The Long and the Short

This month, the Prospect goes both long and short. In the print magazine, we address what the Democrats, if they win both the White House and Congress next year, should do about the profound, long-term challenges confronting America. Online, we are providing continuous reporting and commentary on both parties' primary contests, to which end we are dispatching our reporters to all the key early states. You can find all our election coverage at

Should the Democrats take the White House next year, the new president may well have to begin by facing the kind of problem that we're not accustomed to thinking of as long-term: a recession. Economists are now giving even odds that a recession will soon be upon us. My own wager is that if the recession comes, it won't look like any of the recessions we've had since World War II. Indeed, ending this recession may require the kind of far-reaching economic reforms we've not seen since Franklin Roosevelt tackled the Great Depression.

Don't read that, please, as a prediction of breadlines or of financiers hurling themselves off skyscrapers (though any number of Wall Street CEOs have already been unceremoniously tossed out of their executive suites during the past few months of mortgage-market meltdown). My point is that after 35 years of dismantling the America that the New Deal built, our country now resembles in some perilous particulars the America that existed before Roosevelt became president.

Should recession come, it will be the first since 1929 to be precipitated by a financial sector that's unregulated, deliberately opaque, and fundamentally dishonest. America's largest banks don't even trust each other these days, which is why interbank loans and other forms of liquidity are drying up. As for dishonesty, Goldman Sachs -- by common consent, the smartest guys on the Street -- seems to have hedged its mortgage-backed securities because it understood that mortgages were about to tank, even as it continued to sell those securities, no warning attached, to all manner of pension funds and other trusting investors. Climbing out of this recession will require regulating all the exotic structures that Wall Street's devised over the past 35 years to elude the regulations that Roosevelt put in place to avoid a repetition of 1929.

And should recession come, the next president may need to focus on a problem that no American president since FDR has really had to deal with: underconsumption. Over the past 35 years, American families have compensated for stagnant incomes by sending more members into the workplace and, more recently, by drawing on the rising value of their homes. But with both partners already working, home values tanking, and all our gains in productivity and income going, as they haven't done since before the New Deal, to the wealthiest sliver of our society, the ability of Americans to spend their way out of recession ain't what it used to be.

The standard governmental fixes for our post–World War II recessions -- loosening credit, upping spending on job-creating public projects, cutting this tax or that -- all presupposed that our economy needed a stimulus, not a fundamental fix. To deal with the next recession, Democrats will need to reconcile themselves again to deficit spending, but the next president may also find that some of Roosevelt's more ambitious remedies, updated for current conditions, are required as well.

The strategy that Roosevelt had settled on by 1935 to rescue the country from the Depression was largely directed at boosting the incomes of average Americans. The National Labor Relations Act was intended -- it's all there in the act's preamble -- to increase union membership and, thereby, Americans' ability to buy more and expand the nation's aggregate demand. Social Security was similarly intended to boost seniors' capacity to consume. Roosevelt's incomes policy didn't fully take effect, though, until the government started gearing up for war at the start of the 1940s, creating millions of decent-paying defense-plant jobs.

With the ability of ordinary Americans to make a good living so eroded by the weakening of unions and the pressures of globalization, the next president, like Roosevelt, will need an incomes strategy, as well as a financial re-regulation strategy. That means, as Bob Kuttner argues elsewhere in this issue, promoting rather than retarding the growth of unions, and creating good jobs as part of a major public project to make our economy environmentally sustainable. The long-term endeavor of creating a more just and green economy may perforce become the next president's short-term fix as well.

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