The Center for Popular Economics

CPE Members Join URPE & Occupy Chicago to Protest Mainstream Economists’ Role in the Financial Crisis

Eugene — Tue, 17 Jan 2012 17:54:59 +0000

Occupy Chicago teamed up with the Union for Radical Political Economics (URPE) to organize an “Occupy the American Economics Association” event at its annual meeting in Chicago, January 5-8. Economists streaming out of the conference hotel for lunch on the first full day of the conference were met by a large group holding signs such as “Economists — Complicit in the Financial Crisis,” “Occupy the AEA,” and “Danger! Capitalist Economists at Work!” as well as some street theater. Then, a spirited group of about 40 marched through the downtown, carrying a homemade banner poking fun at the concept of “trickle-down economics.” It showed a Very Important Man relieving himself over ordinary people standing below. An accusation from a Chicago police officer that the banner was blocking the sidewalk led to the arrest of one particularly active protester which provoked a loud outcry from the crowd.

The protest was followed by a teach-in at nearby Roosevelt University. Local CPE member (and Roosevelt University faculty member), June Lapidus, arranged for the teach-in rooms. CPE member and UMass-Amherst professor, Nancy Folbre, gave a short presentation on “the political economy of human capital” followed by a great discussion with the participants. CPEer Elaine Mccrate also joined in. The teach-in continued on Friday and Saturday afternoons. Occupy Chicago is hoping to develop an economics education and outreach program in greater Chicago, and Lapidus will be the CPE liaison there.

Gerald Friedman Testifies to Massachusetts General Court About Healthcare

Eugene — Thu, 12 Jan 2012 20:40:55 +0000

Gerald Friedman, professor of economics at UMass, testified in favor of a single-payer healthcare system at the Joint Committee on Healthcare Financing hearing held in Massachusetts General Court on December 15, 2011. He addressed the deficiencies of the current healthcare system, especially focusing on the fact that in our current system, the only profitable business model for healthcare companies is to provide coverage to fewer people and deny coverage to the sick. He also addressed the waste built into the current system: America’s average lifespan is no higher than countries that spend much less on healthcare. Despite the fact that we spend as much on healthcare as Canada, our average lifespan is 4 years shorter. Professor Friedman argued that a single-payer system would address these shortcomings and others. The full testimony can be read below.

Testimony to Massachusetts General Court, December 15, 2011

My name is Gerald Friedman. I am a Professor of Economics at the University of Massachusetts at Amherst. I have lived in Massachusetts since August 1978 when I moved to Cambridge to attend Harvard, where I was awarded a PhD in Economics in 1986. Since 1984, I have taught at your state University at Amherst where I have specialized in Labor Economics, public policy, and Economic History.

Before studying Economics at Harvard, I was a History major at Columbia and my first book, State-Making and Labor Movements, is a historical study of the origins of the labor movement in France and the United States 1870-1914; my latest book, Reigniting the Labor Movement: Restoring Means to Ends in a Democratic Labor Movement, addresses union growth and decline in 16 advanced economies since the late 19^th century. I am a big picture guy and, as such, I do not envy your responsibilities because the big picture is grim: spending on health is swallowing the economy even while growing numbers are receiving inferior care.

This is not to dismiss your very real accomplishments, of which you should be proud. With some help from Governor Patrick and former Governor Romney, you developed a health care program that has extended health insurance to most of our citizens even while insurance has become increasingly unavailable outside of Massachusetts. Today, fewer than 5 percent of Massachusetts residents are uninsured, a rate barely a third that of the rest of the United States. This is a signal accomplishment that dramatically improves life for hundreds of thousands of people.

Much of the expansion in health insurance coverage has been achieved through the Massachusetts Health Reform Law, Chapter 58 of 2006. A compromise between reform advocates, Governor Romney, and various industry groups, the bill did less to reform health care in Massachusetts than to expand access by “plugging gaps” in existing insurance programs. As such, it has done little to slow the seemingly inexorable rise in health care costs, and the resulting squeeze on the budgets of Massachusetts families, businesses, and governments. Back in the days when Governor Dukakis tried to slow health care inflation, health care spending equaled 12 percent of the Massachusetts economy; today it is over 17 percent. This increase, 5 percent of our income, is about $3,000 per person that we do not have to spend for other things because of rising health care costs. If we continue the way we are going, we will be giving up thousands more over the next two decades.

While some of the increase in costs reflects improvements in care and is a consequence of rising life expectancy, most in Massachusetts, as throughout the nation, is due to waste within the health insurance and health care industries. Compared with other industrial economies, the United States is peculiarly inefficient in our health care system. We spend more but receive relatively poor health care; compared with other affluent economies (members of the Organization of Economic Cooperation and Development), we spend thousands of dollars more per person to achieve life expectancy lower than 49 other countries (see Figure 1). If we are only to have the life expectancy of Portugal, then we should be able to spend over $4000 less per person; or if we are to maintain such high spending, then we should have 4 more years of life expectancy (see Figure 1).

Figure 1. Female life expectancy and health care spending, US and other OECD members, 2006.

Some of our poor performance may reflect intrinsic differences between the United States and other countries. Standard practice among economists addressing such intrinsic effects is to compare the change-over-time in different countries. Here the picture is even worse because health care costs have been rising much faster in the United States than elsewhere even though there has been less change in our health care outcomes (see Figure 2). In Figure 2, the length of the horizontal line indicates the increase in spending per person from 1971 to 2008 while the vertical distance is the increase in life expectancy; the higher the vertical and shorter the horizontal the better because this indicates more gain for less cost and, on this measure, the United States does peculiarly badly. To highlight one case: in 1971, when Canada established its single-payer provincial Medicare system, life expectancy and health care spending were roughly similar in the United States and Canada. Since then, however, Canada has gained 6.6 years of life expectancy for an increase in spending of $3,785, or $573 per year of life expectancy gained. Health care spending in the United States, by contrast, has risen almost twice as fast for a smaller increase in life expectancy, $7,182 for only 5.4 years of life expectancy, for a cost per year of $1,330. Had our efficiency, years gained per dollar, been the same as Canada, we would be saving over $4,085 per person, or we would have gained 12.5 years of life expectancy, 7.1 more years of life for each American.

Figure 2. Changes in health care spending and life expectancy, 1971-2008, US and other OECD countries.

Rising costs threaten our economic viability and our health care reform effort. Rising health care costs threatens the viability of every responsible business that tries to do the right thing and provide insurance for its employees. Rising health care costs makes it harder for the unemployed to find work, especially older workers and those with health problems, and it threatens the budgets of local and state governments. By making adequate insurance unaffordable, rising health care costs is forcing employers and individuals to gamble on reduced coverage leading to the growing phenomenon of inadequate insurance.

If health care cost inflation threatens health care reform this problem should not be seen as an accident because waste is built into the private health insurance system and, thus, into the foundations of Chapter 58. The market for health insurance is different because companies do not profit by selling more but rather by screening their customers so they sell less to people who need insurance. In his coffee business, for example, my father tried to provide quality coffee because he his profits grew when he sold more coffee to more people. Health insurance companies, however, increase their profits by reducing their sales, by identifying those likely to be sick and denying them coverage. Over 70 percent of what insurers call their medical “losses,” payments made to providers, go for as few as 10 percent of people covered. This creates a powerful incentive for insurers to identify those people and get them to drop their coverage or change insurers. If you can do this, if you can “cherry pick” and “lemon drop,” you can dramatically lower your “losses” (what we call insurance benefits) and increase profits. Expensive practices, like clinical review and requirements for prior authorization, practices that demean the sick and needy while wasting valuable provider time and insurance resources, are not accidents or mistakes but are practices designed to lower insurance company costs by driving away those who may need insurance the most.

Bureaucracy and waste are fundamental to a private insurance system because profits are made not by providing quality coverage but rather by selecting customers and driving out those who will need services. I am not suggesting that there is any ill will or maliciousness on the part of insurers whose business depends on driving out the needy. Companies that fail to screen their enrollees risk plunging into an “insurance death spiral” where a less-healthy population leads to rising costs and higher premiums that discourage the healthy from buying coverage making the population enrolled less healthy, raising costs further and requiring higher premiums.

The drive for profitability through screening contributes to the higher cost of coverage for private insurance in the United States as well as raising the costs of billing and insurance in provider offices. Administrative expenses throughout raise the cost of health care in the United States are driving rising health care costs in Massachusetts and throughout the United States. Administrative costs have risen in the United States at a rate of over 11 percent a year since 1971, rising from 1.5 percent of GDP to 5.0 percent. Returning to the comparison with Canada’s single payer system, administrative cost increases account for two-thirds of the excess increase in our health care costs relative to Canada’s. Perhaps most revealing, there is no difference between the cost increases in Canada’s Medicare single-payer system and our Medicare single-payer-system for the elderly; had all of the US health care system behaved like our Medicare system, we would be spending little more than does Canada.

Rising administrative costs are price we pay for a broken system of private health insurance, a system designed to increase industry profits even while denying adequate health care to growing numbers of our citizens. Fortunately, we have an alternative to this bloated and inefficient system. A single-payer health insurance system would dramatically lower costs by eliminating much of the administrative burden both within health insurance companies and within provider offices’ billing and insurance operations. Combined with savings to be realized by reducing administrative costs in the operation of Medicaid and by reducing market power in areas like prescription drugs, Massachusetts could reduce health care costs by nearly $13 billion or 19 percent by establishing a single-payer health insurance system (see Figure 3). Even after expanding coverage to all Massachusetts residents, this would leave savings of over 17.6 percent of current expenditures.

Figure 3. Savings (in millions) from single-payer health system, Massachusetts 2010

A single-payer system would benefit all residents of the Commonwealth with the greatest benefits for the poorest. Replacing flat insurance premia with income- or payroll-based taxes and out-of-pocket spending with an income based tax of 7.5 percent on payroll and 7.5 percent on unearned income would raise income after-taxes and health-care expenditures for the poorest by over 30% with savings for over 80% of Massachusetts residents.

Businesses would also benefit because the payroll tax of 7.5% is nearly 2 percentage points below the current share of payroll paid by Massachusetts employers. When added to significant administrative savings within companies, the single-payer system would dramatically enhance the competitiveness of Massachusetts companies. A conservative estimate would be that these savings would lead to an expansion in sales and production that would increase employment in the state by over 3 percent, or nearly 100,000 additional jobs.

Because health insurance is an especially large share of local government expenditures, the Commonwealth’s cities and towns would be among the biggest winners from adopting a single payer health program. Applying the 17.6 percent savings to municipal health expenditures suggests a bonus to local governments of over $350 million, equivalent to an 8% increase in local aid or a 3% increase in property tax revenues (see Table 1).

Table 1. Effect of single-payer on selected local governments.

Economists are not known for their humor, but we do have a few jokes within the profession. One of the most famous is told about the late- great-Chicago conservative George Stigler. It is said that Stigler was walking down the street with a graduate student when the student spied a $20 bill on the sidewalk. When the student ran to pick up the money, Stigler rebuked her saying that “if the money was real, someone would have picked it up already.” While economists like to assume that any efficiency gains have already been captured, historians and others devote their time to identifying the mistakes that people make and the bad institutions that persist. Our system of private health insurance is one such mistake, one that has been entrenched by Chapter 58. It is time to bend down and pick up the billions of dollars that we have left on the sidewalk.

Figure 4. Effect of single-payer financed with 7.5% payroll tax and 7.5% tax on unearned income. Effect on income by quintile.

Media Justice for the 99%

sueholmberg — Tue, 13 Dec 2011 14:34:29 +0000

Check out a Summer Institute participant’s piece on media justice and the Occupy Wall Street movement. Center for Media Justice’s Betty Yu explains How Net Neutrality Helped Occupy Wall Street.

Occupy Economics Video

sueholmberg — Tue, 29 Nov 2011 19:30:40 +0000

Econ4 is a new project founded by a great crew of economists, several of whom are CPE members. Their objective is to “change both the economics profession and common-sense understanding about how the economy works and should work.”

Check out Econ4′s latest video in support of Occupy Wall Street. For more information about the project, go to their website.

Occupy Economics from Softbox on Vimeo.

A ‘Care Socialist’ Speaks Out

emilykawano — Thu, 10 Nov 2011 20:17:46 +0000

An article about CPE member economist Nancy Folbre, by Joel Bleifuss at In These Times.

In her work, Nancy Folbre, a University of Massachusetts economics professor, explores the intersection of feminist theory and political economy, with a special emphasis on what she calls “care work” – the labor, often outside the money economy, that goes into caring for children, the sick or the elderly.

She is well known for her ability to explain these ideas in simple, accessible language, both in her work with the Center for Popular Economics-the collective of economists who put out the Field Guide to the U.S. Economy (New Press)-and with her weekly post to the Economix-a New York Times blog dedicated to “explaining the science of everyday life.”

Folbre talked with In These Times about the negative effects of ignoring care work in public policy, and what the future of our democracy might look like if we want it to strengthen our families and communities.

What key perspectives are missing from our national debates about budget deficits and the national debt?

First, there is little or no reporting on progressive proposals to address the deficit, such as the Peoples Budget, which has been mentioned only in a few opinion pieces in the mainstream print media, despite support from the Progressive Congressional Caucus and excellent reporting by In These Times. (Editor’s note: See “What Americans Want,” by David Moberg, June 2011.)

Second, there is little or no challenge (outside of op-ed pieces) to what one can call “the austerity story.” This story tells us that social spending in general is on an unsustainable path and needs to be cut. The debate is framed simply as one of levels and timing: The Republicans want us to cut more now, and the Democrats want us to cut less, later.

Only one big component of social spending is actually on an unsustainable path- healthcare spending. That’s one of the problems that President Obamas healthcare reform was intended to address – and would certainly ameliorate, if not solve. Yet Republicans want to repeal it.

My University of Massachusetts colleague Jim Crotty describes the austerity story as a rationale for increased redistribution to the rich.

That redistribution to the rich plays out on a global scale, doesn’t It?

The austerity story reflects a new phase of globalization, in which large corporations no longer have much incentive to invest in the health or education of a national labor force.

Global competition definitely plays a role: Social spending represents a “social wage” that is linked to citizenship. Downward pressure on wages in the advanced capitalist countries is now accompanied by downward pressure on social wages. Both skilled and unskilled labor are plentiful on the global level, and can therefore be treated as a kind of natural resource like oil or coal, to be simply extracted and depleted. Of course, the social consequences, or as economists put it, “negative externalities,” are huge. Global warming goes along with what one could call public-sector “chilling,” that is, reduced public commitments to social welfare – both of which reduce sustainability and health in the long run.

What role does the media play In aiding and abetting those we might call “public-sector chilling deniers”?

The mainstream media tends to limit its attention to mainstream opinions. But I don’t fault the media alone. Neither mainstream nor heterodox economists have developed a clear picture of the political economy of public finance. Heterodox economists- including most progressive economists – seem reluctant to acknowledge the complexity of the distributional struggle that takes place through the public sector, and the ways that it is shaped by race, gender, citizenship and age, as well as class. You can’t boü that struggle down to capitalists versus workers.

In my view, much of it also reflects bargaining over the distribution of the cost of caring for dependents – not just between men and women, but also between those who have dependents (or are dependent) and those who don’t (or are not dependent). For instance, people who aren’t raising children sometimes feel aggrieved about paying taxes to support schools.

Should individuals pay for their own education, their own healthcare, their own retirement, along with the needs of their own children and elderly parents? No, they shouldn’t. There are many reasons why social insurance is more efficient and more equitable.

But many people don’t understand the benefits they derive from educating “other people’s children.” And progressive social scientists and policy makers haven’t directly addressed the underlying issues: To what extent should these costs be socialized? How should they be distributed? Those are key questions.

How can progressives best address them?

First, we need to emphasize the intrinsic merit of investing in the development and maintenance of human capabilities. This is not just about kids! It’s also about capabilities to work productively as adults and age past retirement.

Second, we need to show that such investments pay off with greater overall productivity – even though the increased productivity may not show up in conventional economic statistics.

Third, we need to emphasize fairness and sustainability. We need to address issues of intergenerational equity – spending on elderly versus spending on children – and make sure that people have a clear sense of what they are getting back from government over their life-cycle compared to what they put in.

Where do the international issues fit in here?

The left has traditionally drawn the boundaries around national boundaries – citizenship. But as national boundaries become more permeable, other divisions also intensify.

So we shouldn’t be surprised by growing conflict over the major institutions of the welfare state. People ask themselves: “We don’t pay social insurance for citizens of other countries, so why should we pay it for recent immigrants? Why should we pay it for people who are not like us in other ways?”

The bottom line is that even if the austerity story is false, it resonates with people who feel they don’t have control over government programs. And it resonates with their fears – both rational and irrational – that others are benefiting more than they are from it.

This is a conflict between individual freedom (or the illusion of it) and social cooperation. In a society that worships the ideal of individual agency, does the ideal of working for the collective good stand a chance?

There’s less actual than perceived conflict here. Individuals benefit so greatly from social cooperation – especially from investments in human capabilities and the provision of social insurance to help support family care. And the “ideal” of individual agency doesn’t apply to young children or the sick, disabled or the elderly. It also doesn’t apply to people who can’t find a job because the economy is not functioning at full employment.

The problem is that many conservatives don’t see these benefits, while many of the left believe these benefits are selfevident I argue for a more sustained effort to demonstrate the economic benefits of social democracy.

Should the left put democratic socialism back on its agenda?

The left is reaching for new definitions of democracy and of socialism.

We’ve learned that institutions that appear to be democratic can be undermined by economic power – whether through over-centralization, as in the so-called socialist economies of the former Soviet Union, or through campaign finance corruption, as exemplified by the Citizens United ruling. We’ve also learned that institutions that profess to rest on majority rule can implement rules (like the filibuster) that lead to political stalemate.

Many local activists are drawn to cooperatives and worker-owned businesses, but they haven’t figured out how to scale their grassroots initiatives up in a national campaign.

The left doesn’t agree on any one definition of socialism. We have advocates for increased democratic participation at every level of the economy, like Mike Albert and Robin Hahnel. And we have advocates for market socialism, like John Roemer. And global climate change reminds us that we cannot simply focus on changes within the nation-state.

I am an advocate for a form of what I call “care socialism,” based on stronger collective commitments to the development of human capabilities and efforts to strengthen families and communities. We need to encourage more dialogue between left social scientists and activists. I hope that In These Times readers will weigh in

Occupy Wall Street From a Human Rights Lens

sueholmberg — Thu, 10 Nov 2011 16:50:08 +0000

By CPE Member Economists Radhika Balakrishnan and James Heinz. Posted November 4th, 2011 on Huffington Post.

Occupy Wall Street has hit a chord with people, underscoring what many see as the primary problem of the U.S. economy — the dominance of financial interests. A recent poll discovered that 43 percent of people agree with the views of the Occupy Wall Street movement, and only 27 percent disagree. Wall Street symbolizes all global financial institutions and we shouldn’t forget that it was the behavior of these institutions which caused the financial meltdown and economic collapse in the first place. The financial collapse that first engulfed the U.S. economy in 2008 has left in its wake a record number of jobless, increasing poverty rates, and widespread loss of homes.

We are told that we are in a recovery period, with profits expanding rapidly and production beginning to move forward. The financial sector is back on its feet, with Citi Group recently announcing that profits grew 74 percent over the past year. But now, over three years since the crisis began, the term ‘recovery’ feels like a bad joke.

Last week we participated in a teach-in at Occupy Wall Street, in which we linked the problems caused by the financial sector with a broader concern over human rights in the U.S. Economic and social rights include many of the issues that people care about most these days: the right to a job; the right to housing; the right to education; and the right to an adequate standard of living. The human rights framework outlines a range of principles to guide government actions, and has powerful implications for the behavior of the financial sector. At the teach-in, we focused on two human rights principles: (i) the obligation to protect; and (ii) the concept of maximum available resources.

The obligation to protect requires governments to prevent violations of economic and social rights by the actions of third parties. Governments are also obligated to use the ‘maximum available resources’ to realize economic and social rights.

The obligation to protect has important implications for financial regulation. It was the actions of third parties — the financial institutions — which undermined the economic and social rights of people living in the U.S. Fundamental changes in financial regulations over the past 30+ years represent a failure of the U.S. government to take steps to prevent financial institutions from taking actions which put people’s jobs, homes, and economic security in jeopardy. It is not that there was simply deregulation of the U.S economy, in reality there has been a re-regulatory process that has been biased toward the interest of banks rather than workers and families.

The process began back in 1980 with the Depository Institutions Deregulation and Monetary Control Act which removed a number of existing regulations on the banking sector. These reforms eventually fed into the savings and loan debacle in the second half of the 1980s. Rather than learning from this disaster, the government moved forward with more reforms of the same type. The Gramm-Leach Bliley Act (1999) repealed many of the regulatory protections put in place after the Great Depression under the Glass Steagall Act (1933). For example, the Gramm-Leach Bliley Act paved the way for massive consolidation in the financial industry, creating the huge institutions behind the current crisis. When the crisis broke, these consolidated institutions had to be bailed out because, we are told, they are simply too big to fail. The recent Dodd-Frank bill is a step in the right direction in terms of the focus and need for different regulation, and is a break from the recent past. However, while it gives regulators a stronger mandate, it is too early to tell whether the new provisions will be aggressive enough, or effective, enough to prevent another disaster.

The bailouts point towards a second human rights principle, the idea that government should use the maximum available resources to support the realization of economic and social rights. If the bailouts were so essential to the functioning of the U.S. economy, why aren’t more people experiencing the benefits? Some of the bailout programs were ‘on budget’ in the sense that they were funded through the federal budget. The Troubled Asset Relief Program, or TARP, introduced in 2008, was a bailout funded through government spending. However, much of the support to the financial sector did not come from the budget, but instead was orchestrated by the Federal Reserve. With the financial meltdown, the Federal Reserve took unprecedented steps to support the financial sector.

The Federal Reserve (or Fed) is the central bank of the U.S. and therefore plays an important role in regulating and influencing the economy. For example, the Federal Reserve can take steps to try to reduce unemployment. However, the Fed can also adopt policies that primarily benefit the financial sector. It is not the existence of the Fed, a government body, that creates the problems we’re now experiencing — it is the process whereby policy decisions are made and priorities are set. Specifically, the Fed helped out by buying up trillions of dollars of questionable corporate assets that were causing problems. This was part of a more general strategy called ‘quantitative easing’. When the Fed buys up corporate assets, it exchanges these assets for money — in effect, the Fed injects money into the economy through its policy of quantitative easing. This injection of money should help get the economy going again, by encouraging banks to lend, businesses to invest, and people to buy goods and services.

However, few ordinary people have benefited from this strategy. What happened to all that money? The banks are holding on to a large share of it. In the second quarter of 2011 (April to June), U.S. banks were hoarding $1.6 trillion that they held as deposits at the Fed — effectively preventing these resources from having any positive impact on job creation and the broader economy. It is important to see these deposits in an historic context (see graph).

The current $1.6 trillion represents a kind of insurance policy for the banks. If things start going bad again, the banks already have a stockpile of funds that help protect their interests. In addition, they receive interest on this money.

It is important to keep in mind that the Federal Reserve is a government body. When the Fed bails out banks by buying bad assets (and these bad assets were the outcome of the banks’ own decisions — e.g. investing in assets backed by sub-prime mortgages), it takes on these risks on behalf of the American people. Although the U.S. population has taken on these risks, the vast majority of people do not have access to a $1.6 trillion cushion to protect themselves in case the economy heads south again.

This brings us back to the question of maximum available resources. There is a stockpile of $1.6 trillion sitting idle in accounts at the Federal Reserve — the outcome of decisions made by public institutions. This money is not being used to support the right to a job, or the right to hold on to a home. Much more could be done. This money, given to the banks to help jump start the economy, is money that the banks are sitting on. There needs to be concerted effort on the part of the government to fulfill its obligation to protect by making sure there are regulations in place to benefit people rather than banks. In addition, government’s obligation to use its maximum available resources for the facilitation of economic and social rights means that resources need to be allocated for jobs, housing, health care, education, etc.; not to be held by banks.

Occupy Boston – CPE’s Jerry Friedman on Money, Banking and Democracy

emilykawano — Sat, 29 Oct 2011 03:39:28 +0000

Free School University: Money, Banking, and Democracy

Occupy Boston

When: Tue, November 1, 3pm – 4pm

Where: Free School University, Dewey Square, Boston, MA (map)

One of the resources that the 99% has to draw on is the small but dedicated number of radical political economists who buck recent historic trends in their profession to research and advise as to how our economic systems could be changed so that they really serve the many, and not just the few. Prof. Gerald Friedman, of U. Mass Amherst and CPE, will talk with us about money, and banking, and what kind of democratic changes are really needed in our financial institutions.

Occupy Wall St: Abolish the Fed, Back to the Gold Standard?

emilykawano — Fri, 28 Oct 2011 22:45:38 +0000

The Center for Popular Economics stands in solidarity with the Occupy Wall St. movement. CPE economists have been doing teach-ins in NYC, Boston and Amherst. We have also developed some resource materials on important issues that have been raised by some protesters. (See links below.) The demands to abolish the Fed and to return to the gold standard are frequently heard. It is true that the Fed favors the interest of the banks, and is plagued by a lack of transparency and accountability. However, the Fed serves an important function and rather than destroy, we need to democratize it. A return to the gold standard is not particularly good for the people – it was the Populist movement that demanded an end to the gold standard and the establishment of a Central Bank in the first place.

In 1896, Populist firebrand William Jennings Bryan declared, “If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. We shall answer their demands for a gold standard by saying to them, you shall not crucify mankind upon a cross of gold.”

An Intro to the Federal Reserve – 2 page handout (pdf)

Federal Reserve – a Historical Perspective – 4 page article (pdf)

Video: A Capitalism Alternative? The Mondragon Cooperatives with Professor Fred Freundlich

emilykawano — Sun, 16 Oct 2011 15:07:12 +0000

What Is Economics for? Interview With Economist Jerry Epstein

emilykawano — Mon, 10 Oct 2011 18:26:01 +0000

Published on Truthout, Monday October, 10th 2011

by Leslie Thatcher at Truthout

The Center for Popular Economics longtime staff economist and founding Co-Director of the University of Massachusetts Political Economy Research Institute Gerald Epstein spoke with Truthout’s Leslie Thatcher on Thursday July 27 at Smith College about the history and role of progressive economists and the essential steps to right our economy so that it actually meets people’s needs.

(Photo: David Gray / Flickr)

Leslie Thatcher for Truthout: Jerry, could you tell our readers about the extraordinary confluence of progressive economists in the Pioneer Valley, the longtime work of the Center for Popular Economics and its mission?

Gerald Epstein: It all started at the University of Massachusetts, Amherst where in the late ’60s and early ’70s there were already some radical economists. The big change came when Samuel Bowles, who had been an economics professor at Harvard and some of his former students and colleagues started URPE, the Union for Radical Political Economics. They were influenced by Marx, Veblen, C. Wright Mills … In 1972 Bowles was denied tenure at Harvard, an example of the kind of political discrimination in tenure decisions that is well known. Escaping Cambridge, he came to Leverett MA near Amherst and began talking to a UMass dean then overseeing the economics department – which was then very neoclassical, but also conflict-filled. Dean Alfange and Sam cooked up a scheme to hire a whole group of radical economists from all over the country, including Herb Gintis from Harvard, Steve Resnick from Yale and some very prominent former mainstream economists from leading academic departments. A few years later, the department was essentially awarding PhDs in radical economics.

Sam and Julie Schor (author of The Overworked American) and several other faculty and grad students started the Center for Popular Economics (CPE) in 1975. UMass was already a magnet for progressive economists; Smith, Mount Holyoke, Hampshire College – the whole Valley – became a mecca for progressive economists, now one of the few remaining places with a critical mass of radical economists. There are some, of course, at The New School for Social Research, Notre Dame, UC Riverside (now decimated by a hostile administration). The University of Utah has a heterodox program, as do Colorado State at Fort Collins and the University of Missouri in Kansas City.

I’ve been with CPE since the mid-’70s. Since the early ’70s, CPE’s goal has been to bring together political activists and economists to teach a new way of thinking about economics and to bring people involved in particular social and political struggles together to build a broader movement informed by economics. The newsletter Dollars and Sense developed around the same time. From the beginning, the summer institute [full disclosure: which Thatcher attended this year] was CPE’s main activity. As it grew, CPE gave workshops as well as the summer institute – and since Emily Kawano became CPE’s director, it has become increasingly, though not primarily, focused on the “solidarity economy.” Attendees came more and more from academia, as it had become more difficult to get activists to attend. But in recent years, I believe the balance has shifted back to more political activists and fewer academic types.

A lot of the impetus for alternative economics came from opposition to the Vietnam War and in solidarity with the Civil Rights movement and New Left feminism. It was oriented towards peaceful revolution. The idea was to develop a better economics for a democratic society, a theoretically more valid way to understand capitalism. While its origins were revolutionary, they were also somewhat theoretical. In the last twenty years, alternative economics has become much more policy-oriented, toward developing more equalitarian policies – a lost idea.

I set up the research institute PERI with Bob Pollin to develop policy-relevant research that could be used by people on the frontlines fighting for specific issues that needed a lot of attention.

Thatcher: Is it possible the attention to policy and specifics detracted from progressives’ ability to tell a compelling story about how the political economy works?

Epstein: The other side had hundreds of experts and highly paid lawyers who could write laws that looked good, but with gazillions of loopholes, so that the progressive side was and is totally outgunned. That’s what happened on Dodd-Frank: all the details were left to the regulators and the banks have been writing the regulations. In these areas, people like the researchers at PERI and elsewhere have been able to provide a counterweight.

I do think we’re now at a juncture in the political economy of the US – and maybe of the whole world – where we have to return to our vision in a more believable concrete way.

We have to recognize we’re getting beaten on the policy front, so we have to keep fighting there, but also stay prepared with ideas about what to do next.

Jane d’Arista – who had been a staff person for Wright Patman (D-Texas) and I started a group here, SAFER (SAFER: A Committee of Economists and other Experts for Stable, Accountable, Fair and Efficient Financial Reform) the goal of which was to put people together who could weigh in with Americans for Financial Reform – an umbrella for 250 labor and community groups – on relevant policy. It’s been producing position papers and consultations on financial regulations.

Thatcher: In that vein, you’ve written about the implementation of the so-called Volker rule in Dodd-Frank. Why is this so important? What are the chances of getting it right?

Epstein: Well there were good things in Dodd-Frank that – were they to be implemented forcefully – would make a real difference and there are some regulators who want to implement them, but the GOP in Congress wants to defund those aspects of the bill that actually work.

Thatcher: One of your co-authors for “Globalization and Progressive Economics Policy,” Dean Baker, has written in “False Prophets” and elsewhere about how Greenspan and Bernanke were professionally negligent in failing to see the mortgage-backed securities/housing bubble. Why have progressive economists who did predict the bubble and who have been right about financialization not been heeded?

Epstein: Yes, classical and neoclassical voices are still dominant, but there are more outlets now for progressive voices and more people like Dean who can refute neoliberal arguments point by point. We economists have to make more of an effort to make our voices heard. We’re better at it now than we used to be, but more of us have to try. We’re in a situation now where we need to rebuild from the ground up.

The bankers, with an assist from the mainstream media, have built up the power of the financial sector to such a point that they have us in a vise grip: “Give us what we demand or we’ll go down and take you with us.”

There is a kind of structural blackmail. Look, for example, at the rating agencies’ threat to downgrade treasuries [executed after this conversation]. Here are private companies who make a profit and have the wrong model for credit rating, a neoliberal model and they attempt to force that model on the rest of us. And there is no way we can retaliate for their ideological stance on credit ratings. Governments around the world have given these ratings official credence. So there’s also a form of price-fixing: they are also threatening to downgrade European banks with Greek credit risk if they have to take a hit on the debt. It’s a vise grip on public policy.

Thatcher: Where does the bankers’ power come from?

Epstein: They have the political power that goes with money since money now mostly determines our elections. The House banking committee is stuffed with new Reps who anticipate the need to raise campaign cash and vote for loopholes.

In the ideological realm, they have developed tremendous power as they have successfully sold the idea that the bankers know best and we should do what the bankers tell us. Mainstream economists have developed a whole theoretical apparatus, including the “efficient markets hypothesis” that “proves” markets should regulate themselves. Of course, the hypothesis assumes perfect information and no market power – and is totally wrong, but economists love it because it is very elegant.

And to make matters worse, some of them get paid by the bankers to defend it.

Mainstream economists may also have been personally blinded by the power of money (see “Inside Job“). Many have private associations with financial companies: 70% of them earned money by working for private financial firms and only 2 people revealed those connections when interviewed by the mainstream media.

Larry Summers is perhaps the best example of that: he was earning $5 million a year from D.E. Shaw while he was working on financial reform issues.

Finally, the financial regulatory agencies have been totally captured by the banking sector.

All this is happening as we are in the midst of three huge transitions that also favor finance:

the US is losing its position as the most powerful country economically to China and, as we lose high-paying manufacturing jobs, the US economy becomes more dependent on the bubble economy and the non-manufacturing sector. With the loss of union jobs, we also lose a source of political power for working people.
the US is moving from being a medium productivity economy to becoming a high (i.e. highly automated) productivity economy, so that the economy becomes more dependent on those sectors that may still generate high-paying jobs, e.g. finance.
the US should be – but we are not – transitioning from fossil fuels to renewables and a green economy. That would help us transition out of a financialized economy. We need to shrink the financial sector – which before 2008 accounted for 60% of the profits in the US – and find another sector where we can create jobs.

Thatcher: So, you see the greening of the economy as a way forward?

Epstein: Yes, but we must also transform the financial sector and create public financial services institutions, make more public sector investment and get the money out of politics.

Moreover, the growth paradigm is no longer viable in industrialized economies because of environmental constraints and because it no longer produces jobs. We have to move toward basic guaranteed income for the majority of our people.

What’s the economy for, anyway? We need to rethink: what are our needs and how do we meet those needs?

Also see:

Link to Gerald Epstein’s articles on Truthout and an interview with Epstein on The Real News.