Dear Friends of CEPR, I have a new book out this month: False Profits: Recovering from the Bubble Economy. I felt the need to write this book because, remarkably, the people who somehow could not see an $8 trillion housing bubble still could not understand the bubble even after it wrecked the economy. It was as though their house had burnt down in a fire and they were checking on the burglar alarm.
There is not a lot of mystery as to the source of the current problems. First and foremost, the country's top regulators, Alan Greenspan and Ben Bernanke, were incredibly incompetent in allowing the bubble to grow unchecked. This bubble drove the economy ever since the last recession. Predictably, high house prices led to an enormous construction boom. Soaring home equity also led to a massive consumption boom as people spent based on the newly created wealth in their homes.
In its later years, the bubble was further inflated through complex financial engineering and, in some cases, outright fraud by the financial industry. While it would be desirable to have a better regulatory structure and it is important to fully prosecute the high level bankers who violated the law, this should not obscure the fact that the basic problem was very simple: the Fed committed one of the biggest policy blunders of all-time by allowing the bubble to expand unchecked.
At this point, we have to push for the measures that will best help us recover from the disaster that Greenspan/Bernanke created. At the top of the list is getting people back to work. Second, we have to help the homeowners who got caught up in the bubble. Finally, we have to rein in our bloated financial sector. There are other simple policy solutions to what, in many cases, are actually simple problems. But there is a whole industry of professional lobbyists, many of them economists, whose job is to make simple problems appear complicated.
False Profits, like my other writing, is an effort to assure people that the problems and solutions really are simple. That may put me at odds with many of the leading names in the economics profession. But, when it came to the bubble, most of them were wrong. I hope False Profits will help them better understand what caused, and how to cure, the current crisis. And I hope you'll find it a worthwhile read also.
This past year has been a special one for the Center for Economic and Policy Research. CEPR was founded in 1999, so 2009 marked our 10th anniversary. Over the course of the year, we’ve had some time to reflect on how far we’ve come, and how much we’ve accomplished.
From our humble beginnings just ten years ago, CEPR has grown into a force to be reckoned with. Fairness and Accuracy in Reporting (FAIR) named us the 15th most-cited think tank in the US in their annual study – up from #25 just last year. We’ve been cited over 7,750 times in various media so far this year – an increase of 1,100 over all of last year. We know that we couldn’t have survived - let alone thrived - without the help of friends like you: the thousands of people who believe in our mission, who help to spread CEPR’s message, and who support us financially.
We are most grateful for that support, for it has enabled us to consistently "speak truth to power"…Or, as the editors of The Guardian (UK) put it:
“Set up in 1999 with a total budget smaller than some other thinktanks' entertainment funds, CEPR has been a professional thorn in the side of orthodoxy…In a world of Goliaths, CEPR makes a rather effective David.”
We are proud of the fact that we have accomplished so much given our small size and lean budget, and given our influence-free funding structure. Throughout our 10-year history, we have relied solely on the financial support of foundations and individuals. We take no corporate funding, no union funding, and no government funding. In these times of revolving door lobbying and billion dollar bank bailouts, we steadfastly maintain our independence. And CEPR was the most cost-effective think tank in 2008 measured by media citations and web traffic, ranking first in media citations per budget dollar for the fifth consecutive year, and first in web traffic per budget dollar for the second consecutive year. In other words, we aced our own “stress test”.
As the end of our 10-year anniversary celebration draws near, we ask that you please help us to continue our fight into the next decade and beyond. We’ve had many successes over the course of the past year, but there is still much more to do. The recession drags on both here and abroad. Too many people are still unemployed and at risk of losing their homes. The “Washington Consensus” still influences much of our foreign policy. We need your financial and moral support – now, perhaps more than ever. We still have many more battles to fight. And we are committed to using your gift wisely and effectively.
From all of us at CEPR, best wishes for a safe and healthy holiday season, and a happy New Year.
University of Chicago economist Casey Mulligan has a post today at the New York Times Economix blog where he seems to argue that the current push for statutory paid sick days in the United States is ignoring the role of economic incentives. According to Mulligan, workers in countries with generous paid sick day policies stay home because of "incentives, and not the flu".
I don't think Mulligan has been following the U.S. debate on paid sick days very closely. The U.S. debate is very serious about incentives. The current system --which does not require employers to provide paid sick days and leaves upwards of 50 million workers without paid sick days-- gives strong incentives to workers to go to work sick, lowering productivity and potentially spreading illness.
Of course, offering paid sick days also gives workers incentives to take time off when they are not sick. But, there is nothing in Mulligan's post that says where we should set the optimal level. He doesn't even make a case that the most generous systems in Europe are too generous, just that they lead to more sickness absences in some cases. For all we know, after we factor in the cost of contagious diseases, the most generous European systems might still be too stingy.
To make his point about the effect of incentives, Mulligan features the following graph from a recent IMF paper:
Mulligan, however, has made very selective use of the original IMF graph:
In the original, Denmark, Germany, and seven other countries with more generous statutory paid sick days policies all have lower sickness absence rates than the United States. A really interesting question is: how is it that these countries are able to provide both guaranteed paid sick days and lower sickness absence rates? (And why didn't Mulligan include these countries in his graph?)
In honor of our 10th Anniversary, CEPR hosted a two-hour live webcast. CEPR Co-Directors Dean Baker and Mark Weisbrot were on hand to answer questions from viewers, and Jane Hamsher of firedoglake was the special guest moderator. Dim lights
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CEPR Co-Director, Mark Weisbrot has written numerous columns, analyzing the aftermath of the coup in Honduras, and in which he questions the Obama Administration's commitment to restoring democracy in Honduras.
As the IMF and World Bank prepare to meet this weekend, CEPR's released a paper that shows that the International Monetary Fund (IMF) is still prescribing inappropriate policies that could unnecessarily worsen economic downturns in a number of countries.
CEPR Co-Director Dean Baker was on the Diane Rehm Show, with Jared Bernstein (Chief Economist and Economic Policy Adviser for Vice President Biden and Executive Director of the Vice President's Middle Class Task Force), Deborah Solomon (reporter for The Wall Street Journal) and, Vincent Reinhart (resident scholar at the American Enterprise Institute).
A new report from CEPR shows that unionization significantly boosts the wages of service-sector workers. The report, which was written by CEPR Senior Economist, John Schmittshows that unionization significantly boosts the wages of service-sector workers. Specifically, the report finds that unionization raises the wages of the average service-sector worker by 10.1 percent, which translates to about $2.00 per hour. This report is the latest in a series of reports produced by John Schmitt on the advantages of unionization for lower-wage workers and other groups.
CEPR Co-Director, Dean Baker appeared on GRIT TV with Laura Flanders to discuss the G-20 summit, together with Ann Lee, professor of economics at New York University and visiting professor at Peking University in Beijing, and Greg Denier, Communications Director of Change to Win.
CEPR Senior Research Associate, Ha-Joon Chang was on Democracy Now! with Amy Goodman, where he discussed his book, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. Ha-Joon Chang, is an economist at the University of Cambridge specializing in developmental economics. In 2005, he was awarded the Leontief Prize for Advancing the Frontiers of Economic Thought. He is also the author of Kicking Away the Ladder: Development Strategy in Historical Perspective. The interview begins around the 15:00 minute mark.
Sean Hannity asserted that the economic stimulus bill would amount to spending at least $217,000 for every job created, echoing a false calculation from a press release issued by the Republicans on the House Appropriations Committee and repeated by numerous media figures. In fact, by calculating the per-job cost by dividing the estimated total cost of the stimulus package by the estimated number of jobs created — and thus suggesting that the sole purpose of that package is to create jobs — these media figures ignored other tangible benefits stemming from the package, such as infrastructure improvements and education, health, and public safety investments.
One of the little-noticed but most important international responses to the current world recession is the reassertion of power by the International Monetary Fund, which ten years ago was the most powerful financial institution in the world. The IMF answers mainly to the U.S. Treasury Department, although it is ostensibly a 185-country member organization.
The Treasury Department is using the IMF the same way it did ten years ago, during the last major financial crisis, in East Asia. Treasury is trying to re-establish the IMF’s former pre-eminent position as gatekeeper to any rescue funds. This would enable the IMF/Treasury to choose which developing countries get loans and what conditions are attached to the lending.
The IMF played a disastrous role in the Asian crisis, which is one of the reasons that its portfolio shrank to almost nothing over the last decade, and any country that could, avoided them like the plague. Now they are back, unreformed and unreconstructed. Despite the G20 meeting’s lip service to making some developing countries partners in international financial reform, the idea of giving them any more representation in the IMF’s decision-making is decidedly off the agenda. China, the world’s second-largest economy with 1.3 billion people, has just 3.6 percent of the vote in the IMF; the United States has 16.5 percent. But since Europe and Japan virtually always side with the United States, the developing countries are effectively without a voice.
While the IMF wants the rich countries to adopt large stimulus packages and lower interest rates to counter the world recession, it is requiring its borrowers — so far Iceland, Hungary, Ukraine, and Pakistan — to do the opposite. Perhaps even worse, some countries will need to adopt capital controls, to prevent damage from money fleeing the country; the IMF will use its muscle to prevent that. Washington and the U.K. are trying to get the countries with surplus reserves — mostly China and the Gulf states – to pitch in to the IMF. So far, only Japan is willing to do so. Hopefully, the developing countries that have excess international reserves and want to help those who need them will find other ways to channel the money.
As world leaders gather in Washington this weekend for a summit to address the global economic crisis, the International Monetary Fund is being touted as a "financial firefighter." However, the IMF's track record of the last 30 years casts serious doubts on that institution's ability to contain the financial meltdown. Rather than dousing flames, the IMF's prescriptions have often poured gasoline on economic fires in emerging nations, crippling long-term development. Should the IMF be designated as the lender of last resort, it must overhaul the structural adjustment policies that prevent many nations from providing basic services for their people. CEPR Co-Director Mark Weisbrot joined Robert Weissman, Director of Essential Action, in a call with reporters that was moderated by Joanne Carter, Executive Director, RESULTS Educational Fund. To listen to a recording of the call, dial 719-457-0820, and enter passcode 4097561. A transcript is available on the RESULTS site.
With all the election news about increased turnout from people ages 18-29, television hosts seem giddily intrigued by the political habits of “young people,” as if we were some exotic and alien demographic of the American electorate.
The truth is, we Millennials (is that what they’re calling us?) are Americans like everyone else – just younger. We may not have lived through history, but we know the story. We may not have a family right now, but we will someday.
As citizens, we’ve taken advantage of all the new opportunities afforded us in the 21st century. We’ve graduated from high school and college at higher rates than in recent memory. We’ve contributed to the increased productivity from labor in the last decade. We were the first generation to grow up with computers, and we still give our parents a computer lesson every now and then. In short, we’ve been pretty good citizens.
And yet, we’ve been the hardest hit by the wage stagnation in our economy over the last three decades. After adjusting for inflation, the wage of the typical 18-29 year-old worker was about 10 percent lower in 2007 than it had been in 1979. Despite being more tech-savvy and better educated, we’re getting paid less.
A lot of this is outside of our control, influenced by political decisions in Washington and massive fluctuations in the economy. But there is one surefire way that young people can improve their living standard – unions.
A new report from the Center for Economic and Policy Research (CEPR) analyzes data from the Census Bureau’s Current Population Survey (CPS) and finds that unionized young workers (age 18-29) earned, on average, 12.4 percent more than their non-union peers. The trend was the same even in the lowest-wage occupations. The average non-union young worker made $8.74 per hour, while the average unionized young worker made $10.62 per hour. Unionized workers were also more likely to have good benefits, like employer-provided health care and pension plans.
CEPR Co-Director Dean Baker attended a panel discussion on the economics of inequality on September 30 at the Institute for Policy Studies. Dean spoke about the 'financial crisis' and argued that a tightening of credit is normal in the context of a recession and that a bailout is uneccessary. His weekly columns on the economy can be found here. Jared Bernstein of the Economic Policy Institute and Barbara Ehrenreich of the Institute for Policy Studies also spoke. The discussion was moderated by Chuck Collins,the Director of the Inequality and the Common Good Project at IPS. Dim lights
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The Center for American Progress and the Economic Policy Institute co-hosted a forum entitled "Corporate and High Income Tax Cuts and the Economy: The Economics, History, and Public Debate of Supply-Side Policies," which consisted of two panels. In the first panel, "The Economics of Supply-Side," economists Lawrence Summers, Gene Sperling, and Jeffrey Frankel discussed the resounding denunciation of Supply-Side Economics (such as Bush's tax cuts for the wealthiest 1% of Americans in an attempt to stimulate the economy) by the majority of professionals in the field, both from its theoretical perspective and from evidence over the past 60 years. In the second panel, "The History and the Public's View," Jonathan Chait gave a synopsis of his new book, "The Big Con: The True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics." Anna Greenberg, a leading polling expert, discussed American opinions on various tax issues, pointing out that most think the wealthy and corporations pay too little in taxes, but many are also in favor of tax cuts in order to stimulate the economy.