PERI: Fall 2010 Newsletter

PERI In Focus: Fall 2010

IN THIS ISSUE ■ A Response to the Deficit Hawks ■ Economic Development in New England ■ Reflections on the European Debt Crisis ■ Environmental Justice across Race & Class Lines ■ Commentary from PERI Economists ■ PERI Working Papers ■ Upcoming Events ■ PERI and the Real News Network ■ Contact PERI
THE EXPANSIONARY ROAD TO RECOVERY
Austerity is Not a Solution: A Response to Deficit Hawks Wall Street hyper-speculation brought the global economy to its knees in 2008-09. To prevent a 1930s-level Depression, economic policymakers throughout the world enacted extraordinary measures. These included large-scale fiscal stimulus programs, financed by major expansions in central government fiscal deficits. But roughly 18 months after these measures were introduced, a new wave of opposition to large-scale fiscal deficits has emerged. In this article for the November/December 2010 issue of Challenge, PERI Co-Director Robert Pollin reviews the arguments developed by various leading deficit hawks. In fact, they are not advancing one main argument or even a unified set of positions, but rather four distinct claims: 1) large fiscal deficits will cause high interest rates, large government debts, and inflation; 2) even if the current deficits have not caused high interest rates and inflation, they are eroding business confidence; 3) the multiplier for fiscal stimulus policies is always close to zero and has been so with the current measures; and 4) regardless of short-term considerations, we are courting disaster in the long run with structural deficits that the recession only worsened. Pollin argues that none of these deficit hawk positions stand up to scrutiny, and makes the case that by critiquing the four deficit-hawk positions, we can also bring greater clarity toward developing a workable recovery program. This will include fiscal deficits that can stabilize state and local government budgets; maintaining sufficient funds for unemployment insurance; and continuing support for long-term investments in traditional infrastructure and clean energy, combined with credit-market measures that are strong enough to unlock credit markets. ■ Download “Austerity Is Not a Solution: Why the Deficit Hawks Are Wrong” ■ Watch a video interview on this topic with Robert Pollin Economic Development for Real Growth in New England In Prioritizing Approaches to Economic Development in New England, Jeff Thompson demonstrates that infrastructure investments in roads, bridges, water management, and energy transmission systems, along with education investments, are the most effective approaches that state governments can take to promote job creation and long-term growth at the state and regional economic levels. By necessity, infrastructure repairs employ local workers and use local materials. These activities would also meet an increasingly urgent need: evidence reviewed by Thompson shows that 40% of bridges in the region are structurally deficient; 80% of the region’s dams present significant hazards; most of our roads are in poor or mediocre condition; and our drinking water infrastructure is in need of $12 billion worth of repairs and renovations. Thompson describes how, instead of making these investments, state policymakers are too often turning to corporate tax breaks to lure businesses to their state and public subsidies for employers who promise to hire workers in the state. These policies have been tried for decades, but Thompson shows that these tax subsidies don’t work to create jobs or revitalize state economies. ■ Download "Prioritizing Approaches to Economic Development in New England" ■ Watch a video interview on this topic with Jeff Thompson
REFLECTIONS ON THE CAUSES OF THE EUROPEAN DEBT CRISIS
Carlos Panico of the University of Naples explores the factors that led to the speculative attacks on the government debts of Greece, Spain, Portugal, Ireland and Italy in 2010. He points to a confluence of events, among them the regional German elections of May 9, past actions of the governments under attack, and the actions of the European Monetary Union. Panico points out that each of these factors is emphasized by those holding a specific perspective on the events, but argues that the truth of the matter lies in the complex interactions between these variables. ■ Download "The Causes of the Debt Crisis in Europe and the Role of Regional Integration"
ENVIRONMENTAL JUSTICE ACROSS RACE AND CLASS LINES
Michael Ash, James Boyce, Grace Chang and Helen Scharber examine the complex ways that exposure to toxic air pollution from industrial facilities in the U.S. varies according to race, ethnicity, income and other factors. Using data from the U.S. Environmental Protection Agency’s Risk-Screening Environmental Indicators project, the authors find that, in keeping with prior research, within any given urban area, racial and ethnic minorities tend to face greater exposure to these toxins. But they go on to find that the extent of the disparity of exposure in an urban area is positively correlated with levels of exposure: when wide racial and ethnic disparities in exposure levels are found, average exposures tend to be higher not only for minorities but for whites as well. The authors explore the political, economic, and social factors that influence firms’ decisions about where to site polluting facilities, and their findings reinforce the existence of a tight nexus between environmental quality, race, and power in the U.S. The evidence they present suggests that efforts to reduce these disparities could lead to environmental improvements that benefit all Americans. ■ Download “Is Environmental Justice Good for White Folks?”
COMMENTARY FROM PERI ECONOMISTS
This new feature on the PERI website gathers brief, accessible columns and blogs by PERI economists. Recent postings include: Promoting Recovery through Cheap Credit for Small Business As part of New America Forum's "Plan B for the Economy," Robert Pollin describes how to get financing flowing through the economy again, and do so in a way that supports small businesses and allows them to serve as job creation engines driving a productive recovery. It's Not the Party, It's the Policies Robert Pollin discusses Larry Bartels' new book, Unequal Democracy, in this commentary for the Nation, and explores why a new policy framework, not merely a change in the person or party occupying the White House, is needed to turn back the tide of income inequality in the U.S. He argues that switching from Republican to Democratic control in Washington is not enough to supplant the continued dominance of neoliberalism with a green New Deal agenda. Letter from Flint, Michigan James K. Boyce explores the dramatic reversal of fortunes of the city of Flint, and presents the macroeconomic forces at work there as examples of "monumental public policy failures," from which there are important lessons to learn about the future direction of our economy and society. U.S. Financial Reform: The End of the Beginning, or Simply the End? Gerald Epstein looks back at the summer's protracted battle over financial reform, reviews the responses of progressive economists, and looks ahead to the details of implementation, and future legislation, that are critical to the reform being effective. Essentials of Smart Climate Policy James K. Boyce describes the three elements that he considers fundamental to any effective climate policy: large-scale, strategic public investment; carefully designed carbon pricing; and effective regulatory standards; and explains how the three are interdependent Beyond the Kindleberger Moment: Fighting Global Austerity Gerald Epstein describes our current economic situation as a dangerous “Kindleberger Moment,” in reference to Charles Kindleberger’s argument that the failure to forcefully pursue adequate expansionary fiscal policy and reverse the deflationary forces of the global economy in the 1930s led to the rise of fatal political forces. Climate Change: Are People the Problem? James K. Boyce looks at the effects of population growth on climate change, and argues that simple assertions in the media such as “more people = more emissions” actually undermine our ability to make the real changes that can turn the tide of climate change. Economic Prospects: Global Trade Policy & the Jobs Crisis In his Fall Economic Prospects column, Pollin asks "How much, by itself, could a change in our global trade policies—especially tariff restrictions on imports or lowering the value of the dollar—accomplish toward pushing the unemployment rate down to around 4 percent?" and presents an alternative approach to trade policy. ■ Read "U.S. Trade Policy & the Jobs Crisis" ■ Read earlier Economic Prospects columns PERI economists in Dollars & Sense In their regular column for Dollars & Sense, Jeannette Wicks-Lim and Heidi Garrett-Peltier explore topics within the broad question of how to create, and sustain, an economy that includes decent jobs for all. Wicks-Lim brings her expertise on wages and labor to current issues, while Garrett-Peltier looks ahead at how we might create a fair economy as part of our clean-energy future. ■ Read Jeannette Wicks-Lim, "We Need a (Green) Jobs Program" ■ Read Jeannette Wicks-Lim, "Lies, Damned Lies, and Poverty Statistics: The Census Bureau is right to reconsider the official poverty line" ■ Read earlier columns in Dollars & Sense
PERI PUBLICATIONS & WORKING PAPERS
Controlling Dangerous Financial Products through a Financial Pre-Cautionary Principle Gerald Epstein & James Crotty Epstein & Crotty discuss the potential for a requirement that financial products be approved by a government regulatory authority: the Financial Stability and Product Safety Administration, before they can be marketed. Not Your Grandfather’s IMF: Global Crisis, ‘Productive Incoherence’ and Developmental Policy Space (significantly revised) Ilene Grabel Grabel describes the IMF response to the current global financial crisis as productive incoherence: the proliferation of inconsistent strategies that have not congealed into any sort of new, organized regime. This implies that the IMF is in an “interregnum” that is pregnant with new development possibilities. Post-Manichean Economics: Foreign Investment, State Capacity and Economic Development in Transition Economies Patrick Hamm & Lawrence King Hamm & King evaluate the role of foreign direct investment (FDI) in the transition from socialism to capitalism, finding that FDI and domestic investment have an equal effect on growth in the first year of investment, but over time FDI is associated with greater growth than domestic investment. Institutions, Aggregate Demand and Cross-Country Employment Performance: Alternative Theoretical Perspectives and the Evidence David R. Howell Howell’s central claim is that a full account of cross-country unemployment levels requires embedding a Keynesian account in a comparative political economy framework in order to explain both disparities in levels of aggregate demand and the translation of demand to employment. Undercounting the Underemployed: How Official Indicators Have Missed Millions of Underutilized Workers David R. Howell Howell points out that even alternative indicators of labor underutilization published by the Department of Labor miss millions of ‘displaced’ workers who are not counted in any measure,and would have been working but for the economic downturn. He assesses the number of these workers in 2009 at about 3.1 million. The Proximity of High Volume Developmental Neurotoxin Polluters to Schools: Vulnerable Populations at Risk Cristina Legot, Bruce London & John Shandra The authors identify the nation’s highest volume polluters of specific toxins that put children’s health at risk: developmental neurotoxins. They examine the numbers of schools and children located within two miles of each polluter, and the race and class compositions of the populations within two miles. Proximity to Industrial Releases of Toxins and Childhood Respiratory, Developmental, and Neurological Diseases Cristina Legot, Bruce London & John Shandra The authors assess the degree to which proximity to sources of neurotoxins in East Baton Rouge is associated with neurodevelopmental diseases and childhood asthma, and examine the relationship between proximity to toxins and race and class. Fiscal Crisis in Europe or a Crisis of Distribution? Özlem Onaran Onaran proposes that we are in a new episode of the global crisis: the struggle to distribute the costs of the crisis. She argues that an accurate analysis calls for a major change in policy framework within Europe that places regional and social cohesion at the core of policy making. Interest Rate Exogeneity: Theory, Evidence and Policy Issues for the U.S. Economy Robert Pollin Pollin presents evidence regarding the movement of interest rates in U.S. financial markets relative to the Federal Reserve-controlled Federal Funds rate, and concludes that market interest rates are primarily set through market forces, that is, are largely endogenous. The Wall Street Collapse and Return of Reality-Based Economics: A review of John Cassidy’s How Market’s Fail Robert Pollin In this review essay on John Cassidy’s How Market’s Fail for Monthly Review, Pollin focuses on two themes as they relate to the 2008-09 economic crisis: the failures of free-market, neoliberal thinking, what Cassidy terms “utopian economics;” and the deep insights coming out of the works of Hyman Minsky and Paul Sweezy, leaders of what Cassidy calls “reality-based economics.” Contractionary Monetary Policy and the Dynamics of U.S. Race and Gender Stratification Stephanie Seguino & James Heintz Seguino & Heintz explore the distributional effects of contractionary monetary policy by race and gender in the U.S. from 1979-2008, hypothesizing that women and Blacks carry a disproportionate share of the fallout in the employment market. Recent Trends in the Distribution of Income: Labor, Wealth and More Complete Measures of Well Being Timothy Smeeding & Jeffrey Thompson Smeeding & Thompson develop estimates of income inequality based on ‘more complete income,’ which augments standard income measures with measures of wealth. They also find that the labor share of income among high-income groups declined between 1992 and 2007. The Wage Penalty for State and Local Government Employees in New England Jeffrey Thompson & John Schmitt Thompson & Schmitt examine the myth of the overpaid public worker, and find that the average state or local government worker earns higher wages than the average private-sector worker—but only because they are, on average, older and substantially better educated. The Freetown Declaration: Countercyclical Policy for Africa John Weeks Weeks assesses the feasibility of the 2009 Freetown Declaration, in which African finance ministers committed their governments to implement fiscal stimulus measures to counter the effects of the international financial crisis on their economies. Easy Money? Health and 401(k) Loans Christian E. Weller & Jeffrey Wenger Weller & Wenger examine whether health status and insurance coverage predict the chance of borrowing from a defined contribution plan, finding that poor health raises that likelihood, and argue that public policy should offer more opportunities to save for medical emergencies.
PERI AND THE REAL NEWS NETWORK
video interviews on timely economic policy questions
Jeffrey Thompson The path to economic development in the New England states
Jane D'Arista The effects of the final financial reform bill The G-20 and global austerity measures
Gerald Epstein The fallout from the financial reform bill
Robert Pollin U.S. austerity is not a solution: why the deficit hawks are wrong Global austerity measures and a better road to growth Derivative trading and the price of oil and food
Michael Ash Corporate responsibility, the EPA, and toxic air pollutants
James K. Boyce The Gulf spill and the real price of fossil fuels
UPCOMING EVENTS For event locations or to download the papers accompanying these seminars, please go to the PERI online calendar.
PERI LECTURE SERIES THE GREAT RECESSION: WHAT IS TO BE DONE? October 13, 2010 \| 4:00 PM Austerity is Not a Solution: Why the Deficit Hawks are Wrong Robert Pollin, University of Massachusetts, Amherst October 27, 2010 \| 4:00 PM Can Financial Reform End the Vise Grip of Finance? Gerald Epstein, University of Massachusetts, Amherst November 5, 2010 \| Noon Journalists' Roundtable: Perspectives on Crisis and Recovery Doug Henwood, Left Business Observer, Mike Konczal, Rortybomb, & Yves Smith, Naked Capitalism November 10, 2010 \| 4:00 PM Do Generous Unemployment Benefits Explain the Crisis in Long-Term Unemployment? David Howell, New School for Social Research November 15, 2010 \| Noon Perpetual Stagnation: Economic Life in America with No Household Debt Growth Doug Cliggott, Credit Suisse
University of Massachusetts, Amherst Department of Economics Seminars & Lectures October 6, 2010 \| 4:00 PM Climate Change Avatars Eban Goodstein, Bard College October 12, 2010 \| 4:00 PM The Political Economy of Emissions Abatement with Alternative Technologies Alex Coram, University of Western Australia October 14, 2010 \| 4:00 PM 14th Annual Philip Gamble Memorial Lecture Gretchen Morgenson, The New York Times October 19, 2010 \| 4:00 PM Reconstructing Marx's Theory of Labour Subsumption Gil Skillman, Wesleyan University October 20, 2010 \| 4:00 PM Gender, Remittances and Intrahousehold Allocation: Does Gender Matter? Lynda Pickbourn, University of Massachusetts, Amherst October 25, 2010 \| 4:00 PM Reproduction of Feudal and Capitalist Modes of Production Paddy Quick, St. Francis College November 2, 2010 \| 4:00 PM Falling into the Liquidity Trap Thomas Michl, Colgate University November 8, 2010 \| 4:00 PM Do Frictions Matter in the Labor Market? Evidence from Minimum Wage Laws Arin Dube, University of Massachusetts, Amherst November 9, 2010 \| 4:00 PM Relations of Production and Modes of Surplus Extraction in India Amit Basole & Deepankar Basu, University of Massachusetts, Amherst November 15, 2010 \| 4:00 PM The Effect of Workplace Democracy on Productivity and Profitability Mike Carr, Phil Mellizo, & Wesley Pech November 17, 2010 \| 4:00 PM Serfdom, Emancipation, and Economic Development in Tsarist Russia Steve Nafziger, Williams College November 22, 2010 \| 4:00 PM Veblen Effects, Political Representation, and the Reduction of Working Time over the 20th Century: Theory and Evidence Sam Bowles, Seung-Yun Oh, & Young-Jin Park November 23, 2010 \| 4:00 PM Ramaa Vasudevan, Colorado State University November 30, 2010 \| 4:00 PM Why are Credit Card Rates so High? Young-Jin Hyun, Seoul National University December 1, 2010 \| 4:00 PM The Social and Economic Dimensions of Employment Contract Design in Early U.S. History Dan McDonald, University of Massachusetts, Amherst December 7, 2010 \| 4:00 PM Peter Hans Matthews, Middlebury College
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