So here we are, in the Great Covid Depression. The problem is, we were already in the middle of a second great depression before Covid-19 hit. It was just really hard to see for anyone living in the top 20% or so of income earners. For four decades until Covid, they(/we) had been doing well, very well, or ridiculously well, depending on how close they were to the top 1%. For the bottom 80%, over those same four decades, wealth, wages, and basic living standards had stagnated, eroded, or fallen off a cliff. Over those years, the top 20%, even the very well-meaning among them, found subtle ways to make the depression invisible. In 1994, Bill Clinton removed “discouraged workers” from unemployment statistics. If he had left them in, the official unemployment rate would have counted about 1/5th of American workers as unemployed through most of the ’00s and ’10s. At the peak of the Great Depression, unemployment was about one quarter. Counting discouraged workers, with the Covid shutdown unemployment may now be as high as 38% at the time of this writing–and rising. We’re stacking depression on top of depression. The only silver lining is that Covid, while far from working as a “great equalizer,” is waking up the top 20% to the reality that most other Americans have been living. Since the top 20% are the ones who really call the shots in American democracy, maybe once Covid is no longer keeping us home, we can start working to rebuild our economy, this time for everyone. What are the chances this will happen? And how do we do it?
If the Great Depression is any guide, then, unfortunately, hardship alone will not automatically get us into the mindset to rebuild. This is because we’ve been brainwashed as a nation into forgetting that building is something we should even be doing to our economy. Liberals, progressives, and other varieties of leftists have always been the most susceptible to this kind of defeatist thinking. When the economy collapsed in 1929, they understood it as a crisis of overproduction: capitalism was producing more stuff than humanity could ever possibly know what to do with. Members of FDR’s “braintrust” advised that the industrial economy must be scaled back permanently to a sustainable size and measures taken to ensure that the reduced national output would be more equally distributed.
We got brainwashed to think that way by an instinctive, relentless and very successful public opinion campaign by activist business leaders starting in the 19th century and really picking up steam from the 1920’s to the 1980’s. The campaign was their way of striking back against victories of the labor movement in the U.S. and trying to get ahead of the rise of the world socialist movement that seemed always to be on the verge of taking power almost everywhere all the way until the 1960’s. Virtually every conservative think tank you’ve heard of comes from this campaign: the Heritage Foundation, the American Enterprise Institute, and many others. At the peak of this campaign, American corporations were distributing popularizations of libertarian economic works – even in comic book form – in print runs of tens of millions. Employers did everything from including these in employees pay envelopes to sponsoring radio and television series adaptations of them.
The central message was that the economy must “take care of itself.” The business of investing and building in the industry must be left to business. Liberals largely conceded this point when it came to industry, focusing government’s energy in the New Deal on acting only as an external enabler of industry by building infrastructure, maintaining competitive markets, and providing social services. It is well known now that the U.S. economy would have choked along inside the Great Depression for decades unless World War II had come along–albeit with improved electrification, tidy forests, and the beginnings of a social safety net (for white people, as the New Deal carefully avoided providing support to African Americans in most cases).
As apocalyptic as it was for most of the world, WWII was the perfect instrument to force America to rebuild. The threat of Nazi world domination temporarily cured liberals of their fears of overproduction and conservatives of their fears of state-led investment. Our primary contribution to the war was building an unlimited supply of new-fangled technologies, vehicles, tools, materials–which drove America instantly up to full employment, and all of which would be supremely marketable after the war.
Unfortunately, the war did not permanently change the way America thought about building its economy. The business campaign saw the threat posed by the impressive example of the war and went into overdrive to convince Americans to see state-led building as a dangerous exception of wartime. After the war, the government immediately started dismantling the institutions and habits that had driven the overhaul of industry. Postwar super profits and simple momentum drove investment by private corporations for a while, and the government continued to make massive investments in the defense industry. All other industries were on their own. Gradually, all the great industries that provided tens of millions of high-paying jobs to Americans began to erode in America as new capacity was outsourced and off-shored. By the 1970’s and 80’s, they collapsed under the pressure of high quality, low-priced competition from Asia and the quantity of good jobs they provided to Americans never stopped shrinking. America’s response was to bust unions for labor market flexibility and encourage activity in the unproductive service and building sectors. It worked to provide jobs--though low paying jobs--because the whole world had no other reliable place to park giant chunks of wealth other than U.S. dollar assets. So a huge flood of capital funded the building of new shopping malls next to old ones, new office buildings in depopulated “financial districts” of every city. Americans did their part to fund the service and real estate economy too, spending down family savings on fast food meals while racing between three part-time low wage jobs, and taking on mountains of debt to buy overpriced homes.
This is when the top 20% of Americans really began to prosper. They did the highly-paid jobs orchestrating this transformation of the American economy, in management, marketing, design, consulting, and finance. As they gathered in a handful of wealthy zip codes distributed in and around every city, the value of their homes, bought with cheap foreign-fueled credit, skyrocketed. The bottom 80%, however, saw their wages hacked to bits as industrial workers who formerly earned the equivalent of $100,000 per year or more with full benefits for building some of the world’s most valuable objects, now reported to work at minimum wage to mop floors at hospitals or stock shelves at big box stores.
In Europe, they faced the same pressures from Asia but responded differently, which offers a window into what could have been in America. The same anti-building ideology that afflicted America was also on the rise in Europe but had not fully consumed European thinking. Therefore, European governments organized huge waves of loans for existing corporations and created giant start-up and innovation funds that seeded countless startups. As steel mills, auto manufacturers, and first-generation electronics factories were being driven out of business by cheaper, high-quality imports manufactured in Asia governments found many diverse ways to channel resources into investment directly into industries. They also did a better job than the United States of improving worker training, expanding engineering education, and improving infrastructure. It will surprise most readers to learn that these programs were mainly led by free-market oriented, conservative “European liberal” parties, not by socialists. Across Europe, the left was mainly stuck in the same pessimistic thinking that had limited FDR’s New Deal.
In Denmark, for example, the government, led by a free-market “liberal” party, induced the nation’s mammoth pension funds to allocate a portion of their holdings to venture capital investments into startups. One result was that as Denmark’s old-tech shipping radio industry was run out of business by Asian competition, businesses reinvented themselves as high-tech component manufacturers for the brand new cell phone industry, supplying neighboring mobile giants like Ericsson and Nokia. And where did those companies come from? Massive state investments from the Swedish and Finnish governments, also led by free-market liberal parties. Before its rebirth as a global tech giant, Nokia had been a paper products company, selling mostly to the Soviet Union and known primarily for its toilet paper (Google “Nokia Toilet Paper” if you don’t believe me). The Finnish government provided mountains of investment for Nokia and many other corporations to reinvent themselves further up the value chain. For decades Nokia’s exports brought billions of dollars into the nation, which the society plowed into new industrial investments, always shooting for higher on the value chain. Sometimes, people point to Nokia as a failure of industrial policy. But even today it employs 100,000 people (twice as many as Facebook) and draws tens of billions of Euros in revenue. More importantly, as Nokia’s market share declined, engineers and managers trickled out of the company into new ventures further up the value chain. Nokia was just one rung in the value ladder.
In light of all that, what are America’s options coming out of the Covid Depression? Here are a few concrete steps American leaders could take to rebuild the U.S. economy rapidly, creating great jobs for everyone who wanted one:
1. Since Wall Street banks are unwilling or unable to invest in long bets on American industry, the federal government, and state and local governments, should create a system of long-term capital investment banks whose sole mission will be to get capital to companies that want to build their next-generation facilities in the U.S.. When America was young, it had a system of public national and state banks that drove investment in industry and infrastructure. After the Civil War, Wall Street successfully wrangled them out of existence, but at that time many big Wall Street banks were willing to make bets on America and funded the building of American industry in the age of J.P Morgan and the Tycoons. When Morgan and the Tycoons were gone, their successors turned away from long term investment toward short-run profit-taking. Around the world, nations that climbed the value chain, especially in Europe and Asia, have always had banking systems that provided long-term capital to large corporations, small and medium-sized businesses, and startups. Depending on the nation, some were state-owned, others non-profit, and others private and for-profit. Many countries, like Germany, had all three kinds.
2. Though America still has one of the highest-skilled workforces in the world, we have fallen woefully behind in professions such as engineering and industrial design, and in skilled trades. The federal government should offer free university education with living stipends to any student who manages to earn a degree in engineering and related professions and invest massively in universities to increase their capacity in those areas. To solve the skilled labor crisis facing manufacturing firms, the federal government should fund a paid apprenticeship program modeled on Germany’s incredibly successful system.
3. The previous two measures are only enabling mechanisms. Someone still will need to drive and steer America to rebuild with a vision. As in Europe and Asia, that leadership will have to come from leaders coming to power in government. This vision could be branded by progressives in the form of a pro-worker agenda like the Green New Deal, or by liberals in the form of a business-first agenda. Either way, as I’ve written about many times in the past, the U.S. has the perfect template for success in our economic mobilization around World War II, which was a huge program of investment into industry with plenty of attention also paid to workers’ rights and bargaining power (though never enough, of course).
What are the chances that any of this happens? Looking at the Democrats, it is hard to imagine anyone close to leadership in that party going anywhere near anything like a grand mobilization. Among Republicans, though, younger, maverick figures are much closer to leadership. And they are talking about building. Hard-right populists like Marco Rubio, Josh Hawley, and Tom Cotton are all beginning to outline visions for state-led investment into industry. They and others have broken with the free-market orthodoxy of the Republican party in acknowledging the collapse of long-term private investment and championing economic rebuilding.
So how will this all play out? If Joe Biden wins in November, he and those in his administration will not build. The depression will drag on, and the young Republican builders will have a clear shot at the White House. If Biden becomes unfit to run for reelection, that only increases the chance of victory for a Republican builder since the Democratic nominee will have to run on the record of Democratic failure without the advantage of incumbency. If a Republican wins in 2024 and then goes on to successfully build and provide good jobs for Americans then Republicans, under a new nationalist building ideology, could rule for a generation or two the way Democrats did after FDR.
The problem there, of course, is that these young Republicans’ brand of nationalism is staunchly anti-American, in that it is both anti-immigrant and anti-civil rights. If no alternative movement rises, I’m afraid that’s what we’re going to get stuck with, like it or not.