Author Archives: emilykawano

Wrong Deficit: Jobs, Deficits, and the Misguided Squabble over the Debt Ceiling

Tim Koechlin, Vassar College, International Studies, July, 2011

These are obviously very grim economic times.    One in six Americans who would like full-time work is unable to find a full-time job.  Millions of Americans have lost their homes, and many millions more are “under water” – they owe more than their homes are worth.   The pain has been felt by nearly every household in the US.   Some have been hit harder than others.  The unemployment rate for African Americans is double the rate for whites; since 2007, the median wealth of Black and Hispanic households has fallen by more than half.[1]  The distributions of wealth and income in the US –the most unequal among industrialized countries before the crash of 2008 – have become more unequal.

In the midst of all of this suffering, US corporate profits are at an all-time high.   In 1980, the richest 1% of income earners in the US claimed about 12% of all income; in 2008, they earned nearly one quarter of all income.    The share of the top .1% has increased even faster.[2]

The US economy and the human beings it ought to serve are suffering, first and foremost, from a jobs deficit.   Closing this gap – creating and facilitating the creation of good jobs — should be the very top priority of Congress and the White House.  At this point, it is not.   Indeed, Republicans (enabled by President Obama) are currently doing what they can to make things worse.

The absurd squabble over the debt ceiling and the national debt is distracting, destructive, and almost entirely beside the point.   The budget deficit is not the most pressing economic problem facing the US – not by a long stretch.  Whatever comes of these negotiations, it will not address the jobs deficit, and it will not improve the lives of the overwhelming majority of US families.   Indeed, it is likely to make things worse.

Let’s be clear: the Republican approach to the economy and the budget is deeply misguided, wrong-headed, mean-spirited and irresponsible.   Their approach is as familiar as it is appalling:  more tax cuts for the rich; more tax cuts for corporations, and cuts in social programs, including Medicare and Social Security.   This tack is unconscionable.  It is also bad economic policy, that is, it will not promote growth and it will not create jobs.   Nobel Prize winner Paul Krugman is exactly correct when he concludes that “the G.O.P… has gone off the deep end.”

President Obama’s approach is less troubling for sure, and clearly preferable to the appalling Republican strategy.   But this is a very low bar.   President Obama has, unfortunately, embraced the faulty premise that deficit reduction should be a top priority.  As a result, the President is prepared to make substantial spending cuts at precisely the wrong moment – when the economy needs demand, and people need help.  And, alas, Mr. Obama has demonstrated a disturbing willingness to pursue cuts in Medicare and Social Security.

An intelligent response to this crisis has to reflect an understanding of its causes.    Cutting spending during a recession is like blood-letting an anemic patient, or invading Iraq in an attempt to disempower Osama Bin Laden.

Our best hope on this issue is that the President and Congress will be forced to “kick the can down the road.”   We can only hope that whenever we re-encounter the can, saner heads will prevail – or, more to the point, that the balance of political forces will have changed enough that we won’t have to endure a repeat performance.

Some good ideas and some bad ideas about the economic crisis, economic policy, and the federal budget

  1. Cutting spending in the middle of a recession is a terrible idea.  It will destroy jobs, and undermine the economy’s already feeble momentum.  Intelligent spending — extending unemployment benefits, block grants to states and municipalities, spending on green infrastructure, and keeping college affordable, for example — will create jobs today, lighten the load of those who are in the most economic trouble, and facilitate growth and competitiveness in the long run.   Serious, enforceable, well-funded efforts to liberate home owners from their enormous debt burden would help to re-ignite consumer spending and the housing market.

This is indeed the worst crisis since the Great Depression. How did and why did the Great Depression finally come to an end?  After nearly a decade of mass unemployment (peaking at 25%), the US government increased its debt financed spending massively to pay for the War; that is, it ran enormous budget deficits.  War spending put people to work; these newly employed workers spent their income, and this spending created jobs for others.   In fact, during the war, the US economy suffered from labor shortages.  The US government and corporations actively recruited women into professions and trades that had previously been off limits – women in large numbers “manned” the factories and shipyards.

An implication of this argument and this history is that the primary problem facing the US economy is not the budget deficit.   Indeed, in the short run, substantial budget deficits are likely to accelerate the recovery.

The National Debt is often characterized as “a burden to future generations.”  In fact, deficit spending – and the long run growth and opportunities that it can facilitate – can be a gift to our children and grandchildren.   Debt financed investments today can leave them with a more prosperous, productive, sustainable economy, an economy that can provide them with educational, economic and personal opportunities that would not otherwise have been possible.

Notice, also, that, during a period of economic stagnation, budget deficits and government spending can be good for business.    Rising demand means rising revenues, and this provides businesses with an incentive to hire workers.  With adequate demand, it will be profitable for many businesses to increase hiring.

  1. The current debt ceiling “crisis” is utterly unnecessary; it is an irresponsible political maneuver by the Republicans.  Since 1962, the debt ceiling has been raised 74 times (including 18 times under President Reagan).   With one exception – Newt Gingrich’s government shut down in 1995 – this has been trivial and routine.    If Congress simply voted to raise the debt ceiling – allowing the Treasury to pay its bills, as it is mandated to do by the Constitution — there would be no crisis.   If the Republicans want to make changes in economic policy or shrink the federal government that is their prerogative.   But this is not a reasonable or responsible way to make policy.  It is especially irresponsible to make major decisions about the government’s long standing commitment to provide health coverage and minimal economic security to elderly Americans.
  2. The Republicans do not care about reducing the deficit.  Their objective is to cut taxes – especially for the rich – and dismantle what’s left of the New Deal.   Indeed, they have a long history of enthusiastically supporting enormous budget deficits and squandering surpluses (see the presidencies of Reagan and George W. Bush).  Representative Paul Ryan’s proposed ten year budget – which got unanimous support from House Republicans in April – proposes trillions in tax cuts (over ten years), cuts which will overwhelmingly benefit corporations and the rich.   Note: tax cuts do not reduce deficits!   Ryan’s plan also includes massive cuts to programs that benefit the poor and the middle class (most notably the gutting of Medicare and Medicaid).  According to the non-partisan Congressional Budget Office (CBO), Ryan’s plan would reduce the deficit by $155 billion over 10 years — a meager $15 billion per year.   The Republican plan is rooted in politics, ideology, and mendacity.    There is no evidence at all that it is rooted in a commitment to “fiscal responsibility.”
  3. Taxes in the US are extraordinarily low. Taxes in the US are lower (as a share of GDP) than any other industrialized country.  As a share of GDP, US corporate taxes are lower than every industrialized country but Iceland.   Tax rates for corporations and the wealthy have fallen substantially over the past 30 years.   In the three decades following World War II – when taxes on the wealthy and corporate profits were considerably higher — the US economy performed better: higher average growth rates, lower average rates of unemployment, and a much more equal distribution of income.  Tax cuts for the rich are unfair, and trickle-down economics – the notion that giveaways to corporations and the rich will stimulate growth and employment – simply does not work.[3]
  4. If political pressures compel us to focus on the deficit at this moment, our first step should be to tax the rich more heavily.  Refusing to extend President Bush’s tax cuts (which will expire in 2013) for the top 5% income earners would raise government revenue by more than two trillion dollars over ten years.   Spending cuts (if we must) should be back loaded – that is, they should occur disproportionately down the road, so that they do not undermine our efforts to get out of the current economic malaise.
  5. The US federal budget deficit (and the National Debt) is not analogous to overspending by a household.   The US government – despite a National Debt that is $14 trillion and growing – will not go bankrupt.   Budget deficits can be problematic for sure; but at this moment, the benefits of debt financed government investment overwhelm the costs.  (More on this below.)
  6. Republicans have been working diligently to disempower the Government’s ability to regulate Wall Street’s excesses, and protect consumers.    Their current target is the brand new Consumer Financial Protection Bureau.  If they are successful, another financial crisis is inevitable.
  7. This economic crisis is a devastating indictment of neoliberalism, the free market ideology that has framed economic policy debates since Ronald Reagan.  The financial meltdown of 2008 revealed (yet again!) that financial markets do not regulate themselves.   The deep and ongoing recession that followed reflects the fact that depressed economies do not have a reliable mechanism for restoring full employment, prosperity and growth.   The “Invisible Hand” cannot do it alone.  In early 2009, many of us imagined that this ideology was on its last legs.  Even Alan Greenspan – the once legendary Federal Reserve Chairman, the “Maestro” of monetary policy, and a devoted protégé of the libertarian icon Ayn Rand – acknowledged before Congress that the model on which his worldview and policy recommendations had been premised – the view that unfettered markets (including financial markets) are efficient and stable – had failed.  Of course it had!  How could anyone continue to argue that laissez faire works?    How indeed!  But bad ideas can be resilient – especially when they are promoted by well-funded think tanks.

The Logic of a Recession: What happened to all of the jobs?

The catalyst to this current economic disaster was an unregulated financial system that ran amok – as unregulated financial systems inevitably do.   Financial panics and crises are a chronic part of let-it-rip capitalism.  If financial markets are not regulated adequately, this tendency will eventually manifest itself.  The historical record is overwhelmingly clear about this.

The financial system crashed in October, 2008 – although the strains had been mounting for years.  Major financial institutions failed; housing prices collapsed and foreclosures spiked; the Dow Jones Industrial Average fell by nearly half, and banks stopped lending money.   Investors panicked – with good reason.  Consumers, spooked by shrinking retirement accounts, plummeting home prices, layoffs, a pervasive sense of economic chaos and, of course, declining incomes, cut their spending.  The US economy shed nearly two million jobs over the last third of 2008, and another four million in 2009.

The essential logic of a recession is not terribly complicated.  When businesses experience declining demand, they shed workers (or decelerate hiring).  These laid-off workers in turn cut their spending, because they must.  In some cases, their increasingly nervous neighbors begin to reduce their spending also — they put off buying a new car, taking a trip, or re-modeling the kitchen.   This thus the process accelerates – car dealerships, airlines, hotels, and contractors (etc.) are forced to lay workers off.   These newly unemployed workers spend less, and so on.   Tax revenues fall, forcing state and local governments to fire teachers, cops, and to cut social spending when it was needed most.  At some point, apparently healthy businesses begin to worry that their demand projections are overly optimistic; many decide to put off investment in plant and equipment.   Because of this “multiplier” process, “shocks” to the economy have the potential to accelerate.   According to a recent Wall Street Journal article:

The main reason U.S. companies are reluctant to step up hiring is scant demand, rather than uncertainty over government policies, according to a majority of economists in a new Wall Street Journal survey (Phil Izzo, “Dearth of Demand Seen Behind Weak Hiring,”  WSJ,  7/18/11)

Insufficient demand explains the Jobs Deficit, not “high” corporate taxes, not regulation, not immigration, not “uncertainty” about taxation and regulation, not President Obama’s health care plan, nor his allegedly flawed leadership.   Spending by the private sector – consumers and businesses – is not, at this moment, up to the job of ensuring full employment.    So the government needs to provide demand.

The Federal Reserve can facilitate private spending (demand) by keeping interest rates low.   The federal government can generate demand by (a) spending (including grants to strapped state and municipal governments); (b) working to reduce the debt overhang constraining homeowners, and/or (c) lowering taxes on the middle class and extending unemployment benefits (the middle class and the poor spend a greater share of their income, and so tax cuts for the middle class are more effective than tax cuts for the rich).

Again, the US economy emerged from the Great Depression because the Government spent like mad.  “Future generations” (Baby Boomers, their kids, and their grandchildren) benefited enormously from this debt financed spending, because they inherited a more prosperous, productive economy, an economy that provided them with educational, economic and personal opportunities that would not otherwise have been possible.   Deficit spending – and the long run growth that it can facilitate – can be a gift to our children and grandchildren.

Let me be completely explicit: an intelligent response to this crisis will lead to larger budget deficits in the short term.    Budget deficits and government debt are potentially problematic but, at this moment – as in 1939 — the benefits of deficit spending overwhelmingly exceed the costs.

Burdening Our Grandchildren? Why a Smart Deficit is a Gift to Future Generations

The commonplace assertion that budget deficits are a “burden to our grand-children” is both vague and deceptive, in large part because it fails to acknowledge that deficit spending today can – if done wisely – provide enormous benefits to us, our neighbors, our children and our grandchildren.

The US government finances its deficits (the difference between revenue and spending) by borrowing.   Generally speaking, it borrows by selling bonds – which are essentially IOUs (with interest) from the US Treasury to bondholders (lenders).   The Government borrows from many sources – individuals, pension funds, banks, foreign governments — and it pays these lenders back with interest.

There is a tendency to think that borrowing is inherently problematic, that it implies that we are “living beyond our means.”  But this is a dangerously narrow understanding of debt.   Individuals borrow money all the time – to finance homes, cars, appliances, and college educations.  Businesses borrow money to finance investment in equipment, technology, and research and development; many businesses have lines of credit with their suppliers, and this often works for both parties.  Municipalities commonly undertake “bond issues” to finance school construction and other “capital” projects.

Sometimes, of course, borrowing is a bad idea.  But borrowing can also allow a family, a business, or a government to make useful and/or productive purchases that otherwise would not be possible.  Is borrowing a problem?  It depends on what the borrowing is for, and it depends on the capacity of the borrower to repay the debt.

Government spending can improve the quality of our lives.  Government spending pays for schools, environmental protection, parks and other public spaces, food and drug safety, public colleges and universities, fire and police protection, infrastructure, consumer protection, and health and income security in old age, to name just a few.  Beyond the provision of these beneficial services, the government can create (and facilitate the creation of) jobs.   When the economy is stagnant, an important benefit of borrowing is that it can lead to job creation.

So, we have a choice.  We can limit the growth of the national debt by firing school teachers, cops, firefighters and mine inspectors; cutting health care coverage for the poor and elderly; ignoring our long run energy issues, defunding our public schools, and forcing states to raise tuition at our public universities… and destroying millions of jobs.   Or we can borrow money to support these services while, at the same time, preserving and creating jobs.   The Republicans pretend that cutting the budget is a magic bullet – more jobs, and less debt.   But this is utterly wrong.

In 1939, the US National Debt was about $40 billion.   By 1945, it had grown by a factor of six to $259 billion dollars.   The benefits of this borrowing were enormous.   First, it allowed the Allies to defeat the Nazis (something that would have been more complicated if Congress were constrained by a Balanced Budget Amendment).   Second, this debt financed increase in government spending facilitated economic growth and employment.  The US economy was more productive by far in 1945 than it otherwise would have been.  A rich country with a moderate debt burden is, by any reasonable measure, preferable to a moderately rich country with no debt.    Deficit spending allowed the US to avoid six more years of massive waste – that is, unemployment.   This was undoubtedly a very wise investment.

This does not imply that budget deficits are always wise.   Again, it depends on what the government does with the money.    For example, budget deficits soared under President George W. Bush.   This stunning increase in debt was a terrible mistake, in my view, because the borrowing was used to finance massive tax cuts for the rich, and two expensive, ill-advised wars.   (President Bush’s policies, by the way, have had a much larger effect on the deficit than President Obama’s time-limited fiscal stimulus.)[4]    In contrast to Bush’s folly, borrowing for job creation and mortgage relief during an historic economic downturn is a good idea.

Government debt can be problematic, for sure, but it is not analogous to household debt.   The US government will not go bankrupt – it has never missed a debt payment and, unless Congress impedes its ability to meet its obligations for political reasons, it never will.    That is, the US government’s “capacity to repay” is enormous.  No one who understands the basics of government finance believes that bankruptcy is an issue for the US government (although deficit hawks often suggest that it is, sometimes disingenuously, sometimes out of ignorance).   The US government has run budget deficits in all but five years since 1961 (four of them under President Clinton).  Sometimes it made sense, other times it did not.[5]

Why are budget deficits problematic?  Deficits can cause inflation.   They can also put upward pressure on interest rates, and these higher interest rates, by making borrowing more expensive, can restrict the accessibility of capital to businesses and households, which can be a drag on investment and growth.  Over the long term, this sort of chronic under-investment can be substantial, as can its effects on our living standards down the road.  (For the wonks and/or economics majors among you, economists refer to this as “crowding out,” as in government borrowing may crowd out private borrowing and investment).   It is worth worrying about, for sure.

The “good news” is that, in this depressed economy, interest rates are extraordinarily low.  Inflation is also a minor concern; indeed “deflation” is arguably a greater threat.[6]   At this moment in time, borrowing is especially easy and cheap because there are lots of potential investors sitting on big piles of cash and, further, in a depressed economy there are relatively few attractive alternatives – especially for risk averse investors.

All of this is to say that the potential benefits of deficit spending during a recession are great – it is by far the most effective way to address the jobs deficit; and borrowing can help us to deliver the goods and services on which many Americans depend, especially during a recession. [7]    And at this moment in history, the “costs” of the deficit – its potential effects on inflation and interest rates are all but non-existent.

When the economy recovers sufficiently– when the Jobs Deficit has been resolved –relatively large budget deficits will probably no longer make sense.   But until then, cutting spending is a terrible idea.   I repeat: cutting spending during a recession is like blood-letting an anemic patient.  The Republican “jobs program” starts with massive dismissals of teachers and other public sector employees.   That won’t work.

The content of this spending is important, of course.  A detailed proposal is beyond the scope of this short paper, it is clear that Congress should pass another economic stimulus package – several hundreds of billions of dollars at least.   This package ought to include generous grants to state and municipal governments, investments in green infrastructure, urban jobs programs, extended unemployment benefits, and more generous financial aid for poor and middle class college students.  Readers who are interested in what this might look like should look at Robert Pollin’s excellent “18 million Jobs by 2012.”[8]  .

The great John Maynard Keynes was (and is) right: unregulated, let-it-rip capitalism is prone to financial crises; capitalism has no reliable mechanism for resolving a jobs deficit, and the free market generates intolerable levels of inequality.   In contrast, the Republican Party, the Neoliberals, the “Efficient Market” theorists and other fetishizers of “The Market” are wrong.   Please spread the word!

References and Related Readings:

A few excellent sources of information and commentary on the economy:

Appendix: The National Debt is not like your credit card debt

A government that issues bonds (i.e. borrows money) denominated in a currency that (a)  it has the power to create and (b) is recognized as a reliable currency, does not need to worry about default (as a household or business does).

The US Treasury can borrow from a long line of willing lenders, who are happy to lend to the US government because there is so little risk.   Indeed, raising the debt ceiling is important because it might undermine investors’ confidence that US government bonds are essentially risk free.  At this moment in time, borrowing is especially easy and cheap because (a) there are lots of potential investors sitting on big piles of cash and (b) in a depressed economy, there are relatively few attractive alternatives – especially for risk averse investors.

Unlike households and businesses, the US government has no problem finding lenders because (a) it has the authority to tax and (b) it has the authority to create money and thus (c) it has little trouble finding willing borrowers.     When investors have lots of other alternatives, the Treasury will likely have to pay a higher interest rate on its debt.  But, again, they can always find a borrower.

And further, about half of the US debt is owed to the Federal Reserve, which buys government bonds (i.e. lends to the government) with money that it creates.  The Fed does not literally “print” money, but it does create it — essentially out of thin air.   If I had the authority to tax my neighbors and, in a pinch, to print dollars, my credit limit would be higher.

This story generally surprises and troubles my students, in part because they have a notion that “printing money” leads to “hyperinflation.”   As noted above, deficits can indeed cause inflation, and overly exuberant money creation will surely make inflation more likely.   Thankfully, the Board of Governors of the Fed understands this, and so the Fed uses its power to create money with caution; indeed, sometimes too much caution.  The proof of the pudding is in the data: over the past 30 years – during which time large deficits been common, and the Fed has routinely used its power to “monetize” debt (by creating money) – inflation has been low and stable (in 2009 prices actually fell slightly; in 2010, the inflation rate was 1.6%).

I understand that this can be a little hard to accept – creating money to facilitate a government’s borrowing appears to be irresponsible and unsustainable.   But in the US case – and for most of the world’s rich countries — it has not been a problem.  In fact, it has played a key role in facilitating prosperity and growth over the post-World War II era.

I also understand that “money creation by the Fed” feeds into a theme in the Conservative narrative.  Governments spending without limit! Creating money out of thin air!  Imperiling future generations (and the value of the dollar)!   I accept this intellectual discomfort – but this does not change the fact that these concerns are essentially unfounded and wrong.  And this understandable misunderstanding should certainly not be the basis of economic policy – any more than discomfort with Darwin should lead schools to teach our kids that the earth is 6000 years old… I suppose that is an essay for another day.

The US national debt is also different from the “foreign debts” that have regularly thrown many countries into financial and economy crisis (forcing many of them to run to the IMF because they are unable to pay their debts.   These debts, generally, are denominated in dollars and other hard currencies.   Banks (and the IMF) require repayment in hard currencies.   A government in hock to Western banks cannot raise the money it needs by taxing its citizens; nor does it have the power to create dollar.  And these “limitations” make it harder to attract private lending on reasonable terms.   In cases like these, default is a very real and dangerous possibility.


Media, Economy Topics for Series

Saturday, July 23, 2011

NORTHAMPTON – Lectures and workshops looking at the media and its influence on society will be the highlight of a six-day summer series put on the Center for Popular Economics.

The series launches Sunday with a talk by John Nichols, foreign correspondent for The Nation magazine, and Libby Reinish of the Florence-based Free Press, at 7 p.m. in Seelye Hall at Smith College.

Nichols’ appearance is part of the Summer 2011 Institute for the Center for Popular Economics, which this summer is titled “Media, Democracy, and the Economy.”

“Media is important on so many levels,” said CPE director Emily Kawano. “It shapes not only the news, but culture. Economic policy shapes the media, and the media in turn shapes the economy. There are so many connections between our economic system and media justice.”

Among the issues that will be covered at this year’s institute are Internet access for poor, rural, and minority communities, and corporations that consolidate ownership of many media companies, leaving the public without a diversity of options for news sources.

Several of the events will feature speakers from local organizations such as Northampton’s Media Education Foundation, and Free Press in Florence.

The evening events are all free and held in Bass Hall or Seelye Hall at Smith. The series is cosponsored by Free Press, the Smith Association for Class Activists, and the Center for Media Justice in Oakland, Calif.

CPE was established in 1978 to advocate that “another world is possible – one that puts people and planet front and center,” according to its website.

The organization aims provide “progressive economic analysis to activists and educators who are organizing for social change.”

“We make up the economy, not the stock market,” said Kawano.

The series closes Friday at 3 p.m. with a “solidarity economy tour,” which is a walking tour of sustainable business and nonprofit models in Northampton. Among the tour stops are the Hungry Ghost Bakery, where participants will hear about the local grain-growing “Wheat Patch Project,” the community arts space in Thornes Marketplace, and a meeting with representatives of Valley Time Trade, who will talk about time-based barter.

Protect Medicare, Medicaid and Social Security

Come hear Gerald Friedman explain why Medicare, Medicaid, and Social Security should not be part of the budget debate in Congress.

On Thursday, July 21, 6 to 7:30 p.m. at the Forest Park Library, 380 Belmont Avenue in Springfield, Gerald Friedman, Professor of Economics at UMass Amherst and CPE staff economist, will show why competition and the profit motive are the problem with American health care, not the solution, and why we should be expanding Medicare, to cover more services and more people. These programs provide help to people—young AND old. They serve as excellent models of what good government can do.  Most of all, they don’t add a single penny to the deficit, and therefore, should not be part of the debate.


Radio Interview with CPE on Popular Economics

CPE’s director, Emily Kawano spoke with Cynthia Lin on her radio show, A Public Affair, on WORT-FM in Madison, WI. They discussed how CPE uses popular economics education to demystify concepts that people need to understand if we’re to counter the onslaught of misinformation and scare-mongering about the economy. They were also joined by Steve Schnapp from United for a Fair Economy and discussed how popular economics education is an important piece of building the movement for social and economic justice.

CPE members testify before the Massachusetts legislature

May 11, 2011

CPE members Randy Albelda and Gerald Friedman testified before the Massachusetts legislature’s joint committee on revenue on May 5, 2011 on behalf of “An Act to Invest in our Communities.” This proposal would raise approximately $1.2 for schools and social services in Massachusetts by raising the tax rate on capital gains and interest and dividend income and the income tax rate while simultaneously raising the personal exemption; the net effect would be to raise taxes on households with incomes of over $100,000, especially those with incomes over $500,000 without effecting those earning less. In their testimony, Albelda and Friedman showed that the current fiscal crisis in Massachusetts is the result of decades of tax cutting on the state and federal level combined with the effects of the Great Recession which lowered revenues and raised the demand for state services. They argued that cutting services would be the equivalent of tax increase on the poor and needy; and that maintaining government services through a progressive tax would on balance create jobs. Their testimony was well received by the committee which was attentive and asked many good questions. The very large audience, well over 250 people, in the Massachusetts State House’s Gardner Auditorium showed its support for their testimony by waiving their hands and banners. The audience also broke out in loud applause when Friedman observed that the state could balance its budget in a moment by implementing a single-payer health insurance system that would save as much as $2 billion dollars on state and local government spending.

For more, see Daily Hampshire Gazette article, Hampshire County residents take their appeal for tax reform to Beacon Hill

Econ-Utopia: Steelworkers and Mondragon Collaborate!

Mondragon Steel
In a remarkable and historic move, the United Steel Workers union (USW) and Mondragon International[1] announced that they would be working together to establish Mondragon manufacturing cooperatives in the U.S. and Canada.[2] The Mondragon Cooperative Corporation (MCC) is the world’s largest industrial workers cooperative, located in the Basque region of Spain. It employs almost 100,000 workers in 260 cooperative enterprises that include manufacturing, a university, research and development, social security mutual, and retail shops. In 2008, MCC reached annual sales of more than 16 billion euros and is ranked as the top Basque business group, the seventh largest in Spain.


In the cooperative world, Mondragon, despite criticism of the compromises that it has made in the face of globalization, is still the gold standard of success and has inspired many other cooperative initiatives in other countries. In the U.S., for example, Cleveland’s $5.8 million Evergreen Laundry Cooperative start-up, the first in a network of local worker cooperatives, was inspired by the visit of a Cleveland delegation to Mondragon. The development of this cooperative network is envisioned as a way of creating jobs and revitalizing depressed neighborhoods of Cleveland.

In Chicago, the Austin Polytechnic Academy (APA), a public high school, follows in the footsteps of Mondragon. The first industrial cooperative of MCC was started fifty years ago by five graduates of a technical training school under the guidance of a visionary local priest, Father José Mar&iacutea Arizmendi, who continued to play a central role in the development of Mondragon until his death in 1976. Austin Polytech prepares its students, almost all of whom are from low-to-moderate income families in an African-American neighborhood, for jobs in Chicago’s high skilled industrial sector, and even more importantly, to become worker owners. Towards this end, they have brought in speakers from the Emilia-Romagna region of Italy, another hotbed of successful cooperatives, and a group of APA students are currently on a study tour in Mondragon.

In the Bay Area, the Arizmendi Association of Cooperatives takes its name from Mondragon’s visionary. It is a worker-owned network that provides assistance to new bakeries that are interested in following their successful cooperative business model. There are currently three Arizmendi Bakeries in addition to the original worker-owned Cheeseboard that provided the model and technical assistance for the Arizmendi Association.

New Frontier

It is clear that Mondragon is a source of inspiration for many other initiatives to build economic democracy. The collaboration with the United Steelworkers raises the potential to a whole new sphere of possibilities.

The USW-Mondragon collaboration grew out of a USW ‘green industrial revolution’ project that created a partnership with Gamesa, a Spanish wind turbine firm, to establish production in Pennsylvania by refitting shuttered steel plants. Gamesa is based near Mondragon and it wasn’t long before one thing led to another and the USW-Mondragon connection was made. Discussions and meetings followed over the course of the following year and culminated in this historic agreement to create worker cooperatives in the manufacturing sector, either through worker buy-outs or new start-ups. Other aims include integrating collective bargaining with the cooperative model and exploring co-investing through the USW backed Quebec Solidarity Fund and Mondragon’s Eroski Foundation.

The United Steelworkers (USW) is the largest industrial union in North America, representing 1.2 million members in a diverse range of industries. In a time where labor unions and worker cooperatives have drifted far away from their common roots—when worker cooperatives were seen by some unions as a way to eliminate the class struggle between owner and worker—it is enormously significant for a union of this weight and history to reforge those alliances. It is a signal to the labor union movement as well as the wider public that cooperatives are part of the solution, not some alien phenomenon from a parallel universe. USW spokesman, Rob Witherell said that the collaboration was not a hard sell. Most of their members had been unfamiliar with the concept of worker coops, but once it was explained, they easily ‘got it’ and were very interested. He believes that there is a great potential to expand this project, citing the Blue-Green Alliance, which was launched by the USW and the Sierra Club in 2006 and now numbers 8 million members, as an example of how these initiatives can catch fire.

We continue to see rising unemployment, stagnant wages, cuts in benefits, deteriorating workplace conditions and the hollowing out of our manufacturing sector. This announcement breathes hope of reviving our manufacturing base and rebuilding communities that have been devastated plant closings. Rising oil and transportation prices, combined with the falling dollar are creating the conditions for a manufacturing renaissance in the U.S.[3] Imagine if this renaissance could be infused with, as USW President Leo Gerard said, “Mondragon’s cooperative model with ‘one worker, one vote’ ownership as a means to re-empower workers and make business accountable to Main Street instead of Wall Street.”

And when workers own and run the factories they work in, they’re not likely close up shop at the first sign of stress—in over fifty years of operation, Mondragon has only seen three of its cooperative enterprises fail. Imagine.


1. Mondragon website:
2. The full text of the agreement is available at
3. “Can the U.S. Bring Jobs Back from China?” BusinessWeek, 6/19/08

Econ-Atrocity: On Worker Deaths

By Patrice Woeppel, Ed.D.
Author of Depraved Indifference: the Workers’ Compensation System

March 16, 2009

The Bureau of Labor Statistics (BLS) records 5,488 worker fatalities for 2007, the most recent year for which their data is completed. But the number of worker fatalities recorded by BLS is grossly under-reported.

Worker deaths from toxic exposures, other work illnesses are conservatively estimated by NIOSH and other researchers at 50,00 to 60,000 deaths each year, or ten times the number of fatalities from work injuries.[fn1] [fn2] [fn3] It is a disaster of monumental proportions that goes largely unrecorded. The United States has no comprehensive occupational health data collection system.

As we have lagged behind other nations in our lack of a national comprehensive medical and statistical database on occupational illnesses, occupational injuries; we have lagged behind in the research into the causes and consequences of occupational illnesses that would lead to improved diagnosis, treatment, prognosis, and ultimately prevention, of occupational toxic exposures and resultant diseases.

While the United States has set permissible exposure limits on less than 500 of the hundreds of thousands of chemicals in use in workplaces throughout our country, the EU regulates 30,000 chemicals utilized in their workplaces, and many that we allow here have been banned for years in the EU.[fn4] Even the small number of chemicals, upon which exposure limits have been set in the US, are grossly out of date based on more recent scientific data.

It is a major and costly health issue ““ costly in lives, and costly in dollars. The economic burden for occupational illness, injury and death in our country is an estimated $170 billion annually. It is an economic burden that falls mainly on families (44%) and on taxpayers (18%); with only 27%, on average, being paid by workers’ compensation.[fn5]

There has been very little general public awareness of this system that maims and kills with impunity. The time is long overdue to re-evaluate a structure that evolved over one hundred years ago; and which clearly doesn’t meet the needs of seriously injured, ill, or toxic chemical-exposed workers, or the families of workers who died from their work ““ a system that has fostered devastating and lasting damage to families, to communities, to our environment.

Increasingly as a nation, we have been all too willing to push corporate costs onto workers and taxpayers; and all too willing to cut protections for workers, communities.

Occupational illness deaths are now the eighth leading cause of death in the US, more than many of the diseases that receive far more government, public, and media attention.[fn6] We need to right this terrible, continuing American tragedy.


1. Leigh, J. Paul; Markowitz, Steven; Fahs, Marianne; Landrigan, Philip. Costs of Occupational Injuries and Illnesses. University of Michigan Press, 2000.

2 U.S. House of Representatives. Hidden Tragedy: Underreporting of Workplace Injuries and Illnesses. A Majority Staff Report by the Committee on Education and Labor. Honorable George Miller, Chairman, June 2008.

3.Steenland, Kyle; Burnett, Carol; Lalich, Nina; et al.Dying for Work: The Magnitude of US Mortality From Selected Causes of Death Associated With Occupation, American Journal of Industrial Medicine, Vol 43, pp 461-482, 2003.

4. Regulation EC 1907/2006 of the European Parliament and of the Council of 18 December 2006 concerning the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH),

5. op. cit. Leigh, et al, 2000.

6. LaDou, J., M.D. Occupational and Environmental Medicine in the United State: A Proposal to Abolish Workers’ Compensation and Reestablish the Public Health Model, International Journal of Occupational and Environmental Medicine in the United States. 2006; 12 (2) 154-168; and US Department of Health and Human Services, National Center for Health Statistics, Centers for Disease Control and Prevention, National Vital Statistics System, National Vital Statistics Reports, Vol 53, Number 5. Deaths: Final Data for 2002, Table 10 and Worktable I, pp. 1585, 1634, 1662, 1703, 2220-2224, at

What’s the economy for, anyway? (An online course on the topic)

If you have ever asked yourself…

What’s the Economy For, Anyway?
What should a well-functioning economy do?
What’s behind lower wages and longer working hours?
Should we, ordinary folk have any say in running our own economy?
How do we build a more just and sustainable economy?

…then this course is for you!

What’s The Economy For, Anyway? The Case for a Solidarity Economy and Social Wealth
An Online Course offered by the Center for Popular Economics
Summer Session I (June 2 – July 10, 2008)
Course Fee: $900 for THREE Univ. of Massachusetts Credits or $400 for non-credit students.
40-60 Professional Development Points (in MA) or 3.6 Continuing Education Credits (outside MA) available.
Limited scholarships available for non-credit students.

The Center for Popular Economics, in collaboration with the Forum on Social Wealth and the Political Economy Research Institute at Univ. of Massachusetts, Amherst is offering a special topics 3-credit online course (Econ 197) this Summer. The course runs from Monday, June 2nd till Thursday July 10th. No background in Economics is required. The course is suited for students as well as activists and community members who want to learn more about the economy. An overview of the course is presented below. For more details contact Amit Basole or Emily Kawano.

Overview: “The Economy” is often portrayed in the media and by politicians as a force of nature that we must adapt to or perish. But we, the ordinary people make our economy tick. Shouldn’t we have a say in how it is run and to what purpose? This online course raises the questions: what purpose do we want our economy to fulfill? Is it fulfilling this purpose today? If not, what can we do about it? What resources do we have available in order to effect our changes?

The course is comprised of three main parts. Part One takes a look at the performance of the current economic model, known to economists as “Neoliberalism.” Although our economic model has allowed unprecedented accumulation of wealth by a few, for the majority of us it has meant falling or stagnant wages, longer work hours, rising healthcare costs, and deterioration of our natural and social environment. We start with a look at the historical roots of neoliberalism and then try to understand the economics behind it.

In Part Two, we start talking about how some of the things that we saw going wrong in Part One can be set right. In the midst of growing inequality and corporate power, many grassroots economic alternatives have been springing up throughout the U.S. as well as the rest of the world. This is the new “Solidarity Economy.” Grounded in principles of economic democracy, social solidarity, cooperation, egalitarianism, and sustainability, this is an alternative to the Neoliberal vision of the economy. In this part of the course we will look at some examples of such alternatives as well as understand the economics behind them.

Building alternatives requires resources. But part of the neoliberal agenda is the diverting of economic resources into fewer and fewer hands. Where will the resources for alternatives come from? In Part Three we talk about a vast store of assets that communities everywhere possess and on which they can draw for constructing alternatives. This store, which we call “social wealth” consists of our cultural and ecological commons and our capacity to work for those we care about. We will also look at how the economics of the care economy or the cultural commons differs from the economics of corporations.

Progressive Reasons for Reforming the Economy, 2008

[The following is a guest post emailed in to the Center for Popular Economics by a reader of CPE’s newsletter]

by Ben Leet

I am a retired school teacher who has done research on the U.S. economy partly for personal reasons and also because I had been teaching at a school in a poverty neighborhood in Oakland. There were many murders, crimes and depressing events in the neighborhood where I taught. Children brought in bullets that had passed through their walls, or one described a murder that happened in his back yard. Those were the worst examples, but violence was not uncommon. Bad economics, I concluded, contributed to poor student performance, poor behavior, and stunted emotional development. Here are the salient facts I’ve uncovered that point to a society mired in inequality.

Here are the problems we face: Read more

Econ-Atrocity: Do The World’s Poor Countries Finance the Rich Ones?

By Amit Basole
CPE Staff Economist

Global Charity
In the year 2000, the richest 10 per cent of the world’s population held 85 percent of its total income and wealth. The bottom half owned a mere 1 percent. Such glaring global asymmetries have long justified redistribution of wealth from the “Global North” to the “Global South” in the form of development aid and loans. So much so, that the stock image of a developing country that springs to mind (particularly in sub-Saharan Africa) is that of a heavily indebted economy which continually borrows simply to repay its old loans and receives food and other forms of aid to feed and clothe its “naked and hungry masses.” Persistent poverty is often blamed on inadequate aid, and rich countries are periodically exhorted to donate more generously. This form of global charity is visible to all. But there is another flow of wealth across national borders, greater in magnitude and more clandestine. This is the flow from poor countries to the rich. Yes, the world’s poorest countries are today financing the richest. Far from being heavily indebted, many developing countries are net creditors vis-Ã -vis the rest of the world. How is this possible?

Who is financing whom?
Recent analysis of flows of income and wealth across national borders reveals a startling and different story than that of global charity towards the South. Economists have found that more money flows out of developing countries in the form of interest payments, profits of foreign corporations, and clandestine investments in financial markets of the rich countries than flows into them as loans, aid, and foreign direct investment. According to a recent United Nation’s report, in 1995 the net inflow of money into developing countries was $40 billion, but by 2006 this had reversed to a net outflow of $657 billion! The global financial system is sucking wealth out of developing countries, making them poorer in the process. Sub-Saharan Africa in particular is associated with highly indebted poor countries. Indeed, in 1996 the combined external debt of 25 countries of sub-Saharan Africa, owed to rich countries and to institutions such as the IMF and the World Bank, stood at $178 billion””a large sum indeed. But even more significantly, the flow of wealth out of these same countries over 26 years (1970-1996) equaled more than $193 billion. To make matters worse, much of this wealth flowing out of poor countries ends up in the US economy, which absorbs two-thirds of world savings. The ecologically-damaging consumption boom in the world’s rich countries is financed by its poor countries where consumption is a matter of survival. The insanity of this situation puts a question mark on the entire logic of the international financial system.

How does this happen?
But wait a minute. We might wonder, aren’t developing countries poor by definition? How then do they have resources to transfer to rich countries? We must remember here that although the majority of the population in a developing country is indeed poor, most countries have a small elite class that owns a disproportionate share of its income and wealth. In other words, the poor are poor precisely because the rich are rich. Further, a government may be highly indebted but what about its private citizens, in particular the rich ones? Several African leaders have amassed personal fortunes even as the governments they head have incurred large debts. At least in part these extraordinary assets are held abroad in rich countries. The problem is that while public debts are scrupulously recorded, many private assets are just as scrupulously concealed. To take just one famous example, the Swiss bank accounts of the family of General Sani Abacha, who ruled Nigeria for five years, reportedly contain as much as $2 billion.

This phenomenon is also known as “capital flight.” There are several avenues by which money flows from the poor countries to the rich. Repayment of earlier debt and accumulation of foreign exchange reserves with Central Banks in developing countries are two big ones. Since reserves often take the form of US treasury bills, reserve accumulation essentially means lending scarce capital to the US, a classic case of the poor lending to the rich. But there is yet a third, more hidden, avenue as well. This is trade mis-invoicing: under-reporting exports and over-reporting imports. Exporters in a country may understate the value of their export revenues, so that they can retain abroad the difference between their true value and their declared value, while importers may over-state the value of their imports to obtain extra foreign exchange, which can then be transferred abroad.

What can be done?
Should we simply chalk this up as a typical case of Third World mismanagement and corruption, a problem of “failed states,” a lack of democratic accountability and transparency? It is all that, but that is not the whole story. Rich country governments and international lending institutions are often complicit in maintaining corrupt rulers and in transferring their assets abroad. The Financial Times remarks in an editorial on the freezing of General Abacha’s bank accounts, “Financial institutions that knowingly channeled the funds have much to answer for, acting not so much as bankers but as bagmen, complicit in the corruption that has crippled Nigeria.”

If development aid is used to amass private fortunes while external creditors look the other way, why should a developing country’s poor citizens be forced to pay the price of painful “reforms” such as cutbacks in government spending on essential services, when most of that aid has not benefited them at all in the first place? Rather citizens of developing countries and their governments could tell their foreign creditors that old debt will only be treated as legitimate if the creditors can provide evidence for how the money was used for genuine development goals. This shifts the burden of proof onto the lenders. Needless to say, such a proposal would be extremely unpopular with rich country governments as well as with the IMF and the World Bank.

In addition to “bottom-up” approaches to development, such as strengthening government accountability and democracy from below in developing countries, there is a role for us here in the developed world to play: we can do our bit by raising awareness about capital flight and odious debt, and holding our own governments accountable for who they lend or give aid to and how that money is spent.


1. Isabel Ortiz (2007) Putting Financing for Development in Perspective: The South Finances the North, IDEAS Network (

2. World Economic Situation and Prospects, 2007- United Nation Development Policy and Analysis Division (

3. James Boyce and Leone Ndikumana (2000) Is Africa a Net Creditor? New Estimates of Capital Flight from Severely Indebted Sub-Saharan African Countries, 1970-1996. (

« Older Entries Recent Entries »