Re-Post Number 6: "Public Employment and Economic Planning: History, Theory, Implications" (September 19, 2007)

Note:
You'll note some similarities between this diary and the more recent diary on economic planning and the Apollo Alliance. Luckily, the older diary goes into what future economic planning should look like, providing enough new material to be of interest.
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History

Economic planning is probably the most obfuscated public policy in American history, bar none. The cries of socialized medicine, the Harry and Louise ads, the current struggles over SCHIP - all of these pale in comparison to the sound and fury raised over economic planning. Conservative Republicans and Democrats called it creeping socialism, Hayek called it creeping fascism, and the public imagination reeled before an onslaught of images of totalitarian control.

The reality was much less terrifying. The NRPB, the National Resources Planning Board, was probably the most influential of the New Deal planning institutions. Ostensibly an institution for rationalizing use of things like coal, oil, timber, etc., the NRPB instead became a place for people to re-think economic planning as an exercise in democracy, as a way of directing the guiding the economy towards goals that enhanced the quality of life for all citizens, as a way of putting the people in charge of their economic life.

Throughout the 1940's, the NRPB published a series of reports, laying out the blueprint for a new kind of American society that would come after the war, a society based on the principles of the Four Freedoms and the Second Bill of Rights proposed by President Roosevelt.

Now how does all of this tie in with public employment? In their reports, the staffers of the NRPB looked to programs like the Works Progress Administration as an example of how the government could provide services en masse to Americans in need. More importantly, the NRPB's reports, especially the 1942 Report titled "Security, Work, and Relief Policies," envisioned the provision of jobs by the Federal government as a permanent policy designed to push the country towards full employment, in conjunction with Keynesian economic policies.

The importance of this shift in economic planning, from the crude efforts to secure price and wage cooperation under the National Recovery Administration to a more sophisticated understanding of the possibilities of public action, was that it expanded the policy imagination of New Deal Democrats far beyond the narrow scope we see today. Moreover, New Deal Democrats had reason to believe that such actions were possible. The WPA had shown that the Federal government could fund and administer mass employment projects and that such projects had a substantial impact on the unemployment rare. The Office of Price Administration, a war-time agency that was given the power to regulate prices and wages, succeeded in holding inflation below 1% in a period of full employment.

Because of these advances, the NRPB believed that the national government could provide the trifecta of broad prosperity: low unemployment, low inflation, high economic growth. In essence, everything that the so-called "golden age" of the 1950-1960's was supposed to have achieved. However, there were two key differences between the golden age as envisioned by the economic planners and the golden age that transpired: first, public employment, price and wage controls, and more expansive social insurance programs would have ensured that prosperity would have flowed from public actions, such that the political will of the people, not the largess of corporate America, would have promoted economic growth. Second, it would have meant that the benefits of post-war growth would have been much more broadly distributed, both to the poor, and to minorities.

The end result, however, was that of political defeat - the de-funding of the NRPB, the watering-down of the Full Employment Act (as discussed in my previous diary), and the demonizing of both public employment and economic planning.

Theory

So what should this tell us about economic planning and public employment?

First, it should remind us that the belief that the government's actions do not influence the economy is historically inaccurate - public action can and has dramatically shaped the economy, altering employment levels and inflation rates for periods of several years at a time. Thus, our understanding of what is and is not possible in terms of economic policy should be expanded beyond the boundaries of the orthodox.

Second, it should make us think about the purposes behind economic policy. It is often a habit of Democrats to focus on particular economic indicators - economic growth, numbers of jobs created, and so forth - instead of picturing a vision of the kind of economy and society that we seek to achieve and then moving towards it.

Third, we must realize that victory begets victories and defeat, defeats - we cannot allow any push we make in the future to be stymied by Republican obstructionism. Just as the defeat of health care in 1994 robbed the Democrats of a major policy victory that would rally the base AND working class voters, so too will defeats on public employment, or any other initiative. More on this topic in my next diary.

In terms of economic planning, we need to shift our theoretical perspective to the global and the long-term. The United States stands at an uncertain point - we are still the world's largest economy, but long term trends in terms of debts, deficits, and balance of trade shows how vulnerable our position is. The American people stand at an even more perilous position - the poor, the working class, and the middle class are all facing stagnating and/or declining fortunes in terms of income, wealth, homeownership, health coverage, and no doubt higher education will be soon to follow.

What then should economic planning aim at?

1. Restore Income to Restore Savings/Balance of Trade/Rough Equality

The American economy has been shored up in recent years by the endless cycle of consumer debt that masks the decline in real incomes. Boosting the purchasing power of the ordinary American would help to restore our internal market- an essential goal, given the variability of the globalized economy. Moreover, it would put our consumer base on a much stronger basis regarding income v. debt, allowing savings, assets accumulation, and investment to increase, and redirecting more income towards the broader economy and away from finance payments, which fuel an over-saturated financial sector.

2. Use Public Employment to Shield Against Globalization

If the reality of living in a globalized economy is that industries shift rapidly across borders, then it becomes essential for the U.S and other developed economies that are likely to lose industries to less developed region to increase, not decrease their social spending. Increasing public employment can keep unemployment rates low, preventing economic decay in areas that are losing jobs, maintaining consumption levels through fueling wages. Moreover, public employment provides a shield against the destabilizing effects of globalization, a safe haven against sudden ups and downs in world markets, by counter-cyclical actions.

3. Use Public Investment to Guide the Economy Forward

Public investment can act in a complementary fashion, to create new industries that take the place of old industries, to improve the national infrastructure upon which industries depend - not just roads, bridges, and levees, but also schools, wireless internet, and research and development into new technologies. This both creates new goods and services, adding to economic growth, but also provides jobs that are designed to be more "grounded" in the American economy than consumer-goods production.

4. Set A Comprehensive Target for Economic Policy

Although we don't admit it, and we don't approach it in as much of a conscious fashion as we need to, there are certain targets that government policy does aim at - inflation at less than 2% a year, economic growth of at least 3% a year have been fairly standard aims. However, they are not targets that particularly benefit ordinary Americans - they don't include wage growth, they don't include unemployment, and they don't include the distribution of wealth in American society.

So when we engage in economic planning, it should be to hit targets that represent the whole of the American economy and the whole of the American people as well.

Implications

I'm sure that many of you are familiar with the Apollo Initiative, a joint project of labor unions and environmental groups to achieve energy independence on a basis of green technology and green jobs.
http://www.apolloalliance.org/...

Now, on it's own, the Apollo Initiative is an impressive policy innovation, envisioning a 10-year, $300 billion push towards alternative energy that envisions a whole host of coordinated policies, subsidies, and tax reforms towards a single end. It's certainly much more innovative than anything we've seen in the last few years.

However, as a model for future policy, it suggests an intriguing possibility for American policy and economic planning. Here we have a model of coordinating economic and social objectives that aims to "do good and do well" at the same time, a way of economic planning without falling into the public relations traps.

Imagine, if you will, a host of Initiatives, all designed to boost economic performance, develop new industries, create jobs, improve the national infrastructure, and benefit the commonweal of the country:

• Athena Initiative - centered around education (building new schools, recruiting teachers by providing salary bonuses, developing new educational technologies, expanding access to higher education through expanding campuses of both public and private universities - think about it, Harvard rejects all but 7% of applicants, turning away thousands and thousands of superlative students - why not expand the undergraduate body beyond just 6-odd thousand?)
  
• Mercury Initiative - centered around telecommunications and information technology (providing free broadband internet, universally compatible cellular phone networks, expanding opportunities for startups in the music and movie business, and so forth).
• Asclepius Initiative - centered around health care industry (leveraging our current public investments in medicine such as the VA, NIH, etc. into creative new publically-owned generic drugs, providing incentives for healthier work environments, improving our public health systems, using health research to uncover "best methods" of health care, so that more money is put towards care instead of overcare, and so forth).

In this way, the federal government would essentially become the national venture capitalist, using its ability to sustain investments across decades before technologies prove themselves.

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Policy Round-Up: the Apollo Initiative as Democratic Planning

Policy wonks and other people who follow public policy issues are probably familiar with the Apollo Alliance, a blue-green alliance of environmentalists and labor unions that's become a stock part of the Democratic Party's platform on environmental and economic policy. Back in 2004, Kerry signed onto it; Obama basically did the same.

For those of you who aren't familiar with it, the basic idea is to fuse environmental policy - alternative energy, "green tech," energy-efficient building, mass transit - with labor and economic policy - creating new jobs that are well-paid, have good benefits, and are union-friendly, as a way to create new domestic industry and manufacturing. The Apollo Initiative, which they were promoting back in 2004, envisioned $30 billion a year for ten years as a public investment into " promoting new technology, improving manufacturing processes, and expanding markets [of "green tech"]...improving the performance of our existing energy system... construction of high performance, energy efficient buildings...[new sources of] renewable energy...new transit system starts, maintenance of the nation’s passenger train system, development of regional high speed rail networks, and improvements in the nation’s roads and highways." Their current Apollo Program calls for a $50 billion a year for ten year investment in energy-efficient buildings, renewable fuels, a new power grid, increasing efficiency of existing power plants, building mass transit, building fuel-efficient cars...the list goes on and on.

In and of itself, it looks like nothing special - basic, Democratic Party boilerplate, the kind of buzzword-driven wonkery that gets tossed around in primaries and never amounts to nothing. I'm going to argue that it's actually a way to recover a missing part of progressive politics and policy that was lost to us during the Cold War.

Ever since the Progressive Era (1880s-1910s), one of the major political and policy divides has been between the advocates of economic planning and the advocates of the free market. To our modern ears, this sounds a little bit ridiculous - planning recalls the Soviet Five Year Plans, the forced industrializations, lousy steel being made to fit Communist Party quotas that couldn't be used, the whole panoply of anti-communist imagery that people who were born after the start of the Cold War have in our heads. But once, there were great thinkers like Thorstein Veblen, Henry Carter Adams, Richard Ely, and John Bates Clark debated whether the free market was an inevitable facet of economic life, or whether rational planning could replace it.

Enter the New Deal. With the free market in total collapse, economic planning entered into the mainstream of American politics and public policy, and the government for the first time in a non-war situation attempted to direct the course o economic activity. Roughly speaking, three kinds of economic planning were attempted during the New Deal:

Tennessee Valley Authority - founded on May 18th, 1933, the Tennessee Valley Authority (TVA) was an experiment in regional democratic planning. Supported by activist-bureaucrats like David Lilienthal, and Arthur Morgan, the idea behind the TVA was to attack the economic problems of the Tennessee Valley from multiple directions - producing fertilizers and promoting modern farming techniques to raise production, hiring the unemployed to do conservation work, generating electricity and irrigation through the construction of hydro-electric dams, flood-control, reforestation, the development of industry (especially through the provision of cheap hydro-electic power), and so on. The TVA also recognized labor unions, and less successfully sought to find jobs for unemployed African-Americans and women.

However, the idea behind the TVA went far beyond that. In the vision of Arthur Morgan, the key element of the TVA were local democratic planning boards, in which farmers, aided by experts from the TVA, would decide the future of their areas and work to develop their way out of poverty. In the vision of David Lilienthal, the key element of the TVA was the creation of public power utilities which could restore competition, lower the price of electricity and water, and extend services to the underserved - with the ultimate aim being to challenge the monopolistic private utilities on behalf of consumers. While the two bitterly fought, the ultimate vision, of a public intervention into the economy, the creation of public economic power used on behalf of the poor, of attacking every aspect of regional poverty and underdevelopment was a powerful one.

And in a nation supposedly devoted to the free market, the TVA exists to this day as a massive publically-owned industry, a living legacy of economic planning, and one that is politically beloved by Americans of all stripes of political opinion.

National Recovery Administration - founded on June 16th, 1933, the National Recovery Administration (NRA) was an experiment in tripartite economic planning. Promoted by expert-administrators like Don Richberg, Rexford Tugwell, and Raymond Moley, the basic concept of the NRA was that American industry could recover through an increase in prices, production, employment, and wages if government, business, labor worked together. The normal anti-trust laws would be suspended, and Codes would be set up for each industry, establishing codes of "fair competition," setting prices, wages, and hours, abolishing child labor and recognizing labor unions. The idea would be that by reducing competitive pressure and restoring profitability, production and employment would increase and the economy would recover.

The experiment has widely been seen as an utter disaster - codes were widely ignored, especially in regards to minimum wages, maximum hours, and the recognition of unions, red tape and arbitary regulation were blamed for strangling recovery and extneding the Great Depression. It was declared unconstitutional in 1935, and even many New Dealers saw the program's terminationa as a relief from an embarrasment. Economists especially hate the NRA and point to it as the prime example of why interfering with the free market never, ever works.

Myself, I'm a little bit more skeptical. After all, unemployment dropped from 22.9% in 1932 to 14.4% in 1935 (personally, I think that the New Deal's job programs had more to do with this). Prices went from dropping about 10% the year before, to increasing by an average of 3% in 1934 and 1935. Industrial production, which dropped by 25% in the first six months of the NRA, was up by 22% from its May 1933 levels when the NRA was terminated in 1935. If the NRA was so economically damaging, it didn't seem to prevent a recovery from taking place; perhaps the worst that could be said against it is that it was ineffective but benign.

While I wouldn't bet the farm on it, I think the case against the NRA might be worth re-opening.

National Resources Planning Board - the NRPB was founded in 1933, as a modest agency within the Interior Department, with a mandate to plan public works projects so that the Public Works Administration and the Works Progress Administration could have a "shelf" of "shovel-ready projects" to build in the future. In 1939, however, this little policy shop was transferred into the Executive Office of the President, and was given an expanded brief as the central agency for national economic planning. Under the direction of FDR's uncle, Frederick Delano, and the research expertise of Eveline Burns (a Columbia University economist who had consulted for the Committee on Economic Security that established the system we know today as Social Security, and had worked closely with the WPA), the NRPB was tasked with envisioning the future direction of America, in every aspect of life.

By 1939, the New Deal had begun to adopt the theories of Keynesian economics, and many of the economic planners in the NRPB and other agencies thought that they now had the tools to ensure permanent prosperity and full employment, through government activism in the economy. The NRPB's main contribution to this body of thought were a series of reports laying out plans for economic development, government organization, the use of natural resources, and so on. The most important of these reports was Work, Security, and Relief Policies. In this report, the NRPB outlined a vision for a "cradle to grave" welfare state that would cover all Americans who were unable to work, and the "right to a job" for all Americans who wanted to work. In this manner, the government would ensure full employment, and the full production and rapid economic growth that would follow - and the expanded revenues would pay the cost of the welfare state. It was a total economic vision of a new economic order defined by universal rights and characterized by economic security - a world in which no American would ever have to fear poverty.

In the 1940s, the principles of the NRPB's report were introduced into Congress as the Wagner-Murray-Dingell Bill (combining the nationalization of unemployment insurance and disability insurance and the expansion of Social Security with a universal health insurance system), and the Full Employment Act (mandating full employment through Keynesian planning and a public employment program as employer of last resort). It was probably the most left-leaning moment in American history. And the result was total defeat - the Wagner-Murray-Dingell bill went down to defeat every year between 1945 and the present day (John Dingell introduced the bill every year between 1945 and his retirement, his son John Dingell Jr. has continued this tradition); the Full Employment Act was eviscerated in committee and was passed in a toothless, watered-down version; and the NRPB itself was disassembled by a hostile Congress. Once the Cold War had set in, anything that smacked of state planning was demonized as Communistic, socialistic, and red.

Ok, so what's the relation between the Apollo Alliance and the New Deal's economic planning? Because when I look at the Apollo Alliance, I see something that looks like a cross between the NRPB (national forward planning) and the TVA (focused public investment in particular industrial developments). What animates the Apollo Alliance is a vision of a new kind of economy, one that has lower emissions, uses less carbon, is more energy-efficient and self-sufficient with alternative fuels, that has more of a manufacturing base, and develops towards high-density urban development along mass-transit corridors instead of massive sprawl.

What excites me about them is that what we have here are the first glimmerings of an idea, one not seen in seventy years, that the economic future of this country should ultimately be in the hands of a democratically-elected government, and not the whims of the casino we call the free market. Ultimately, if the Apollo Alliance is about anything, it's the idea that through a direct public investment, we can shift ourself from one economic model to another. While this might sound inconsequential to some, I would argue that the lifework of dozens, if not hundred and thousands of activists throughout the twentieth century, so long denied by the forces of fear and anti-communism, testify otherwise.

If we think of the economy and economic forces as similar to the great oceans and the natural laws that govern the winds and the tides, the hope of democratic planning is that we can build a ship and learn to tack into the wind, to guide ourselves with compass and sextant and marine chronometer, and that human reason, rather than the blind workings of fate, shall determine the course of our lives.

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