Excellent Summary of a Crucial Book

You don’t want to miss this article by MCM staffer Rick Goldman published in last week’s Gazette – an excellent summary of a crucial book  that we all need to read – and the book is free – just download it online.  

Rick Goldman: One analyst’s take on how the economic-equality gap got so large

The Canadian camps of the Occupy Wall Street movement have now been cleared, with protesters vowing to shift to other forms of civil disobedience. The U.S. movement is still hanging on, in the face of sometimes-aggressive police action. Whatever shape the movement may take in the future, it might do well to adopt the recommendations in U.S. economist Dean Baker’s new e-book The End of Loser Liberalism as its policy manifesto.

Baker, the co-director of the Center for Economic and Policy Research, a liberal Washington-based think tank, was one of the few U.S. economists to warn about the inflating housing bubble – long before it collapsed, and at a time when U.S. Federal Reserve chairman Alan Greenspan was insisting that all was well.

The Occupy Wall Street movement has brought economic inequality to the forefront of public debate. Baker argues that this inequality is the result of the neo-conservative revolution – kicked off by U.S. president Ronald Reagan in 1980 – of the rich using government intervention to funnel wealth from the vast majority to themselves.

Among the key policies of this upward redistribution of wealth have been an all-out assault on unions; free-trade agreements that put U.S. workers in competition with low-wage workers overseas and thus make it easy to move production abroad; the Federal Reserve’s obsession with maintaining low inflation even at the cost of high unemployment; and, of course, financial deregulation that led to a bloated and wasteful financial sector.

These changes put the U.S. economy on a path fundamentally different from that of the three post-Second World War decades, during which workers benefitted from gains in productivity via wage increases and could thus support a robust level of domestic demand. Companies, in turn, had a strong incentive to reinvest in productive activities and further boost productivity, the benefits of which were passed on, in part, to workers.

The neo-conservative policies, by contrast, led to stagnating wages for the majority, sagging domestic demand and, consequently, less incentive to reinvest in domestic production. The growth engine of the U.S. economy shifted instead to “bubbles” (first, the tech-stock bubble of the 1990s, and then, the housing bubble of the past decade) that propped up consumer demand with the temporary wealth this demand created – until the bubbles inevitably burst.

It is therefore wrong, in Baker’s view, to blame the current economic downturn mainly on the financial crisis. The financial meltdown made things much worse must faster, but the underlying problem was the upward redistribution of income, which began decades earlier and laid the basis for the bubble economy.

The short-term solution is not rocket science. As Baker and others, such as New York Times columnist and Nobel economics laureate Paul Krugman, have argued, it has been clear since the Great Depression how to revive an economy suffering from insufficient demand: governments must increase spending (ideally on useful things like fixing bridges and hiring teachers and nurses) to stimulate the economy.

Conservatives on both sides of the border reluctantly agreed to this early in the downturn. The Obama government managed to get a mild stimulus program through Congress. However, as Baker, Krugman and others warned at the time, it was inadequate. The current U.S. unemployment rate of more than nine per cent bears them out.

In Canada, the Harper government had to backtrack on its November 2008 fiscal update (which called for spending cuts), prorogue Parliament and return with a stimulus plan. It has since gone back to the mantra of deficit reduction despite high unemployment (7.3 per cent today vs. less than six per cent in early 2008) and Canada’s enviable debt-to-gross-domestic-product level, which is about half the average of other rich nations.

Conservatives maintain that it is possible to promote economic expansion via fiscal austerity. This has been proven wrong everywhere it’s been tried – generally with disastrous human consequences. The bottom line (as they say on Wall St.) is that no one has ever got out of recession via cuts in spending.

To promote greater economic justice, Baker urges educating ourselves about the policies he discusses, some of which may get little play in the media. He offers some specific suggestions, such as a financial-speculation tax (already in effect for stock trades in Britain) and work-sharing to reduce unemployment (already being used successfully in Germany). He argues that the first step is to understand the economics of the main issues; otherwise, he says, “it is impossible to even know when progress is being made.”

Photo of Rick Goldman by Pierre Obendrauf / The Gazette

Rick Goldman lectures at the McGill University School of Social Work on poverty and inequality.