What would it take to foster an actually thriving domestic labor market? What kind of political and policy relationship between government and private industry would it take? I am of the mind these questions, or variants of them, should represent the central topic being debated by the US governing class. They are not. Instead, we have manufactured fiscal crisis after manufactured fiscal crisis. Both parties are willing to live with these manufactured crises: pushing them fires up the GOP’s base audience. GOP leaders willingly pretend they have no choice but to succumb to whatever the base wants. The Democrats play along, because as the opponent ever-intensifies its audience, any chance that opponent has to expand to new audiences becomes impossible due to widespread alienation. GOP has their loud minority. Democrats look reasonable by comparison. Fiscal stalemate, seen this way, is win/win. And so it continues.
Only, this picture is a lie. Stalemate is a fictional performance, a mask for radical changes that continue to take place underneath the surface. Check out two graphs, presented by Bill McBride at the wonderful blog Calculated Risk. In one it shows that under the Bush Administration (2001-2009), private sector employment actually fell. That’s right: there were fewer private-sector jobs at the end of his eight years, than at the beginning. Pretty remarkable. Granted, most of the problem was the historic recession that nailed the US economy at the end of his eight years. Which means he can be forgiven; what really needed to happen was proper recovery-driven policies coming out of the recession. Except look at the second graph, which is my main point. Under Obama, we see an unprecedented fall in public-sector employment. And by unprecedented, I mean unprecedented: No recent administration was subject to the drop in public-sector unemployment that has been foisted upon the current one. What makes that fact, and McBride’s graph, all the more remarkable is the context in which it has occurred. For one, we are coming out of a historic recession, with stubbornly high levels of unemployment. For two, as Krugman points out, we have now reached five years of liquidity trap economics — that is, five years of zero-bound interest rates. In this context, monetary policy’s effectiveness is severely limited; fiscal expansion becomes the more effective tool. Instead: fiscal austerity, US style. Fiscal contraction, not out in the open but behind the backs of citizens who don’t know what they don’t know.
So, here’s the situation: While the House GOP is said to suffer from historically bad poll numbers — a recent poll puts the Tea Party at 21 percent favorability — on policy, the Tea Party has won. Under Obama, the US governing class has indeed gutted government, as measured by employment. US political economy is being run by Tea Party infused principles, only nobody realizes it because they are watching the spectacle, listening to the noise, not seeing the signal.
So, then, three days out, will the US breach its own arbitrary debt-ceiling limit? I still put the chances low: I say, 10-15 percent likely, based on the assumption that at the last moment Speaker Boehner will bring a Senate bill to the House floor for a vote, and it will pass with mostly Democratic support plus enough Republicans.
Still, while I don’t want to say a default doesn’t or won’t matter, to some degree the damage is already apparent. Read Felix Salmon’s post “The default has already begun” from this morning for a similar take. For now, let me wonder: Why does it seem nobody in policy or political circles emphasizes the needs of the domestic economy? Why does nobody ask, or seem interested in asking, what it would take to foster an actually thriving domestic labor market? The answer is because, even as it has pretended to do the opposite, US governance has become dominated by the Tea Party. The Tea Party has won, even as it has become ever more despised.
Indeed, how can it be that the year after Obama’s re-election is the year in which Paul Ryan spending levels became the new “middle ground”?
The damage from these years of lies will take years to undo, if the damage is undone at all.