Over the past several months I have brought you 30 conversations dealing with our current economic situation. I invited guests from a variety of backgrounds to come and talk with me about how our economy works, how we ended up in a deep recession and how we might get out of it. In addition I had guests who described from their perspective what they were experiencing and what was happening at various levels of state and local government to deal with the economic slow down.
I hope you found this series of conversations interesting and useful. I have enjoyed the opportunity to share with you some of my thoughts and to learn a long with you as my guests enlightened us. Thanks to Jeff Johnson at KYMN radio for allowing me to purchase the time for the program and for the help of his staff in production. Although there are many guests I would like to continue this conversation with I have decided to make this my final program in the series for now and rather than inviting another guest I thought I might use this half hour to review some of things I learned and my guests shared with us. To serve as a kind of index should you want to go back and review. I will keep the programs archived on my website and if you wish to revisit them or if you haven’t heard one and would like to you can do that by locating the programs on the Economy Talk page.
I began the series with Dr. E. David Emery, Professor of economics at St. Olaf College. I had heard a presentation by Dr. Emery explaining what had happened to our economy and what the prospects for recovery were. He drew upon the work of Hyman Minsky, professor of economics at Washington University in St. Louis and described what has come to be known in many circles as a “Minsky moment. “
He explained that, Minsky proposed theories linking financial market fragility, in the normal life cycle of an economy, with speculative investment bubbles common to financial markets. Minsky claimed that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. As a result of such speculative borrowing bubbles, banks and lenders tighten credit availability, even to companies that can afford loans, and the economy subsequently contracts. It all sounded familiar.
This slow movement of the financial system from stability to fragility, followed by crisis, which he described became as known as the “Minsky moment”.
Minsky offered very good insights in the ’60s and ’70s when linkages between the financial markets and the economy were not as well understood as they are now. He showed us that financial markets could move frequently to excess. And he underscored the importance of the Federal Reserve as a lender of last resort.
Disagreeing with many mainstream economists of the day, Minsky argued that these swings, and the booms and busts that can accompany them, are inevitable in a so-called free market economy – unless government steps in to control them, through regulation, central bank action and other tools. Such mechanisms Minsky pointed out did in fact come into existence in response to crises such as the Panic of 1907 and the Great Depression. Minsky strongly opposed the deregulation that characterized the 1980s.
A good explanation of this can also be found in John Cassidy’s book How Markets Fail, but the short version of his theory that Dr. Emery described is that many of us operate under the assumption that markets are stable or can self stabilize if left alone. Minsky’s idea was that markets are not stable and have a way of creating environments where investors believe they are acting rationally but because they operate in an irrational system little of what they do is rational when seen from a broader perspective. This creates the potential for financial bubbles or what are for a period economic booms that people assume are the new reality but when the actual reality reveals that this is not so the bubble bursts with a loss of all that was gained. Dr. Emery explained that this event was a result of years of unregulated banking fraud and wishful thinking related to the housing boom and other investment speculation (which is really money created by computer key stroke). The result was a chain reaction across the globe of bank failures and pension and investment losses, which will take years to recover from. The shock of these losses created a Tsunami of job losses across the private sector, which is now spreading across the public sector as lost tax revenues force governments to shrink their budgets.
Policy makers initially responded by bailing out banks and other crucial industries as well as infrastructure spending to stave of some job losses. At the federal level this increased deficit spending that had begun in the Bush years to cover the cost of two wars and the Bush tax cuts.
In my second and third programs I talked with another St. Olaf professor Steve Soderlund who expressed concern about the knee jerk response of wanting to cut spending to reduce the debts created by the decline in tax revenue. This means that we abandon the future for our children as we cut school budgets or the programs that support children and families in the early years. It is very difficult after all to go back and provide what is needed to young people once they have become adults. We may well end up leaving them not only with a mountain of debt but far fewer resources to earn the income to pay down the debt. It seems a better plan would be to deal with the slowing economy first and concentrate on the debt once the economy is working again.
Another economist and friend of Dr. Emery’s, Tor Dahl made just that point when he talked about his idea of a growth economy and how for the last twenty to thirty years our economy had been underperforming and we would not be having conversations about taxes and debt if the economy were only growing at a rate similar to Singapore or Brazil. He believes this has much to do with a focus on short term planning and too much emphasis on quality as opposed to productivity. Productivity is where growth comes from and he believes you can get quality from focusing on productivity but not the other way around. He seemed to imply that managers seemed too cautious and not bold or imaginative enough to move the economy forward. It was a fascinating conversation for me and gave me the sense that there was reason to hope for our economic future we those who have the power to move the economy could be bolder and plan more long term. I had Tor on a second time and he shared his research on what kind of political leadership had produced the best conditions for economic growth and hands down his data showed it was liberal or Democratic administrations or legislatures.
An economic summit at St. Olaf gave the chance to interview a friend from my college days Deborah Arnie Arneson who held office in the New Hampshire legislature, ran for governor there and has become a radio personality. She had emceed the various forums on campus that week and was kind enough to share some of her insights on what was talked about at the forum. She also shared a touching story about her elderly aunt and our health care system.
I also had the chance to visit with a couple of local businessmen Karl Vohs and Bob Ciernia who talked about their business and how they were fairing and what strategies they were using.
Local Arts Guild director Ann Mosey shared with me work that she and Dean Kjerland had been doing along with a number of others to advance the arts as vehicle for economic growth in our community. She described the efforts that brought together local farmers and artists to create River Walk Market Fair, which just recently completed its second successful year and is now moving to a year round venue.
I talked with Regi Marroquin-Haslett who started the Mainstreet project assisting local latinos in establishing agripreneurs that is local fariming and food distribution enterprises. Creating new markets and entrepreneurs who successfully contribute to our community.
As the legislative session was in full swing and eventually moved into a government shut down and special session I interviewed several state legislators to get a read on what was happening. Rep. Rick Hansen, Terry Morrow, Tina Liebling, and Sen. John Marty all shared their insights on the struggles at the Capitol.
I supplemented their discussions with some floor speeches by Rep. Ann Lenchewski former tax chair and some one who truly understands tax issues at the state and local level. I followed that up with local CPA and tax consultant Leota Goodney who gave a more local perspective on tax law and policy.
University of Minnesota Economics Prof. Richard Levins talked with me about growing income inequality over the last 30 years and the problems this created for our ability to pull out of the current recession and how it related to the problem. The change in regulatory policies and the decline of unions were huge factors in the change from the period when it seemed our economy could spread the growth and productivity gains across our society benefiting everyone. Our current situation has seen those at the top regain their footing and continue to do very well at the same time folks further down the income scale struggle to get by and see their wealth continue to diminish. Continuing to ignore this growing divide will only slow the recovery and may in the end force us to become more like a banana republic with out a middle class. I had Dr. Levins on a second time and we talked some about a recent book, “The Spirit Level“, which further described the dangers of an unequal society. Our economy used to work for everyone what was causing it to fail? Dr. Levins has written about it in a little book called Getting America Back to Work and mentioned my work on saving the middle class. To help us move away from the politics we seem to have fallen into where we have a winner take all attitude among some super wealthy players in our economy, who want to regulate and restrict what access most citizens have to their government while they are completely unrestricted in what they can do and take from the system. Things like the Supreme Court’s “Citizens United Decision“, which money into speech, essentially protecting fraud by insisting that citizens have the right to hear all sides and must be trusted to determine the truth. Essentially allowing corporations or anyone with massive amounts of money to buy elections and politicians.
During the legislative debates about cutting spending an interview with local therapist Dan Dimick got me thinking about how and why we provide for those most vulnerable around us and some in our society seem to have lost the social contract that seemed to be a common assumption. A belief perhaps best summed up by former Sen. Humphrey who argued that we are judged as a civilization for how we provide for those who are in the shadows of life, the poor, the sick and the elderly. It is through government that we are able to meet their needs and provide comfort by asking those who have done very well to contribute to caring for those who through little fault of their own struggle in our society.
I did two programs dealing with how we might improve our health care system and as a result improve our economy. In the legislature along with Sen. John Marty I introduced the Minnesota Health Plan, a single payer plan, which would reduce the costs of insurance at the same time making sure every citizen in Minnesota had access to health care. Joan and Steve Janusz have been working with the Minnesota Universal Health Care Coalition to build support for this policy. They have become very knowledgeable about our health system and talked about how it compares to health care in France where their daughter lives and they recently returned from a visit.
I also, shared with listeners an interview with Dr. William Hsiao, a Harvard expert on the economics of health care and the primary architect of the newly passed Vermont single payer plan. His research and plan – project great savings and improved access for the citizens of Vermont and an added bonus predicts it will bring jobs and employers to that state.
Nan Madden joined me on the program to share her research on the Minnesota budget process and the effect of spending cuts on Minnesota’s non profits who are often in a position to deliver many of the services the State of Minnesota decides are important for citizens. These services often provide vulnerable Minnesotans with care and comfort they would be unlikely to get elsewhere and is funded through grants and allocations of funds directly to these organizations that are able to deliver the services in efficient and cost effective ways.
Carleton Economist Martha Paas, a macroeconomist who teaches courses in economic history, the history of economic thought, and the economics of the arts.
Shared her thoughts on what is happening to the economy.
She attributes the Causes of our recent deficit spending to Defense spending that has doubled in the last 10 years largely due to wars in Iraq and Afghanistan; the Bush tax cuts; and of course The Recession.
She believes shrinking government will not solve the problem. By 2015, half of all government spending will be dedicated to Medicare, Medicaid and Social Security. Social Security is solvent for now, and there is time to make fiscally responsible reforms. Containing health care costs is the real issue.
Prof. Paas says the U.S. is not going broke. It’s not a problem as long as the federal debt, now at $14 trillion, doesn’t grow faster than our Gross Domestic Product (GDP). Our debt to GDP ratio is currently 37th in the world.
The philosophy of Trickle down economics has not worked. The income inequality gap is wider than at any time in our nation’s history. This is not simply a social justice issue. There are sound economic reasons to reverse this trend.
She does not see Inflation as a real danger. The recovery is more important at this point in time than guarding against inflationary forces. She believes investing in infrastructure and clean energy creating jobs not cutting spending will turn things around for the US. Policy decisions must be based on hard evidence and argues that much of what passes for economic thinking is ideology passing for truth and slogans for facts. We should look to the data and our economic history and the path it shows us to take to find our way out of a difficult situation.
Jennifer Labovitz grew up in Northfield and is the daughter of Carleton Economist Bob Will. She didn’t pursue a career in economics nor in the field of criminal justice but found herself learning a lot about both subjects as chair of the Council on Crime & Justice an organization that works for social justice and to draw attention to concerns and needs of those who make there way through our criminal justice system. She shared with me a chart that shows that the US is the worlds number one jailer. We pride ourselves as a nation valuing individual freedom but a combination of no tolerance policies and the tendancy to seek the ultimate punishment for non-violent crimes means that we tend to lock up many of our citizens.
We talked about the economic issues this creates for our society as we spend increasing dollars on keeping non-violent criminals locked up and are forced to cut spending on education and health care. In addition we touched briefly on the difficulty of individuals who have paid their debt to society and now must support themselves in an economy that is increasingly unfriendly to them. The increased use of background checks and the competition for jobs with increasing numbers of unemployed workers makes their assimilation back in to society even harder.
I followed that interview with two interviews about school funding as the Northfield School district was forced to ask for additional funds from local tax payers. Don Hill former teacher and union president has worked for many years to increase spending on k-12 education and to get the state legislature to realize that they can’t just continue to rely on local property tax payers to fund our much needed education system.
And Rep. Mindy Greiling, former chair of the MN House education finance committee shared with me her insights about the current legislative impasse and her efforts to put in place a more equitable funding system for education. She also cleared up some misinformation being spread across the state by the current education chair.
I have been doing a lot of reading about the economy and how we got into this mess and often made references to some of my readings in the interviews. But I was struck by one writer who had expressed concerns about our economic and political system that really rang true to me and predicted the collapse several years before it happened. John Ralston Saul is a Canadian whose book the Unconscious Civilizationcompelled me to call him and see if he would be willing to talk about some of his ideas and what is happening with the Occupy Wall street movement. When I contacted him I did not realize all of Saul’s background. He is President of the International PEN association, the organization that attempts to protect freedom of speech and writers who are harassed by oppressive governments. His wife is the former Governor General of Canada. He has won awards for his novels and acclaim for his books commenting on current political and economic events in the world, US and Canada.
Mr. Saul shared with me his ideas about the corrosive effect of corporatism and its attack on democracy. He sees the Citizen’s United decision by the US Supreme court establishing Corporations as citizens as part of rational extension from Mussolini who was a 20th century advocate of corporatism. He also linked the progression of Corporatist thinking to Globalization, which has little regard for citizens and national governments. He said he was impressed with the efforts of the Occupy movement to try to reawaken citizen activism and indicated felt they were doing a good job of pointing out the problem of corporate influence on political and economic institutions. Mr. Saul is able to avoid many of the right left and or Republcian Democratic arguments by bringing a very different perspective to the recent economic and political events. He echoed some of what economist Tor Dahl had said in our current corporate system ruled by managers anxious to protect what they have in privelege and advantage are unable to provide the economic growth we truly need. I highly recommend his series of books which also advocate for a more balanced view of how function as individuals in society. He believes strongly that government is the one way individuals can express themselves in the political sphere and they have an obligation to do so. He also believes that protection of the public space and public institutions are crucial for preserving our democracy and corporatism and privatization are bent on destroying both.
My friends from the Minnesota Jobs Now Coalition Kris Jacobs and Kevin Ristau shared with me their most recent research on the job situation in Minnesota. They have long advocated that an increase in the minimum wage would go along way in improving the demand side of our economic equation, an important concept when the economy is in slow down mode. If we want to be able to get people working we have to get money into more people’s pockets. It reminded me of what Utah banker, Mariner Eccles said before a Senate committee when trying to help them develop policies to help America find its way through the depression. “Contrary to what you have been hearing cutting government spending would only make matters worse. We have a situation where there is too much money in too few hands and the only way to correct the situation is for the government to step up and put people to work any way it can.” I also asked Jacobs and Ristau about a recent proposal by Georgia Professor William Darity to revive and expand the civilian conservation corps and attempt to get us back to full employment. They made it clear that without a clear jobs program putting people back to work it would be even harder to solve the debt problem our nation has. We have two problems they said the debt and jobs It matters which we one we solve first because it will assist in the other. We must create jobs and put people back to work.
Finally, I was joined by Carleton student Rebekah Frumkin who talked with me about her play “Security’ about the Enron scandal as Greek tragedy and also about her involvement with both the Occupy Chicago and Occupy Minnesota movements. It was refreshing to get her perspective on the economy and our future. You can listen to all of these programs archived on the KYMN Radio website on the Economy Talk page or you can visit the Economy talk page on this website to listen to interviews in an mp3 format.
This is my final program for the time being I expect to be spending time finishing up my book on how to save the middle class and will be busy promoting it. It should be published soon as an e-book. I also will soon be hitting the campaign trail to run for the newly reapportioned Mn House district in hopes of once again representing Northfield and surrounding townships in the state legislature. If you have questions about any of the programs in the series or my future pursuits you can contact me via e-mail at email@example.com It has been a pleasure sharing this time with you and I hope you have enjoyed it as much as I have.