Climate Change, The Green New Deal, and the Struggle for Climate Justice

Most calls for a Green New Deal correctly emphasize that it must include a meaningful commitment to climate justice.  That is because climate change—for reasons of racism and capitalist profit-making—disproportionately punishes frontline communities, especially communities of color and low-income.

A 2020 published study on redlining (“the historical practice of refusing home loans or insurance to whole neighborhoods based on a racially motivated perception of safety for investment”) and urban heat islands helps to shed light on the process.  The authors of the study, Jeremy S. Hoffman, Vivek Shandas, and Nicholas Pendleton, examined temperature patterns in 108 US urban areas and found that 94 percent of them displayed “consistent city-scale patterns of elevated land surface temperatures in formerly redlined areas relative to their non-redlined neighbors by as much as 7 degrees Celsius (or 13 degrees Fahrenheit).”

As one of the authors explained in an interview:

“We found that those urban neighborhoods that were denied municipal services and support for home ownership during the mid-20th century now contain the hottest areas in almost every one of the 108 cities we studied,” Shandas said. “Our concern is that this systemic pattern suggests a woefully negligent planning system that hyper-privileged richer and whiter communities. As climate change brings hotter, more frequent and longer heat waves, the same historically underserved neighborhoods — often where lower-income households and communities of color still live — will, as a result, face the greatest impact.”

Urban heat islands

Climate scientists have long been aware of the existence of urban heat islands, localized areas of excessive land surface heat.  The urban heat island effect can cause temperatures to vary by as much as 10 degrees C within a single urban area.  As heat extremes become more common, and last longer, the number of associated illnesses and even deaths can be expected to rise.  Already, as Hoffman, Shandas, and Pendleton note,

extreme heat is the leading cause of summertime morbidity and has specific impacts on those communities with pre-existing health conditions (e.g., chronic obstructive pulmonary disease, asthma, cardiovascular disease, etc.), limited access to resources, and the elderly. Excess heat limits the human body’s ability to regulate its internal temperature, which can result in increased cases of heat cramps, heat exhaustion, and heatstroke and may exacerbate other nervous system, respiratory, cardiovascular, genitourinary, and diabetes-related conditions.

Studies have identified some clear causes for urban heat extremes—one is the density of impervious surface area; the greater the density, the hotter the land surface temperature.  The other is the tree canopy; the greater the canopy, the cooler the land surface temperature.  And as the three authors observe, “emerging research suggests that many of the hottest urban areas also tend to be inhabited by resource-limited residents and communities of color, underscoring the emerging lens of environmental justice as it relates to urban climate change and adaptation.” What their study helps us understand is that the process by which communities of color and poor came to live in areas with more impervious surface area and fewer green spaces was to a large degree the “result of racism and market forces.”

Racism and redlining

Racism in housing has a long history.  Kale Williams, writing in the Oregonian newspaper, highlights the Portland, Oregon history:

Exclusionary covenants, legal clauses written into property deeds, prohibited people of certain races, specifically African Americans and people of Asian descent, from purchasing homes. In 1919, the Portland Realty Board adopted a rule declaring it unethical to sell a home in a white neighborhood to an African American or Chinese person. The rules stayed in place until 1956.

In 1924, Portland voters approved the city’s first zoning policies. More than a dozen upscale neighborhoods were zoned for single-family homes. The policy, pushed by homeowners under the guise of protecting their property values, kept apartment buildings and multi-family homes, housing options more attainable for low-income residents, in less-desirable areas.

Portland was no isolated case; racism shaped national housing policy as well.  In 1933, Congress, as part of the New Deal, passed the Home Owners’ Loan Act, which established the Home Owners’ Loan Corporation (HOLC).  The purpose of the HOLC was to help homeowners refinance mortgages currently in default to prevent foreclosure and, of course, reduce stress on the financial system. It did that by issuing bonds, using the funds to purchase housing loans from lenders, and then refinancing the original mortgages, offering homeowners easier terms.

Between 1935 and 1940, the HOLC drew residential “security” maps for 239 cities across the United States.  These maps were made to access the long-term value of real estate now owned by the Federal Government and the health of the banking industry. They were based on input from local appraisers and neighborhood surveys, and neighborhood demographics.

As Hoffman, Shandas, and Pendleton describe, the HOLC:

created color-coded residential maps of 239 individual US cities with populations over 40,000. HOLC maps distinguished neighborhoods that were considered “best” and “hazardous” for real estate investments (largely based on racial makeup), the latter of which was outlined in red, leading to the term “redlining.” These “Residential Security” maps reflect one of four categories ranging from “Best” (A, outlined in green), “Still Desirable” (B, outlined in blue), “Definitely Declining” (C, outlined in yellow), to “Hazardous” (D, outlined in red).

This identification of problem neighborhoods with the racial makeup of the neighborhood was no accident.  And because the maps were widely distributed to other government bodies and private financial institutions, they served to guide private mortgage lending as well as government urban planning in the years that followed.  Areas outlined in red were almost always majority African-American.  And as a consequence of the rating system, those who lived in them had more difficulty getting home loans or upgrading their existing homes. Redlined neighborhoods were also targeted as prime locations for development of multi-unit buildings, industrial use, and freeway construction.

As expected, a 2019 paper by three researchers with the Chicago Federal Reserve Bank found:

a significant and persistent causal effect of the HOLC maps on the racial composition and housing development of urban neighborhoods. These patterns are consistent with the hypothesis that the maps led to reduced credit access and higher borrowing costs which, in turn, contributed to disinvestment in poor urban American neighborhoods with long-run repercussions.

What Hoffman, Shandas, and Pendleton establish in their paper is that this racially influenced mapping has also had real climate consequences.  Urban heat islands are not just randomly distributed through an urban area—they are more often than not located in redlined areas.  And those extra degrees of heat have real health and financial consequences. As Hoffman explains, the impact on residents of those heat islands is serious and wide-ranging:

“They are not only experiencing hotter heat waves with their associated health risks but also potentially suffering from higher energy bills, limited access to green spaces that alleviate stress and limited economic mobility at the same time,” Hoffman said. “Our study is just the first step in identifying a roadmap toward equitable climate resilience by addressing these systemic patterns in our cities.”

Redlining and climate change

Hoffman, Shandas, and Pendleton condensed the 239 HOLC maps into a database of 108 US cities.  They excluded cities that were not mapped with all four HOLC security rating categories and in some cases had to remove overlapping security rating boundaries, or merge them because they were drawn in different years.  The map below shows the location of the 108 cities.

They then used land surface temperature (LST) maps generated in summer months between 2014 and 2017 to estimate land surface temperatures in all four color-coded neighborhoods in each of these 108 cities to determine whether there was a relationship between LST and neighborhood rating in each city.

They found that present-day temperatures were noticeably higher in D-rated areas relative to A-rated areas in approximately 94 percent of the 108 cities.  The results are illustrated below. Figure a shows the LST difference between ranked neighborhoods for the country as a whole.  The four other figures do the same for each designated region of the country.

Portland, Oregon and Denver, Colorado had the greatest D to A temperature differences, with their D-rated areas some 7 degrees Celsius warmer than their A-rated areas (or some 13 degrees warmer in Fahrenheit).  For the nation as a whole, D-rated areas are now on average 2.6 degrees Celsius warmer than A-rated areas. Thus, as the authors note, “current maps of intra-urban heat echo the legacy of past planning policies.”   Moreover,

indicators of and/or higher intra-urban LSTs have been shown to correlate with higher summertime energy use, and excess mortality and morbidity. The fact that residents living in formerly redlined areas may face higher financial burdens due to higher energy and more frequent health bills further exacerbates the long-term and historical inequities of present and future climate change.

As this study so clearly shows, we are not all in the same boat when it comes to climate change; racial and class dimensions matter.  The poor and people of color are disproportionately suffering the most from global warming largely because of the way racism and profit-making combined to shape urbanization in the United States.  But this is only one example.  A transformative Green New Deal must bring to light the ways in which this dynamic has shaped countless other processes and embrace and support the struggles of frontline communities, economic and climate.

The Harsh Reality of Job Growth in America

The current US economic expansion, which began a little over a decade ago, is now the longest in US history.  But while commentators celebrate the slow but steady growth in economic activity, and the wealthy toast continuing strong corporate profits, lowered taxes, and record highs in the stock market, things are not so bright for the majority of workers, despite record low levels of unemployment.

The fact is, despite the long expansion, the share of workers in low-wage jobs remains substantial. To make matters worse, the share of low-quality jobs in total employment seems likely to keep growing. And, although US workers are not unique in facing hard times, the downward press on worker well-being in the US has been more punishing than in many other advanced capitalist countries, leaving the average US worker absolutely poorer than the average worker in several of them.

The low wage reality

According to a recent Bookings report by Martha Ross and Nicole Bateman, titled Meet the Low-wage Workforce,

Low-wage workers comprise a substantial share of the workforce.  More than 53 million people, or 44 percent of all workers ages 18 to 64 in the United States, earn low hourly wages. More than half (56 percent) are in their prime working years of 25-50, and this age group is also the most likely to be raising children (43 percent).

Ross and Bateman draw upon the Census Bureau’s 2012-2016 American Community Survey 5-year Public Use Microdata Sample to identify low-wage workers.  Although their work does not incorporate the small increase in wages between 2017-2019, they are confident that doing so would not significantly change their findings.

Their workforce definition started with all civilian, non-institutionalized individuals, 18 to 64 years of age, who worked at some point in the previous year (during the survey period) and remained in the labor force (either employed or unemployed).  They then removed graduate and professional students and traditional high school and college students, as well as those who reported being self-employed or earning self-employment income and those who worked without pay in a family business or farm.  This left them with a total of 122 million workers.

Their definition of a low-wage worker started with the “often-employed threshold” of two-thirds the median hourly wage of a full-time/full year worker, with one major modification. They used the male wage because they wanted to establish a threshold that was not affected by gender inequality.  They identified anyone earning a lower hourly wage as a low-wage worker.

The average national threshold across their five years of data, in 2016 real dollars, was $16.03.  They then adjusted this value, using the Bureau of Economic Analysis’s Regional Price Parities, to take into account variations in the cost of living in individual metropolitan areas.  The adjusted thresholds ranged from $12.54 in Beckley, West Virginia to $20.02 in San Jose, California.  Using these thresholds, the authors found that 44 percent of the workforce, some 53 million workers, were low-wage workers.

These low-wage workers were a racially diverse group.  Fifty-two percent were white, 25 percent Latinx, 15 percent Black, and 5 percent Asian American. Both Latinx and Black workers were over-represented relative to their share of the total workforce.

Strikingly, 57 percent of low-wage workers worked full time year-round.  And half of all low-wage workers “are primary earners or contribute substantially to family living expenses. Twenty-six percent of low-wage workers are the sole earners in their families, with median family earnings of $20,400.”

Finally, as the authors also note, the economic mobility of low wage workers appears quite limited. They cite one study that “found that, within a 12-month period, 70 percent of low-wage workers stayed in the same job, 6 percent switched to a different low-wage job, and just 5 percent found a better job.”

The growing share of low-wage jobs

The downward movement in a new monthly index, the job quality index (JQI), makes clear that economic growth alone will not solve the problem of too many workers employed in low-wage work.  The index measures the ratio of high-quality jobs (those that pay more than the average weekly income) to low quality jobs (those that pay less than the average weekly income).  The index steadily declined over the past three decades, during periods of expansion as well as recession, from a ratio of 94.9 in 1990 to a ratio of 79.0 as of July 2019 (as illustrated below).

The process of creating the index and its usefulness is described in a recent paper authored by Daniel Alpert, Jeffrey Ferry, Robert C. Hockett, Amir Khaleghi.  The index itself is maintained by a group of researchers from Cornell University Law School, the Coalition for a Prosperous America, the University of Missouri-Kansas City, and the Global Institute for Sustainable Prosperity.  As the authors note, the most prominent factor underlying the three decade fall in the ratio is the “relative devaluation” of US labor.

The index tracks private sector jobs provided by third party employers, which excludes self-employed workers, and, for now, covers only production and nonsupervisory (P&NS) positions, which account for approximately 82 percent of total private sector jobs in the country.

The index draws on the BLS’s Current Employment Statistics which provides average weekly hours, average hourly wages, and total employment for 180 distinct job categories organized in industry groups.  As the authors explain:

JQI itself is a fairly simple measure. The index divides all categories of jobs in the US into high and low quality by calculating the mean weekly income (hourly wages multiplied by hours worked) of all P&NS jobs and then calculates the number of P&NS jobs that are above or below that mean. An index reading of 100 would indicate an even distribution, as between high- and low-quality jobs. Readings below 100 indicate a greater concentration in lower quality (those below the mean) positions, and a reading above 100 would greater concentration in high quality (above the mean) positions.

Recognizing that some groups are quite large and include a wide range of jobs hovering around the mean, the JQI is further adjusted by disaggregating those particular groups into subgroups. The average income of each of those subgroups is then compared with the mean weekly income derived from the entire sample to determine whether the positions should be classified as high or low quality jobs.

As noted above, the JQI fell from 94.9 in 1990 to 79.0 as of July 2019.  As for the significance of this decline:

The decline confirms sustained and steadily mounting dependence of the U.S. employment situation on private P&NS jobs that are below the mean level of weekly wages. . . .

Notably, movements in the JQI are not particularly correlated with recession; it is important to note that the first big decline occurred during the expansion of the late 1990s. The index was steady during the 2001 recession, and its second big decline occurred during and after the Great Recession. There is admittedly some cyclical patterning evidenced in the JQI output, but this is overwhelmed by a larger secular phenomenon.

Losing ground

Not only are US workers facing a labor market increasingly oriented towards low-wage employment, the resulting downward pressure on wages appears to be proceeding at a more rapid pace in the US than in other countries.  As a consequence, a majority of US workers are now poorer, in real terms, than many of their counterparts in other countries.

For example, in a study comparing income inequality in France and the US, the economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman found that the average pre-tax national income of adults in the bottom 50 percent of the income distribution is now greater in France than in the United States.  “While the bottom 50 percent of incomes were 11 percent lower in France than in the US in 1980, they are now 16 percent higher.”  Moreover,

The bottom 50 percent of income earners makes more in France than in the US even though average income per adult is still 35 percent lower in France than in the US (partly due to differences in standard working hours in the two countries). Since the welfare state is more generous in France, the gap between the bottom 50 percent of income earners in France and the US would be even greater after taxes and transfers.

A recent study by the Center for the Study of Living Standards finds that growing numbers of US workers are also falling behind their Canadian counterparts.  More specifically, “the study compares incomes in every percentile of the income distribution, and finds that up through the 56th percentile Canadians are better off than their U.S. counterparts.”

The study’s author, Simon Lapointe, in words that echo the comments of Piketty, Saez, and Zucman, adds:

Our income estimates may actually underestimate the economic well-being of Canadians relative to Americans. Indeed, Canadians usually receive more in-kind benefits from their governments, including notably in health care. Had these benefits been included in the estimates, the median augmented household income in Canada would likely surpass the American median by a greater margin. While these benefits also come with higher taxes, the progressivity of the income tax system is such that the median household is most likely a net beneficiary.

The takeaway

There are many reasons for those at the top of the US income distribution to celebrate the performance of the US economy and tout the superiority of current US economic and political institutions and policies.  Unfortunately, there is a strong connection between the continuing gains for those at the top and the steadily deteriorating employment conditions experienced by growing numbers of workers.  Hopefully, this economic reality will become far better understood, leading to a more widespread recognition of the need for collective action to transform the US economy in ways that are responsive to majority interests.

What the New Deal can teach us about winning a Green New Deal: Part V—summing up the New Deal experience

Growing awareness of our ever-worsening climate crisis has boosted the popularity of movements calling for a Green New Deal.  At present, the Green New Deal is a big tent idea, grounded to some extent by its identification with the original New Deal and emphasis on the need for strong state action to initiate social-system change on a massive scale.  Challenges abound for Green New Deal activists.  Among the many, how to:

  • create supportive working relationships between the different movements currently pushing for a Green New Deal
  • develop a sharper, shared vision of the aims of a Green New Deal
  • increase popular support for those aims as well as participation in those movements
  • build sufficient political power to force a change in state policy along lines favorable to the Green New Deal
  • ensure that the resulting trajectory of change strengthens the broader struggle to achieve a socially just and ecologically sustainable political-economy

While there are great differences between the crises and political movements and possibilities of the 1930s and now, there are also important lessons that can be learned from the efforts of activists to build mass movements for social transformation during the Great Depression.  My aim in this series, including in this fifth and last post, is to illuminate the challenges faced and choices made by these activists in order to draw out some of the relevant lessons.

In previous posts I argued that the despite the severity of the Great Depression, it took sustained, left-led, mass organizing and actions to force the federal government to accept responsibility for improving economic conditions.  Unfortunately, First New Deal relief and job creation policies were inadequate, far from what the growing movement of unemployed demanded or was needed to meet majority needs.  However, continued mass activity by the unemployed, those on relief, and those employed eventually forced the Roosevelt administration to undertake a Second New Deal, which included its widely praised programs for public works (WPA), social security (Social Security Act), and union rights (National Labor Relations Act).

These Second New Deal programs were unprecedented and did improve conditions for working people.  But, as I argue in this final post, both the WPA and the Social Security Act again fell short of the transformative changes demanded by activists.  And while the NLRA did offer workers important legal protections that made it safer for them to unionize their workplaces, its effect was to encourage a top-down system of labor-management relations that suppressed rank and file activism and class consciousness. Thus, despite their pathbreaking nature, these programs were far from revolutionary.  Rather they were designed to ameliorate the suffering caused by capitalism’s crisis without threatening capitalist control over economic activity.

Tragically, changes in the political and economic environment, as well as strategic choices made by the left in response to those changes led to the weakening of popular movements, leaving them unable to push the Roosevelt administration into yet a Third New Deal.  As a result, the upsurge of the 1930s failed to advance the socialist-inspired transformation that motivated many of its participants. In the end, it proved only able to force the state to adopt policies that reformed the workings of the system, a not inconsiderable achievement, but one that still left working people vulnerable to the vicissitudes of capitalism.  Hopefully, a careful study of the New Deal experience will help Green New Deal activists build movements able to avoid the trap of limited reform while fighting for the massive, interconnected, and empowering social-system change we so desperately need.

The Second New Deal

It is easy to understand why supporters of a Green New Deal look to the New Deal as a touchstone.  Growing numbers of people have come to the conclusion that our problems are too big to be solved by individual or local efforts alone, and that once again innovative and transformative state-led actions will be needed to solve them.  Quite simply, the New Deal experience inspires people to believe in the possibility of a Green New Deal.

When people talk about the innovative and transformative policies of the New Deal they normally mean the core policies of the Second New Deal: the WPA, the Social Security Act, and the National Labor Relations Act.  As innovative as these policies were, they were, as discussed in Part IV, largely forced on the Roosevelt Administration by left-led mass movements.  And, as we see next, they were, by design, meant to blunt more radical demands for change.  In short, they were important reforms, but no more than reforms, and as such offered only partial solutions to the problems of the time.  Sadly, workers today continue to suffer from their limitations.

Works Progress Administration

One of the most important Second New Deal programs was the Works Progress Administration (WPA). Established in May 1935, it employed millions of unemployed to carry out public projects such as construction of public buildings and roads.  Federal Project Number One, a much smaller program that also operated under the WPA umbrella, employed musicians, artists, writers, actors and directors in large arts, drama, media, and literacy projects. These included the Federal Writers’ Project, the Federal Theatre Project, the Federal Music Project, and the Federal Art Project.

Roosevelt’s decision to replace the Federal Emergency Relief Administration (FERA) with the WPA was a clear sign that he recognized that his First New Deal employment and relief programs — FERA and the Civil Works Administration (CWA) — had done little to satisfy fast growing left-led unemployed movements that were demanding a federal jobs program under which unemployed workers would be directly put to work, at union wages, producing a wide range of needed goods and services.

FERA had provided loans and grants to states which then offered relief work to those that qualified for relief.  As discussed in Part III, the program required workers to submit to demeaning financial investigations, often paid those chosen for relief with coupons that could only be redeemed for select food items, made no attempt to match worker skills with jobs, and often employed those on relief in make-work tasks.  While FERA marked the first direct federal support for relief and enabled states to greatly expand their relief rolls, it also required states to provide matching funds to receive FERA money.  Limited state resources meant that relief covered only about one-third of those unemployed.

CWA was a far more popular program, most importantly because it involved direct federal employment, had no relief requirement, paid relatively well, and sought to match workers’ skills with jobs.  However, it was, by design, a short-term program that lasted only 6 months, with most employment creation ending after 4 months.

The WPA was a federal program that operated its own projects in cooperation with state and local governments, which were required to cover some 10 to 30 percent of their costs.  In some cases, the WPA took over ongoing FERA state and local relief programs.  But, despite its impressive accomplishments, it also fell short of movement demands.

Although the WPA combined elements of both FERA and the CWA, it was far more like the former than the latter. For example, in contrast to the CWA, participation in WPA projects required a state means test.  Thus, unemployment alone was not enough to qualify a person for the program.  Moreover, as under FERA, participants were subject to demeaning monitoring of their spending habits and living conditions.

Again. unlike the CWA, little effort was made to match workers’ skills with jobs.  Workers were divided into two broad categories of skilled and unskilled.  The unskilled were assigned construction jobs even if they had no construction experience.  The skilled were assigned a variety of writing or teaching jobs regardless of whether they had experience in those areas.  The program did pay market wages.  However, limits were put on maximum allowable hours of weekly employment in addition to an overall limit on total earnings.

WPA employment opportunities were also limited.  Its average monthly employment was approximately 3 million workers.  The CWA, at its peak, employed over 4 million a month.  The WPA, like FERA, employed only about one-third of the unemployed.  Moreover, because of unstable program financing, even those employed by the WPA would sometimes suffer layoffs.

The unemployed movement wanted a permanent federal employment program that would guarantee full employment.  And they wanted that program to employ people to produce needed goods and services as a direct counter to private production.  This was far from the vision of the Roosevelt administration.  As Harry Hopkins, chief administrator of the WPA, explained:

Policy from the first was not to compete with private business. Hence we could neither work on private property, set up a rival merchandising system, nor form a work outlet through manufacturing, even though manufacturing had contributed to relief rolls hundreds of thousands of workers accustomed to operating machines and to doing nothing else for a living.

Operating under these limits, the WPA had little choice but to focus its efforts on the construction of public buildings and roads.  Post offices accounted for close to half of the more than 3000 public buildings constructed.

Moreover, despite its limitations, the unemployed had to fight to sustain the program.  Congress decided to provide funds for the program one year at a time.  Sometimes allocations fell short of planned spending, resulting in layoffs.   Other times, militant demonstrations by an alliance of unemployed groups forced Congress into making supplemental appropriations.

The number of public works projects and WPA participants began a steady decline in 1939.  The next year the Roosevelt administration decided to reorient program activity to projects of direct use to the military, including construction of base housing and military airfields as well as expansion of naval yards. The WPA was quietly terminated in 1943, with unemployment problems seemingly solved thanks to the demands of wartime production.  Sadly, the unemployed never developed the political weight or broader social movement needed to push the government into embracing a more expansive and ongoing program of national planning and public production.

The Social Security Act

The Social Security Act is widely considered to be the New Deal’s crown jewel.  According to his Secretary of Labor, “[President Roosevelt] always regarded the Social Security Act as the cornerstone of his administration . . . and . . . took greater satisfaction from it than from anything else he achieved on the domestic front.”

Roosevelt appointed a Committee on Economic Security in July 1934 with the charge to develop a social security bill that he could present to Congress in January 1935 that would include provisions for both unemployment insurance and old-age security.  An administration approved bill was in fact introduced in January and Roosevelt called for quick Congressional action.  The bill was revised in April by a House committee and given a new name, “The Social Security Act.”  After additional revisions the Social Security Act was approved by overwhelming majorities in both Houses of Congress, and the legislation was signed by the President on August 14, 1935.

The Social Security Act was a complex piece of legislation.  It included what we now call Social Security, a federal old-age benefit program; a program of unemployment benefits administered by the states, and a program of federal grants to states to fund benefits for the needy elderly and aid to dependent children.  It was a cautious beginning, as explained by Edwin E. Witte, the Executive Director and Secretary of the President’s Committee on Economic Security:

Because we were in the midst of a deep depression, the Administration and Congress were very anxious to avoid placing too great burdens on business and also to avoid adding to Government deficits. It was these considerations that resulted in the low beginning social security tax rates and the step-plan of the introduction of both old-age and unemployment insurance and also in the establishment of completely self-financed social insurance programs, without Government contributions–to this day a distinctive feature of social insurance in this country.

Before examining the way Roosevelt’s concerns for the well-being of business placed limits on the timeliness, coverage, and support provided by these programs, it is important to recognize that, as with the WPA, Roosevelt’s commitment to social security was a response to the efforts of the Communist Party (CP), which authored a far more progressive bill, one that would have significantly shifted the balance of class power towards workers.

The CP began pushing its Workers Unemployment Insurance Bill in the summer of 1930, and it, as well as the Unemployment Councils, worked hard to promote it over the following years.  On March 4, 1933, the day of Roosevelt’s inauguration, they organized demonstrations stressing the need for action on unemployment insurance.

Undeterred by Roosevelt’s lack of action, the CP authored a bill–the Workers Unemployment and Social Insurance Bill–that was introduced in Congress in February 1934 by Representative Ernest Lundeen of the Farmer-Labor Party.  In broad brush, as Chris Wright summarizes, the bill:

provided for unemployment insurance for workers and farmers (regardless of age, sex, or race) that was to be equal to average local wages but no less than $10 per week plus $3 for each dependent; people compelled to work part-time (because of inability to find full-time jobs) were to receive the difference between their earnings and the average local full-time wages; commissions directly elected by members of workers’ and farmers’ organizations were to administer the system; social insurance would be given to the sick and elderly, and maternity benefits would be paid eight weeks before and eight weeks after birth; and the system would be financed by unappropriated funds in the Treasury and by taxes on inheritances, gifts, and individual and corporate incomes above $5,000 a year. Later iterations of the bill went into greater detail on how the system would be financed and managed.

Not surprisingly, the bill enjoyed strong support among workers, employed and unemployed.  Thanks to the efforts of unemployed and union activists it was soon endorsed by 5 international unions, 35 central labor bodies, and more than 3000 local unions.  Rank and file worker committees also formed across the country to pressure members of Congress to pass it.

When Congress refused to act on the bill, Lundeen reintroduced it in January 1935. Because of public pressure, the bill became the first unemployment insurance plan in US history to be recommended by a congressional committee, in this case the House Labor Committee.  It was voted down in the full House of Representatives, 204 to 52.

Roosevelt strongly opposed the Lundeen bill and it was to provide a counter that he established his Committee on Economic Security in July 1934 and pressed Congress to approve the resulting Social Security Act as quickly as possible.  Roosevelt’s Social Security Act fell far short of what the Workers Unemployment and Social Insurance Bill offered, and it was strongly opposed by movement activists and organizations of the unemployed.

The part of the bill that established what we now call Social Security suffered from five main weaknesses.  First, it was to be self-financing because of administration fears of deficit spending, a decision which placed downward pressure on benefit levels.  Second, it was to be financed by contributions from both workers and employers.  Thus, workers had to shoulder half the costs of the program.

Third, the system was not universal.  The act covered only workers in commerce and industry, about half the jobs in the economy.  Among those left out were farm and domestic workers.

Fourth, the act provided for monthly retirement benefits payable only to the primary worker in a family when they retired at age 65 or older. Moreover, the amount received depended on the value of wages earned in covered employment starting in 1937.

Finally, the act mandated that monthly benefit payments would not begin until 1942.  A 1939 amendment did allow benefit payments to begin in 1940 and added child, spouse, and survivor benefits to the authorized retirement benefits.

In sum, this was a program that offered too little, too late, and to too few people.  And while improvements were made over the years, the current system pales in comparison to the kind of security and humane retirement workers would have enjoyed if the workers’ movement had been powerful enough to secure passage of its preferred bill.

The unemployment system established as part of the Social Security Act was also structured in ways unfavorable to workers compared with the proposed benefits of the Workers Unemployment and Social Insurance Bill.  Rather than set up a comprehensive national system of unemployment compensation, as workers desired, the act established a federal-state cooperative system that gave states wide latitude in determining standards.

More specifically, the act levied a uniform national pay-roll tax of 1 percent in 1936, 2 percent in 1937, and 3 percent in 1938, on covered employers, defined as those employers with eight or more employees for at least twenty weeks, not including government employers and employers in agriculture.  Only workers employed by a covered employer could receive benefits.

Covered employers were given a federal credit on up to 90 percent of the tax if they paid their credit amount into a certified state unemployment compensation fund.  The act left it to the states to decide whether to enact their own plans, and if so, to determine eligibility conditions, the waiting period to receive benefits, benefit amounts, minimum and maximum benefit levels, duration of benefits, disqualifications, and other administrative matters. It was not until 1937 that programs were established in every state as well as the then-territories of Alaska and Hawaii.  And it was not until 1938 that most began paying benefits.

In the early years, most states required eligible workers to wait 2 to 4 weeks before drawing benefits, which were commonly set at half recent earnings (subject to weekly maximums) for a period ranging from 12 to 16 weeks. Ten state laws called for employee contributions as well as employer contributions.

Just like with social security, over the following years the program was expanded in a number of positive ways, including by expanding coverage and benefits.  However, the unemployment program established by the Social Security Act fell far short of the universal, progressively funded social safety net that workers were demanding.

The National Labor Relations Act

In the spring of 1934, Senator Robert Wagner introduced a bill to establish a new labor relations board that, unlike the one established by the First New Deal’s National Industrial Recovery Act (NIRA), would have enforcement authority.  Few in Congress supported the bill; President Roosevelt also opposed it.

Wagner reintroduced a revised version of his bill a year later and to a dramatically different outcome.  In May 1935 it received unanimous support in the Senate Labor Committee, followed by strong support in both the Senate and House.  As reported by the editors of Who Built America?, President Roosevelt remained opposed to the bill up until the very end:

“It ought to be on the record,” his labor secretary noted, that the bill was “not a part of the President’s program.  It did not particularly appeal to him when it was described to him.”  But when the US Supreme Court struck down the NIRA in May and Wagner’s National Labor Relations bill was passed by one house of Congress, FDR finally endorsed the bill.

In broad brush, the National Labor Relations Act established a set of laws and regulations designed to guarantee the right of private sector workers to peacefully organize into trade unions of their choosing and engage in collective bargaining and actions such as strikes.  The act also created the National Labor Relations Board to organize and oversee the process by which workers decide on whether to join a union as well as determine whether collective bargaining agreements are being fairly bargained and enforced.

The turnaround in support for the NLRA owes much to the growing militancy of workers, and the threat that this militancy posed to the established order.  Section 7a of the NIRA had promised workers that they would “have the right to organize and bargain collectively through representatives of their own choosing . . . free from the interference, restraint, or coercion of employers.”  Unfortunately, with no mechanism to ensure that workers would be able to exercise this right, after a short period of successful union organizing, companies began violently repressing genuine union activity. By 1935, growing numbers of workers were calling the National Recovery Administration (NRA), which had been established to oversee the NIRA, the National Run Around.

However, it was not the corporate campaign of violence directed against workers that was the catalyst for the change in government policy.  Rather it was the explosion of powerful left-led worker victories in three major labor struggles in early 1934.  The first was in Toledo, Ohio, where American Workers’ Party sponsored unemployed organizations joined with striking auto workers seeking to unionize a major auto parts manufacturer.  The workers battled special deputies and National Guard troops for weeks, maintaining an effective strike.  Fearful of the possibility of an even larger strike, the Roosevelt administration finally sent federal mediators to Toledo, forcing the company to recognize the union and agree to significant wage increases.

At almost the same time, an even bigger struggle began in Minneapolis. A Trotskyist-led Teamster local, fighting to unionize a number of trucking and warehouse companies, effectively shut down commercial transport in the city.  Days of violence followed as police and special deputies tried to break the strike.  Faced with a growing threat of a general strike, federal mediators again were forced to intervene, and again forced the employers to recognize the union.

A general strike did take place in San Francisco.  Led by Communist and other radical rank and file activists, San Francisco longshoremen rejected a secretly negotiated deal between the national leadership of the International Longshoremen’s Association and the waterfront employers.  Their strike was quickly joined by dockworkers in every other West Coast port as well as many sailors and waterfront truckers.

Police attempts to break the San Francisco strike led to a full-scale battle and the death of two strikers by police on what became known as Bloody Thursday.  In response, the labor movement declared a general strike.  Some 150,000 workers went out, essentially bringing San Francisco, Oakland, Berkeley and other nearby municipalities, to a halt.  Again, federal intervention was required to bring the strike to a halt, with a victory for the workers.

These struggles, all with important left leadership, showed a dramatic growth in worker militancy, solidarity, and radicalism that sent shock waves throughout the corporate community as well as the government.  And it was to head off the further radicalization of the labor movement that the Congress and Roosevelt agreed to support the NLRA and its mechanisms to regularize the unionization process.  In the words of Steve Fraser:

The Wagner Act helped institutionalize a form of industrial democracy that steered clear of any frontal assault on the underlying political economy. It legitimated collective bargaining, imposed responsibilities on both management and trade union officialdom, and worked to establish peace on the shop floor.

Union leaders were to police their members, instilling a disciplined commitment to the terms of the contract. Control of life on the shop-floor remained with management. Militants who thought otherwise were soon enough reigned in. The much-maligned (not without cause) trade union bureaucracy was, after all, the fruit of a mass movement, an institution, created where there had been nothing, the slowly solidified residue of fiery desires.

For a few years, it appeared that worker militancy, a willingness to directly challenge corporate rights with no concern for issues of legality, would continue despite the NLRB’s existence.  For example, in early 1936 rubber workers in Akron, Ohio disregarded both union leadership and a court injunction to surround the eleven-mile perimeter of a Goodyear plant with pickets.  They shut down the plant in protest over recent wage cuts and layoffs of activists and rejected federal attempts at mediation.  When word came that the sheriff might come with armed deputies to open the plat, the strikers armed themselves.  Finally, after four weeks, Goodyear settled, agreeing to reinstate the fired workers, reduce the workweek, and recognize the authority of union shop committees.

Not long after, inspired by the rubber workers, auto workers began staging walk-outs and strikes at several different Chrysler and GM plants over firings and unionization.  The biggest action came at the end of 1936 with the Flint sit-down strike.  The workers held the plant for 44 days, during which time they fought off attempts by armed police to evict them and ignored injunctions issued by the courts demanding that they leave.  In the end GM agreed to recognize the UAW as the exclusive bargaining representative for all GM workers.

The number of strikes grew dramatically from 2,014 in 1935 to 4,740 in 1937, with workers increasingly winning unionization not through the machinery of the NLRA, but through direct action.  For example, the number of sit-down strikes lasting more than a day grew from 48 in 1936 to some 500 in 1937.

Unfortunately, this upward trajectory of militant, class conscious activity would not be sustained.  The reasons are complex.  One part of the explanation concerns the evolving political orientation of the CP.  Responding to the new strategic orientation of the Communist International, which stressed the importance of building coalitions with all progressive and liberal forces to check the rise of fascism, the CP began pursuing an anti-fascist popular front policy that included support for Roosevelt’s 1936 re-election and the New Deal more generally.

This new orientation also translated into an increasingly conservative line regarding labor activism.  Party activists were encouraged not only to support the new CIO union leadership but also to oppose militant organizing tactics.  As Frances Fox Piven and Richard A. Cloward describe:

The Communists, by now well into their Popular Front phase and some of them into the union bureaucracy as well, endorsed the call for union discipline. Wyndham Mortimer issued a statement early in 1937 saying: “Sit-down strikes should be resorted to only when absolutely necessary.” And the Flint Auto Worker, edited by Communist Henry Kraus, editorialized that “the problem is not to foster strikes and labor trouble. The union can only grow on the basis of established procedure and collective bargaining.”

At the same time, corporate leaders were taking direct aim at the new labor reforms.  One of their first big victories was a 1938 Supreme Court ruling that said companies had the right to hire permanent replacement workers when workers went on strike.  The following year it ruled sit-down strikes illegal, even if undertaken in response to an illegal corporate action.

States also joined in.  In 1939, as Piven and Cloward report:

state legislatures began to pass laws prohibiting some kinds of strikes and secondary boycotts, limiting picketing, outlawing the closed shop, requiring the registration of unions, limiting the amount of dues unions could charge, and providing stiff jail terms for violations of the new offenses. By 1947 almost all of the states had passed legislation imposing at least some of these limitations.

Finally, corporate leaders also launched an anti-Communist attack against union activists, especially those in leadership positions in the newly created unions of the CIO.  Their efforts were amplified by House Un-American Activities Committee hearings which began in 1938.  The 1947 Taft–Hartley Act codified all these developments, outlawing wildcat strikes, solidarity or political strikes, secondary boycotts, secondary and mass picketing, and closed shops, as well as requiring union officers to sign non-communist affidavits as a condition for their union to secure NLRA rights.

In sum, as left and union leadership began to rely ever more heavily on the NLRA to win gains for workers, corporate and political elites began aggressively narrowing the acceptable boundaries of legal action.  As a consequence, although there would still be periods of worker militancy, the frequency of rank and file-led actions, open rebellion against the law, and moments of cross-union and class solidarity became increasingly rare.  Thus, the NLRB succeeded, as its supporters hoped, in creating a more stable system of labor relations that was consistent with and supportive of the needs of capitalist production.

The Movement’s Decline

The workers movement of the 1930s was a mass movement that, thanks to left leadership, encouraged class solidarity and support for a program of radical social change.  The movement was, as described in this and past posts, powerful enough to force the Roosevelt administration into adopting successively more progressive programs that, although flawed, did improve working and living conditions for many.

However, even as its different political tendencies began to unify, creating a national organization of the unemployed, the movement began to suffer a loss of militancy and vision that left it unable to further influence political developments.  As a consequence, the reforms of the Second New Deal came to define the limits of change.

In 1934 the Communist Party organized Unemployed Councils tightened their organizational form, finally adopting a written constitution.  In early 1935, Socialist Party organized unemployed organizations and a number of Musteite organized Unemployed Leagues joined together to create a national organization of the unemployed, the Workers Alliance.  The following year, the Workers Alliance reached agreement with the Unemployed Councils and several other small unemployed organizations to form a new, larger national organization of the unemployed, the Workers Alliance of America (WAA). This unity was possible in large part because of the CP’s newly adopted popular front policy which led it to seek alliances with other political tendencies and groups that were seen as anti-fascist.  This included the Socialist Party and Muste’s Conference for Progressive Labor Action and their associated movements of unemployed.

The Workers Alliance of America, critical of the WPA, continued to fight for the unemployed and those on relief.  For example, when the Roosevelt administration announced planned cuts in WPA employment for 1937, the organization organized a number of sit-ins and demonstrations at city relief offices throughout the country.  The President, under pressure from big city mayors, rescinded the cuts.

However, defending an existing program is not the same as winning a new, improved one.  And this the movement could not do for several reasons.  One is that the rank and file base of the unemployed movement was shrinking because of the growth in the economy and the expansion in relief opportunities.  Another is that many of the movement’s most experienced activists were now employed as organizers in the growing trade union movement.

A third reason is that changes in the relief system undermined the movement’s ability to mobilize the unemployed and win gains through collective action.  The system had become professionalized, with relief officials in city after city establishing rules about the size of delegations that would be allowed in offices and the number of times each week that delegations could seek meetings with officials. Moreover, relief office workers were instructed not to meet clients if they were accompanied by a delegation or grant relief if a delegation was present in the office.

This left local unemployed organizers in the position of either accepting the new ground rules to ensure that their members received relief or continuing their mass activity hoping that their old strategy would be more effective in winning gains.   Increasingly, members advocated for the former, leaving organizers with no choice.  In fact, as a sign of the growing sophistication of the New Deal relief effort, a number of relief offices actually offered jobs to local activists with the unemployed movement with the promise that they could help make the system work more efficiently and effectively for those seeking relief.  In many cases, those offers were accepted.

Perhaps the most important reason for the movement’s growing political weakness was the Communist Party’s decision to pursue an alliance with the Roosevelt administration as part of its anti-fascist popular front policy.  This led the party to organize support for Roosevelt’s 1936 election and his New Deal policies, and to deemphasize oppositional and militant mass actions in support of social transformation in favor of more established political activity such as petition drives and lobbying for improvements in existing programs. In fact, hoping to win Roosevelt’s good will, the CP often organized rallies designed to show worker support for the WPA and other New Deal programs.  Roosevelt was actually invited to give the main speech at the WAA’s second annual convention.  When he turned down the invitation the honor was given to the WPA’s Director of Labor Relations. In 1938, WAA locals even campaigned for pro-New Deal candidates.

Increasingly the WAA became integrated into the New Deal.  As Piven and Cloward point out:

The [WAA became] recognized as the official bargaining agent for WPA workers, and alliance leaders now corresponded frequently with WPA administrators, communicating a host of complaints, and discussing innumerable procedural questions regarding WPA administrative regulations. Some of the complaints were major, having to do with pay cuts and arbitrary layoffs. Much of the correspondence, however, had to do with minute questions of procedure, and especially with the question of whether WPA workers were being allowed to make up the time lost while attending alliance meetings. Alliance leaders also wrote regularly to the president, reviewing the economic situation for him, deploring cuts in WPA, and calling for an expansion of the program.

The WAA continued to make demands on the administration, drafting their own bills calling for greater public spending and employment at union wages, advocating for their own far more sweeping social insurance program, and calling for the establishment of a national planning agency to oversee a permanent public works program.  But the movement no longer threatened Roosevelt, and its demands were largely ignored.  The WAA dissolved itself in 1941.

The labor movement, riding the growth in the economy, soon replaced the unemployed movement as the most powerful social force for change.  However, for reasons noted above, it also underwent its own moderation despite the efforts of rank and file activists.  For example, CIO leaders established Labor’s Non-Partisan League in 1936 to support President Roosevelt’s reelection and his New Deal program. World War II; the post-war vicious anti-communist attacks on all critics of capitalism, especially in the labor movement; and the strength of the post-war economic expansion finally buried the promise of a radical transformation.  There would be no transformative Third New Deal.

Lessons

The New Deal experience holds a number of important lessons for those advocating a Green New Deal.  First, the existence or even recognition of a crisis cannot be counted on to motivate a change in government policy if that change threatens the status quo.  It took years of mass organizing to force the federal government to acknowledge its responsibility to respond to the devastating social consequences of the Great Depression.  The challenge will be even greater today since, as opposed to the 1930s, the capitalist class continues to enjoy lucrative opportunities for profit-making.

Second, a broad-base mass movement that threatens the stability of the system can force a significant change in government policy.  The driving force for change in the 1930s was the movement of unemployed, and its early power came from the Communist Party’s ability to establish a network of local Unemployed Councils that provided unemployed workers with the opportunity to better understand the cause of their hard times, build class solidarity through collective actions in defense of local needs, and become part of broader campaigns for public policies on the national level that were directly responsive to their local concerns.

It is likely that activists for a Green New Deal will have to engage in a similar process of movement building if they hope to force a meaningful government response to our current crises.  Despite the fact that we face a number of interrelated social, economic, and ecological crises, activists must still find ways to weave together different local organizations engaged in collective actions in defense of their local needs into a nation-wide political force able to project a vision of responsive system change as well as define and fight for associated policies.

Third, government responses to political pressure can be expected to fall far short of movement demands for transformative change.  The Roosevelt administration’s First New Deal programs fell far short of what working people demanded and needed.  It took sustained organizing to win a Second New Deal, which while better, was still inadequate.  It the movement for a Green New Deal succeeds in forcing government action, it is safe to assume that, much as in the 1930s, the policies implemented will be partial and inadequate.  Thus, movement activists have to prepare participants for a long, and ongoing campaign of mobilization, organizational development, and pressure.

Fourth, because of the importance of government policy and the natural attraction of wanting to exert personal influence on it, movement activists must remain vigilant against becoming too tied to the government bureaucracy, thereby losing their political independence and weakening the movement’s capacity to continue pushing for further changes in state policy.  WAA leaders understandably wanted to influence New Deal policy, but their growing embrace of the Roosevelt administration, pursued for broader political objectives as well, ended up weakening the movement’s organizational strengthen and effectiveness and perhaps even more importantly, vision of a more egalitarian and democratic society. Green New Deal activists can be expected to face the same kind of pressures if a progressive government comes to power and begins to initiate its own reform program and movements must be alert to the danger.

Fifth, and finally, movements have to be careful not to become too policy oriented. The New Deal included a number of different programs each designed to address different problems.  This created a natural tendency for the different organizations that comprised the broader social movement to narrow their own focus and concentrate on finding ways to respond to the policy shortcomings that most affected their members.  Thus, while the unemployed, those on relief, and those fighting for unionization initially shared a sense of common struggle, over time, in large measure because of their success in winning reforms, they became separate movements, each with their own separate concerns. As a consequence, the overall power, unity, and commitment of the broader social movement for massive societal change was weakened.

This is a challenge that the movement for a Green New Deal can expect to face if it is successful enough to force meaningful government reforms, especially given the multiplicity of the challenges the country faces. The only way to minimize this challenge is to ensure that movement organizing, from the very beginning, encourages participants to see the need for the broader transformative change inspired by the notion of a Green New Deal, and to draw from their struggle an ever more concrete understanding of how that change can be advanced and how real improvement in their lives depends on its achievement.

What the New Deal can teach us about winning a Green New Deal: Part III—the First New Deal

In Part I and Part II of this series on lessons to be learned from the New Deal I argued that despite the severity of the Great Depression, sustained organizing was required to transform the national political environment and force the federal government to accept direct responsibility for financing relief and job creation programs. In this post, I begin an examination of the evolution and aims of New Deal programs in order to highlight the complex and conflictual nature of a state-directed reform process.

The New Deal is often talked about as if it were a set of interconnected programs that were introduced at one moment in time to reinvigorate national economic activity and ameliorate the hardships faced by working people.  Advocates for a Green New Deal, which calls for a new state-led “national, social, industrial, and economic mobilization” to confront our multiple interlocking problems, tend to reinforce this view of the New Deal.  It is easy to understand why: state action is desperately needed, and pointing to a time in history when it appears that the state rose to the occasion, developing and implementing the programs necessary to solve a crisis, makes it easier for people to envision and support another major effort.

Unfortunately, this view misrepresents the experience of the New Deal.  And, to the extent it influences our approach to shaping and winning a Green New Deal, it weakens our ability to successfully organize and promote the kind of state action we want.

The New Deal actually encompasses two different periods; the First New Deal was begun in 1933, the Second New Deal in 1935.  In both periods, the programs designed to respond to working class concerns fell far short of popular demands.  In fact, it was continued mass organizing, spearheaded by an increasingly unified unemployed movement and an invigorated trade union movement, that pushed the Roosevelt administration to initiate its Second New Deal, which included new and significantly more progressive initiatives.

Unfortunately, as those social movements lost energy and vision in the years that followed, pressure on the state for further change largely abated, leaving the final reforms won compromised and vulnerable to future attack.   The lesson from this history for those advocating for a Green New Deal is clear: winning a Green New Deal requires, in addition to carefully constructed policy demands, an approach to movement building that prepares people for a long struggle to overcome expected state efforts to resist the needed transformative changes.

The First New Deal

Roosevelt’s initial policies were largely consistent with those of the previous Hoover administration.  Like Hoover, he sought to stabilize the banking system and balance the budget.  On his first day in office Roosevelt declared a national bank “holiday,” dismissing Congressional sentiment for bank nationalization.  He then rushed through a new law, the Emergency Banking Act, which gave the Comptroller of the Currency, the Secretary of the Treasury, and the Federal Reserve new powers to ensure that reopened banks would remain financially secure.

On his sixth day in office, he requested that Congress cut $500 million from the $3.6 billion federal budget, eliminate government agencies, reduce the salaries of civilian and military federal workers, and slash veterans’ benefits by 50 percent.  Congressional resistance led to spending cuts of “only” $243 million.

Roosevelt remained committed, against the advice of many of his most trusted advisers, to balanced budget policies for most of the decade.  While his administration did boost government spending to nearly double the levels of the Hoover administration, it also collected sufficient taxes to keep deficits low.  It wasn’t until 1938 that Roosevelt proposed a Keynesian-style deficit spending plan.

At the same time, facing escalating demands for action from the unemployed as well as many elected city leaders, Roosevelt also knew that the status quo was politically untenable.  And, in an effort to halt the deepening depression and growing militancy of working people, he pursued a dizzying array of initiatives, most within his first 100 days in office.  The great majority were aimed at stabilizing or reforming markets, which Roosevelt believed was the best way to restore business confidence, investment, and growth.  This emphasis is clear from the following list of some of his most important initiatives.

  • The Agricultural Adjustment Act (May 1933). The act sought to boost the prices of agricultural goods. The government bought livestock and paid subsidies to farmers in exchange for reduced planting. It also created the Agricultural Adjustment Administration to manage the payment of subsidies.
  • The Securities Act of 1933 (May 1933). The act sought to restore confidence in the stock market by requiring that securities issuers disclose all information necessary for investors to be able to make informed investment decisions.
  • The Home Owners’ Loan Act of 1933 (June 1933). The act sought to stabilize the finance industry and housing industry by providing mortgage assistance to homeowners. It created the Home Owners Loan Corporation which was authorized to issue bonds and loans to help homeowners in financial difficulties pay their mortgages, back taxes, and insurance.
  • The Banking Act of 1933 (June 1933). The act separated commercial and investment banking and created the Federal Deposit Insurance Corporation to insure bank deposits, curb bank runs, and reduce bank failures.
  • Farm Credit Act (June 1933). The act established the Farm Credit System as a group of cooperative lending institutions to provide low cost loans to farmers.
  • National Industrial Recovery Act (June 1933). Title I of the act suspended anti-trust laws and required companies to write industrywide codes of fair competition that included wage and price fixing, the establishment of production quotas, and restrictions on market entry.  It also gave workers the right to organize unions, although without legal protection.  Title I also created the National Recovery Administration to encourage business compliance.  The Supreme Court ruled the suspension of anti-trust laws unconstitutional in 1935.  Title II, which established the Federal Emergency Administration of Public Works or Public Works Administration, is discussed below.

Roosevelt also pursued several initiatives in response to working class demands for jobs and a humane system of relief.  These include:

  • The Emergency Conservation Work Act (March 1933). The act created the Civilian Conservation Corps which employed jobless young men to work in the nation’s forests and parks, planting trees, reducing erosion, and fighting fires.
  • The Federal Emergency Relief Act of 1933 (May 1933). The act created the Federal Emergency Relief Administration to provide work and cash relief for the unemployed.
  • The Federal Emergency Administration of Public Works or Public Works Administration (June 1933). Established under Title II of the National Industrial Recovery Act, the Public Works Administration was a federally funded public works program that financed private construction of major public projects such as dams, bridges, hospitals, and schools.
  • The Civil Works Administration (November 1933).  Established by executive order, the Civil Works Administration was a short-lived jobs program that employed jobless workers at mostly manual-labor construction jobs.

This is without doubt an impressive record of accomplishments, and it doesn’t include other noteworthy actions, such as the establishment of the Tennessee Valley Authority, the ending of prohibition, and the removal of the US from the gold standard.  Yet, when looked at from the point of view of working people, this First New Deal was sadly lacking.

Roosevelt’s pursuit of market reform rather than deficit spending meant a slow recovery from the depths of the recession.  In fact, John Maynard Keynes wrote Roosevelt a public letter in December 1933, pointing out that the Roosevelt administration appeared more concerned with reform than recovery or, to be charitable, was confusing the former with the latter.  Primary attention, he argued, should be on recovery, and that required greater government spending financed by loans to increase national purchasing power.

Roosevelt also refused to address one of the unemployed movement’s major policy demands: the establishment of a federal unemployment insurance fund financed by taxes on the wealthy.  Finally, as we see next, even the New Deal’s early job creation and relief initiatives were deliberately designed in ways that limited their ability to meaningfully address their targeted social concerns.

First New Deal employment and relief programs

The Roosevelt administration’s first direct response to the country’s massive unemployment was the Civilian Conservation Corps (CCC).  Its enrollees, as Roosevelt explained, were to be “used in complex work, not interfering with normal employment and confining itself to forestry, the prevention of soil erosion, flood control, and similar projects.”  The project was important for establishing a new level of federal responsibility, as employer of last resort, for boosting employment.  Over its nine-year lifespan, its participants built thousands of miles of hiking trails, planted millions of trees, and fought hundreds of forest fires.

However, the program was far from meeting the needs of the tens of million jobless and their dependents.  Participation in the program was limited to unmarried male citizens, 18 to 25 years of age, whose families were on local relief, and who were able to pass a physical exam.  By law, maximum enrollment in the program was limited to 300,000.

Moreover, although the CCC provided its participants with shelter, clothing, and food, the wages it paid, $30 a month ($25 of which had to be sent home to their families), were low.  And, while white and black were supposed to be housed together in the CCC camps where participants lived under Army supervision, many of the camps were segregated, with whites given preference for the best jobs.

Two months later, the Roosevelt administration launched the Federal Emergency Relief Administration (FERA), the first program of direct federal financing of relief.  Under the Hoover administration, the federal government had restricted its support of state relief efforts to the offer of loans.  Because of the precariousness of their own financial situation, many states were unable to take on new debt, and were thus left with no choice but to curtail their relief efforts.

FERA, in contrast, offered grants as well as loans, providing approximately $3 billion in grants over its 2 ½ year lifespan. The grants allowed state and local governments to employ people who were on relief rolls to work on a variety of public projects in agriculture, the arts, construction and education.  FERA grants supported the employment of over 20 million people, or about 16 percent of the total population of the United States.

However, the program suffered from a number of shortcomings.  FERA provided funds to the states on a matching basis, with states required to contribute three dollars for every federal dollar.  This restriction meant that a number of states, struggling with budget shortfalls, either refused to apply for FERA grants or kept their requests small.

Also problematic was the program’s requirement that participants be on state relief rolls.  This meant that only one person in a family was eligible for FERA work.  And the amount of pay or relief was determined by a social worker’s evaluation of the extent of the family’s financial need.  Many states had extremely low standards of necessity, resulting in either low wages or inadequate relief payments which could sometimes be limited to coupons exchangeable only for food items on an approved list.

Finally, FERA was not directly involved in the administration and oversight of the projects it funded. This meant that compensation for work and working conditions differed across states.  It also meant that in many states, white males were given preferential treatment.

A month later, the Public Works Administration (PWA) was created as part of the National Industrial Recovery Act.  The PWA was a federal public works program that financed private construction of major long-term public projects such as dams, bridges, hospitals, and schools.  Administrators at PWA headquarters planned the projects and then gave funds to appropriate federal agencies to enable them to help state and local governments finance the work. The PWA played no role in hiring or production; private construction companies carried out the work, hiring workers on the open market.

The program lasted for six years, spent $6 billion, and helped finance a number of important infrastructure projects.  It also gave federal administrators valuable public policy planning experience, which was put to good use during World War II.  However, as was the case with FERA, PWA projects required matching contributions from state and local governments, and given their financial constraints, the program never spent as much money as was budgeted.

These programs paint a picture of a serious but limited effort on the part of the Roosevelt administration to help workers weather the crisis.  In particular, the requirement that states match federal contributions to receive FERA and PWA funds greatly limited their reach.  And, the participant restrictions attached to both the CCC and FERA meant that program benefits were far from adequate.  Moreover, because all of these were new programs, it often took time for administrators to get funds flowing, projects developed, participants chosen, and benefits distributed.  Thus, despite a flurry of activity, millions of workers and their families remained in desperate conditions with winter approaching.

Pressed to do more, the Roosevelt administration launched its final First New Deal jobs program in November 1933, the Civil Works Administration (CWA), under the umbrella of FERA.  It was designed to be a short-term program, and it lasted only 6 months, with most employment creation ending after 4 months.  The jobs created were primarily low-skilled construction jobs, improving or constructing roads, schools, parks, airports, and bridges. The CWA gave jobs to some 4 million people.

This was a dramatically different program from those discussed above.  Most importantly, employment was not limited to those on relief, greatly enlarging the number of unemployed who could participate.  At the end of Hoover’s term in office, only one unemployed person out of four was on a relief roll.  It also meant that participants would not be subject to the relief system’s humiliating means tests or have their wages tied to their family’s “estimated budgetary deficit.”  Also significant was the fact that although many of the jobs were inherited from current relief projects, CWA administrators made a real effort to employ their workers in new projects designed to be of value to the community.

For all of these reasons, jobless workers flocked to the program, seeking an opportunity to do, in the words of the time, “real work for a real wage.”   As Harry Hopkins, the program’s chief administrator, summed up in a talk shortly after the program’s termination:

When we started Civil Works we said we were going to put four million men to work.  How many do you suppose applied for those four million jobs? About ten million. Now I don’t say there were ten million people out of work, but ten million people walked up to a window and stood in line, many of them all night, asking for a job that paid them somewhere between seven and eighteen dollars a week.

In point of fact, there were some fifteen million people unemployed.  And as the demand for CWA jobs became clear, Roosevelt moved to end the program.   As Jeff Singleton describes:

In early January Hopkins told Roosevelt that CWA would run out of funds sooner than expected.  According to one account, Roosevelt “blew up” and demanded that Hopkins begin phasing out the program immediately.  On January 18 Hopkins ordered weekly wages cut (through a reduction in hours worked) and hinted that the program would be terminated at the beginning of March.  The cutback, coming at a time when the program had just reached its promised quota, generated a storm of protest and a movement in Congress to continue CWA through the spring of 1934.  These pressures helped the New Deal secure a new emergency relief appropriation of $950 million, but the CWA was phased out in March and April.

Lessons

The First New Deal did represent an important change in the economic role of the federal government.  In particular, the Roosevelt administration broke new ground in acknowledging federal responsibility for job creation and relief.  Yet, the record of the First New Deal also makes clear that the Roosevelt administration was reluctant to embrace the transformative role that many now attribute to it.

As Keynes pointed out, Roosevelt’s primary concern in the first years of his administration was achieving market stability through market reform, not a larger financial stake in the economy to speed recovery.  In fact, in some cases, his initiatives gave private corporations even greater control over market activity.

The Roosevelt administration response to worker demands for jobs and a more humane system of welfare was also far from transformative.  Determined to place limits on federal spending, its major initiatives required substantial participation from struggling state governments.  They also did little to challenge the punitive and inadequate relief systems operated by state governments.  The one exception was the CWA, which mandated wage-paying federally directed employment.  And that was the one program, despite its popularity, that was quickly terminated.

Of course, there was a Second New Deal, which included a number of important and more progressive initiatives, including the Works Progress Administration, the Social Security Act, and the National Labor Relations Act.  However, as I will discuss in the next post in this series, this Second New Deal was largely undertaken in response to the growing strength of the unemployed movement and workplace labor militancy.   And as we shall see, even these initiatives fell short of what many working people demanded.

One lesson to be learned from this history for those advocating a Green New Deal is that major policy transformations do not come ready made, or emerge fully developed.  Even during a period of exceptional crisis, the Roosevelt administration was hesitant to pursue truly radical experiments.  And the evolution of its policy owed far more to political pressure than the maturation of its administrative capacities or a new found determination to experiment.

If we hope to win a Green New Deal we will have to build a movement that is not only powerful enough to push the federal government to take on new responsibilities with new capacities, but also has the political maturity required to appreciate the contested nature of state policy and the vision necessary to sustain its forward march.

What the New Deal can teach us about winning a Green New Deal: Part II—Movement Building

In Part I in this series on lessons to be learned from the New Deal, I described the enormous economic and social costs of the first years of the Great Depression and the reluctance of business and government leaders to pursue policies likely to threaten the status quo.  I did so to demonstrate that we should not assume that simply establishing the seriousness of our current multifaceted crisis, especially one that has yet to directly threaten capitalist profitability, will be enough to win elite consideration of a transformative Green New Deal.

I also argued that it was the growth of an increasingly militant political movement openly challenging the legitimacy of the police, courts, and other state institutions that finally transformed the national political environment and pushed Roosevelt to change course and introduce his early New Deal employment and relief programs.  In this post, I examine the driving force of this movement, the movement of unemployed.

The growth and effectiveness of the unemployed movement owes much to the organizing and strategic choices of the US Communist Party (CP).  While there is much to criticize about CP policies and activities, especially its sectarianism and aggressive antagonism towards other groups, there is also much we can learn about successful organizing from its work with the unemployed in the early years of the depression.

The party faced the challenge of building a mass movement powerful enough to force a change in government policy. Although its initial victory was limited, the policy breakthrough associated with the programs of the First New Deal led to new expectations and demands, culminating in Roosevelt’s adoption of far more extensive employment and relief policies as part of his Second New Deal, only two years later.

We face a similar challenge today; we need to build a mass movement capable of forcing the government to begin adopting policies that help advance a Green New Deal.  Therefore, it is well worth our time to study how party activists built a national organization of the unemployed that helped the unemployed see that their hard times were the result of structural rather than personal failure; encouraged local, collective, and direct action in defense of immediate shared basic needs; and connected local actions to a broader national campaign for government action.

The CP and the unemployed movement

The CP made its decision to organize the unemployed even before the start of the Great Depression.  In August 1929, two months before the stock market crash, the CP established the Trade Union Unity League (TUUL) as an alternative to the AFL and called on that body to assist in the creation of a nation-wide organization of Unemployed Councils (UCs).

The CP was following the lead of the Communist International which had, in 1928, declared the start of the so-called Third Period, which was said to mark the beginning of capitalism’s terminal stage, and called on all communist parties to end their joint work with other organizations and prepare for the coming revolutionary struggle.  This stance meant that as unemployment exploded, those without work had the benefit of an existing organization to give them a voice and instrument of action.  Unfortunately, it also led to destructive attacks on other political tendencies and efforts to build organizations of the unemployed, thereby weakening the overall effort.

The CP’s first big effort directed towards the unemployed was the March 6, 1930 demonstrations against unemployment and for relief that drew some 500,000 people in twenty-five cities and was organized under the banner of “International Day for Struggle against Worldwide Unemployment.”  The New York City demonstration, the largest, was met by police repression, with many demonstrators beaten and arrested.  But another New York City protest by the unemployed in October produced a victory, with the city agreeing to boost relief spending by $1 million.  These actions created visibility for the CP’s fledgling national network of UCs and helped to build its membership.

The Unemployed Councils of the USA held its founding convention in early July.  The following month it issued a statement calling on Congress to adopt its “Workers Unemployment Insurance Bill.” The bill called for “payment of $35 per week for each unemployed worker plus an additional $5 per week per dependent and the creation of a ‘National Unemployment Insurance Fund’ to be generated through a tax on all property valued in excess of $25,000 and incomes of more than $5,000.” A new Workers’ Commission, to be elected by working people, was to control the distribution of funds.

To this point, the Unemployed Councils of the USA was dominated by the CP, and its general program and demands largely echoed those of the CP, often including foreign policy declarations expressing support for the Soviet Union.  However, in November, finally acknowledging that this dominance was limiting recruitment, the party agreed to give its organizers more independence and freedom to focus on the issues of most direct concern to the unemployed.  In the months that followed, “a wave of rent strikes, eviction fights, and hunger marches involving an estimated 250,000 workers in seventy-five cities and six states swept the country. The Unemployed Councils had become a force to be reckoned with.”

The party’s focus on building a confrontational movement operating both locally and nationally led it to reject a variety of other efforts embraced by some unemployed.  As Franklin Folsom describes:

Early in 1931, some leaders of Unemployed Councils had recommended setting up food kitchens, and Communists helped organize food collections. These were humane acts of assistance to people who needed something to eat immediately. In a few months, however, both the Communists and the Unemployed Councils abandoned the idea, saying it had nothing to do with solving the basic problems of the unemployed.  Similarly, Communist and council policy on the subject of looting varied depending on time and place.  In the early days of mass unemployment some Communists encouraged the direct appropriation of food.  Later the practice was frowned on because it solved no long-term problem and could provoke very costly counteraction.

Many unemployed also turned to self-help activities to survive.  The so-called “productive enterprise” movement, in which unemployed workers sought to create their own enterprises to produce either for the market or barter, spread rapidly.  According to one study, by the end of 1932 this movement was active in thirty-seven states, with the largest group in California.  The CP and UCs opposed this effort from the start, calling it a self-starvation movement.

The organization and activity of the UCs

Most UCs were neighborhood centered, since the unemployed generally spent most of their time in the neighborhoods where they lived. The basic unit of the UC was the block committee, which comprised all unemployed local residents and their family members.  Each block committee elected delegates to a neighborhood unemployed council, and these councils, in turn, elected delegates to county or city unemployed councils.

The block committee office served as a social center, where the unemployed could gather and build relationships.  Through conversation and even more importantly action they were also able to develop a new radical understanding of the cause of their unemployment as well as appreciation for collective power.  As Steve Nelson, a leader of the Chicago UC movement, explained, it was important for the unemployed to “see that unemployment was not the result of their own or someone else’s mistake, that it was a worldwide phenomenon and a natural product of the system.” Thus, “unemployed agitation was as much education as direct action.”

With time on their hands, the unemployed were generally eager to act in defense of their neighbors, especially around housing and relief.  Here is Christine Ellis, a UC organizer, talking about what happened at one UC meeting in a black neighborhood on the west side of Chicago:

We spoke simply, explained the platform, the demands and activities of the unemployed council. And then we said, “Are there any questions?”…. Finally an elderly Black man stood up and said, “What you folks figure on doing about that colored family that was thrown out of their house today?… They’re still out there with their furniture on the sidewalk.” So the man with me said, “Very simple. We’ll adjourn the meeting, go over there, and put the furniture back in the house. After that, anyone wishing to join the unemployed council and build an organization to fight evictions, return to this hall and we’ll talk about it some more.” That’s what we did…everybody else pitched in, began to haul in every last bit of furniture, fix up the beds…and when that was all done, went back to the hall. The hall was jammed!

Carl Winder, another UC activist, describes the response of the councils in New York to attempted evictions for nonpayment of rent:

Squads of neighbors were organized to bar the way to the dispossessing offices.  Whole neighborhoods were frequently mobilized to take part in this mutual assistance.  Where superior police force prevailed, it became common practice for the Unemployed Councils to lead volunteer squads in carrying the displaced furniture and belongings back into the home after the police had departed.  Council organizers became adept in fashioning meter-jumps to restore disconnected electric service and gas.

Hosea Hudson, a UC activist in Alabama, tells how landlords in Birmingham would sometimes allow tenants to stay even without paying rent “because if they put a family out, the unemployed workers would wreck the house and take it away for fuel by night…. This was kind of a free-for-all, a share-the-wealth situation.”

No Work, No Rent! was the common chant at UC anti-eviction actions.  And because UCs were part of a national organization, successful strategies in one area were quickly shared with UCs in another, spurring new actions.  According to one account, UCs had practically stopped evictions in Detroit by March 1931.  It was estimated that in 1932, 77,000 New York City families were moved back into their homes by UCs.  At the same time, these were costly actions. The police would often arrest many of those involved as well as use force to end resistance, leading to serious injuries and in some cases deaths.

UCs also mobilized to help people who were turned down for relief assistance.  Normally, UC organizers would gather a large crowd outside the relief agency and send in an elected committee to demand a meeting to reverse the decision.  Here is Hosea Hudson again, explaining the approach of the Birmingham UC:

If someone get out of food and been down to the welfare two or three times and still ain’t got no grocery order…. We’d go to the house of the person that’s involved, the victim, let her tell her story. Then we’d ask all the people, “What do you all think could be done about it?” We wouldn’t just jump up and say what to do. We let the neighbors talk about it for a while, and then it would be some of us in the crowd, we going to say, “If the lady wants to go back down to the welfare, if she wants, I suggest we have a little committee to go with her and find out what the condition is.”

In New York, UC members would often organize sit-ins at the relief office and refuse to leave until the center reversed a negative decision.  Intimidated by the aggressive protests, local relief officials throughout the country increasingly gave ground and approved relief requests.

This kind of activism directly challenged business and elite claims that prosperity was just around the corner.  It also revealed a growing radical spark, as more and more people openly challenged the legitimacy of the police, the court system, and state institutions.

With demands for relief escalating, cash-strapped relief agencies began pressing city governments for additional funds.  But city budgets were also shrinking.    As Danny Lucia reports in his study of unemployed organizing, this was an explosive situation.  In 1932, with Chicago’s unemployment rate at 40 percent, “Mayor Anton Cermak told Congress to send $150 million today or federal troops in the future.”

Thus, the militancy of the unemployed movement was now pushing mayors and even some business leaders to also press for federal action.  This development served to amplify the UCs own state and national campaigns demanding direct job creation and a program of federal relief.  These campaigns, by design, also helped generate publicity and support for local UC actions.

For example, in January 1931, a gathering of the Unemployed Councils of America and the TUUL decided to launch a national petition drive aimed at forcing Congress to pass a Federal Unemployment Insurance bill.  The UCs then began door-to-door canvassing for signatures.  Approximately a month later a delegation of 140 people was sent to Washington DC to deliver the petition to Congress on National Unemployment Insurance Day.  Demonstrations in support of the petition, organized by UCs, were held in most major cities on the same day.

Not long after, the CP set up a new organization, the Unemployed Committee for the National Hunger March, to coordinate a national hunger march on Washington DC to demand federal unemployment insurance and “the granting of emergency winter relief for the unemployed in the form of a lump-sum payment of $150 per unemployed worker, with an additional $50 for each dependent” as well as “a 7-hour workday, establishment of a union wage pay scale for unemployed workers, payment of a soldiers’ bonus to veterans of World War I, and an end to discrimination against black American and foreign-born workers.”  Local conferences selected 1,670 delegates, who converged on Washington from four separate columns in December 1931.  Their trip across the country was supported by local UCs.

Not surprisingly, the delegates were denied entrance to the Capital to present their demands.  They stayed two days and then started back, holding mass meetings across the country on their return trip to talk about their demands and the need for mass action to win them.

Another National Hunger March took place the following year.  This time 3,000 delegates came to Washington DC to again present their demands for winter relief and unemployment insurance.  These marches not only helped to strengthen the movement of the unemployed, they also greatly increased the pressure on elected officials to take some action to restore popular confidence in the government.

Underpinning the strategic orientation of the work of the UCs was the CP’s determination to build solidarity between the labor movement and the unemployed and anti-racist unity.  The first is highlighted by struggles in Detroit, where most unemployment was the result of auto factory layoffs.  There, the UCs and the Young Communist League led several marches to auto plants to protest the inadequate benefits given to laid-off workers.  Organizers would also read statements aimed at the workers still employed in the plants, pledging that the unemployed would not scab if workers struck for improved conditions.

As for anti-racism work, the CP “made sure that all of its agitation in the unemployed councils included protests against racial discrimination by relief agencies, landlords, and local and federal government.  On a more individual level, the Communists’ emphasis on multiracial organizing created situations in which whites and Blacks worked together for a common purpose and created personal bonds.”

Other organizing efforts

The CP was not the only left organization working to build a movement of the unemployed.  Both the Socialist Party and the Conference of Progressive Labor Action (CPLA), led by A.J. Muste, also created unemployed organizations that mobilized hundreds of thousands of jobless workers in local and national protests.  The Socialist Party created affiliated committees in a number of cities, the largest in Chicago and New York.  These committees were, like the UCs, generally oriented towards direct action in response to local conditions but they also engaged in electoral efforts.

The CPLA organized a number of Unemployed Citizen Leagues (UCLs) following the model of the Seattle Unemployed Citizens League. Established in the summer of 1931, the Seattle UCL quickly grew to a membership of 80,000 by 1933.  The UCLs initially focused on self-help through barter and labor exchange.  For example, members of the Seattle league:

persuaded farmers to let them harvest the fruit and potatoes for which there was no market, and they borrowed trucks to transport this produce.  Women exchanged sewing for food.  Barbers cut hair for canned berries.  This practice of barter spread and was highly organized. . . . Some men collected firewood from cutover forested areas; in all, they cut, split, and hauled 11,000 cords.  The products of these labors were shared by UCL members.  Some members repaired houses or worked in shoe repair shops, while others did gardening.  There were also child welfare and legal aid projects in which lawyers contributed their services.

The UCLs were also active in local elections, supporting candidates and legislation in favor of extended relief aid and unemployment insurance.  However, after a few years, most abandoned their focus on self-help, finding that “the needs of the jobless greatly exceeded the ability of a mutual aid program to meet them,” and turned instead to more direct-action protests similar to those of the UCs.  Although the CPLA failed to develop a national presence, their leagues were important in the Midwest, especially Ohio.

The CP was hostile to these organizations and their organizing efforts. In line with their Third Period strategy, the CP considered them to be a danger to the movement they were trying to build and their leaders to be “social-fascists.”  Party opposition went beyond denouncing these groups.  UC activists were encouraged to undermine their work, sometimes by physical force, other times by infiltrating and disrupting their meetings. This sectarianism clearly weakened the overall strength of the unemployed movement.  At the same time, local UC activists would sometimes ignore CP and UC leadership directives and find ways to build solidarity around joint actions on behalf of the unemployed.

The unemployed were not the only group whose organizing threatened the status quo.  As Steve Fraser pointed out: “Farmers took to the fields and roads in shocking displays of lawlessness. All across the corn belt, rebels banded together to forcibly prevent evictions of fellow farmers.” The Farm Holiday Association, an organization of midwestern farmers founded in 1932, not only mobilized its members to resist evictions, it also supported a progressive income tax, federal relief for the urban unemployed, and federal government control of the banks.  “In the South, tenants and sharecroppers unionized and conducted what a Department of Labor study called a ‘miniature civil war.’”

Veterans also organized.  World War I veterans from around the country, many with their families, traveled to Washington DC in summer 1932.  The call for a national Bonus March, although made by a largely anti-communist leadership, was inspired by the CP organized First National Hunger March. The veterans had been promised a bonus to compensate for their low war-time pay, but the Congress had delayed payment until 1945.  The veterans wanted their money now and set-up camps near the Capitol to pressure Congress to act.  Their camps were destroyed and the veterans violently dispersed by troops led by Douglas McArthur and Dwight Eisenhower.

In short, the political trajectory was one that concerned a growing number of political and business leaders.  Working people, largely anchored by a left-promoted, mass-based movement of unemployed, were becoming increasingly militant and dismissive of establishment calls for patience.  Continued federal inaction was becoming ever more dangerous.  Recognizing the need for action to preserve existing structures of power, it took Roosevelt only three months to drop his commitment to balanced budget orthodoxy in favor of New Deal experimentation.

Lessons

The multifaceted crisis we face today is significantly different from the crisis activists faced in the first years of the Great Depression.  But there is no question that, much like then, we will need to build a powerful, mass-movement for change if we hope to harness state power to advance a Green New Deal.

The First New Deal was not the result of administration concerns over the economic and social costs of the Great Depression.  Rather, it was political pressure that forced Roosevelt to begin experimenting with programs responsive to the concerns of working people.  And, not surprisingly, these experiments were, as will be discussed in the next post in this series, quite limited. It took new organizing to push Roosevelt to implement more progressive programs as part of his Second New Deal.

There are also lessons to be learned from the period about movement building itself, specifically the CPs organizing and strategic choices in targeting the unemployed and building a national movement of the unemployed anchored by a network of UCs.   The UCs helped transform how people understood the cause of their hard times.  They also created a local, collective, and direct outlet for action in defense of immediate shared basic needs.  The CP also emphasized the importance of organizing those actions in ways designed to overcome important divisions among working people.  Finally, the party and the UCs created broader campaigns for public policies on the national level that were directly responsive to local concerns and actions. Thus, organizing helped create a momentum that built political awareness, leadership capacity, class unity, and national weight around demands for new public initiatives.

The call for a Green New Deal speaks to a variety of crises and the need for change in many different sectors, including food production, energy generation, transportation, manufacturing, social and physical infrastructure, housing, health care, and employment creation.  It also projects a vision of a new more sustainable, egalitarian, and democratic society.  While it would be a mistake to equate the organizing work in the early years of the depression, which focused on employment and relief, with what is required today given the multifaceted nature of our crisis, we would do well to keep the organizing experience highlighted above in mind as we seek to advance the movement building process needed to win a Green New Deal.  It offers important insights into some of the organizational and political challenges we can expect to face and helpful criteria for deciding how best to respond to them.

For example, it challenges us to think carefully about how to ensure that our organizing work both illuminates the roots of our current multifaceted crises, building anti-capitalist consciousness, and challenges existing racial, ethnic, and gender divisions, strengthening working class unity.  It also challenges us to think about how to ensure that that our efforts in different geographic areas and around different issues will connect to build a national presence and organizational form that strengthens and unites our various efforts and also projects our overall vision of a restructured society.  And it also challenges us to think about how we should engage the state itself, envisioning and preparing for the ways it can be expected to seek to undermine whatever reforms are won.

Portrait of the 2009-2019 US expansion

June 2019 marks the 10th anniversary of the current US economic expansion.  If it makes it through July it will surpass the 1991-2001 expansion as the longest on record.  But while expansions are to be preferred over recessions, there are many reasons to view this record-breaking expansion critically.  In fact, the nature of this expansion, hopefully captured in the following portrait, highlights the growing inability of the US economic system, even when performing “well,” to meet majority needs.

Weak Growth

This has been a weak expansion in terms of growth.  By way of comparison, GDP grew by 43 percent over the first 39 quarters of the 1991-2001 expansion (which was the previous record holder).   In the first 39 quarters of this expansion, through March 2019, GDP grew by only 22 percent.

At its current pace, the current expansion would have to run six more years to equal the aggregate growth of the 1991-2001 expansion, and nine more years to match the 54 percent aggregate GDP growth recorded over the 1961-69 expansion.  The figure below illustrates the relative weakness of the current expansion in terms of growth.

Strong corporate profits

At the same time, weak growth did little to dampen corporate earnings.  As we can see in the following figure, corporate earnings have been on the rise since 2001, reaching their maximum in 2015.  While pre-tax profits have leveled off, after tax profits, thanks to the recent Trump tax cut, have resumed their upward march.

We see a similar trend in the figure below which shows corporate profits as a share of GDP.

After-tax corporate profits will likely turn down again soon, as the effects of the tax cut are already weakening, indicating the end to this expansion is not far off.

Weak wage growth

The suppression of wages is one of the main reasons that corporations were able to enjoy such strong profits despite weak growth.  The figure below shows the collapse of labor’s share of corporate income.  The trend began during the 2001-2009 expansion but accelerated during this expansion.  Even more striking, the share has remained low despite the many years of expansion.

The wage stagnation underlying this trend is illustrated more directly in the next figure.

As we can see, there have been only two recent periods when workers (outside those in the 95th percentile) enjoyed real gains: 1997-2001 and 2015-2017.  Both periods were marked by very low rates of unemployment and followed long periods of expansion during which wages remained largely unchanged.  It is worth noting that both periods were also marked by a decline in corporate profits, suggesting that corporations cannot long tolerate any kind of upward movement in majority earnings.

For reasons that remain unclear, wage growth in 2019 has slowed.  The Federal Reserve Board, always keen to make sure that wages remain low to ensure profitability, began pushing up interest rates in late 2015 in response to the rising wage levels noted above.  The recent wage slowdown has, at least temporarily, caused the Fed to halt its interest rate hikes, which will likely help extend the expansion.

Employment struggles

The dramatic decline in unemployment is perhaps the most celebrated achievement of this expansion.  As we can see in the figure below, the unemployment rate steadily fell over the expansion, from a high of 10 percent down to a low of 3.6 percent as of May 2019.  Such a low level suggests a very tight labor market, which makes the wage stagnation difficult to explain.  The likely answer is that the current low level of unemployment is a poor measure of labor tightness.

A better measure appears to be the labor force participation rate, which is calculated as the civilian labor force (i.e., those employed and those unemployed and actively looking for work) divided by the civilian noninstitutional population (i.e., those not in the military or institutionalized). The figure below also shows the labor force participation rate for those 16 years and older.

As we can see, the current labor force participation rate of 62.8 percent remains significantly below its 2008 peak and even further below the even higher peak reached at the turn of the century.  The decline in the labor force participation rate means that millions of workers have yet to return to the labor force, either to hold a job or to look for one.

The seriousness of this problem is highlighted by the labor force participation rate of the prime age cohort, those 25-54 years of age.  Their core status stems from the fact that, as Jill Mislinski explains,

This cohort leaves out the employment volatility of the high-school and college years, the lower employment of the retirement years and also the age 55-64 decade when many in the workforce begin transitioning to retirement … for example, two-income households that downsize into one-income households.

In the figure below we can see that the labor force participation rate of the prime age cohort remains significantly below its two previous peaks.  The fact that millions of prime age workers have yet to return to the labor market is a strong indicator that labor market conditions remain far from ideal despite years of economic expansion.

Weak Investment

One reason for the slow growth and associated weak job creation is that business has been reluctant to invest.  Instead, they have been content to use a growing share of their earnings to fund dividend payments and stock buybacks.  The following chart, taken from a Federal Reserve Board study of the relationship between corporate capital investment and net stock buybacks, shows a post-2000 downward trend in business investment as a share of GDP and a rise in the value of dividend payments and stock buybacks as a share of GDP.

While the Federal Reserve study concludes that it is difficult to determine whether “corporations are actively reducing investment in order to finance share repurchases and dividend payments . . . [or] pessimism about future demand and economic growth is leading corporations to defer capital spending, and companies are simply returning cash to their shareholders for want of attractive investment opportunities,” there can be no question that there has been a noticeable change in business behavior.

For example, as can see below, whereas in the past nonfinancial corporations invested up to 40 percent of their cash flow back into their business, that share has fallen below 20 percent for most of the current expansion.  In other words, the lack of investment has nothing to do with a shortage of funds.

As the Federal Reserve study points out, business has been funneling ever more of its earnings, through dividends and stock buybacks, to its top managers and stockholders.  According to the New York Times, “From 2008 to 2017, 466 S.&P. 500 companies distributed $4 trillion to shareholders as buybacks, equal to 53 percent of profits, along with $3.1 trillion as dividends.”  Beyond slowing growth and job creation, such a policy has helped to drive income and wealth inequality to record levels, ensuring that those at the top remain content with the economy’s performance despite the problems faced by most working people.

The following figure, from another Federal Reserve Board study, this one titled A Wealthless Recovery?, highlights the extremely uneven distribution of rewards during this expansion.  The authors of the report grouped working-age households into four different groups according to their reported “usual income.”  As we can see from the blue bars, the Great Recession left all groups with substantially less wealth.  However, as we can see from the green bars, which extend the period under analysis to 2016,  (which includes many years of expansion), only the top income group enjoys a gain in wealth.  In other words, the expansion has done little to help the bottom 90 percent of working-age households recover the wealth they lost during the Great Recession.

Austerity

Sustained fiscal austerity is another reason for the slow growth during this expansion. The figure below shows the cumulative growth in per capita spending by federal, state, and local governments following the troughs of the 11 recessions since World War II.  As Josh Bivens explains:

Astoundingly, per capita government spending in the first quarter of 2016—twenty-seven quarters into the recovery—was nearly 4.9 percent lower than at the trough of the Great Recession. By contrast, 27 quarters into the early 1990s recovery, per capita government spending was 3.6 percent higher than at the trough; 24 quarters after the early 2000s recession (a shorter recovery that did not last a full 27 quarters), it was almost 10 percent higher; and 27 quarters into the early 1980s recovery, it was more than 17 percent higher.

If government spending in this expansion had followed the pattern of previous recoveries, public spending would have been far greater, not only boosting demand and employment but ensuring provision of needed public services.  As Bivens points out,

If government spending following the Great Recession’s end had tracked the spending that followed the early 1980s recession—the only other postwar recession of similar magnitude—governments in 2016 would have been spending almost a trillion dollars more in that year alone.

State and local governments are primarily responsible for this austerity.  In many cases, their actions were the result of tax cuts enacted to benefit the wealthy and leading corporations that left state and local governments short of revenue.  Limited by balanced budget requirements, most ended up slashing spending on social services.  As a consequence, the brunt of austerity has been borne by working people.

Summing up 

This is far from a complete portrait of the current expansion.  Yet, it still clearly reveals how the logic of capitalism works against the interests of the great majority of working people, even during a long period of profitable economic activity.  A recession awaits, and then our troubles will intensify.  Key to our ability to build a popular democratic response in defense of majority interests may well be how people evaluate the benefits of remaining committed to an economic system that that undermines their well-being in multiple ways even when it is functioning well.

Making excuses for unemployment: The myth of a “skills gap”

It has taken ten years of expansion, but the US unemployment rate has finally fallen below 4 percent.  However, this low rate of unemployment presents a somewhat misleading picture of labor tightness.  For example, both the labor force participation rate and employment to population ratio remain significantly below previous highs, making clear that the economy is far from full employment.

The current labor force participation rate of prime age workers, those 25-54 years, is a case in point.  It remains below the previous peak rate in 2008, and even further below the peak rate at the turn of the century.  We would need an additional 1.2 million employed prime age workers to match the 2008 labor force participation rate and 2.5 million more to match the turn of the century rate.  Still it appears that at the present moment unemployment is no longer a major political issue.

That said, since we can be confident that this expansion will end and unemployment will once again become a serious problem, it is worth revisiting how mainstream economists and government policy makers treated the high rates of unemployment that marked the first five years of this expansion. In brief, and perhaps not surprisingly, most tended to explain away the slow decline in the unemployment rate by blaming workers themselves.  More specifically, they cited a “skills gap.”

As Matthew Yglesias describes:

Five or six years ago, everyone from the US Chamber of Commerce to the Obama White House was talking about a “skills gap.”

The theory here was that high unemployment reflected a structural shift in the labor market such that jobs were available, but workers simply didn’t have the right education or training for them. Harvard Business Review ran articles about this — including articles rebutting people who said the “skills gap” didn’t exist — and big companies like Siemens ran paid sponsor content in the Atlantic explaining how to fix the skills gap.

However, as Yglesias notes, the skills gap story doesn’t hold up.  Yes, business did complain for years that they found it hard to hire workers with the experience and skills they wanted.  But the fact is, as three economists demonstrate in their recently published paper, there was no real skills gap.  Rather, business just took advantage of the high rates of unemployment to jack up their skill requirements.  And as the unemployment rate gradually fell, they lowered them, which ended talk of the skills gap.  In short, employment problems are system generated, not worker caused.

The study

In “Upskilling: Do Employers Demand Greater Skill When Workers Are Plentiful?,” the economists Alicia Sasser Modestino, Daniel Shoag, and Joshua Ballancee used a proprietary dataset of 36.2 million online job postings aggregated by Burning Glass Technologies (BGT).  BGT “aggregates detailed information daily on more than 7 million online job openings from over 40,000 sources including job boards, newspapers, government agencies, and employer sites.” It also extracts details from the posted advertisements, allowing analysis according to 70 job characteristics, including job title, employer name, location, and the level of education and years of experience required. About half of the BGT postings include employer name.  The authors tapped the BGT dataset to carry out three different tests to determine whether employer job requirements, specifically education and experience requirements, changed in response to changes in the supply of available workers over the years 2007 to 2014.

They first tested whether education and experience requirements grew more in states and occupations that experienced greater increases in the supply of available workers, measured both by state unemployment rates and by state labor supply/labor demand ratios.  Then they carried out the same test, but this time looking at individual firms and their job requirements for specific job titles.

For both tests, the authors also used several control variables, including “the share of the state population with a bachelor’s degree in 2000 and the average age of the state population in 2000 to account for both heterogeneity in the pre-existing pool of skilled labor available to employers, as well as the initial share of openings requiring a particular skill in 2007 to account for heterogeneity across state × occupation cells.”

As a final check of their work, the authors made use of a “labor shock” that was uncorrelated with underlying economic trends: the drawdown of troops from Iraq and Afghanistan between 2009 and 2012. The authors examined “whether state × occupation cells receiving larger numbers of returning veterans correspondingly experienced a greater increase in their skill requirements.”

The results

In the first test the authors examined whether changing labor market conditions influenced “the share of postings requiring a bachelor’s degree or greater and the share of postings requiring at least four years of experience.”  And they found a strong relationship:

within a six-digit detailed occupation, a 1 percentage point increase in the state unemployment rate is associated with a 0.64 percentage point increase in the share of job postings requiring a bachelor’s degree and a 0.84 percentage point increase in the share of job postings requiring at least four years of experience. How large is the upskilling effect in terms of economic importance? In the context of the most recent downturn, our results imply that the nationwide increase in unemployment rates between 2007 and 2010 raised education requirements within occupations by 3.2 percentage points and raised experience requirements by 4.2 percentage points, respectively. Relative to the observed increases in skill requirements . . . during this period, our estimates suggest that changes in employer skill requirements due to the increased availability of workers during the business cycle can account for up to 30 percent of the total increase for education and nearly 50 percent of the total increase for experience.

Their findings of a strong relationship between labor slack and increased skill requirements are illustrated in the following two figures.

The second test also found a positive relationship between employer skill requirements and labor market slack even when limited to a consideration of the same job title at the same employer in the same state.  As the authors state:

Controlling for firm × job-title pairs within a state, we find that a one percentage point increase in the state unemployment rate raises the share of jobs postings requiring a bachelor’s degree by 0.505 percentage points and the share of job postings requiring at least four years of experience by 0.483 percentage points.

As for the labor shock of returning veterans, the authors again found “a strong, significant, and positive relationship between the sharp increase in the supply of returning veterans and the rise in employer skill requirements for both education and experience.”

The takeaway

The claim of a skills gap was widely embraced by those looking to deflect attention from capitalism’s growing inability to generate adequate employment even during years of economic expansion.  If the problem is a skills gap, then the responsibility for solving the problem rests on the shoulders of workers themselves, who will have to do a better job of keeping up with the times.  However, as Yglesias notes in his article summary, “the skills gap was the consequence of high unemployment rather than its cause. With workers plentiful, employers got choosier.”

Unemployment rates will rise again, and papers like “Upskilling: Do Employers Demand Greater Skill When Workers Are Plentiful?” are helpful for preparing us to challenge those whose arguments serve to defend a system that has grown ever more unresponsive to majority needs.

They’re at it again: Selling the US-Mexico-Canada Agreement

The headlines once again misrepresent the aims and consequences of a US free trade agreement, in this case repeating the International Trade Commission’s claim that President Trump’s US-Mexico-Canada agreement (USMCA) will boost US growth and employment.

The International Trade Commission is required by law to evaluate the economic consequences of the USMCA, which is supposed to replace the North American Free Trade Agreement (NAFTA), before Congress can debate whether to approve it.  According to its report, which was released on April 18, 2019, the agreement can be expected to “raise U.S. real GDP by $68.2 billion (0.35 percent) and U.S. employment by 176,000 jobs (0.12 percent)” and “would likely have a positive impact on U.S. trade, both with USMCA partners and with the rest of the world.”

While supporters of the agreement happily repeat the Committee’s conclusion “that, if fully implemented and enforced, USMCA would have a positive impact on U.S. real GDP and employment,” the fact is that the predicted gains are miniscule.  Moreover, given the flaws in the Commission’s admittedly sophisticated modeling, there is no reason to take the results seriously.  Finally, a careful examination of the many chapters in the proposed agreement makes clear that its real aim is to strengthen contemporary globalization dynamics, enhancing corporate power and profits at the expense of majority living and working conditions in all three countries.

Putting the projected “gains” in perspective

The Commission assumed that the US economy’s complete adjustment to the agreement would take six years.  It then used a computable general equilibrium model to simulate how the terms of the agreement would change US markets and compared the “equilibrium” outcome at the end of the adjustment period with baseline results that assumed no significant change in US economic policies or global agreements over the same period.

On the basis of such modeling, the Commission concluded that six years after the implementation of the agreement, the US economy would be $68.2 billion bigger than if the agreement had not been approved.  That is, as the Commission acknowledges, a one-time gain of 35/100 of one percent in real GDP.  Current US GDP is over $21 trillion; $68 billion is a rounding error in an economy of that size.

As for the projected growth in employment, the one-time gain of 176,000 jobs relative to the base line forecast translates into an increase in employment after six years of 12/100 of one percent.  That gain in employment is roughly equal to the number of new jobs added in a month of moderate economic growth.  The Commission’s model produced similar miniscule gains for other variables, including US wages.

In short, if we take these predictions seriously, the obvious conclusion is that there is little to gain from approving this agreement.  Of course, that is not the Commission’s position.  However, there is little reason to take these results seriously.

Dodgy methodology

It took a lot for the Commission to produce even these minimal games.  More specifically, it took a dodgy methodology that is biased towards policies that promote globalization.

The Commission organized its work as follows: it first sought to model the economic consequences of “eight groups of USMCA provisions: agriculture, automobiles, intellectual property rights (IPRs), e-commerce, labor, international data transfer, cross-border services, and investment.” Then, it took the provision specific results of each group and used them as modeling inputs for the economy-wide computable general equilibrium model it used to produce the overall estimates cited above.

Since not all the provisions changed current policies, the Commission divided the eight groups into two categories.  The first included the “set of provisions that would alter current policies or set new standards within the three member countries, and that would therefore be expected to modify current conditions after USMCA enters into effect.” This included provisions affecting agriculture, automobiles, IPRs, e-commerce, labor, and investment decisions related to the investor-state dispute settlement mechanism.

The second category included provisions that “would reduce policy uncertainty. These commitments would primarily serve to deter future trade and investment barriers, thus offering firms some assurance that current regulations and standards, which may or may not be expressly governed by current policies, will not become more restrictive.” Included in this category are provisions that would affect international data transfer, cross-border services trade, and investment decisions related to market access and nonconforming measures.

Significantly, it was the Commission’s determination of the gains from those provisions that would reduce policy uncertainty, by restricting the possibility for future government regulation of corporate activity, that proved decisive.  As a Public Citizen Eyes on Trade blog post pointed out,

Most of the [overall gains reported by the Commission] are derived from a highly dubious new research methodology, which assigns an invented positive economic value to terms that reduce “policy uncertainty” by freezing in place environmental, consumer protection, financial and other safeguards. If the ITC had not done this, the report would have projected a negative outcome. All $68.2 billion of the deal’s supposed economic gains arise from simulating the impact of removing trade barriers that do not exist. In other words, the gains are generated not through the removal of trade barriers directly, but through the elimination of the possibility of new future regulatory policies, which are deemed to be potential trade barriers. Absent this fabrication, the revised NAFTA would have been projected to lower the United States’ GDP by $22.6 billion and reduce the number of jobs by 53,900.

The problems only multiply when these separate results are used as inputs in the Commission’s economy-wide model.  This model, as noted above, is a computable general equilibrium model.  As such, it seeks to process all the ways the changes generated by the agreement interact to change market behavior before eventually producing – over a six-year period in this case — a new equilibrium outcome for the economy.  As one might imagine, this kind of modeling is quite complex and to ensure a result it requires some very significant assumptions.  Among them are:

  • The assumption that product markets are “perfectly competitive (implying zero economic profit for the firm).”
  • The assumption that there is “full capacity utilization of capital.”
  • The assumption that there is no unemployment.
  • The assumption that “global trade balances remain constant.”

In other words, while we may want the Commission to investigate whether a new trade agreement might cause a worsening of trade balances, or unemployment, or deindustrialization, or monopolization, the Commission’s model, by assumption, asserts that these are non-problems.  As a result, the model has a clear pro-trade agreement bias.

Thanks to these assumptions, if a country drops its trade restrictions, market forces will quickly and effortlessly lead capital and labor to shift into new, more productive uses.  It is no wonder that mainstream economic studies, which rely on computable general equilibrium modeling, always produce results supporting ratification of free trade agreements.  In light of this, it is striking how small the estimated gains were for this trade agreement.

The real winners

So, one might ask, what is really going on here?  Well, the agreement enjoys strong corporate support precisely because a number of its chapters include provisions responsive to the interests of leading US multinational corporations.  What follows are just a few examples drawn from the report.

The agreement includes provisions that require harmonization and thus a reduction in food safety standards, force governments to negotiate new standards with industry representatives, set deadlines for import checks, require that new standards be based on scientific principles, and that safety standards be applied “only to the extent necessary to achieve the appropriate level of protection” and “not [be] more trade restrictive than required.”

The agreement also includes a number of market access provisions to promote cross-border trade in services and financial services.  More specifically, the agreement’s market access provisions “are aimed at removing quotas and other barriers that impede the entry of services suppliers into foreign markets.” The Commission believes that “the broadcasting, telecommunications, and courier services sectors in the United States are estimated to gain the most, followed by the commercial banking sector in all three countries.”

The agreement also includes provisions “which would strengthen protections in major IPR categories such as trade secrets, regulatory data protection, patents, trademarks, copyrights, and civil, criminal, and administrative enforcement.”  The pharmaceutical industry will be one of the biggest beneficiaries.  For example, the agreement includes a “patent resolution mechanism that requires notice to patent holders, and an opportunity for relief, when a generic manufacturer seeks to rely on an originator’s test data for marketing approval without the patent holder’s consent.”

The USMCA would be the first U.S. free trade agreement with a chapter on digital trade.  Among other things, it would prevent governments “from restricting cross-border flows of financial data, which would require data to be stored or processed locally” and would “forbid them to adopt restrictive data measures in the future.”  This provision would be especially valuable to U.S. computer services and digital platform services firms. “Other key Digital Trade chapter provisions include a ban on import duties or other discriminatory customs measures on digital products (e.g., e-books, videos, music, software, and games), and prohibition of legal discrimination against digital products produced or created in other signatory countries.”

The agreement also includes a chapter that restricts the ability of governments to use state-owned enterprises to meet public needs by requiring that they be “regulated impartially, and do not benefit from special treatment and unfairly infringe upon the activities of private firms.”

The list goes on.  No wonder that major business associations are expressing strong support for the agreement. As the New York Times reports:

Industry groups called for the pact’s quick passage into law. Linda Dempsey, the vice president for international economic affairs at the National Association of Manufacturers, said that the deal was “a win for manufacturers.”

Jordan Haas, the director of trade policy at the Internet Association, said the report underlined that the deal’s digital trade provisions were “critical to America’s future economic success” and “mean jobs and opportunities in every state.”

There is a lot at stake in this struggle.  We need to stop calling for progressive reform of the agreement, a call that only leads to popular confusion about what drives US government policy.  Instead we need to build a movement that simply says no to NAFTA in any form.

The Trump Tax Plan Proves A Bonanza For Business

Every time a progressive policy captures the public imagination, like the Green New Deal, opponents are quick to raise the revenue question in an effort to discredit it.  While higher taxes on the wealthy and leading corporations should be an obvious starting point in any response, until recently elites have been remarkably successful in winning tax reductions, spinning the argument that cuts are the best way to stimulate private investment and create jobs.  And they have enjoyed a double gain: not only do the cuts benefit them financially, the loss of public revenue encourages people to think small when it comes to public policy.

However, there are signs that the times might be changing.  Alexandria Ocasio-Cortez’s proposal to tax annual incomes over $10 million at a marginal tax rate of 70 percent has won significant public support. Strong popular opposition in New York to a plan to heavily subsidize a new Amazon headquarters forced the company to withdraw its proposal. And then there is the negative lesson of the Wisconsin fiasco, where the state showered Foxconn with massive tax and other subsidies in an effort to land a new manufacturing facility, only to have the company walk-back its commitments after significant state expenditures.

But there is still important education as well as political work that remains to be done to win majority support for the kind of tax reform we so desperately need. President Trump’s “Tax Cuts and Jobs Act,” which was signed into law on Dec. 22, 2017, is one example of what we are up against.

The “American model”

President Trump’s signature tax law included significant benefits for the wealthy as well as most major corporations.  Looking just at the business side, the law:

  • lowered the US corporate tax rate from 35 percent to 21 percent and eliminated the corporate Alternative Minimum Tax.
  • changed the federal tax system from a global to a territorial one.  Under the previous global tax system, US multinational corporations were supposed to pay the 35 percent US tax rate for income earned in any country in which they had a subsidiary, less a credit for the income taxes they paid to that country. However, the tax payment could be deferred until the earnings were repatriated.  Under the new territorial tax system, each corporate subsidiary only has to pay the tax rate of the country in which it is legally established; foreign profits face no additional US taxes.
  • established a new “global minimum” tax of 10.5 percent that is only applied to total foreign earnings greater than a newly established “normal rate of return” on tangible investments in plant and equipment (set at 10 percent).
  • offered multinational corporations a one-time special lower tax rate of 8 percent on repatriated funds that were held overseas by corporate subsidiaries in tax-haven countries.

Of course, President Trump sold these changes as a means to rebuild the American economy, predicting a massive return of overseas money and increase in domestic investment.  As he explained:

For too long, our tax code has incentivized companies to leave our country in search of lower tax rates. My administration rejects the offshoring model, and we have embraced a brand new model. It’s called the American model. We want companies to hire and grow in America, to raise wages for the American workers, and to help rebuild American cities and towns.

The same old story

Not surprisingly, the so-called new American model looks a lot like the old one, with corporations–and their managers and stockholders–gaining at the public expense.

Corporate investment has not been limited by a lack of money.  Rather, corporate profits have steadily increased while investment in plant and equipment has remained weak.  Instead of investing, corporations have used their surplus to finance dividend payments, stock repurchases, and mergers and acquisitions. Instead of stimulating new productive investment, the tax cut only gave firms more money to use for the same purposes.

The new territorial tax system, which was supposed to promote domestic investment and production, actually continues to encourage the globalization of production since it lowers the taxes corporations have to pay on profits generated outside the country. The new global minimum tax does much the same.  Although its supporters claimed that it would ensure that corporations pay some US tax on their foreign profits, as structured it encourages foreign investment.  The minimum tax rate remains far below the US domestic rate, and the larger the capital base of the foreign subsidiary, the greater the foreign profits the parent firm can shield from taxation.

As for the one-time tax break on repatriated profits, the fact is that most of the money supposedly held abroad was already in the country, sitting in accounts protected from taxation.  Moreover, since firms remain reluctant to invest, the one-time break only served to give firms the opportunity to channel more money into nonproductive uses at a special lower tax rate.

Tax realities

According to the Treasury Department, corporate income tax receipts fell by 31 percent in fiscal year 2018.  As a Peter G. Peterson blog post explains:

The 31 percent drop in corporate income tax receipts last year is the second largest since at least 1934, which is the first year for which data are available. Only the 55 percent decline from 2008 to 2009 was larger. While that decrease can be explained by the Great Recession, the drop from 2017 to 2018 can be explained by tax policy decisions.

The Tax Cuts and Jobs Act, enacted in December 2017, is responsible for the plunge in corporate income tax receipts in 2018. Those changes include a reduction in the statutory rate from 35 percent to 21 percent and the expanded ability to immediately deduct the full value of equipment purchases. The Congressional Budget Office points out that about half of the 2018 decline occurred since June, which includes estimated tax payments made by corporations in June and September that reflected the new tax provisions.

Ben Foldy, writing for Bloomberg news, highlights the spoils that went to the banking sector:

Major U.S. banks shaved about $21 billion from their tax bills last year — almost double the IRS’s annual budget — as the industry benefited more than many others from the Republican tax overhaul. . . .

On average, the banks saw their effective tax rates fall below 19 percent from the roughly 28 percent they paid in 2016. And while the breaks set off a gusher of payouts to shareholders, firms cut thousands of jobs and saw their lending growth slow. . . .

Tax savings contributed to a banner year for banks, with the six largest surpassing $120 billion in combined profits for the first time. Dividends and stock buybacks at the 23 [largest] lenders surged by an additional $28 billion from 2017 — even more than their tax savings.

The stability and profitability of global corporate networks

US firms also continue to take advantage of overseas tax havens.  As Brad Setser, writing in the New York Times, points out:

despite Mr. Trump’s proud rhetoric regarding tax reform . . . there is no wide pattern of companies bringing back jobs or profits from abroad. The global distribution of corporations’ offshore profits — our best measure of their tax avoidance gymnastics — hasn’t budged from the prevailing trend.

Well over half the profits that American companies report earning abroad are still booked in only a few low-tax nations — places that, of course, are not actually home to the customers, workers and taxpayers facilitating most of their business. A multinational corporation can route its global sales through Ireland, pay royalties to its Dutch subsidiary and then funnel income to its Bermudian subsidiary — taking advantage of Bermuda’s corporate tax rate of zero.

The chart below makes this quite clear, showing that US profits are disproportionately booked in countries where there is little or no actual productive activity.

In fact, as Setser notes, “the new [tax] law encourages firms to move ‘tangible assets’ — like factories — offshore.”

The chart below, from a Fortune magazine post, provides an overview of the large cash holdings of some of America’s largest corporations and the share held “outside” the country.

Economists estimated that US firms held approximately $2.6 trillion outside the country and the Trump administration predicted that a large share would be brought back, funding new productive investments, thanks to the one-time lower tax rate included in the 2017 tax reform act.  Government officials and the media talked about this money in a way that gave the impression that it was actually sitting outside the country. But it wasn’t.

Adam Looney, in a Brookings blog post, clarifies that:

”repatriation” is not a geographic concept, but refers to a set of rules defining when corporations have to pay taxes on their earnings. For instance, paying dividends to shareholders triggers a tax bill, but simply bringing the cash to the U.S. does not. Indeed, nearly all of the $2.6 trillion is already invested in the U.S. . . .

U.S. multinational corporations can defer paying tax on profits they earn abroad indefinitely by agreeing not to use the earnings for certain purposes, like paying dividends to shareholders, financing domestic acquisitions, guaranteeing loans, or making investments in physical capital in the U.S. In short, the rules prohibit a company from using pre-tax money in transactions that benefit shareholders. No one believes this is rational or efficient, and it is certainly onerous for shareholders, who would rather have that cash in their pockets than held by the corporation. But those rules don’t place requirements on the geographic location of the cash. Multinational firms are allowed to bring those dollars back to the U.S. and to invest them in our financial system.

Indeed, that’s exactly what they do. Don’t take my word for it, the financial statements of the companies with large stocks of overseas earnings, like Apple, Microsoft, Cisco, Google, Oracle, or Merck describe exactly where their cash is invested. Those statements show most of it is in U.S. treasuries, U.S. agency securities, U.S. mortgage backed securities, or U.S. dollar-denominated corporate notes and bonds.

Of course, these firms could easily have used their tax deferred dollar assets as collateral to borrow to finance any investment projects they found attractive.  Their lack of interest in doing so provides additional evidence that low corporate rates of investment are not due to funding constraints.  Rather, corporations have only a limited interest in undertaking productive investments in the US.

Thus, it should come as no surprise that the one-time tax break resulted in a one-time, modest, “repatriation” and that the money was largely used for financial rather than productive purposes. The New York Times reports that:

 JPMorgan Chase analysts estimate that in the first half of 2018, about $270 billion in corporate profits previously held overseas were repatriated to the United States and spent as a result of changes to the tax code. Some 46 percent of that, JPMorgan Chase analysts said, was spent on $124 billion in stock buybacks.

The flow of repatriated corporate cash is just one tributary in what has become a flood of payouts to shareholders, both as buybacks and dividends. Such payouts are expected to hit almost $1.3 trillion this year, up 28 percent from 2017, according to estimates from Goldman Sachs analysts.

In sum, thanks to the Trump tax plan, trillions of dollars that could have been used to transform our transportation and energy infrastructure, industrial structure, and system of social services are instead being transferred to big businesses, who use them for speculative activities and to further enrich their already wealthy managers and stock holders.

Given current realities, we can expect growing popular interest in and support for new public initiatives like the Green New Deal and a new progressive system of taxation to help finance it.  Hopefully, exposing the workings of our current tax system and the lies our government and business leaders tell about whose interests it serves, will help speed this development.

Millennials: Hit Hard And Fighting Back

A lot has been written and said critical of millennials. The business press has been tough on their spending habits.  As a recent Federal Reserve Board study of millennial economic well-being explained:

In the fields of business and economics, the unique tastes and preferences of millennials have been cited as reasons why new-car sales were lackluster during the early years of the recovery from the 2007–09 recession, why many brick-and-mortar retail chains have run into financial trouble (through lower brand loyalty and goods spending), why the recoveries in home sales and construction have remained slow, and why the indebtedness of the working-age population has increased.

Politicians, even some Democratic Party leaders, have tended to write them off as complainers. For example, while on a book tour, former Vice President Joe Biden told a Los Angeles Times interviewer that “The younger generation now tells me how tough things are. Give me a break. I have no empathy for it. Give me a break.” Biden went on to say that things were much tougher for young people in the 1960s and 1970s.

In fact, quite the opposite is true.  For better or worse, the authors of the Federal Reserve Board study found that there is “little evidence that millennial households have tastes and preference for consumption that are lower than those of earlier generations, once the effects of age, income, and a wide range of demographic characteristics are taken into account.”  More importantly, millennials are far poorer than past generations were at a similar age, and are becoming a significant force in revitalizing the labor movement.

Economic hard times for millennials

The Federal Reserve Board study leaves no doubt that millennials are less well off than members of earlier generations when they were equally young. They have lower earnings, fewer assets, and less wealth.  All despite being better educated.

The study compares the financial standing of three different cohorts: millennials (those born between 1981 and 1997), Generation Xers (those born between 1965 and 1980), and baby boomers (those born between 1946 and 1964).  Table 1, below, shows inflation adjusted income in three different time periods for all households with a full-time worker and for all households headed by a worker younger than 33 years.

The median figures, which best represent the earnings of the typical member of the group, are shown in brackets.  Comparing the median annual earnings of young male heads of households and of young female heads of household across the three time periods shows the millennial earnings disadvantage.  For example, while the median boomer male head of household earned $53,400, the median millennial male head of household earned only $40,600.  Millennial female heads of household suffered a similar decline, although not nearly as steep.

Table 4 compares the asset and wealth holdings of the three generations, and again highlights the deteriorating economic position of millennials.  As we can see, the median total assets held by millennials in 2016 is significantly lower than that held by baby boomers and only half as large as that held by Generation Xers.  Moreover, millennials suffered a decrease in asset holdings across most asset categories.

Finally, we also see that millennials have substantially lower real net worth than earlier cohorts. In 2016, the average real net worth of millennial households was $91,700, some 20 percent less than baby boomer households and almost 40 percent less than Generation X households.

Fighting back

Millennials have good reason to be concerned about their economic situation.  What is encouraging is that there are signs that growing numbers see structural failings in the operation of capitalism as the cause of their problems and collective action as the best response.  A recent Gallup poll offers one sign.  It found a sharp fall in support for capitalism among those 18 to 29 years, from 68 percent positive in 2010 down to 45 percent positive in 2018.  Support for socialism remained unchanged at 51 percent.

A recent Pew Research poll offers another, as shown below. Young people registered the strongest support for unions and the weakest support for corporations.

Of course, what millennials do rather than say is what counts. And millennials are now boosting the ranks of unions.  Union membership grew in 2017 for the first time in years, by 262,000.  And three in four of those new members was under 35.  Figures for 2018 are not yet available, but given the strong and successful organizing work among education, health care, hotel, and restaurant workers, the positive trend is likely to continue.

Millennials are now the largest generation in the United States, having surpassed the baby boomers in 2015.  Hopefully, self-interest will encourage them to play a leading role in building the movement necessary to transform the US political-economy, improving working and living conditions for everyone.