Does U.S. economy need another sort of New Deal?
DEBTORS’ PRISON: The Politics of Austerity Versus Possibility. By Robert Kuttner. Knopf. 295 pages. $26.95.
The trouble with writing a book about current economic conditions is that by the time that book goes to press, events may have altered those conditions in ways that may significantly affect the validity of the author’s thesis. If the author chooses so wide a swath as most of the developed world, the risk is that much the greater.
In addition, if he or she states unequivocably that the solution to economic challenges lie in a single political approach, the readers of the book are likely to assume a certain narrowness of focus on the author’s part and, of course, they bring their own prejudices to the questions raised as well.
With those caveats in mind, it is safe to say that Robert Kuttner has produced an unabashedly liberal, elegantly written, ambitious, scathing, but ultimately oddly optimistic feeling interpretation of the economic collapse of September 2008. The crisis, he says, was precipitated by the actions of an unfettered financial community that has gone unchallenged since the 1970s. Beginning in the Reagan era and peaking with the later erosion of the 1933 Glass-Steagall Act — which had separated the speculative part of the economy from the real part — the pervasive belief was that the market could do no wrong. By the turn of the last century, exotic “financial innovations from hell,” among other things, had set off an opaque, lethally complex mortgage bubble that burst with a vengeance in 2008.
The largely “austere” measures that the U.S and Western Europe took in response punished average citizens, not Wall Street or the big banks who, in Kuttner’s opinion, were responsible for the situation. This belt-tightening and “unevenness of relief” is what has, to this day, kept many citizens in a “debtors’ prison” without the wherewithal to move forward.
Kuttner, who is co-founder and co-editor of American Prospect magazine, proposes, not surprisingly, that solutions to the problem lie with an effort on the part of the federal government to, for instance, reduce the principal on “underwater” mortgages, forgive student debt, re-regulate the financial industry and inaugurate programs to rebuild our crumbling infrastructure — in short a kind of new New Deal.
Indeed, FDR is one of Kuttner’s heroes, as is the economist John Maynard Keynes, who famously predicted that the 1919 Treaty of Versailles’ stringent reparations clause would prevent Germany from recovering, and set the stage for a second world war. Post World War 11, the Allies proved that a lesson had been learned when they essentially dropped the idea of war debt for Germany and provided massive assistance via the Marshall Plan.
Kuttner’s villains are people like Pete Peterson, billionaire investment banker and member of the influential Concord Coalition, who, beginning in the early ’90s, warned that it was the “unfunded liabilities” of the government, Social Security and Medicare, that were the problem, not lax financial regulations and out-of-control speculation. German Chancellor Angela Merkel, who has led the European Union’s harsh approach to relief for Greece and other countries has, he says, forgotten what was once done for her own country to keep it from slipping into chaos.
Kuttner states that the countries that have most recently proved to be economically innovative, the so-called BRIC group (Brazil, Russia, India and China), have done so with a combination of — aside from sticky questions of human rights — strong state involvement and a refusal to abide by Western “conceptions of free speculative markets.”
The most helpful part of Kuttner’s book may be his lively history of the panics, collapses, depressions, recoveries and booms that have marked our history since the time of the early Republic, a recitation that reminds us of everything we have been through and survived very nicely. Indeed, much of the purely economic discussion is done in such depth and detail, it may be daunting and slightly sleep-inducing for the general reader. And, like all such discussions, the issues involved are open to a wildly divergent range of explanation.
The picture may be more complex than this many layered book implies. Recently there have been small, but intense work stoppages by fast-food service workers and Walmart employees. Is it possible that change — for good or ill — may finally be brought about, not by big finance or big government, but by Robert Kuttner’s premier victim — the up-to-now quiescent little guy?
Reviewer Rosemary Michaud is a writer in Charleston.