Obama's real mandate is against America's bosses

When workers are given a clear choice, they choose the man who fights for them.

Did President Barack Obama win a mandate from the American people last week? Fox News appears to think he didn't. Some people didn't vote for him. Dick Morris doesn't see a mandate, though he foresaw a landslide for challenger Mitt Romney. Haley Barbour, the former head of the Republican National Committee, said the election was pretty much a tie. And the Wall Street Journal said Republicans, by dint of holding on to the House of Representatives, have a mandate equal to the president's.

Bill Press offers a blunt retort

Those naysayers are not only pathetic, they're dead wrong. ... Obama didn't need the help of the Supreme Court. He won the election on his own. That's a mandate. With Florida, he won the electoral vote by 332 to 206. That's a mandate. ... He beat Romney in the popular vote by almost 3 million. That's a mandate.

What's missing from this debate, if it can be called that, is that Obama's mandate is unique in the context of modern presidential history. In past elections, incumbents ran on their record, and his campaign was generally seen as a referendum of that first term. But this time, the race for the White House was framed as a choice between conflicting worldviews. 

As Mother Jones' David Corn reports, Obama and his team chose to run on ideological grounds pretty much since the "shellacking" he received after the 2010 midterms. Obamacare, financial reform, the stimulus program, the killing of Osama bin Laden -- all of these are stunning and underrated achievements compared to other presidencies, and all could have been legitimate grounds for launching a referendum election. But Obama chose a "values-and-vision" platform. Do you want to return to the trickle-down economic policies of the past 30 years or do you want to move forward with fair economic policies that benefit everyone? 

Indeed, the president ran as an old-school Democrat, a populist for the people willing to speak for the forgotten Americans who face on their own the daily prospect of economic destruction. He successfully made the case that government should protect the people against the excesses of capitalism, and voters said yes. They want government to create more and better jobs. They want social insurance programs like Social Security and Medicare. They want higher taxes on the rich. And they see no problem with greater public spending on infrastructure, education and energy. 

And Romney broadened and deepened that populist image. First by defending the supply-side policies of the Bush years (though, of course, he never uttered the word "Bush"). Then by pivoting from referendum strategy early in the campaign to a choice strategy some time over the summer. From that point onward, Romney helped Obama cast the race as a choice between worldviews: both, remarkably, characterized by class. Romney, emboldened by flawed polling that showed an electorate far more to the right than it actually is, sought to press an advantage that he didn't actually have. He thought he'd win the war of ideas, and he lost, badly.

Here's one way of looking at this: Populism is good for workers. Here's another way: It's bad for their bosses. The real bosses, the one per cent. For them, populism isn't rhetorical. They know what it means. They were listening when Obama railed against the rich for thinking they played by a different set of rules; when he said he'd go back and raise their taxes; when the crowds, in places like Ohio, gobbled it all up. If there's any doubt the bosses are worried, consider what they were prepared to do.

Prior to Election Day, Romney asked the CEOs of major corporations to "advise" employees to vote Republican. Sure, they said, warning workers they'd better support Romney or face unemployment. Georgia-Pacific, owned by the billionaire Koch brothers, did it. So did the heads of CintasASG Software Solutions and Rite-HitePapa John's and Applebee's said they'd shed payrolls before yielding to the demands of Obamacare. 

Wall Street is quaking. The big firms had bet big against the president, and after the election, the Dow Jones dropped by 2.4 per cent, or 320 points. Meanwhile, Murray Energy, the largest privately held coal mining company in the US, made good on its threat to can workers if Obama won. It laid off more than 150 workers this week, because it was in "survival mode". Future layoffs loom on the horizon. And even the rightist media followed suit. A literary blogger for Commentary, a Zionist neocon monthly, was sacked after making the conservative case for gay marriage. 

The political right lost the war of ideas and is now engaged in a guerrilla war against the president's mandate. Who knows how long that will last? What they don't seem to understand is that one goes with the other. The more Romney pushed a pro-boss agenda, the worse things got for him (conversely, as we saw after the first presidential debate, the less he pushed, the better off he was). And now that the campaign that gave expression to this war of ideas has ended, the bosses themselves are picking up where Romney left off, and they think they can win. 

They can't. But it will be fun to watch. The president won a mandate to champion the cause of Americans whose lives are threatened by economic forces beyond their control. The president has said that together we can make the country a more just place to live and work, and we can start by raising taxes on your bosses, the real bosses, the one per cent. And the people, by the widest margin ever given to a Democrat, said yes.

Now the bosses are making those abstract economic forces feel real by firing workers, and the more they do that, the more people have reason to stand behind the president.

We haven't hit a tipping point yet. Not by a long shot. But it's possible to imagine a brighter future for workers if Obama remains the populist that we saw so often on the campaign trail. The war of ideas is just beginning, and we are only now seeing the case being made that the bosses are not the makers - they are merely the owners. The real makers are the workers. And when workers are given a clear choice, as they were in this election, they choose the man who fights for them - and against their bosses.

Barack Obama delivering a statement about the economy. Photograph: Getty Images

John Stoehr teaches writing at Yale. His essays and journalism have appeared in The American Prospect, Reuters Opinion, the Guardian, and Dissent, among other publications. He is a political blogger for The Washington Spectator and a frequent contributor to Al Jazeera English.

 

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?