Doug Henwood's Blog, page 36

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January 16, 2020 James Meadway, former economic advisor to the UK Labour Party, on the British election, how to fight political cynicism, and ideas for reindustrializing busted regions • Katherine Moos on the costs of social reproduction and who pays them (paper here)

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December 26, 2019 Adam Kotsko, author of “The Evangelical Mind,” on the life and thought of that tendency • Shailja Sharma on India’s new citizenship law and protests against the country’s drift into fascism

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December 19, 2019 Aditya Chakraborty on the British election, BoJo, Brexit, the state of the Labour Party • Nathan Robinson, author of Why You Should Be a Socialist, on that very topic

RIP, Paul Adolph Volcker

Paul Adolph Volcker is dead at the age of 92. (Most accounts of the man suppress the middle name, though it was often pointed out with bitter glee by builders and others who were undone by his high interest rate policies in the early 1980s.) As I wrote in LBO when he left office in 1987, if capitalism gave out a Hero of Accumulation award, he would have been first on the honors list.

Let’s recall what he did, because all the worshipful obits will almost certainly sanitize the history. Volcker was appointed chair of the Federal Reserve by Jimmy Carter—on the recommendation of David Rockefeller—to get inflation under control. Carter’s old Georgia friend and advisor Bert Lance tried to tell him it was a mistake, and that it would almost certainly cost him re-election. Lance, now remembered as little more than a Good Old Boy, if he’s remembered at all, was right. But Carter ignored him. The charms of a Rockefeller are irresistible.

Inflation is a complicated thing, and this is no place to delve into those complexities. For the purposes of this post I’ll just say a couple of things. Part of the reason for rising inflation in the 1970s was that oil exporters had been jacking up prices—from under $4 a barrel to over $10 in the first oil shock of 1973–1974, and then from under $15 to over $30 in the second shock, 1979–1980. Other commodity-exporting countries were trying to emulate their oil-exporting colleagues. And with those commodity price moves came calls for a new world economic order—one in which the North no longer lorded it over the South, and one in which the South claimed a larger portion of global wealth.

Domestically, labor was restive. There were an average of almost 300 major strikes a year during the 1970s—more in the earlier years of the decade, but they persisted throughout. There was a lot of worry that the working class had developed a serious attitude problem. There’s an appealing theory that reads inflation as a sign of stalemate in the class conflict: workers push wages higher and employers respond by raising prices to protect profits. If the workers were winning, profits would suffer; if employers were, wages would suffer. Neither happened in the 1970s.

The month Volcker took office, August 1979, the consumer price index was up almost 12% from the year before. (See graph below.) But the unemployment rate was 5.8%—not low, but below average for the 1970s. In Congressional testimony a couple of months later, Volcker declared that “The standard of living of the average American has to decline” if inflation was going to be subdued. He worked hard to make that happen.

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He made that happen by driving interest rates up to levels previously unknown in US history (and the history at my fingertips goes back to 1857). The federal funds rate—the rate at which banks lend each other money overnight, the most sensitive indicator of Fed policy—went from 10.9% when he took office to 17.6% in April 1980. That drastic tightening of monetary policy sent the economy into a sharp recession. Unemployment rose by almost two points in a matter of months. The downturn was so brutal that Volcker retreated. He—and while Fed policy is set by a committee, the institution is dominated by its chair, and Volcker was a particularly forceful chair—drove fed funds briefly below 10% in the summer of 1980.

But inflation persisted as the economy recovered, so Volcker went back to war. He pushed the fed funds rate to a peak of 19% in January 1981, let it fall a few points into the spring, then pushed it back to 19% in June and July. The economy went into a deep recession, the worst since the 1930s (though we outdid it in 2008–2009). Bankruptcies zoomed, and the unemployment rate broke 8% in November 1981, 9% in March 1982, and 10% in September. Inflation, which had been falling in 1980 but not seriously enough for Volcker, began falling for real in late 1981.

With inflation breaking below 6%, Volcker relented in August 1982—not so much because the US working class was suffering and interest-sensitive industries like housing and manufacturing were in depression, because Mexico was about to “blow,” as he put it. Like many Latin American countries, Mexico had borrowed heavily in the 1970s, the the interest rate spike was ruining them. Fearing that a Mexican default would bring down the banking system, Volcker began pushing down the fed funds rate, and in August 1982 made it clear that the regime of extreme monetary tightness was over. Inflation continued to fall, however, breaking below 3% in 1983.

From the POV of the ruling class, a couple of very good things happened as a result of that regime of extreme tightness. The recession scared the hell out of the working class, leaving millions in terror of job loss. That consciousness was reinforced by Reagan’s firing of the striking air traffic controllers in August 1981; the leader of the striking local was hauled away in chains, a picture that spoke many more than a thousand words. Strikes fell from an average of 300 in the 1970s to 80 in the 1990s—and 23 since.  The stock market took off the minute Volcker made it clear that interest rates would fall; investors celebrated the decisive victory of the owners’ contingent in the class war, a party that has continued to this day. That fearful consciousness instilled by Volcker and Reagan persists in the US working class almost forty years later: make no demands or you might find yourself sleeping on the sidewalk.

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There was an international dimension to that class war victory as well. Capital successfully turned Mexico’s threatened default into a great opportunity to restructure the global economy to its liking. As a condition for getting fresh loans, and indulgence on the old ones, Latin American and other debtors had to agree to open up their economies to foreign capital and trade and lift domestic regulations and subsidies—the entire package of hypercapitalism that would come to be known as neoliberalism. In less than a decade, calls for a new world economic order, one favoring the South, were replaced by a intensified arrangement of rich countries telling poorer ones what to do, down to the level of what basics like food should cost. As with the domestic reconstruction, Volcker was at the center of it.

RIP Paul Volcker, Hero of Accumulation.

 

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December 5, 2019 Leslie Salzinger, a contributor to Mutant Neoliberalism, on gendering Homo economicus • Forrest Hylton on the coup in Bolivia and popular rebellions against neoliberalism in Chile and Colombia (Jacobin and LRB articles)

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November 21, 2019 Ryan Grim, author of We’ve Got People, on the long fight between insurgents and establishment in the Democratic party • Jenny Brown, author of Without Apology, on the history and politics of abortion in the US (check out National Women’s Liberation and Redstockings)

Warren’s cagey health plan

People on the left have been debating Elizabeth Warren’s health plan since it was released a couple of weeks ago—“realistic” or a ruse? I vote ruse, but I don’t want to make that argument myself right now. Instead, I’ll allow a research note from Barclay’s, which found its way into my inbox, do that work.

Here’s the opening paragraph of the report, by Barclay’s analyst Steve Valiquette:

Compared to her previous hardline stance on M4A, the new plan represents a significant change in tone, in our view. Not only does the transition plan push out the legislative agenda for M4A (potentially to year 3), but it also tacitly acknowledges the practical and political resistance of pushing too much change too quickly. In fact, we think Warren’s plan was carefully crafted to appease both progressive and moderate Democrats, and may afford her flexibility to pivot on health care issues throughout the Democratic primaries. All said, her near-term plan seems much closer to more moderate proposals endorsed by Biden and Buttigieg; and as such the ‘pivot’ catalyzed HC [health care] Services stocks on Fri with MCOs [managed care organizations] leading the way (+5% vs S&P 500 up 0.8%).

Health care stocks rallied on the release of Warren’s plan, meaning that Wall Street—which isn’t always right, but does have some skill in decoding political bullshit—sees her plan as political bullshit.

Warren’s defenders say the scheme, to start with a “moderate” Dem plan and wait three years to push for the full program, is politically realistic, given Congressional and other political constraints on ambitious social programs. That argument never made sense to me. If the success of the right over the last few decades has taught us anything it’s that going for maximalist demands gets results. You might have to make some concessions along the way, but you get some wins and also push the political center of gravity in your direction. If you start out already compromised, you won’t get anywhere.

So that whole phase-in approach looked to me like a signal that she wasn’t serious about the M4A part—that it was just for show. Barclay’s offers support for the cynical reading:

However, based on recent history, we note that a US president typically enacts signature legislation during their first two years in office (e.g. ACA under Obama, tax reform under Trump), so the possibility that M4A may slip until year three further decreases the likelihood that this plan comes to fruition, in our view.

The only question is how conscious Warren is of this. Since she’s quite smart, it’s hard to believe she isn’t.

Much of the rest of Valiquette’s note is devoted to analyzing how bullish her opening gambit to allow people to buy into Medicare would be for Humana ($2.6 billion in profits in the most recent year, growing at a 7% annual rate). A Medicare buy-in would allow people over 50 to buy packages similar to Medicare Advantage, the semi-privatized option run by managed care companies that restrict coverage in all the too-familiar ways. (For people under 50, there would be a “modest-cost” public option.)

Enrollees in Medicare Advantage plans rate their care lower than traditional Medicare, especially if they have chronic illnesses. Traditional Medicare allows you to “choose your doctor” and Medicare Advantage doesn’t. Since the inability to choose your doctor is one of the major raps against “socialized medicine”—nonsense, given all the restrictions that come with private plans—Warren is embracing one of least appealing parts of Medicare as the leading edge of her plan, the one that’s supposed to build support for the transition to full M4A.

But her scheme would be great news for Humana. The company left the Obamacare exchanges in 2017, and if there were a scheme to allow people to buy into Medicare, most of the migrants would presumably come from those exchanges. Barclay’s estimates a Warren-style buy-in would boost Humana’s earnings per share (EPS) by 50 cents. That’s not a massive windfall, given current EPS of just under $19. But it is a step in the wrong direction, since companies like Humana need to be put out of business, as a serious M4A plan would.

Supporting evidence: the performance of Humana stock over the last month.

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November 14, 2019 Quinn Slobodian makes a return appearance to talk about neoliberals: their opposition to the EU (essay in Mutant Neoliberalism), their hatred of the 1960s, their embrace of racial and culturalist politics

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November 7, 2019 Grace Blakeley, author of Stolen, on where financialized capitalism came from and how we could get out of it • Emmanuel Saez, co-author of The Triumph of Injustice, on how the rich got richer while paying less of their income in tax than the working class (Tax Justice website here)

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October 31, 2019 René Rojas, author of this article, on the social explosion in Chile • Ingrid Harvold Kvangraven, author of this article, on the little problems, little answers approach of this year’s economics Nobelists