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The Box We are in Today

Nov 23, 2009 | By: Mr_Blue | Comments | Permalink | Tags: obama administration, neo-liberal, economic policy

Dr. Thomas Palley created this notion of a policy box that worker’s have been placed into by economic policies of past White House administrations and these economic policies continue today. In his article America’s Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession his called this box the Neo-liberal Policy Box (FAR different from the word ‘liberal’ used in the media). Despite a change in Administration and rhetoric there have been no significant policy changes that help workers break out of this box.

Here is a diagram of the Neo-liberal Policy Box:

Globalization

Free trade is good for every one. Yeah right. Free trade means that American workers get to compete with lower-paid foreign workers. Yes, that means a lowering our living standard and our wages. But don’t worry - we can get cheap imports to buy to make up for loss in wages. The problem is this didn’t work because the cost of buying things like food and other stuff has increased faster than the rise in our wages. What has filled the void - you got it - more debt.

Small Government

Or the other meme “Government is the problem.” This is just code to let corporations, particularly multi-national corporations and financial conglomerates run rip shod over our economy and environment. It’s code for giving the wealthiest of Americans huge tax cuts. You know “trickle down economics”. Well, guess what? It didn’t work.

Labor Market Flexibility

I’ll let Dr. Palley describe this one:

Labor market flexibility involves attacking unions, the minimum wage, unemployment benefits, employment protections, and employee rights. This is justified in the name of creating
labor market flexibility, including downward wage flexibility, which according to neo-liberal economic theory is supposed to generate full employment. Instead, it has led to wage stagnation
and widening income inequality.

This also creates that Race to the Bottom.

Abandonment of Full Employment

There was a switch in Federal Reserve policy in the late 70’s early 80’s away from the idea of developing monetary policy that was conducive to full employment in the economy to one that emphasized low inflation. The justification for the switch was that monetary policy cannot effect in the long run the labor market so the goal should be low and stable inflation rate. But this policy shift went further to push an idea that there is a “natural rate of unemployment.” This idea of a “natural rate of unemployment” has been used to undermine workers’ bargaining power regarding wages.

Unless we have significant policy changes we will remain trapped in this box. But early signs from the Obama Administration don’t seem promising:

1) Weak stimulus package;

2) Coddling of Wall Street;

3) Weak attempt at financial regulatory reform;

4) Ignoring the huge negative equity problem in the housing sector.

We have serious structural defects in our economy that require dramatic action but the will and courage to address these defects does not exist in Washington.

Good luck.