Bernie Slanders: How the Democratic Party Establishment Suffocates Progressive Change

By Thomas I. Palley, Independent Economist Washington, D.C.

Cross-posted at the author’s blog, thomaspalley.com.  An earlier version of this appeared at Social Europe.

The Democratic Party establishment has recently found itself discomforted by Senator Bernie Sanders’ campaign to return the party to its modern roots of New Deal social democracy. The establishment’s response has included a complex coupling of elite media and elite economics opinion aimed at promoting an image of Sanders as an unelectable extremist with unrealistic economic policies.

The response provides a case study showing how the Party suffocates progressive change. Every progressive knows about the opposition and tactics of the Republican Party. Less understood are the opposition and tactics of the Democratic Party establishment. Speaking metaphorically, that establishment is a far lesser evil, but it may also be a far greater obstacle to progressive change.

The elite media’s response was captured in a snapshot report by Fairness and Accuracy In Reporting (FAIR) showing that the Washington Post ran 16 major negative stories on Sanders in 16 hours, prior to the Michigan primary. The headlines were particularly hostile, and since only 40 percent of the public reads past the headline, that is as important as the substance of the story.

Economic policy has been the fulcrum of Sanders’ campaign, and the response of elite opinion has been exemplified by Paul Krugman of The New York Times.

For years, Krugman has mockingly used the term “very serious people” to attack Republicans opposed to President Obama’s policies. Now, he unironically revokes the credentials of all who do not support Clinton  by declaring: “every serious progressive policy expert on either health care or financial reform who has weighed in on the primary seems to lean Hillary.”

Regarding Sanders’ opposition to neoliberal trade agreements, Krugman writes “In this, as in many other things, Sanders currently benefits from the luxury of irresponsibility: he’s never been anywhere close to the levers of power, so he could take principled-sounding but arguably feckless stances in a way that Clinton couldn’t and can’t.”

The slamming of Sanders has also been joined by a gang of past Democratic appointee Chairs of the Council of Economic Advisers. In an open letter co-addressed to Senator Sanders, Messrs. Kruger, Goolsbee, Romer and Tyson mauled a favorable empirical assessment of Sander’s economic program conducted by Professor Gerald Friedman.  Without any detailed independent assessment, they simply declared the assessment unsupported by the “economic evidence”.

Messrs. Kruger et al. were then joined by Justin Wolfers, via one of his regular New York Times opinion pieces. His accusation was the beneficial effects of fiscal stimulus would disappear once full employment was reached and the stimulus withdrawn.

Wolfers is co-editor of the prestigious Brookings Papers on Economic Activity. Ironically, a recent issue contained an article by elite Democratic economists Larry Summers and Brad DeLong invoking a similar mechanism as Professor Friedman. Summers and DeLong argued a large negative temporary demand shock can permanently lower output: Friedman simply reversed that and argued a large positive temporary stimulus can permanently raise output and growth.

There is legitimate room for intellectual difference. What is so stunning is the tone of the critique and the fact it sought to diminish an important policy (fiscal stimulus) just because Sanders was using it to his political advantage.

Given their elite professional standing and easy access to elite media, these attacks quickly ramified throughout the mainstream media, illustrating how the elite media – elite opinion nexus works.

The slamming of Sanders reflects an enduring status quo defense mechanism which usually begins with insinuations of extremism, then mixes in charges of lack of qualification and realism, and ends with assertions of un-electability. It is applied in both political and public intellectual life.

The extremism gambit explains the persistent linking of Sanders and Trump. Whereas Trump is an egotistical demagogue and businessman with a disreputable business history, Sanders is a thoughtful social democrat with a long history of public service through high electoral office.

The un-electability charge pivots off the extremism insinuation as follows. Americans will not elect extremists; Sanders is an extremist; ergo, Sanders is unelectable.

As with the extremism insinuation, the un-electability charge lacks foundation. Polls show Sanders beating all the potential Republican nominees, and beating Trump handily.

The third charge is lack of qualification. The reality is Sanders has a fifty year history of political involvement, worked his way through the political ranks serving people, was Mayor of Vermont’s largest city, then Vermont’s representative in Congress where he co-founded the Congressional Progressive Caucus, and after that became a Senator for Vermont. That seems to be exactly the career and CV a President should have.

Lastly, Sanders has been dismissed as selling unrealistic pipe dreams. Social Security would be a pipe dream if we did not already have it; so would Medicare and public education too. There is a lesson in that. Pipe dreams are the stuff of change.

Rather than an excess of pipe dreams, our current dismal condition is the product of fear of dreaming. The Democratic Party establishment persistently strives to downsize economic and political expectations. Senator Sanders aims to upsize them, which is why he has been viewed as such a threat.

November will be a time for Democratic voters to come together to stop whoever the Republicans nominate. In the meantime, there is a big lesson to be learned.

Today, the status quo defense mechanism has been used to tarnish Bernie Sanders: tomorrow it will, once again, be used to rule out progressive policy personnel and options.

Progressives must surface the obstruction posed by the Democratic Party establishment. Primaries are prime time to do that, which means there is good reason for Sanders’ campaign to continue.

Venezuela: Dismantling a Weapon of Mass Destruction

By Mark Weisbrot

Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, D.C., and the president of Just Foreign Policy. He is also the author of the new book “Failed: What the ‘Experts’ Got Wrong About the Global Economy” (2015, Oxford University Press). Cross-posted at our sister blog, Triple Crisis.

The government of Venezuela has often denounced an “economic war” against it, and of course this is part of the current situation. The primary weapon of mass destruction in this war is the black market for the dollar. It is no coincidence that the main source of information for this market — the extreme right-wing “DolarToday” — is run by someone who played an important role in the U.S.-backed military coup in 2002. He was then an army officer — Colonel Gustavo Díaz Vivas — and he now resides in Alabama, with DolarToday operating out of the U.S.

This is also no coincidence. Washington has been trying to topple the Venezuelan government for at least 15 years, and almost every journalist I have talked to during this time — including from every major international media outlet — has been well aware of this effort; although they almost never write about it.

The black market for the dollar is especially destructive because it is part of an inflation-depreciation spiral that has been growing since the fall of 2012. When the price of a dollar on the black market rises, importers must pay more for the dollars that they need, and this increases inflation. But then the higher inflation encourages more people to buy dollars on the black market, as a store of value. This pushes up the black market dollar price, which increases inflation, in a continuing spiral. In October 2012, inflation was at 18 percent and the black market dollar was at 13 Bf (Bolivares Fuertes). At the end of 2015, inflation hit 181 percent, and the black market dollar had passed 800.

The main reason that the current spiral does not get even worse is that the economy is in recession. It shrank by 5.7 percent last year. But attempts to stimulate the economy through government spending would likely feed the inflation-depreciation spiral. This means that the economy is currently trapped in recession.

The government must therefore incapacitate this weapon of mass destruction. The only way to do that is to unify the exchange rate.

Many people are afraid of this vital change. Some think that everyone’s savings would suddenly rush into dollars, and the equilibrium rate would be even worse than today’s black market. It is true that many Venezuelans prefer to save in dollars (this is also true in Peru, Uruguay, and other Latin American countries). But they do not want dollars at any price; that is why the black market rate settles at an equilibrium price, e.g., at the current rate of about 1,000. If the government let the currency float — which is what it would have to do in order to terminate the black market — it would also settle at some equilibrium price, and it would be far less than the current black market price.

Others say that the government has no dollars to sell on a floating exchange rate market. But that is not true. Although its current oil revenues are not enough to pay for all of the country’s imports, it has tens of billions of dollars in international assets (and even more internally) that it could sell for cash. It would need to auction off about 9 to 10 billion dollars a year (about $36 million per day) in order to adequately supply the foreign exchange market. Last year it sold about $12 billion, but about 95 percent of that was sold at extremely low prices of 6.3 and 10. Much of this money was never used for imports, since it could be sold for superprofits on the black market. The whole system creates enormous incentives for corruption.

Interestingly, President Chávez allowed the currency to float on February 12, 2002. In the year prior to this move, there had been a lot of capital flight, and therefore falling Central Bank international reserves. But despite the political instability — this was just two months before the military coup —reserves actually grew after the float, until the oil strike near the end of the year.

Others argue, from the left, that a floating exchange rate is “neoliberalism,” and that keeping the fixed, overvalued rate is “socialist.” But this is also deadly wrong. The worst economic crises of the late 1990s — in Argentina, Brazil, Russia, Indonesia, Thailand, and other countries — were brought on by fixed, overvalued currencies. Most of these fixed, overvalued currencies were strongly supported by the International Monetary Fund and other neoliberals until they collapsed.

It is the black market that is “savage capitalism” — uncontrolled and unregulated. And it is a way of subsidizing capital flight, and feeding the government’s enemies. You give them cheap dollars and they take them out of the country, worsening the balance of payments problem. By contrast, letting the currency float is a way of taxing capital flight: Whoever wants dollars must pay more for them.

And Venezuela is very lucky compared to other countries that have faced this problem: the vast majority of the country’s dollars come to the government through oil revenue. This means that the government will have much more revenue to spend, in domestic currency, when the currency has been floated. It can use this revenue, as well as other funds in domestic currency, to finance subsidies for food and medicine.

This makes much more sense than trying to subsidize food or other essentials through the exchange rate. And the price controls on food are not working very well: Food inflation for 2015 was 300 percent, nearly twice the (181 percent) rate of overall inflation.

Unifying the exchange rate is thus the first and most important step toward economic recovery. Once that is done, it will become possible to address other imbalances and problems — including shortages, price controls, inflation, and economic growth. But first things have to come first.