Posts Tagged ‘Second Great Depression’


As Bill McBride explains,

The public sector grew during Mr. Reagan’s terms (up 1,414,000), during Mr. G.H.W. Bush’s term (up 1,127,000), during Mr. Clinton’s terms (up 1,934,000), and during Mr. G.W. Bush’s terms (up 1,748,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 726,000 jobs). These job losses have mostly been at the state and local level, but more recently at the Federal level.  This has been a significant drag on overall employment.

Increasing public-sector jobs was never going to solve the problem of the Second Great Depression. But public-sector job losses under Obama have certainly made things worse.


Marx, it seems, is getting more and more play these days—as class inequalities continue to rise and we remain mired in the Second Great Depression.

Yesterday, it was Chris Hedges. Today, it’s The Wire‘s David Simon [ht: ja].*

Simon offers the usual disclaimers (which we almost always read when someone respectable tries to make the case for turning to Marx to understand what’s going on, along the lines of “I think Marx was a much better diagnostician than he was a clinician” “Oh by the way I’m not a Marxist you know”) but Marx’s critique of capitalism is in fact central to Simon’s analysis of the current “horror show.”

he was really sharp about what goes wrong when capital wins unequivocally, when it gets everything it asks for.

That may be the ultimate tragedy of capitalism in our time, that it has achieved its dominance without regard to a social compact, without being connected to any other metric for human progress.

We understand profit. In my country we measure things by profit. We listen to the Wall Street analysts. They tell us what we’re supposed to do every quarter. The quarterly report is God. Turn to face God. Turn to face Mecca, you know. Did you make your number? Did you not make your number? Do you want your bonus? Do you not want your bonus?

And that notion that capital is the metric, that profit is the metric by which we’re going to measure the health of our society is one of the fundamental mistakes of the last 30 years. I would date it in my country to about 1980 exactly, and it has triumphed. . .

Mistaking capitalism for a blueprint as to how to build a society strikes me as a really dangerous idea in a bad way. Capitalism is a remarkable engine again for producing wealth. It’s a great tool to have in your toolbox if you’re trying to build a society and have that society advance. You wouldn’t want to go forward at this point without it. But it’s not a blueprint for how to build the just society. There are other metrics besides that quarterly profit report.

The idea that the market will solve such things as environmental concerns, as our racial divides, as our class distinctions, our problems with educating and incorporating one generation of workers into the economy after the other when that economy is changing; the idea that the market is going to heed all of the human concerns and still maximise profit is juvenile. It’s a juvenile notion and it’s still being argued in my country passionately and we’re going down the tubes. And it terrifies me because I’m astonished at how comfortable we are in absolving ourselves of what is basically a moral choice. Are we all in this together or are we all not?

They weren’t in this together in The Wire—and we’re certainly not, in real life, in what passes for society today.


*I wrote about The Wire back in 2010, when I was in the midst of season 3. I also recommend Ceren Özselçuk’s essay, “Beyond ‘Commodity Fetishism': The Wire and the Political Economy of Drugs.”


I have worked for over three decades in a theoretical tradition, born at the University of Massachusetts Amherst and associated with the journal Rethinking Marxism, defined by a revitalization of Marxian class analysis (in relation to the appropriation and distribution of surplus labor) and a critique of essentialism (in both methodology, such as economic determinism and humanism, and epistemology, including rationalism and empiricism). What this means is that we tend to see class processes as neither essentialist determinants of economic and social outcomes nor the phenomenal form of some essential cause but, rather, as the overdetermined cause and effect of history and the myriad—economic, political, and cultural—dimensions of society.

But we have never really looked at the class determinants of essentialist views of the world. As it turns out, Dacher Keltner (whose research I have discussed before, here and here) has (with coauthor Michael W. Kraus) done just that. And the results are fascinating.

What psychologists Keltner and Kraus (behind a paywall) find is that social class is correlated with both essentialist conceptions of class and beliefs in a just world—and that the belief in a just world, in turn, reinforces essentialist conceptions of class. In other words, they found that upper-class individuals (as measured by subjective ranking rather than so-called objective criteria, such as income) were more likely to endorse the idea, first, that social class is an inherent, stable, and biologically determined social category and, second, that society is fair and just relative to their lower-class counterparts. Those on the other end tended to view the world through a different, social constructivist lens, that is, the view that “social class is based on changeable, external social forces.”

In addition, Keltner and Kraus report that class-based differences in social perception affect beliefs about social justice: lower-class individuals tend both to support less punishment and, when they endorse it, punishment based on restoration as against retribution more than their upper-class counterparts.

And their conclusion?

The current results provide some initial evidence suggesting that essentialist beliefs are associated with justifying and legitimizing an individual’s own position in society and raise the possibility that these beliefs will also increase justification of unfairness in the distribution of economic and social resources: That essentialist beliefs endorsed by upper-class individuals were associated with failing, rather than rehabilitating, academic cheaters suggests that one way in which individuals can maintain current societal structure is through the use of essentialist beliefs. Future research is necessary to determine what other legitimizing behaviors high-status individuals may engage in to constrain upward mobility in society (e.g., opposition to affirmative action programs) and whether essentialist conceptions of social categories explain this behavior.

As well, endorsing social constructivist beliefs—beliefs that social class is based on changeable, external social forces—led to the favoring of social policies related to academic policy and judicial procedure that focus on rehabilitating individuals. Perhaps social constructivist views, endorsed by lower-class rank individuals, may increase optimism among these individuals with regard to overcoming current financial hardship, future career opportunities, or even the economic advancement of future generations.

Clearly, different conceptions of the determinants of social class have important implications for economic and social policy, including approaches to criminal justice. And, as economic and social inequalities widen and we remain mired in the Second Great Depression, we need to move beyond the tendency to neglect or overlook the role of class and essentialism in determining (and, of course, being determined by) the policies that got us into this mess in the first place.


You can’t but agree with Mark Thoma’s observation concerning the debate within the dismal science about the Second Great Depression: “There is no single class of macroeconomic models that is best for all questions.”

Sure. Absolutely. There are different models for different questions and problems.

But then Thoma unnecessarily limits the debate to a single choice—between IS/LM and New Keynesian models, between the older type macroeconomic model with non-dynamic money and product markets and the newer models with individual agents guided by rational expectations, various kinds of imperfect markets, and dynamic reactions to external shocks. And he asks for tolerance among the advocates of each type of model for those who use the other type.

The New Keynesian model was built to explain a world of moderate fluctuations in GDP. It features temporary price rigidities, and the macroeconomic aggregates in the model are consistent with the optimizing behavior of individual consumers and producers. For certain types of questions – how should policymakers behave to stabilize an economy with mild fluctuations induced by price rigidities – it is the best model to use. Hence it’s popularity during the “Great Moderation” from 1984-2007 when there were no large shocks to the economy.

The IS-LM model, on the other hand, was built in the aftermath of the Great Depression to examine precisely the kinds of questions we faced throughout the Great Recession, issues such as a liquidity trap, the paradox of thrift, and how policymakers should react in such an environment. Why is it surprising that a model built to explain a particular set of questions does better than a model built to explain other things? Especially when the model is used in a way that incorporates the lessons we’ve learned in the intervening decades about its shortcomings.

OK. But what about all the other models out there, which represent critiques of and alternatives to mainstream economics? Models (from both the Marxian and Post Keynesian traditions) in which the boom and bust cycles of capitalism occur as endogenous events, as a result of the inner workings of a capitalist economy. Why aren’t they included in the choice of appropriate models?

The fact is, macroeconomists have little to offer in terms of understanding either the causes and consequences of the current crises—which, remember, have now been going on for over six years, with no end in sight—much less effective solutions for the economic mess we’re in. Merely tweaking and tinkering with the hydraulic mechanisms of either class of models is simply not going to get us very far.

And we’re going to remain stuck here unless and until we confront the limitations imposed by the dismal choice between the IS/LM and New Keynesian models, which are the only ones mainstream economists teach and use to make sense of what is going in the world today.


It’s just been announced that Bruce Springsteen’s “The Ghost of Tom Joad” will be released as a duet with the Nightwatchman Tom Morello on Springsteen’s new album.*

The timing couldn’t be better, as I work on the syllabus for my spring 2014 course, “A Tale of Two Depressions,” which I’ll coteach for the second time (here’s a link to the course last spring) with Ben Giamo.


*For younger readers, Tom Joad is a character in John Steinbeck’s novel The Grapes Of Wrath. Near the end of the story, Tom makes his famous “I’ll be there” speech, which is noted in Springsteen’s lyrics.

Tom Joad: I been thinking about us, too, about our people living like pigs and good rich land layin’ fallow. Or maybe one guy with a million acres and a hundred thousand farmers starvin’. And I been wonderin’ if all our folks got together and yelled…

Ma Joad: Oh, Tommy, they’d drag you out and cut you down just like they done to Casy.

Tom Joad: They’d drag me anyways. Sooner or later they’d get me for one thing if not for another. Until then…

Ma Joad: Tommy, you’re not aimin’ to kill nobody.

Tom Joad: No, Ma, not that. That ain’t it. It’s just, well as long as I’m an outlaw anyways… maybe I can do somethin’… maybe I can just find out somethin’, just scrounge around and maybe find out what it is that’s wrong and see if they ain’t somethin’ that can be done about it. I ain’t thought it out all clear, Ma. I can’t. I don’t know enough.

Ma Joad: How am I gonna know about ya, Tommy? Why they could kill ya and I’d never know. They could hurt ya. How am I gonna know?

Tom Joad: Well, maybe it’s like Casy says. A fellow ain’t got a soul of his own, just little piece of a big soul, the one big soul that belongs to everybody, then…

Ma Joad: Then what, Tom?

Tom Joad: Then it don’t matter. I’ll be all around in the dark – I’ll be everywhere. Wherever you can look – wherever there’s a fight, so hungry people can eat, I’ll be there. Wherever there’s a cop beatin’ up a guy, I’ll be there. I’ll be in the way guys yell when they’re mad. I’ll be in the way kids laugh when they’re hungry and they know supper’s ready, and when the people are eatin’ the stuff they raise and livin’ in the houses they build – I’ll be there, too.

Ma Joad: I don’t understand it, Tom.

Tom Joad: Me, neither, Ma, but – just somethin’ I been thinkin’ about.


As the Wall Street Journal admits,

Despite three years of steady job gains, and four years of economic growth, many Americans have yet to experience much that could be described as a recovery. . .

For those with decent jobs, wages are rising, albeit slowly, and job security is the strongest it has been since before the recession. Many families have paid down debts and are seeing the value of assets, from homes to stocks, rebound strongly.

But many others—the young, the less educated and particularly the unemployed—are experiencing hardly any recovery at all. Hiring remains weak, and the jobs that are available are disproportionately low-paying and often part-time. Wage growth is nearly nonexistent, in part because with so many people still looking for jobs, workers have little bargaining power.

That’s what a “recovery” looks like in the midst of the Second Great Depression.

Hedge Funds 2

Last night, on the BBC program Business Matters, I argued that the Securities and Exchange Commission’s settlement of the insider-trading case with SAC Capital Advisors was just a slap on the wrist—a fine of $1.8 billion that still allows Steven A. Cohen to keep the bulk of his estimated $8-9 billion wealth.

But it was a necessary slap on the wrist in the sense that it was intended to restore faith in markets, not unlike the law establishing insider trading as a crime when the SEC was created back in 1934. Cleaning up financial markets then, five years into the First Great Depression, was designed to rebuild confidence not only in financial markets but in capitalism more generally.

And it worked—alongside the other programs of the first and second New Deals, and of course the recovery created by World War II.

But, I added, I’m not sure it’s enough now. Yes, the SEC is seeking to levy large fines (on Steven Cohen’s SAC and probably on Jamie Dimon’s JPMorgan Chase). However, the people who have been most affected by the financial meltdown—who lost their homes and jobs, and are struggling to put food on the table and send their kids to college—have every right to say, “Been there, done that. We’ve tried investigations, fines, and regulations before and look at the mess we’re in again, in the midst of the Second Great Depression.”

And so maybe, they’ll be singing along with The Who:

And I’ll get on my knees and pray
We don’t get fooled again
Don’t get fooled again


Interest in Marx just doesn’t seem to go away.

Not after the Great Financial Crash of 2007-08. In the midst of the Second Great Depression, which also doesn’t seem to be going away.

And so Daniel W. Drezner [ht: sn] is the latest in a long line of professors and pundits who, in recent years, has been compelled to admit that Marx got at least a few things right.

Going beyond Smith and Ricardo, Marx stressed two important facets of the market that they did not. First, he stressed that crisis was endogenous to global capitalism. Marx acknowledged and admired the productive machine that was the capitalist system, but he also stressed that periodic busts were baked into the system. This is a point that spread into some corners of mainstream economics — see Hyman Minsky, Charles Kindleberger or even Reinhart and Rogoff — but could do with a little more emphasis in the old grad school syllabus.

The second dimension Marx stressed was power — which is why he’s still appreciated among those who study global political economy. A riff through The Communist Manifesto or the highly underrated Wage Labor and Capital shows the ways in which Marx appreciated how capitalism led to a redistribution and concentration of economic power over time. It’s not that hard to find recent empirical work that bolsters a Marxist analysis of economic power.

Then, as has become de rigueur in these kinds of pieces, there’s the facile reference to one or another of the tired refrains concerning Marx, in complete disregard of the scholarly literature. In this case, it’s Marx as an economic determinism, which even my undergraduate students are well aware is one of those oft-repeated but mistaken interpretations of what Marx and Engels were up to in formulating a materialist interpretation of history.

In any case, the real howler in Drezner’s piece is the following assertion: “We’re operating in a world where the core business interests in the United States — for kicks, let’s call them the “executive committee of the bourgeoisie” — are being ignored.” Really? What more could Drezner or the “core business interests” he refers to want? Even lower workers’ wages and higher corporate profits? Even cheaper money and larger interest-rate spreads for Too Big to Fail banks?

No one is arguing (certainly not I) that the Tea Partiers have been acting—in the first or even last instance—out of economic interests. Not even in the latest debt-ceiling showdown, which apparently they’ve lost. (Race, religion, and so much more play important roles in Tea Party ideology.) But at least some factions of American business did bet on the Tea Party—to criticize Obamacare, to attack transfer programs, to derail minimal government regulations—as long as it could be controlled. But then the Frankenstein monster they created got out of control.

And that’s one thing those core business interests do want: they may not be able to control an always-unstable capitalism but, as the self-appointed masters of the universe, they do want to be able to exercise their control over anyone who is appointed (or aspires to join) their executive committee.


As if to confirm my anti-economic determinist view of the Tea Party, Zack Beauchamp [ht: db] offers an important analysis of the role of racism in creating the government shutdown and the battle over the debt ceiling.

The basic cleavage between North and South, began by slavery, has set the fault lines of American politics again and again. This time, the crisis isn’t as severe as the civil war, nor as divisive as the battle over civil rights. But make no mistake: today’s Republican radicalism, with all of its attendent [sic] terrifying brinksmanship, is the grandchild of the white South’s devastating defeats in the struggle over racial exclusion.

help class

Most Americans (53 percent) think the government is doing more to help the rich at the expense of the poor and middle class, according to a new HuffPost/YouGov poll. And only two percent think it should do more to help the rich.

Given the policies that have been adopted (and, even when not adopted, proposed) in Washington, D.C. during the Second Great Depression, how could they think otherwise?

Note: if I had the time, I’d make the table into an actual chart.


The pathologies in our society are becoming more and more apparent as economic inequality continues to grow.

Mark Thoma explains, as one example, how rising inequality is responsible for the current battle over the debt ceiling.

growing inequality has allowed one strata of society to be largely free of these risks while the other is very much exposed to them. As that has happened, as one group in society has had fewer and fewer worries about paying for college education, has first-rate health insurance, ample funds for retirement, and little or no chance of losing a home and ending up on the street if a job suddenly disappears in a recession, support among the politically powerful elite for the risk sharing that makes social insurance work has declined.

Rising inequality and differential exposure to economic risk has caused one group to see themselves as the “makers” in society who provide for the rest and pay most of the bills, and the other group as “takers” who get all the benefits. The upper strata wonders, “Why should we pay for social insurance when we get little or none of the benefits?” and this leads to an attack on these programs.

Even worse, this social stratification leads those at the top to begin imposing a virtue and vice story to justify their desire to stop paying the taxes needed to support social insurance programs. Those at the top did it all by themselves. They “built that” through their own effort and sacrifice with no help from anyone else.

Those at the bottom, on the other hand, are essentially burning down their own houses just to collect the fire insurance, i.e. making poor choices and sponging off of social insurance programs. It’s their behavior that’s the problem, and taking away the incentive to live off of the rest of society by constraining their ability to collect social insurance is the only way to ensure they get jobs and provide for themselves.

What this means, of course, is those at the top want to dismantle precisely those social programs that help those at the bottom—in the name of lowering deficits and debt.

Then, as a second example, there’s the ongoing spectacle of focusing on the “self-destructive habits” of poor people compared to everyone else. As Tina Rosenberg reports, behavioral economists are finding that people on the bottom “are less future-oriented than those with more money.”

According to these authors, one explanation for bad decisions is scarcity — not of money, but of what the authors call bandwidth: the portion of our mental capacity that we can employ to make decisions.

Worrying about money when it is tight captures our brains. It reduces our cognitive capacity — especially our abstract intelligence, which we use for problem-solving. It also reduces our executive control, which governs planning, impulses and willpower. The bad decisions of the poor, say the authors, are not a product of bad character or low native intelligence. They are a product of poverty itself. Your natural capability doesn’t decrease when you experience scarcity. But less of that capacity is available for use. If you put a middle-class person into a situation of scarcity, she will behave like a poor person.

Really? The explanation of growing poverty is based on the bad, “tunnel-vision” decision-making of poor people, which can be fixed by forcing people to save and providing better financial counseling?

Why not, instead, focus on the real problem—the tunnel-vision decisions of those at the top, to take as much as they could as quickly as they could, which created the conditions for the Second Great Depression in the first place—and then explore the kind of changes that would eliminate the obscene levels of inequality and the resulting poverty that exist today?

Not doing so is perhaps the real pathology of the existence of persistent and growing inequality in our society.