized or lays in rubble do to a major world war. When your country is essentially the only game in town.

    Once Europe and Japan rebuilt and Asia an others industrialized and we could no longer steal oil from the Middle East, American Manufacturing just took a hike instead of trying to compete on the global market.

    Excellent post.  You clearly outline the very obvious problems the US finds itself mired in.  It's funny too because this stuff isn't difficult to figure out in terms of what has happened to the US economy because the Republicans (being the irresponsible assholes they are) will nevercare about the facts since all they care about is power, getting it and keeping it and also because Democrats are so pathetic they act as though they don't understad these basic facts so they can pretend what is important is sucking up to the interest of predatory wealth in hopes of being taken care of upon leaving office.  It is a disgacefully corrupt moment in history.

    Excellent blog post. I think you have outlined the two growth periods quite well, along with an accurate description of the major ways they differ, one from the other.

    I disagree with what I understand to be an underlying premise here, however, which I read as the second period growing out of the first in response to new global realities (i.e. The absence of the Cold War; increased development in Asia and elsewhere, etc.) I understand your point about the impact these had on what might be called - for lack of a better term - the "Capitalist/Labor/Socialist" economic expansion in the first half of the century. But I don't see any of these extraneous pressures being fatal to that set of policies that were written in a belief that the benefits of growth would rightly accrue throughout the socio-economic levels.

    Increased productivity in the first period, for example, resulted in not only increased profits for the "owners" of production, but also allowed for greater wealth gained by the workers as well as other specifically direct benefits such as the 40 hour work week, increased vacation time, and more holidays. I see little reason that these principles of shared wealth and benefit couldn't have been supported throughout global economic expansion if they were deemed to be "the rules" by which this economics game is played.

    What I see instead is that the second period represents a radical and actually quite sudden shift away from the fundamental rules that were based upon principles of economic justice. We instead launched ourselves pell mell into an experiment with what can best be only described as "Trickle Down Reaganomics." Reagan's firing of the Air Traffic Controllers remains a watershed event in our history that is hardly appreciated for its importance. Suddenly, the rules were changed, and we turned toward this experiment wherein the new principles dictated that top-loading EVERYTHING in the economy (foreign trade; tax policy; political clout; support of the military industrial complex; etc.) would result in a growing economy with an implied promise that everyone would benefit. Well, as your statistics point out, we got the growth. Mutual benefit? Not so much. In fact, as an example, increased productivity now prompted market demands for reduced wages, downsizing, and an increased workload for the individual laborer. Trade policies were developed - not to export the blessings of economic justice we had previously experienced in our domestic economic system - but rather to exploit labor (both foreign and domestic) as a commodity to be "consumed" at its cheapest cost.

    Right across the board, we've witnessed the ways in which this monster of our own creation has turned against those of us who must work for wages. Retirement plans went away. Wages stagnated. Workplace labor and safety regulations were ignored or dismantled altogether. A housing bubble and consumer credit devices were created that gave us a false sense of our own wealth, and these have since collapsed and gone away. This "wealth" has vanished into the ether to our own decimation, while the banks and the "owners" have been held harmless..

    having lost our wealth and our homes (in many cases), they now come at us wanting our Social Security, our Medicare, and all manner of safety nets that we previously earned as part of the social compact that underscored the first period of growth. There is no longer any pretense that the growth of the economy is to be accomplished for the universal good. Instead, the wealth of the "owners" of this economy is really all that matters, and we workers/consumers should be willing to consider any manner of sacrifice and reduction in our standard of living for the continued growth of that economy. (Read that last sentence again to get a sense for just how counter-intuitively crazy this has all become!)

    Ultimately, what we need is for everyone to come to a realization that the experiment with Trickle Down Reaganomics has failed, and failed mightily! We also need to understand that there is a preferred alternative. That alternative can be found in an economic system that abides the principles we adopted in the first period of economic growth in the last century. Many of the particulars need to be revisited to reflect the changes in the global economy you outline. But there can be no economic justice until we first affirm the principle that says the economy must work for us all, and can never be just the provenance of those who can afford to take advantage of others, for take advantage of others they will do until there is nothing else to be gotten.

    I happen entirely to agree with you, so if in compressing the argument I created the impression that the distribution of wealth and power between classes in the second growth period was externally dictated, then the compression needs amending. The driving force in the second growth period was internal class struggle - as usual - as you say, a serious assault on the power of organized labor in the United States. The "global dimension" giving extra weight to that assault was the dramatic increase in the size of the global proletariat to which US capital now had access because of the collapse of the Cold War and developments in China. The weakness of organized labor even in the first growth period was its regional, racial and gender narrowness. That weakness is now massively compounded. A critical requirement for a progressive third growth period, therefore, is the emergence of a large and inclusive labor movement - a very tall order given the recession, and one which is not in the sights of the Obama administration as far as I can tell.

    Thanks for the response, David.

    I think we are close tp agreement on the dynamics of the problem; that this represents class struggle, or class warfare. But where we might differ is in your charcterization that this is class struggle "as usual."

    I view the wholesale adoption of Reaganomics as an insidious change in the way this country does business. It is an experiment gone mad which altered the fundamental rules by which we govern our economy. There really is no room for any kind of a labor movement (domestic or foreign) within the game as presently constituted. Any effort to improve the plight of the working class - to ensure that workers (or the "proletariat") get their share of the economic pie - is now dead on arrival for reason that it negatively affects "profits."

    The concept of labor as a commodity is a new invention, and it is devastating in its consequences. "If the American labor commodity can't be cost-competitive," we are told, "then the owners will simply move elsewhere." There is no longer any effort at all to create rules that allow the worker to retain any ownership of his labors and to even the playing field. As an example, just when did you see your last effectively realized labor strike in the last thirty years? The thought of workers withholding their labor in pursuit of higher wages and benefits is properly deemed to be suicidal under present rules. What tools are left to labor to exercise any muscle in the fight to wrest their share of wealth from this economy as presently constituted?

    We are even seeing this played out within the developing economies. I read about countries like VietNam losing some of their textile industry to places like Myanmar or Jordan because VietNam's economic growth has sparked an "uncompetitive" growth in the wages demanded in that country. Increased globalization has only exacerbated what we initially saw as a "war between the states," wherein industry moved from one state to another (most commonly from the Rust Belt to the South) in search of a non-union, "more competitive" (aka "cheaper") workforce.

    Any institutional rule that previously afforded workers some clout in making certain that there is a just and fair distribution of the wealth generated by economic growth is now derided as "protectionism" or as an impediment to profits that must be avoided. THAT is a fundamental change between the first and second growth period, and it must be reversed.

    Ultimately, I think the change in labor's circumstance that is required will come about only if we adopt a far more fundamental solution than simply telling workers to "stand tall and fight!" We must first define the fact that we are indeed under assault in a "Class War," and that begins by declaring this insane, ongoing experiment in trickle-down economics to be an anomaly that has failed us miserably. Only when we begin to understand the the many ways in which the present rules governing our economy are recent inventions designed to work against our interests can we even begin to fight back.

    Your "first period" of economic growth shows how well an economic system can work for all socio-economic classes when the rules are in place that support economic justice and a fair distribution of wealth. But we have no basis for wresting justice from the present, perverse economic system that insists all wealth must accrue to the "owners" of this economy, whilst the rest of us are simply engaged in making it all happen.  

    Dear SleepinJeeezus - what a great neme!

    It is good to be in conversation. Even better perhaps one day to meet.

    But since we must type at each other, let me come back this way. There are clearly different models of capitalism out there, and we happen to be in the worst of them. What the US created in its first period of growth is still there in the German model - still strong in manufacturing, still with established trade unions and worker rights. That model is always precarious because of global competition, but it seems to have sufficient strength to sustain itself as the motor of the European Union, burdened more by bailing out "weaker" European economies like Greece and Ireland than with seeing off Chinese competition. But then the EU as a whole keeps exports out  - it does protect itself in ways we don't.

    But globalization is a reality for all models of capitalism - and its central feature is the growth of a global labor force. I don't know how much of my writing you can inflict upon yourself, but I have recently tried to get to grips with what that means for the left. It's not good! The essay "Seen from Below: Labor in the Story of Capitalism" is at It puts the Reagan moment in a much bigger picture. It would be good to know your reaction.

    The growth periods are simply examples of class accords underpinning periods of capital accumulation. The best material on them is in Terence McDonough, Michael Reich and David M. Kotz (editors), Contemporary Capitalism and Its Crises: Social Structures of Accumulation Theory for the 21st Century. You probably know this material, but I do recommend it to anyone sharing this exchange. We don't just need new policies. We need a new social settlement. 

    Best wishes




    Thanks, David. Better perhaps one day to meet indeed!

    I would love to pick your brain in a more dynamic conversation than this give-and-take, even as I realize one question answered would lead to three more to pursue. I read most of your "Seen From Below" essay and find it fascinating. (i worked all night last night and so this has been "bedtime reading" for me this morning, hence my inability to get through it all. As it is, I kept going back over paragraphs to fix the lesson learned in my head.)

    I am most certainly not a trained economist. nor can I claim credentials as an academic. It therefore takes a little time to personally digest the scope and breadth of the material you've laid out here. But, yeegads! You have given me a helluva lot to chew on! I will definitely be in touch to pursue this conversation further to whatever extent you will welcome and allow such a discussion

    The "new social settlement" you address here is, I believe, precisely what I am talking about when I insist that the fundamental rules governing the economy (or wealth accumulation) must change. I look forward to rolling this about in that chasm between my ears for awhile in attempt to place my previously considered "remedy" within the historical and systemic context you have so magnificently described in your essay.

    Enough for now. I'll be in touch again, soon!

    - Jeff (BTW: The "SleepinJeezus" nickname has an extensive backstory. For these purposes here, suffice to say it's firmly derived from a very proletarian experience of sleeping head down over a steering wheel in an 18 wheeler - parked, of course! ;O)


    Thanks for a great post. I wonder what you think of a one or two year extension on the tax cuts, perhaps with a reset at $500K rather than $250. I think an extension of the tax cuts above $250K is a revolting idea and inimical to a level playing field, but I am tempered by several points. I am only speaking here of a one or two year extension. Because of the contractionary effects of not extending them, if it were a choice between across the board extension or no extension at all, I would choose to extend them, knowing no other stimulus is coming out of this Congress and not wanting to risk any contractionary effect.And I would only choose this option under an assumption that there will be a firebrand's arpproach to enforcing the regulations and the CFPB which are already on the books. Obviously one could choose to let the cuts expire, and have a strategy to separate the Middle Class from the rest and let the chips fall. Am I delusional in thinking there is sensible compromise, on a one or two year basis, in extending all the cuts?  

    It is a very difficult judgment call, but lines do need to be drawn, particularly with a Republican Party as rampantly conservative as this one. The case for not extending the Bush tax cuts to the very rich is compelling. I think it should be made loud, long and clear, and the onus put on the Republicans to block the middle class tax cut. This is no time to blink! Because one blink, one allowing the Republicans in the House to call the shots, will just encourage them to call more.

    Thanks. My reticence on this issue is partly my lack of confidence in the Administration's ability to control the narrative, especially with respect to the "deficit". I just perused the CNN poll and the thing that skewed the most and leaped off the page was the "unfavoable" on the question of Obama's control of the "deficiit". Conversely, if O can turn this perception around,particularly on this tax issue, it would seem to lever his chances for re-election. But if O can't control the narrative better than he did the first two years, I'd at least go with something that's not contractionary in the short term.

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