"Identity" politics, economics, populism and the complicated relationships among them

Here are two very recent essays dealing with neoliberalism and its political manifestations: Joan Walsh, Can the Democrats Win Back White Working-Class Voters? The Nation 09/05/2016; and, Frances Coppola, Austerity and the rise of populism Coppola Comment 069/05/2016.

Joan's piece deals with a perennial dilemma of left politics, center-left and otherwise: the conflict between "identity" politics (feminism, anti-racism, gay rights) and politics focused on economic issues of particular benefits to the working class. She's also the author of the informative and perceptive book What's the Matter with White People? Finding Our Way in the Next America (2012). She's done a lot of work and put a lot of thought into these issues.

In this piece, she argues against the position that Thomas Frank has been arguing for years, which she characterizes this way: "Frank has repeatedly argued that Democrats alienated their former base through their support for neoliberalism, NAFTA, and Wall Street deregulation."

Leaving aside whether that adequately characterizes Franks' position, Joan starts off seeming to argue that "identity" politics, particularly white racism, was decisive in moving so many white working-class voters into the Republican column. But she winds up suggesting that the dilemma, or contradiction if you prefer, is misleading. She sympatherically quotes  Karen Nussbaum of the AFL-CIO's Working America project:

“We try to fill the void with information,” Nussbaum explains. She avoids chicken-and-egg arguments about which came first: white working-class economic suffering or a misplaced resentment of racial minorities. She also believes that choosing between the Obama coalition and the white working class is a false dichotomy. “I believe in a multiracial progressive movement that includes white working-class people,” Nussbaum says. “We can’t govern nationally without them. We make either/or choices at our peril. It would be wrong to concede the white working class to an ever bigger, consolidating hard right. We can’t just defeat Trump—we have to defeat Trumpism, or else Democrats are not going to be able to govern.” [my emphasis]

Joan also provides some reality-check information that reminds us that the appeal of the Republican Party and Donald Trump to white "working class" isn't such a clear-cut thing as superficial punditry often suggests.

One frustrating complication in these analyses is the lack of a common understanding of who the working class is. My own operating definition is something like, anybody who would be eligible to join a union (or who should be eligible). Largely because of the kinds of background information pollsters collect on their samples, people without four-year college degrees are often taken as the functional equivalent of working class, which Joan also does in this essay. I strongly suspect that its a seriously inadequate definition.

Her arguments don't lead to any decisive results. But her cautious optimism on the following is justified: " The resurgent populist, pro-opportunity, and anti-oligarchy left wing of the Democratic Party has pushed politicians, including Clinton, to embrace many policies—on trade, union rights, Social Security, and education — that many hope will win back this cohort [white working class voters]." That's true. And it's an encouraging development.

Frances Coppola is looking at this set of issues from a different perspective. I plan to return to her long piece in a later blog post. Her focus is on how the economic policy dogma of austerity as a solution to the Great Recession set the stage for a populist reaction, especially in Europe. That dogma is also known as Herbert Hoover/Heinrich Brüning economics. As she explains:

But the prescription turned out to be voodoo. Seven years on, prosperity has not returned: many countries in Europe are still mired in austerity, some are deeply depressed, government debt is higher than ever and unemployment is still painfully high. Failure of austerity measures to deliver the promised prosperity is toxic: popular anger and fear fuel the rise of populist politicians. Rudi Dornbusch, in a wonderful paper about debt crises and populism in Latin America, observed that the roots of populism lie in austerity, often imposed by an external agent such as the IMF. Chancellor Brüning's austerity measures in the German Great Depression, designed to end Germany's debt crisis and restore foreign confidence, led to the rise of Hitler.

And here is how she frames the broad relationship between the effects of neoliberal policies and voter receptiveness to populist political appeals:

Thatcher's generation of populist politicians discarded the big state, "Keynesian" model that had dominated since WWII. They replaced it initially with austerity (to break unions power and defeat inflation). But in any democracy, austerity is short-lived unless you can find a way of convincing your supporters either that they are not really suffering (so you protect people who will vote for you) or that the good times will return "any day now". Thatcher's generation - or perhaps more correctly, Reagan's generation, since this comes from economic thinking in the USA - promised that globalisation would bring prosperity for all. We could say that they replaced a "big state" model with a "big world" one. Free trade, free movement of people, free movement of capital: these were the pillars on which the new golden age would be built. ...

But the Western middle classes saw no benefit. For them, globalisation brought stagnation and decline, as their jobs were offshored and their wages fell to the global mean. Their prosperity turned out to be an illusion, built on an insubstantial debt bubble. The promise made to them in the Reagan years has been exposed as a lie. And they are angry. Globalisation has failed - now it is time to "take back control". [my emphasis]

Voters and political activists are motivated by variety of issues and operate with sometimes conflicting beliefs. There is no simple and easy link between bad economic conditions and attraction to rightwing populism. But there are links. As I've mentioned before, people who have a well-founded confidence in their economic prospects are at the very least less likely to be looking for scapegoats for overall frustration that they feel about society and the government.

Simon Wren-Lewis explains "The Austerity Con"

Simon Wren-Lewis last year explained the marketing of The Austerity Con London Review of Books 37:4 02/19/2015. In it, he poses the question of how Herbert Hoover austerity policies gained such a hold on policy in Europe, and Britain in particular:

The place to begin is 2009. By then the full extent of the financial crisis had become apparent. Although the crisis originated in the US, it had spread around the world, leaving no country unscathed. The major UK banks had to be bailed out, not so much as a result of excessive lending to UK borrowers, but because of their unwise overseas investments. The main weapon used to fight recessions is interest rate cuts – lower interest rates encourage consumers to spend rather than save, and business to invest – and by 2009 interest rates had been reduced to nearly zero in all the advanced countries. Yet output continued to decline.

The response of governments and central banks was twofold. First, the Bank of England and the US Federal Reserve embarked on a programme of ‘quantitative easing’, which involves the temporary creation of money, thereby making it possible for central banks to buy long-term financial assets. Second, governments started to spend more or cut taxes, which economists call a fiscal stimulus. The last Labour government’s measures included a cut in VAT in late 2008, albeit for just a year. Barack Obama managed to enact a package of measures which included higher government spending as well as lower taxes, and even Germany undertook a fiscal stimulus package in 2009. The normally austere IMF agreed that fiscal stimulus was the way to go in 2009. [my emphasis]

The last part is very significant. Although Obama's foolish pursuit of bipartisanship and Republican obstructionism prevented the stimulus in 2009 being large enough to push the US economy back into healthy recovery as quickly as it could have, as Paul Krugman has explained repeatedly, it was large enough to make the US recovery notably more robust than that of the eurozone. But it's also important to note that Angela Merkel's government was more willing to apply at least limited stimulus in Germany, though they have insisted on brutal austerity in the southern eurozone, especially in Greece.

Wren-Lewis then goes into an accessible discussion of the basic macroeconomics of the need for counter-cyclical fiscal policy in a recession or depression. And he includes this description of how opponents of stimulus can use fear of deficit spending to prevent such a fiscal policy:

A sharp increase in government borrowing sounds bad. Opponents of fiscal stimulus like to invoke comparisons between individuals and governments. Most individuals are rightly cautious about borrowing, although many do so – for example, to buy a house. A firm may borrow to help fund an investment project. Government borrowing in a recession is neither buying an asset nor funding investment, so isn’t it common sense that it should be brought to an end as soon as possible? The view of nearly all economists is that the analogy between individual and government borrowing breaks down at this point. The name they give the process by which deficits rise in a recession – the ‘automatic stabiliser’ – itself explains why they think this way. If a recession is caused by consumers saving more and spending less, which in 2009 it was, then the fact that consumers are paying less in taxes and the unemployed are getting welfare benefits is a good thing, because it supports consumer incomes. If governments turn off the automatic stabilisers by cutting spending or raising taxes, they will reduce the income of consumers, who will spend even less, making the recession worse. Just as a fiscal stimulus helps in a recession, a fiscal contraction designed to reduce the deficit will make the recession worse.

He reminds us of how the term Confidence Fairy entered the economics vocabulary:

What about the problem that austerity would make the recession worse? Supporters of austerity put forward two counter-arguments. First, the prospect of a rising government deficit would worry consumers and firms so much that they would spend less as a result; if the government reduced the deficit, the confidence of the private sector would be restored, and it would start spending more. In other words fiscal austerity – cutting government spending or raising taxes – would help stimulate the economy. This flips conventional macroeconomic logic on its head; Paul Krugman dismissed it as believing in the ‘confidence fairy’.

He also talks about how the supposed effectiveness of monetary policy failed in the depression conditions of interest rates being at what economists call the "zero lower bound."

This is one area one which New Keynesians like Krugman differ from more orthodox Keynesians and "post-Keynesians" including the Modern Monentary Theory adherents. The New Keynesians have considerable faith in the effectiveness of monetary policy in normal times and in smaller recessions, leaning even toward a preference for monetary over fiscal policy. The others are far more skeptical of the effectiveness of monetary policy. The late John Kenneth Galbraith used to say something to the effect that he would have loved to do away with the belief that monetary policy was any use at all.

Wren-Lewis also explains some of why the debt situation of individual countries within the eurozone was different than that of countries like Britain who borrow in their own currency.

He also uses a very servicable term, "miediamacro":

‘Mediamacro’ is the term I use to describe macroeconomics as it is portrayed in the majority of the media. Mediamacro has a number of general features. It puts much more emphasis than conventional macroeconomics does on the financial markets, and on the views of participants in those markets. It prefers simple stories to more complex analysis. As part of this, it is fond of analogies between governments and individuals, even when those analogies are generally seen to be false by macroeconomists. So after the 2010 election (and to some extent before it) mediamacro had bought with barely a murmur the view that reducing the government deficit was the top priority. It even bought a second story, which was that the previous Labour government had played a large part in creating the deficit problem in the first place. Like all good myths this was based on a half-truth: before the recession Gordon Brown had been a little less prudent than he should have been: he had been too optimistic about tax receipts, and followed a fiscal rule that allowed his progress in reducing debt in the early years of the Labour government to be reversed in later years. But as the chart shows, the impact of this on the deficit was dwarfed by the influence of the recession, and the recession was the result of a global financial crisis. Despite this, mediamacro allowed the myth of Labour profligacy to go unchallenged.

And even with a more left-leaning Labour Party under the current leadership, deficit fetischism is still very evident in British politics:

In many senses this echoes Labour’s original line that the coalition’s austerity policy was too far, too fast. Yet such is the influence of mediamacro’s alternative view that the Labour Party has abandoned that stance, and now wants to portray itself as being just as tough on the deficit as the coalition. This has led to a ludicrous situation as the election approaches. Respected economists and think tanks agree that there is a large gap between Labour and Tory plans on future austerity. Even under the most conservative interpretation, Labour’s plans involve fewer spending cuts, amounting to 1.5 per cent of GDP per year less than the Tories are proposing. That’s equivalent to half the UK defence budget, every year. Yet the Labour Party itself seems reluctant to acknowledge this fact, because it doesn’t want to appear weak on the deficit.

But: "Mediamacro still sees reducing debt as the number one priority." [groan!]

Greece's reform commitments on the way to approval

Greece's responses to the requirement that they specify their "reform" commitments for the four months of the financial assistance from the Eurogroup formerly known as the Troika indicate that they intend to focus on a couple of the "good government" initiatives that are a standard part of the neoliberal "reform" package, but are of little real interest to the One Percenters and their lobbyists. Those would be fighting corruption and pushing for more efficient tax collection, i.e., prevent the wealthy from evading taxes.

The proposals have to be approved by the German Bundestag. And Merkel's government is supporting them. It's interesting to see that the dissenting votes against it are likely to come from Merkel's own CDU/CSU party, while the SPD, the Greens and apparently much of the Left Party in the Bundestag will support them. (Union warnt vor drittem Kreditprogramm 25.02.2015) The Left Party has cast dissenting votes against the Greek aid because of the draconian conditions attached to them.

Christiane Schlötzer notes in Reform-Brief aus Athen: Liste der Vernunft 24.02.2015, Greece intends to continue with its anti-austerity course and notes how anti-corruption and better tax collection are the items being prioritized by Alexis Tsipras' SYRIZA government. She notes that the biggest tax dodge in Greece seems to be from oil smuggling, or at least the dodge "of the biggest style."