portland independent media center  
images audio video
newswire article reporting united states

economic justice | labor | political theory selection 2004

Liberal economists try to pump up the Democrats

Krugman blames the symptom, the corporate criminals, but not the disease of capitalism itself. On the contrary; Krugman was and is a big defender of capitalist globalization.
Liberal economists try to pump up the Democrats

by Pete Brown

The working class in the U.S. is hurting. Even by the standards of life under capitalism, conditions are bad. And they're getting worse. The recession of 2000-01 wiped out the gains many workers had made in the late 1990s, when high employment allowed wages to rise slightly. After the recession, the jobless recovery left laid-off workers standing on the curb as stock prices and profits recovered. Today unemployment stands at 5.6%, the same as it was at the end of the recession in November 2001. Thus after nearly three years of "recovery", three years of the CEOs and stockjobbers stuffing their pockets, workers' job prospects remain stuck in recession mode.

For some sections conditions are even worse. Minorities and women were the last to be hired during the late-90s boom and the first to be fired in the ensuing bust, and a disproportionate number of them remain out of work. The official unemployment rate for African-Americans is 10%, over twice that of whites. But this figure understates the appalling situation facing blacks, as it only counts them as unemployed if they are actively seeking a job. Those who have given up job-seeking drop out of official statistics. But a recent study by the Center for Labor Market Studies at Northeastern University in Boston estimates that one of every four African-American men in the U.S. is idle all year long. And this isn't counting those in jail, who number 10% of black men under 40. Those idled year round include 42% of black men aged 55 to 64. And jobless rates for black teenagers are "all but off the charts" (cited in Bob Herbert's op-ed column in the New York Times, July 19).

Now rising inflation is compounding workers' misery. As consumers workers are being hit with rising prices for gasoline, milk, housing, health care and other necessities. The measly raises in money wages workers have gotten recently are not enough to keep up with rising prices. Real hourly earnings of production workers (nonmanagement employees including nurses, teachers, etc.) fell 1.1% in June alone, and real weekly pay is now back to what it was three years ago (New York Times, July 18). Federal Reserve chairman Alan Greenspan recently testified to Congress that inflation is "not yet a problem" - but then Greenspan is not trying to get by on a tight budget!

Meanwhile conditions on the job are worsening. Productivity is surging as employers combine jobs, speed up their employees and make them do the work of the laid-off. And while wages are declining employers are demanding takebacks in benefits, especially health care and pensions. Everywhere in the U.S. employers are trying to push the burden of soaring medical costs onto employees, forcing them to pay higher co-pays for doctor visits and prescriptions. And employers are undermining the workers' pension funds, forcing more and more workers to continue working into retirement age to make ends meet.

This situation cries out for change. And the trade union leaders tell us to vote for the Democrats to bring about reform. But what have the Democrats actually done for us? For decades the liberal Democrats have rolled over and played dead for the right-wing Republicans. Since the time of Reagan's presidency liberal Democrats have given up the ghost, especially on economic questions. The mainstream liberal Democrats have moved to the right and taken up the mantle of "neo-liberalism", which means they adopted Reaganomics. Workers need a fight against the capitalist offensive, but the trade union leaders want us to climb into the ring with one hand tied behind our backs.

Liberal economists try to revive

But recently a number of economists have tried to revive a reputation for liberalism and have taken to criticizing Republican policies. Emboldened by the prosperity (for some parts of society) experienced under the Democratic Clinton administration followed by the economic slump under the Republican Bush administration, they are issuing a stream of articles and books critical of Bush and the Republicans. They are trying to pump up the Democrats and get them prepared for the upcoming 2004 election. They try to ignore, or hide, that the Democrats too are a party of the rich.

The liberals' critique of the Republicans is one-sided and shallow. When they criticize the Republicans for carrying out policies that favor the rich and injure the working class, of course that's correct. But it's one-sided in creating the impression that the Democrats under Clinton did not also carry out such policies. And the critique is shallow in not exposing that the underlying problem is capitalism. The liberals' analysis of what's wrong with the economy will expose things to a certain depth, but no further. The liberal economists know all the statistics; they understand that the working masses are suffering while the fatcats are getting fatter. And they understand the growing mood of the masses - growing frustration and anger at going deeper and deeper into debt, unable to afford health care insurance, a decent education for their kids or other necessities. So to keep up support for capitalism and its state system, the liberals have a set of reforms they trot out. They want to channel the masses' anger away from class struggle and into support for reforms which are actually very mild. They insist that the system is sound despite the flaws in it exploited by the Republicans. But their own analysis shows this is not true. Capitalism itself creates and expands inequality.

A Democratic attack dog

Take Paul Krugman for example. Krugman's academic specialty was in international economics, and he used to write textbooks on international trade - on how good it was for countries to trade, and utilize one another's comparative advantage to develop trade to the equal benefit of everyone, etc. - in other words, classical capitalist claptrap. Krugman first came to the attention of a wider audience in the late 90s when he wrote popular works extolling capitalist internationalism and criticizing the anti-WTO movement. Thus he showed that despite some liberal credentials he remained a bourgeois economist whose sympathy for oppositional movements was extremely limited. At a time when many were targeting the WTO for the evils of neo-liberal economics, Krugman leapt to the defense of international capitalist institutions.

In the year 2000, the last year of Clinton's presidency, Krugman was hired as an op-ed columnist for the New York Times, and there he has acquired a regular popular following. His columns often concentrate on economic questions, but more recently he has branched out into political and cultural issues. And for the last three years Krugman has concentrated polemical fire on the Bush administration. In fact he has evolved from an ivory tower economist into the perfect neo-liberal attack dog.

In his twice-weekly column Krugman bashes Bush for just about everything. For example recently he has opened up a polemic arguing that John Ashcroft is "absolutely the worst Attorney General ever." But like other mainstream Democrats Krugman was very slow, and very careful, about attacking Bush on the central political issue of the Bush presidency, the war in Iraq. For a long time Krugman's criticism of Bush on Iraq was mostly confined to grousing about its financial cost and that Bush was hiding its cost.

Krugman has acquired a reputation as a critic of Bush's economic policies. He was skeptical of Bush's tax cut plans from the beginning, arguing that the government's surpluses of the late-Clinton years could not be expected to last. Then when Congress enacted Bush's tax cuts favoring the rich and scheduled to last for years, Krugman began bashing the plan in earnest. As the government's surpluses quickly turned into record deficits, Krugman kept up the attacks, accusing Bush and his team of irresponsibility and falsehoods. Krugman has also criticized Fed chairman Greenspan for supporting Bush's tax cuts. And he frequently warns readers about Bush's long-term goal to dismantle Social Security. Recently Krugman has tried to keep up with popular liberal Bush-bashers like Al Franken and Michael Moore, stridently denouncing Bush as a liar.

All this is fine. It's good to see an academic become politically involved and take a stand against some Bushite outrages. That Bush is a shill for the rich who couldn't care less about the results his policies have on ordinary working class people - it's fine to state, and reiterate, this truth. This helps open people's eyes and separates one from the fawning Congressional Democrats who used to lull people to sleep with tales of Bush's "compassionate" conservatism and the need to "find common ground" with the President.

Today Krugman is writing articles comparing Bush's health care plan to Kerry's. He says Kerry's plan is better for the average person. Well, duh! When you're sick, just about any medicine is better than swallowing poison! But there's actually not much difference between Bush and Kerry on the economy. Kerry is not proposing any big jobs program, something sorely needed right now. And his health care plan, though not as bad as Bush's, is far from extending medical insurance to the tens of millions now without it. Krugman defends profiteering HMOs, saying "after all, they're in business", so we shouldn't expect Kerry's plan to put a dent in their profits. Much less does Krugman (or Kerry) suggest replacing HMOs with national health insurance. This is the kind of thinking that doomed Clinton's proposal for health care reform.

The bourgeois blame game

Krugman's criticism of Bush is one-sided and at least implicitly pro-Democrat. His polemical fire is always aimed at Bush with never a word against the Democrats. First, on the federal budget: it's true that under Clinton the budget was temporarily balanced and even showed a surplus for a couple years. But to achieve this Clinton first had to give up any hopes for health care reform, an absolutely pressing need in American society. Then he led a savage attack on the poor under the banner of "welfare reform", joining Newt Gingrich and other Reaganite Republicans to dismantle the federal welfare system. In his columns Krugman doesn't explain how Clinton balanced the budget, by attacking the working class and poor. Nor does he mention that under Clinton the Pentagon budget continued at obscene levels, with hardly a peace dividend, as if the Cold War were still proceeding, and spending on "domestic security" - police, jails, etc. - ballooned. So the budget was balanced, but the interests of the rich and the militarists were never compromised while the workers and poor were sacrificed.

Secondly, Krugman's critique is one-sided and shallow in blaming the economic slump wholly on Bush and his cronies. Krugman says nothing about how the Clinton boom paved the way for the Bush recession. What happened in 2000-2001 was a classical capitalist bust coming after the boom. The economy was headed into a recession as Clinton left office, and the recession would have occurred just the same if the Democrat Gore had taken office after Clinton. Krugman does not clarify the nature of the capitalist business cycle and so helps prop up the myth of "the new economy". This was the idea, widespread among stock market speculators in the late 1990s, that post-industrial capitalism had managed to permanently solve the problems that afflicted capitalism in earlier times and was no longer subject to crises. Under the masterful guiding hand of Clinton, his Treasury Secretary Robert Rubin, and Alan Greenspan, the "new economy" would supposedly continue growing steadily for all time.

"Irrational exuberance" - cause or effect?

Krugman did write articles expressing doubt about the "irrational exuberance" displayed by stock market speculators in the late-Clinton years. And he's vociferous in denouncing the greed of corporate shysters at Enron and other companies. All well and good, but Krugman stretches it to the point of blaming corporate illegalities for the collapse of economic growth in 2000-2001. This is blaming the symptoms for the disease. Long ago Marx analyzed that the longer a capitalist boom extends, the more desperate the capitalists are to cash in on the boom before it ends. Where before a profit rate of 10% might have been regarded as satisfactory, now a profit rate of 20% seems measly, and the capitalists are scrambling all over each other to beat it. This leads, naturally, to excesses and illegalities. But it's the onset of the slump, more than anything, that catches the corporate criminals, driving them into bankruptcy and exposing their machinations. The onset of an overproduction crisis catches out the criminals, rather than their crimes causing the crisis.

Krugman blames the symptom, the corporate criminals, but not the disease of capitalism itself. On the contrary; Krugman was and is a big defender of capitalist globalization. Nor does the government under Clinton's leadership come in for any criticism. If the corporate criminals are to blame for the economic collapse, why didn't Clinton do more to prevent their shenanigans? What was the Securities and Exchange Commission doing under Clinton's watch? What about the Energy Dept. and federal overseers charged with supervising Enron and other corporations involved in oil and electricity? And what about the FCC regulators who were supposed to be regulating telecom utilities like Worldcom? Clinton and his economic advisers, far from trying to rein in the irrational exuberance of the late 90s to prevent a crash, were in fact pushing for more globalization, more liberal trade policies, for continuing the Reaganite policies of deregulation and privatization. But Krugman's Democratic partisanship prevents him from spreading any blame for the recession to Clinton.

Nor does Krugman clarify basic economic forces leading to the recession. It's not just a matter of stock market prices, of price/earnings ratios and other technical matters. In the late 90s there was a rapidly growing excess of industrial capacity in many sectors. Auto capitalists, for example, rushed to build new hi-tech plants that produced more cars with fewer workers. The glut of cars on the world market led to the near-bankruptcy of Chrysler and its buyout by Daimler-Benz. Other American car companies merged or worked out cooperative relationships with Asian car companies, as the auto capitalists tried to reduce the competitive anarchy of the world auto market. But there remained a big glut of auto industrial capacity. There was also a glut of oil on the world market. Other primary raw materials such as copper, tin, coal and agricultural goods were also glutting the world market, and their prices fell to historic lows. Overproduction of steel intensified consolidation as older plants were forced to close.

The early 90s were the glory days of the personal computer and related electronics equipment. Looking for high profits, capital flowed into this area of production, so that already by the mid-90s a serious glut in supply had developed. Coupled with this was a glut in the production of silicon chips. A shakeout of chip production followed, with many firms going bankrupt and others forced into mergers and buyouts.

Thus in many areas a crisis of overproduction was developing. Production was still expanding as the capitalists each strove to maintain and expand their market share. But consumer demand could not keep up with supply, as gains in productivity pushed goods out of plants at an ever faster pace while wages remained stagnant or grew at a very slow pace. The average wage has been in a general state of decline since 1973, and it was only at the end of the boom, after 1997, that lower-paid workers began to make any gains in wages. The only way workers could afford to buy more goods was on credit, and in fact "financial services" turned out to be one of the most profitable and fastest growing sectors of the economy in the 90s.

There were many signs that the growing overproduction was soon to break out into a fullblown crisis. The American economy was bent on globalization as the capitalists strove to make inroads into other countries. But America's closest capitalist allies were for the most part sunk into doldrums in the 90s. Japan was stuck in a deflationary spiral.1 European countries exhibited only slow growth, with massive unemployment. And in the late 90s the Asian "tigers" (the newly industrializing countries - South Korea, Taiwan, Hong Kong, etc.) were hit by a destabilizing financial crisis. The "new economy" gurus blew off these indicators, saying "it can't happen here", but such bluff could not overcome capitalist economic laws.

Due to the overproduction crunch, many areas of capital investment were drying up as sources of profit, especially the maximum profits sought by financial speculators. When the internet opened up as an area of commercial exploitation, speculators quickly flooded in capital to try and be in on the ground floor. But the orgy of speculation in dot.com stocks soon turned into a stock-market bubble which burst, bringing the Clinton-era boom to a close.

Liberal prescriptions for
a ruthless economy

Another example of a liberal ideologist who criticizes the excesses of "the new economy" is Simon Head, author of the book The new RUTHLESS economy: work and power in the digital age. The message of Head's book is pretty obvious from the title. He doesn't think the new economy is all it's cracked up to be. In fact the new digitally automated workplace is an arena of ruthless exploitation.

Head isn't actually an economist; he's a working journalist. This is an advantage in that he presents some of the concrete human issues lying behind statistics about economic growth, rising productivity and profits. The average academic economist is mesmerized by these figures and, so long as they're going up, can't see much to complain about in the new capitalism. Krugman for example has no criticisms of Clinton-era capitalism, which he considers good times of low unemployment. But Head gives a devastating picture of working conditions in the new economy of the 90s.

Head particularly focuses on workers in the call center industry. This includes telemarketers and customer service reps, workers who take orders for products or dispense advice about warranties and malfunctioning products, etc. According to Head this is a very large segment of the service sector of the American economy. He estimates there are two-and-a-half to six million such workers.

Head's book is a polemic against those who thought that in the new computer age the economy would free humanity from all mundane tasks; new jobs would all be creative and inspiring, with relaxed workers sitting around and consulting one another in an egalitarian atmosphere. In contrast Head describes the reality of the modern telephone call center, in which masses of low-paid employees work the phones under a harsh workplace discipline (including a strict dress code, even though their customers cannot see them). Workers are stuck inside little cubicles grouped around a supervisor's desk, which is raised above them. With advanced computer software the supervisor can monitor 30 workers at a time, checking every word they say to the customer, making sure they are sticking exactly to the "script", and timing their calls to the second. Workers must follow a script when talking to customers and must meet a quota of so many calls per hour; if they don't, they're fired for nonperformance. Break times are carefully monitored by the all-seeing supervisor.

Head explains the economic motive for making workers stick to a script. If employers hired more skilled employees - for example skilled maintenance workers who could actually figure out and solve customers' problems on their own - they would have to pay higher wages to these customer service reps. The purpose of the script is to keep the job unskilled, so that low-wage high-school graduates can perform the job. Similarly with quotas: their motive is to ensure that the number of workers hired is kept to an absolute minimum, so that employers can keep their wage bill down as low as possible.

Head compares these methods to manufacturing, where jobs are also standardized and the workers subjected to speedup. Head concludes that the "new economy" isn't really new, that the new service industries are simply importing methods developed in the manufacturing sector, methods of ruthless exploitation. Further he argues (though he doesn't try to measure this in an exact way) that the low wages in the new service industries have contributed mightily to the overall wage stagnation in the American economy over the past few decades. (Take-home pay, as a share of the economy, has now sunk to its lowest level since 1929, when the government first started keeping track. In contrast, after-tax profits as a share of the economy are now at their highest level since 1929.)

Reformist panaceas for a deadly disease

Head's advice to workers in the new service industries is they should follow the path taken by manufacturing workers decades ago: they should get organized and join unions. Not a bad idea, but one that will very soon come up against a problem recognized by Head himself: that union organizing drives have to deal with a system of labor law stacked against the workers. Head himself recognizes this as he details how workers who try to organize unions are routinely fired. Such workers can then file suit with the NLRB, but even if they win their case years later the employer has defeated the organizing drive, and no penalty is assessed against the employer. So Head also recommends that present labor law be reformed. But he has no idea of the struggle needed to bring about such a change. Apparently all it takes is a few soft-spoken words by goodhearted intellectuals, and the politicians will immediately respond. During the Democratic presidential primary campaign of the last year a few of the candidates mentioned this issue, trying to win some workers' votes in competitive primary races. But now, during the main campaign, Democratic candidate John Kerry is moving more and more to the right, and the concerns of the working class are dropping off from his rhetoric. Kerry and the Democrats take it for granted they can count on the votes of left-leaning working class Democrats; their main concern is to win over the "Kerry Republicans".

So even if Kerry wins, the workers will be faced with an administration similar to Clinton's, which bogged the workers down in red tape and helped the employers defeat hard-fought strikes. Take for example the Detroit newspaper strike, where capitalist employers at the Detroit News and Free Press bribed local police to work overtime breaking picket lines, busting workers' heads and throwing them in jail. "Not to worry", local union bureaucrats told the workers, "we have friends in high places." They brought in national AFL-CIO leaders like Richard Trumka to assure the workers they were personally talking to President Clinton and Labor Secretary Reich. Instead of helping workers organize strong, militant, round-the-clock picket lines and spread the strike, the bureaucrats instead told the workers to rely on their corporate campaign strategy and filing charges of unfair labor practice against the employers. Supposedly the NLRB and the courts would prevail against the capitalists. But even when some rulings went against management, they simply refused to obey them and used their millionaire lawyers to keep up a barrage of appeals until finally, years later, the bureaucrats admitted the strike was completely lost.

Though Head's advice to organize unions and change labor law is not bad, it's misleadingly reformist by implying that these are easily achievable tasks. Head thinks that because unions exist, it will be an easy thing for telephone service workers to join them, then defeat speedup campaigns and win higher wages. This is a serious underestimation of the present disorganization of the working class.

First of all, Head overlooks that a major obstacle to organizing drives is the union bureaucrats themselves, who are more interested in maintaining their cozy jobs in Washington than in disrupting capitalist industry. Only rarely do the bureaucrats put any effort into an organizing drive. Secondly, Head assumes there is some organized political force with influence in Washington - e.g., the Democratic Party - that can easily win labor law reform. But it isn't just a matter of slight tinkering with present labor law to "level the playing field." The passage of the Wagner Act legalizing industrial workers' right to organize only came about as the result of a massive strike wave in the 1930s. Even then the Wagner Act set up a federal bureaucracy that regulated workers' strike actions. These regulations became prohibitions - e.g., against secondary boycotts - in the 1940s-50s with Taft-Hartley, Landrum-Griffin, etc. Meanwhile the federal bureaucracy expanded into a giant force of lawyers, judges, arbitrators, mediators, etc. who take years to settle the simplest grievance - and more often than not settle it against the workers. To break through this bureaucracy will take a lot more than a few liberals sitting in Congress. Only when the working class is already organized and taking action will some sections of the ruling class come around and offer the workers some reforms to try and stave off revolutionary action.

Thirdly, Head believes that winning union recognition will easily solve the workers' problems. He says industrial unions in manufacturing have been effective in opposing speedup, and so service industry workers can expect the same result from their unions. But here Head contradicts his own observation that the capitalists in manufacturing have been successfully implementing speedup to eliminate jobs for a very long time. The fact is, in order to fight speedup, workers require very good shop floor organization, organization that goes beyond that offered by the ordinary AFL-CIO union, in fact organization that often has to contend with restrictions imposed on workers by the AFL-CIO leaders.

Thus Head's thinking, like Krugman's, remains within the capitalist framework. He gives some interesting criticism of "the new economy", showing that it is ruthlessly exploitive just like the old industrial economy. But he understates what is needed to set things right and ends up searching for common ground between workers and capitalists. In such a search the desire for reform, no matter how sincere, gets lost on the wayside.

Workers need struggle

The liberal ideologists see the numbers, the unemployment statistics and so forth, and they know the working class is hurting. They understand the mood of the masses, and sometimes they reflect that in their criticism of the Bush administration. But what they won't do is call for workers to struggle. And that's the one thing the workers need right now. There's no end to issues: jobs, wages, health care, pensions, etc. etc. The capitalists are sticking it to the workers on every front, and the liberals are standing around contemplating the massacre. Workers need to take matters into their own hands and fight the capitalists at every turn.

From the new issue of Communist Voice ( http://www.communistvoice.org)