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January 13, 2008

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Clinton dynasty? Make that the Bush-Clinton dynasty.

Let's not forget the continuity of social, fiscal, trade and foreign policy running through Bush I, Clinton I and Bush II. (End of welfare as we knew it, Alan Greenspan, GATT/WTO, NAFTA, continuous bombing of Iraq, endless military support of Israel, etc.)

Not that I think there's much policy difference between Obama and Clinton, but I think the "change" he wants to imply is the generational shift from boomers to gen-Xers, which will supposedly allow us to finally transcend the same old fights that started between young republicans and young radicals on the college campuses of the late '60s that keep playing out in our presidential elections.

We hear the same kind of "post-partisan" nonsense from the Bus Project here in Oregon, this pretension that they're going to take some kind of unifying approach to things. My problem is that this perspective came of age in the post-Keynesian era, and hence their economic outlook is strictly neoliberal.

Clinton, of course, should know better, but from a purely economic history perspective, there is no doubt that her husband slammed the door shut on the era of Keynes (building on the earlier work of Jimmy Carter), and marked the beginning of the Friedman consensus era. Real wages continue to decline as working hours increase, and the income gap explodes. No mainstream Democratic candidate (Kucinich and Gravel notwithstanding) is willing to challenge the fundamental fealty to the market that's gotten us here -- not even John Edwards.

As an original boomer who came of age in the 60's, I'm somewhat offended by the political naivete of gen-Xers and their progeny (you excepted, Steve.) I think Obama banks on that credulity.

Good analysis, Steve, and I've by no means decided that I'll cast my vote for Hillary.

I've never felt at home in gen-X, probably because my 1965 birth really puts me in between the boomer and gen-X demographic bulges.

But I've got to say, I'm pretty disappointed how our first boomer president (Clinton) ceded all of the important issues, bringing us to this uncomfortable center-right consensus we find ourselves in today.

If only we could find a candidate who combines the hope and optimism of Obama with truly progressive, neo-New Deal economics.... It seems like the only candidates with a clue on this (Kucinich, Gravel) are marginalized by their lack of populist appeal (not to mention the machinations of the Democratic party and their business community patrons).

How about we stretch that continuity on economic policy a bit?

Among Ike, Kennedy, Johnson, Reagan, Carter, Bush I, Clinton, and Bush II, there's been a lot more continuity than radical difference. All practiced Keynesian economics -- using spending to pump-prime the economy -- when it suited them. And all allowed the Fed to go Friedman -- i.e., regulating money supply -- when necessary.

For most of the last half century, economic policies in the U.S. have been built on certain fundamentals that transcend party and political differences.

1. We're a free enterprise, not socialist, economy although some regulation of businesses is needed.

2. We push free trade internationally, either through agreements -- Uruguay Round, etc. -- or treaties -- NAFTA.

3. We maintain social insurance programs -- social security, unemployment insurance, Medicaid, Medicare. Candidates and parties may disagree on how to fix these programs, but no serious candidate advocates getting rid of them.

Ask yourself this. Would Clinton and McCain, who are, at present, the most likely nominees, disagree even a little bit with 1, 2, or 3 above? There are important differences between them -- on Iraq, abortion, etc. But there are no differences on the economic fundamentals.

By the way, Steve, the "same old fights" between young republicans and radicals in the 1960s were never over these economic fundamentals. They were over Vietnam, civil rights, feminism, etc. and perhaps tinkering at the edges of the economy, but never over the fundamentals. I know because I was there.

Neoclassical (or neoliberal, if you prefer) economic policy -- and the monetary policy that is comes with it -- didn't really start taking hold until the Carter administration, with Paul Volcker at the Fed.

Sure, fundamentally, we've always had a mixed economy. But there was a clear shift in the '70s away from the basic social-democratic tenets Keynesianism to an emphasis on free markets and deregulation. (And this wasn't just in government; it started in the universities, where neoclassical economics is now unquestionably orthodox and Keynesianism is heterodox.)

The global free trade treaties started with Bush I, and were solidified by Clinton in the '90s, along with his welfare reform that, for the first time, began to dismantle New Deal era social service entitlements.

I agree about the "same old fights," by the way, and was just trying to explain the "change" that gen Xers like Obama claim to represent. To me, the change he represents is a complete abandonment of social democratic principles that were last championed by that great liberal Richard Nixon.

Keynesian economics is not the same as social-democratic policies. It simply refers to the use of fiscal policy (taxation and spending) to speed up the economy in a recession or slow down the economy when inflation is the problem.

This last week provided an excellent example of the use both of fiscal and monetary tools aimed at avoiding a recession. The House passed a $100 billion spending bill disguised, for political purposes, as a tax refund. This is pure fiscal (Keynesian) economics -- spending by the U.S. treasury to pump prime the economy. At the same time, the Federal Reserve lowered interest rates in order to pump more money into the economy: lowering interest rates creates an incentive to borrow, which allows banks basically to create money.

Note that the massive spending bill was passed by a bipartisan majority in the House. Is this a "shift away from" or a pure use of Keynesian economics?

The irony, of course, is that to fund the huge spending, the government will have to go further into debt -- signing IOUs to you or me or to China that will eventually have to be repaid. Enjoy your $1200 check when you get it in May, trying not to feel embarassed in front of your teenage kid who will eventually have to repay it.

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