Month: February 2012

Little fanfare, but this work-sharing legislation will (hopefully) come to make a difference in the lives of millions of Americans by creating incentives for employers roll back hours during downturns rather than lay people off wholesale.

If you needed to cut payroll by 10%, the new law would make it more sensible to reduce everybody’s hours by 10% rather than lay off one out of ten employees.

This week, Congress passed the Middle Class Tax Relief and Job Creation Act of 2012 that carried the essential provisions of work-sharing bills proposed by Sen. Jack Reed and Rep. Rosa DeLauro. The bill would have the federal government pick up some of the expenses associated with state work-sharing programs, thereby giving them more incentive to promote work sharing….

Work sharing, or short-time compensation as it referred to in the bill, allows workers who had their hours reduced to receive benefits equal to half of their reduction in pay. From the standpoint of the worker, the employer, and the economy as a whole, it is likely to be a better outcome if workers can be kept on the job working shorter hours rather than being laid off.

In political terms, austerity is a self-inflicted wound. In some ways, it is equivalent to cutting off one own feet before running a race. Gruesome imagery, but no more gruesome that the severe hardships austerity wreaks upon citizens who face its burden while those who caused it go unpunished and in many cases, seemingly rewarded.

I don’t want to get in to whether austerity works right here, (though based on Britain’s economy versus Sweden’s, I’d say it doesn’t). What I want to get into are the political consequences of austerity. Because to me, these are far more interesting. They’re interesting in that they’re causing great shifts in the political climate of the European and North American worlds.

When the economic crisis hit, Europe was mostly dominated by social democrats or parties that were the more left of the two dominant parties (even in parliamentary systems, two large parties tend to take a great share of the electorate). The Socialist Parties in Portugal, Labour in the United Kingdom, the Panhellenic Socialist Movement (PASOK) in Greece, the PSOE in Spain. Others, like the Social Democrats of both Germany and Austria were in coalition governments; the junior party in the case of Germany and the senior party in the case of Austria.

Despite their socialist monikers and pedigrees, these parties were largely social democratic or advocates of Clintonian “Third Way” policies; advocating deregulation. By the time the beginnings of the Great Recession came about, they had largely succeeded in their agendas. The great irony of the Great Recession is that the people who were on watch when it happened were also the heirs of Keynesianism. They also bear some responsibility for its causes.

In response, instead of relying on time-tested responses, these parties bowed to the will of investors and implemented expansionary austerity. The elections following the onset of the crisis were swift in retribution. Opposition parties took power, largely advocating even greater spending cuts and far more severe austerity. Spain, Portugal, and the UK all lost social democratic governments in exchange for conservative governments. In Ireland, where center to center-right party Fianna Fáil has ruled for 61 of the last 79 years, that party fell to third place; the further right Fine Gael and the center-left Labour Party took power in a coalition; while Sinn Fein came in a close fourth. In Italy, austerity did what ten years of scandals couldn’t; Berlusconi fell.

Those parties that haven’t faced such trouble (due to favorable election timing) were instead forced to enact strong austerity measures. 2012 is likely to punch their tickets. France and Greece both face elections. Nicholas Sarkozy, the French President, is likely to go down in defeat to his Socialist Party challenger. Greece is even odder. While the right-wing New Democracy Party will undoubtedly be the the largest party, they will be faced by newer parties that will be even further left than PASOK. It not inconceivable that a left-wing, anti-austerity coalition will form in Greece, especially if the country defaults even while it enacts austerity.

Governments which chose the opposite route, implementation of stimulus have remained relatively stable. America’s moderate stimulus package is dwarfed by those of Germany and Sweden; but at present, it appears to be timidly working. Germany is stable, its labor minister (a conservative) recently made calls to raise workers’ wages. Sweden, whose stimulus kicked in automatically despite cuts to it by the ruling Moderate Party (a liberal conservative party, despite its centrist-style name), was one of the first countries to emerge from the crisis, almost unscathed. Of course, unlike many countries who spent wildly during good times (e.g., George W. Bush and the 107th to 110th Congresses), Sweden ran surpluses which it relied upon to implement this stimulus.

Countries that enacted austerity have seen ballooning unemployment, especially among youth. The UK is now in a depression equivalent in length to the Great Depression, and projected to be the worse in British history. The UK is the poster child for expansionary austerity; its Prime Minister made the call for a “Big Society” based on volunteerism shortly after taking office. The volunteers have not come through. Portuguese workers are moving to Angola in an attempt to find work; Angola is comparable to France under Napoleon or Portugal under its dictatorship during the 20th Century. Spain’s new conservative government has attempted to drum up nationalist sentiment by demanding Gibraltar, rather than face the fact it will have to fix the economy. It and Greece are seeing that massive youth unemployment leads to mass anti-government street movements.

The point is this, austerity is universally reviled by citizens. Its enactment leads to unpredictable political consequences. The same investors pushing austerity are likely to get spooked by these consequences. But the people who should be spooked are political leaders.

In America, we have yet to face austerity, largely thanks to choosing stimulus. Our debt ceiling crisis left us with a bill that will trigger austerity, but the major cuts are backloaded for 2013 and 2014. The brunt of that austerity will no doubt fall on the states, but both parties will be further tarnished by their association with the compromise that formed it. We may indeed face a voter’s revolt, one which will lash out in unpredictable ways. Faced with this possibility, it might be better for either party to lose the 2012 elections, campaign in 2014 and 2016 against austerity and gain the ability to enact their agenda completely in 2016.

Of course, that’s a scenario fraught with uncertainties. Most of all, depending on what happens in Congress in 2012, the austerity of 2013 and 2014 may never come. One Congress cannot bind another to enact its policies. The triggers in the debt ceiling compromise are essentially a gun held to Congress’ head to get it to act. Anybody who has already broken a New Years’ Resolution knows the effectiveness of this idea.

What may indeed happen is that current status quo continues; the economy slowly improves but austerity will fall on state governments. And this may cause political change that no one is quite ready for. It’s important to note that the Moderate Party outperformed its poll numbers in Rhode Island in 2010; if it actually had candidates for the General Assembly (and not been hamstrung by its unfortunate name), it might’ve been able to make some headway in the state by being the alternative for moderate Democrats who wouldn’t want to back the Republicans. Lincoln Chafee, an independent candidate, triumphed over Republican and Democratic opponents; the only candidate not from a major national party to do so. Rhode Island may only be the beginning. As the national parties become increasingly despised, local races may begin to be susceptible to other parties besides the Big Two, on a range unseen before.

I think that may be more likely in states ruled by Democrats that enact austerity. At this point, austerity is Republican dogma. Austerity is a naturally unfair system, it punishes the poor and the middle class (both of which largely rely on social services) for the mistakes of the powerful. And Americans are concerned with fairness at this moment. Any political organization which campaigns for fairness and against austerity is going to look appealing, especially to the people who will bear the brunt of the cuts. Already, we can see from Mitt Romney’s inability to seal the deal in the Republican primary that the “rich folks need more tax cuts” dogma isn’t working.

The next few years may see a great change in American politics at the local level.