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.
CEPR Co-Director, Dean Baker and journalist Bob Herbert, sat down with Bill Moyers to discuss the economic challenges facing the government and the American people. Video and audio clips of the interview can be found here.
We're delighted to announce that CEPR is this month's featured partner on the International Relations and Security Network (ISN) homepage. ISN provides an extensive network of free research materials for international relations scholars, as well as up-to-date current event analysis, conference listings and interactive educational content.
A recent article by MarketWatch on CEPR's latest report, "The Housing Crash and the Retirement Prospects of Late Baby Boomers," was among the ten most cited articles on their website, for the week of June 23-27. The study, which was co-authored by Dean Baker and David Rosnick, analyzed the wealth holdings of families headed by people between the ages of 45 and 54 in 2004 and projected the wealth of families headed by people who will be in this age group in 2009. The findings are presented by income quintile under three scenarios- real house prices remain at current levels, real house prices fall by 10 percent, or real house prices fall by 20 percent. In all three scenarios, the vast majority of these families will have little or no housing wealth in 2009. Most importantly, this report should lead to a serious re-examination of policy proposals that would cut Social Security and Medicare for near retirees.
CEPR's Director of International Programs, Deborah James, is in Geneva where she will take part in meetings and events with trade ministers and civil society organizations related to the World Trade Organization "mini-ministerial" which begins July 21. CEPR expects the negotiations to face significant challenges due to the recent spike in food prices, and the limited gains projected for developing countries.
The Economic Policy Institute hosted a forum called Rising Economic Insecurity, focusing on instability of household income. Jacob S. Hacker and Elisabeth Jacobs presented their paper, “The Rising Instability of American Family Incomes, 1969-2004.” They showed that family income variance has approximately doubled over the time period and that the percentage of working-age Americans who have experienced a catastrophic drop (more than 50%) in their family income has steadily risen to about 10%. They found that this volatility tends to come from male head of household income, not from changing patterns of women’s labor force participation. More research is needed to determine the sources of the volatility, which may include the impact of globalization and labor unions. Peter Gosselin of the Urban Institute also talked about his related paper “Trends in Income Volatility and Risk, 1970-2004.” He focused on a general shift of risk from the government and businesses to households.
Dean Baker testified before the House Subcommittee on Domestic Policy, promoting his Subprime Borrower Protection Plan. The hearing, "Neighborhoods: the Blameless Victims of the Subprime Mortgage Crisis," focused on the effects of the meltdown of the mortgage market on neighborhoods and communities, particularly the increase in the number of vacant and abandoned properties due to foreclosures.
In an effort to provide greater housing security to families put at risk by the current crisis in the housing market, Congressman Raul Grijalva, (D-AZ) introduced a bill yesterday - with similar elements of the Subprime Borrower Protection Plan - that would allow homeowners of moderate-value homes who are facing foreclosure to remain in their homes as renters. See video of the full hearing.
Co-Director, Dean Baker, spoke to the Baltimore Sun in an extensive interview about where he thinks the housing market is headed. Dean, one of the first economists to write about the existence of the housing bubble in August 2002, warned that house prices are still falling rapidly and that housing wealth could decline by as much as forty percent before the worst is over. More of Dean's work on the housing crisis can be found here. Readers can also subscribe to CEPR's Housing Market Monitor which is published weekly and provides a breakdown of the latest indicators and developments in the housing sector.
"How bad could it get?" asked the editor of Challenge: the Magazine of Economic Affairs. Their current issue features articles on the topic of economic crisis. The good news: they've published Dean Baker and John Schmitt's recession prediction paper. The bad news: the recession is going to hurt mostly everyone.
Dean Baker was in Boston on May 1, presenting his paper "Financing Prescription Drug Research: What Are the Issues?" The paper was presented at the annual conference of the Sloan Foundation's Industry Studies group.
Previously, on April 22, Dean gave a presentation on the rise and demise of the housing bubble at Bucknell University.
Last week, senior economist John Schmitt traveled to Amsterdam where he participated in a conference on low-wage work in Europe. The conference attracted some of the world's leading labor market economists and European policy makers who debated the meaning of the employment and wage differences between Europe and the United States.
The conference was organized to present the findings of research conducted over a four year period by teams in research institutions spanning five countries: the National Institute for Economic and Social Research, and the ESRC Centre on Skills, Knowledge and Organisational Performance, Oxford/Cardiff, (UK); Arhus School of Business, (Denmark); Institut for Arbeit und Qualifikation, Universitat Duisburg, (Germany); Universite de Paris-I Sorbonne-Pantheon and Paris X/Ecole Normale Superieure, (France); and the Amsterdam Institute for Advanced Labour Studies (AIAS) at the University of Amsterdam and STZ Consultancy (Netherlands).
The analysis of 200 firm-level case studies showed stable rates of low pay employment of about 10 percent in Denmark and France, the rate in the Netherlands has stabilized at over 15 percent and in the United Kingdom at over 20 percent, with rapidly growing rates in Germany, which had low-wage employment rates almost as high as the 25 percent rate in the United States. However, researchers also found that low-wage workers in the European Union are generally significantly better off than their counterparts in the United States, primarily due to the social insurance provisions in the EU, including health care. The study was carried out with generous support from the Russell Sage Foundation as part of its Future of Work research program. John will be one of the editors of a volume summarizing the cross-country results of the multi-year project.
The Senate Committee on Banking, Housing and Urban Affairs asked Dean Baker to testify at a hearing yesterday, "Turmoil in U.S. Credit Markets: Examining Proposals to Mitigate Foreclosures and Restore Liquidity to the Mortgage Markets". Also testifying were Lawrence Summers, former U.S. Treasury Secretary, and representatives from the Center on Responsible Lending, the Brookings Institution and Lenders One, a national alliance of mortgage bankers.
Dean Baker argued that the situation in the housing market represents the largest economic crisis the country has faced since World War II. He went on to say that current legislation, while appropriate for some parts of the nation, will not address the needs of homeowners in bubble-inflated markets. You can read Dean's testimony here.
The International Relations and Security Network (ISN) Publishing House, which is based in Zurich, Switzerland at the Center for Security Studies has chosen one of CEPR's latest publications as one of the editor's top picks. The paper, "An Empty Research Agenda: The Creation of Myths About Contemporary Venezuela," was written by co-director, Mark Weisbrot, as a response to a recent article in the March/April 2008 issue of Foreign Affairs that argued that Venezuela's poor have not benefited from the policies initiated byt the government of President Hugo Chávez. The ISN Publishing House is a repository of over 12,000 freely accessible policy briefs, research papers, government reports and journal articles covering a broad range of international relations and security-related topics.
Co-director Mark Weisbrot spoke at a panel discussion at the George Washington University Elliot School for International Affairs entitled “US Policy Toward Latin America in the Post-Bush Era”. The co-panelists included Greg Craig, a foreign policy advisor to Senator Barack Obama, Nora Lustig, a visiting professor at GWU and President of the Universidad de las Americas and Mark Schneider, the Senior Vice President and Special Advisor on Latin America at the International Crisis Group. All the participants agreed that supply-side counter-narcotics efforts in the Andes have failed. Nora Lustig discussed the possible effects of a US recession on the economies of Latin America, the topic of a recent CEPR report. Mark Weisbrot followed up on Mr. Schneider’s comments about economic inequality by underscoring the electoral consequences of Latin America’s dismal economic performance during the period of Washington-backed reforms. Recent economic policies, pursued independently of IMF advice, have lead to much higher economic growth, particularly in Argentina and Venezuela. The event was attended by an audience of over 100 policy makers, diplomats, academics, and students. A video of Mark's presentation can be viewed here.