Deficits are a Grrrl’s Best Friend, first posted on the MS Magazine Blog. The uninformed, TeaParty comments are … well, what are they? You decide.
Sat 13 Aug 2011
Tue 2 Aug 2011
Early in the day Move.on sent out an call to action asking Mainers to go to Senator Susan Collins’ office at 12 to protest her likely “yes” vote on the debt ceiling bill.
About 20 showed up. People from all walks of life. And they were unanimous in their message: may the rich pay, take power away from Corporations, stop attacking middle class institutions.
Collins’ staff dutifully took notes (full disclosure, the young woman is a former student of mine) and was very polite.
But as always, these voices of dissent will fall on deaf ears.
I’ll get back to blogging about economics in a few minutes.
Fri 29 Jul 2011
Well, I’ve taken the plunge and am starting to blog again. The insane economic situation, in the US and Europe, demands cogent analysis—and even with lots of progressive colleagues burning the midnight oil while madly tapping away at their keyboards—the sad fact remains that gender issues rarely receive the attention they deserve.
Tag, I’m it.
When I was last online here, Stu gave a favorable nod to the conversation between Women’s Studies and Economics, noting that he can see what economics has to offer women’s studies. What then, he wondered, does Women’s Studies have to offer Economics?
Great question, thank you for asking, and a wonderful reason to invite Economics and Women Studies back for another chat. They join me here in the blogosphere live for another exciting discussion.
SF: Welcome back Economics and Women’s Studies. These are certainly trying times for both of you. Economics is a house-divided, and Women’s Studies is overwhelmed by the impact of the economic crisis on women. Economics, can you tell us quickly about the oppositions in the field?
E: Sure thing. Here’s the basic story line of mainstream economics (it’s explained in excruciating detail in the introductory texts). Neoliberal economists want to explain the prices of all the stuff in the world, as well as the prices of the two main inputs to production—labor and capital. To explain why coffee costs x, potatoes cost y, and tv’s cost z economists point to the forces of Supply and Demand working in markets. Supply and Demand, they say, determine all prices. And, they go on to point out, labor receives a wage—that’s just the price of labor. And capital is paid interest—so the interest rate is the price of capital. Thus the prices of labor and capital, the wage rate and the interest rate, are determined by supply and demand as are the prices of apples, mittens and automobiles.
SF: Yeah, yeah. Heard that a million times. Why my 4th grade teacher used to say that! What I want to know is, “where do supply and demand come from?” I mean, they’re not ordained by God, are they? Supply and demand are not naturally occurring phenomena like atoms, gravity or light.
E: Mainstream economists answer this question one way. We dissenters answer another way. Let’s check out the standard answer first. Demand, according to mainstream economists, comes from the human psyche. Demand is sacrosanct because it reflects how much people want, given the prices of the junque they want and their income. In short, every individual has her unique set of tastes and preferences for the infinite goods and services available to us. Market demands are simply the registry of those tastes and preferences, well at least those that are backed by purchasing power.
Here’s how we’d write this on the chalk board:
Tastes → Demand.
SF: Ok, I can follow that. Now tell me where Supply comes from.
E: Well, this is an ingenious, if nefarious, intellectual move. Here’s how they make Supply—the number of apples, cars, TV sets, and computers that firms want to sell to you—exactly parallel to demand! People (that’s you, the consumer) want all this junque. You look for it in Markets. Markets send signals to Firms that people want junque, so firms produce junque. Firms produce what people want. We could write:
Tastes → Supply.
SF: Man oh man. That’s clever. They have a theory of economic behavior in which all the relevant outcomes (all the prices, include the price of labor and the price of capital) are determined by the interaction of demand and supply. Demand and supply are in turn determined by what individuals want, so by perfectly logical reasoning messing with the market means people aren’t able to get what they want. This would mean that any government action to raise, for example, women’s incomes, would be an infringement on freely made choices. And what could be worse?
E: Bingo! What’s awful about this is that mainstream economics has gotten a free pass on this, even though there are dozens of cogent criticism’s which show that this reasoning is fatally flawed. I do mean fatally. This theory of the economy is as wrong as Ptolemy’s theory of the celestial bodies.
SF: Sigh. But Ptolemy’s adherent didn’t enact social policies that consigned billions of people to poverty, unemployment and lives of extreme hardship. Unfortunately, the bread and butter of neoliberal economics is human misery.
E: Yeah, it’s sad. The good news is that there are alternatives to this nonsense, and I hope you’ll invite me back so we can talk about them.
SF: Sure thing. Thanks again for joining us today. And apologies to Women’s Studies who wasn’t able to get a word in edge wise.
See you soon.
Wed 31 Dec 2008
Remember the mean, lean years of 1982 and 1983? Unemployment hit 11% in November 1982 and remained at or above 10% for most of 1983.
In fiscal year 1983, the federal government budget deficit of 209 billion dollars was 6 per cent of GDP. The sky did not fall.
Today’s GDP is close to 14 trillion dollars, which means that a deficit of 6 per cent of GDP would be 840 billion dollars. The sky will not fall.
Of the 103 million people in the 1983 labor force 10 million were without work. Today’s labor force is far larger, roughly 144 million people. If unemployment rates hit the levels of 1982/1983—and most economists agree it will—the number of people out of work will exceed 14 million!
Think of it this way. Because today’s labor force is so much larger, the current unemployment rate of just under 7 per cent means the same number of people are out of work now as there were in 1982/1983 when the unemployment rate hit 10 per cent.
Economists know that federal budget deficits reduce unemployment. But faith-based economists want you to believe that helping people by creating jobs via spending programs violates sacrosanct principles. According to their cult, fighting unemployment through deficit spending is sure to call down the wrath of the Market. For market-worshipping true believers the suffering of 14 million unemployed people and their families is necessary to appease The Market. Maybe the next time there is a drought we should throw a couple hundred infants off a cliff.
Obama administration proposals for expanded federal spending will not bankrupt the nation, kick off inflation, or cause any other economic malady. In fact, the proposed spending programs are quite modest.
After 30 years of neglect, deficits exceeding 6 per cent of GDP are warranted. Many of our most important public goods are in life-threatening disrepair—closing schools and libraries, selling off parks and highways, letting bridges and levees collapse—does not improve national well being.
Deficit-hawks are freaking out about the trillions this will cost. Yes, we are talking about huge sums of money. Fortunately, fiscal policy research at the award-winning Levy Economics Institute put these numbers in historical perspective.
In FDR’s New Deal, the Resolution Finance Corporation injected $50 billion to rescue the nation’s banks. If we adjust the $50 billion spent in the 1930s (for the inflation which has occurred since then) we’d be looking at close to $800 billion in today’s dollars. If we further adjust New Deal spending to take account of GDP growth (our economy is much larger today, so the problem is much bigger in absolute terms), that figure rises to $12 trillion, or 85 per cent of GDP! (http://www.levy.org/vdoc.aspx?docid=1101 accessed December 6, 2008)
It’s time to send faith based economists packing. A1.4 trillion-dollar deficit—around 10 per of GDP—is puny in light of New Deal fiscal activism.
The Federal Government must immediately assure the states that revenue from federal sources will be available to enable the states to meet rising local needs. Environmental problems require huge investments in green technologies. As millions lose their jobs—and their health insurance—developing universal, single payer health care becomes even more urgent. Equally as important, programs financed by federal deficits must follow the best principles of affirmative action to combat work-force segregation and discrimination.
14 million unemployed Americans is too awful to contemplate. “Deficits be damned, full speed ahead!”
Thu 11 Dec 2008
I’ve been invited back to TPM Cafe Book Club.
The topic is Paul Krugman’s newest book, The Return of Depression Economics and the Crisis of 2008.
This is a round table discussion with lots of opportunity for comments.
Hope all of the feminist readers out there will pay attention. Because so far Randy Albelda is spot on in her Boston Globe op-ed, “The Macho Stimulus Plan.”
Thu 9 Oct 2008
The Economic Double Whammy to Women
Mass layoff events hit a record high in August. On Sept. 23, the Bureau of Labor Statistics recorded 1,777 firms laying off 50 or more workers. The three job categories most seriously affected were temporary service workers, school and employee bus drivers, and professional association workers. These three occupations employ far more women than they do men. Unfortunately for women, the usual policy response to rising unemployment won’t help them much because this spending does not create jobs in the sectors where women work.
Fiscal stimulus to rev up the economic engine works. But the labor market is drastically different than it was in the 30 years following WWII. Fiscal policies during the so-called golden age of capitalism were responsible for the increases in men’s wages, rising productivity and rapid economic growth. Today, in contrast, most women work for pay outside the home. So attention must be paid to crafting a stimulus package that will directly increase jobs for women.
Reality-based economists have long argued that financial regulation is necessary for stability in the economic sectors where goods and services are actually produced and where the vast majority of jobs are located. Reality does not seem to extend to gender, however, as economists still offer policy responses that take no notice of gender differences in economic behaviors and/or outcomes. We must demand fiscal policies relevant to women’s economic positions.
Go to Broad Bytes, the blog of Women’s Enews to continue reading this piece.
Sat 4 Oct 2008
Yesterday’s congressional approval of the bailout bill fails women. Why?
Because its focus is almost entirely on financial difficulties while the deepest, most serious economic problems relate to unemployment.
Sure, it’s important to get the banks in order. But was this the emergency it was cracked up to be? Nope. It was shock and awe Wall Street style.
The Bureau of Labor Statistics reported a record 1,777 mass layoff events in August. The three most severly affected industries—temporary help services, school and employee bus transportation, and professional employer organizations—employ far more women than men.
True, the Wall Street mess is making the recession worse, and women do struggle as a result. But the best way to help would be to send $100 billion in emergency aid to the States so they don’t have to cut essential spending on health, education, heating, and housing. Such spending helps women far more than billions to swashbuckling Wall Street gamblers.
Tue 19 Aug 2008
Unpaid household labor, growing food in the garden, repairing your own car, or even painting your apartment are all activities that add too wellbeing, but they are not counted in GDP. By the same token, every time someone is treated for cancer GDP goes up.
This is a serious flaw in the accounting process. There is actually a lot of research on ways to change the way we do national income accounts. The Genuine Progess Indicator is one approach that tries to get around some of these problems.
Economists measure the “value” of things by adding up their prices. That’s how we can add sweaters + apples + cars + … + zinc. To add things up they need to be in common units. Economists add in currency units (dollars, euros, yen).
Problem is, a whole lot of things that have prices are actually “bads,” and many things that don’t have a price are “goods.” By standard reasoning the Exxon Valdez was a great succcess. The fact that it spilled thousands of gallons of oil is not counted as bad … Valdez bay has no price. The millions of dollars spent cleaning up are counted as good, because everything usesd in the clean up had a price.
There isn’t much justification for the way we currently add things up to get GDP. It’s just the way it’s done.
Household labor is left out because it doesn’t have a price, it isn’t paid. Ditto for the veggies in your garden.
Because GDP tracks the level of monetized exchanges … things are in GDP when goods trade for money, and money trades for goods … anything that is not monetized gets left out.
This is one of the ways that women’s economic contributions are erased from the record. The accountants don’t have an column for it. Nobody bothers to monitor household labor, so policy makers ignore the impact of changes in government programs on families.
For example, the structural adjustment policies imposed by the World Bank often called for cuts in health and education. But the social need for health care and education did not go away. Rather than being performed by professionals in public settings, the work was pushed back onto private household.
This policy change increases the demand for women’s domestic labor. More work at home left less time for paid work.
The accounting/statistical invisibility of women’s unpaid labor is a problem. But adding this back into national accounting systems won’t change women’s work experiences at all. Public awareness would likely change, and that would be a good thing. But not good enough to make changes in national income accounting central to a feminist economic agenda.
Thu 24 Jul 2008
The current credit crunch is totally predictable. In fact, any number of progressive economists have been predicting both the bust of the housing bubble and a deep recession to follow.
One of the best places to follow as-it-happens news on financial markets is the Center for Economic Policy Research especially the news briefs by Dean Baker.
A major part of the rationale for regulating the financial sector is that banks, left to their own devices, act in ways that make business cycles worse: the booms are larger, the busts are bigger. When times are good bankers get swept up in the optimism, so they make loans. Even loans that are not so smart. This feeds the boom. When the tide turns, as it always does, bankers stop making new loans, and often call otherwise sound loans. This pulls spending power out of the economy and pushes the economy into a recession (or worse).
Two cool vocabulary words: Pro-Cyclic Behavior (refers to institutions or individuals who act in ways that accentuate the boom/bust cycle of capitalist economies).
Counter-Cyclic Behavior (refers to institutions or individuals who act in ways that damp down, or moderate the boom/bust cycle of capitalist economies).
Keynsian contributions to economics include the tools governments need to act COUNTER-CYCLICALLY! And if one compares a graph of business cycles before 1940 and after 1945 one can really see the difference.
Stay tuned and I will be posting a chart that shows exactly what I’m talking about. (Visualize: before 1940 is like a patient’s ekg when they are having a heart attack — all sharp peaks, and sharp downturns, really zig-zag up and down. After 1945 the egk is much smoother, the waves of a healthy person’s heart while resting.)
Mon 21 Jul 2008
Back from my travels and starting to blog again. Thanks to all the readers who’ve made comments and asked questions.
Given the attention in the press, and among political candidates, it’s no wonder that deficits get so much attention … that they don’t deserve!
Here’s a blurb from a recently published book titled The Great Deficit Debacle, by Joëlle LeClair. “Over the entire post-war period the federal government has consistently run budget deficits, with one major exception, the surpluses from 1998 to 2001. … Despite the fact that in the US, a federal budget deficit is the normal situation, Presidents and Congresses typically aim for surpluses. This misguided policy goal increases the financial fragility of our economy, and recession is the natural result. This book clears up common misconceptions about what policymakers should be doing to … improve the economy’s capacity to create jobs, wealth and prosperity.”
OK. How do deficits affect women’s economic positions?
The federal budget can be in deficit, it can be balanced, or it can be in surplus. The budget position depends on the relationship between government spending (revenues being spent) and government receipts (tax revenue coming in).
Fiscal policies are those that affect the level of government spending and the level of tax receipts, so fiscal policy is always associated with either deficits, surpluses or balanced budgets. But as LeClair notes, the normal state of affairs is one of budget deficits. Before turning to why politicians get their knickers in a twist over deficits, let’s walk through the interaction of fiscal policy and economic activity.
Fiscal policy decisions about spending and taxation change the level of economic activity, chiefly the number of jobs available, consumer spending, and how much firms are investing in new plant and equipment so they can produce more stuff in the future.
Imagine a bathtub filled to just the level you like. In the analogy that follows the level of water in the tub represents the level of economic activity. Water flowing into the tub matches up to the idea of aggregate spending, water flowing out of the tub matches up to the idea of aggregate “not-spending.”
If we open the drain too much, the level of water in the tub will fall: this is akin to a recession or depression.
If the water level is falling, can we open the taps of spending to counteract the draining? Yes we can … and government deficits are the principle mechanism for doing this.
If political leaders sit on their hands during an economic downturn the level of water in the tub will fall. President Hoover was willing to let the economy fall and fall and fall … he was not willing to use government spending power to try to counteract the depression. FDR, within some pretty cautious limits, was willing to use federal spending, financed by borrowing, to try to counteract the depression.
The New Deal and the post World War II prosperity that followed showed us that we can use the economic muscle of government to counteract the boom-bust business cycle, an enduring feature of capitalist economies.
This leaves two questions: what causes water to drain out of the tub? What are the sources of water flowing into the tub?
There are three economic behaviors that cause the overall level of economic activity to fall. When households, businesses and governments “save” water drains out of the tub. When governments collect taxes water drains out of the tub. When imports (what we buy from other nations) exceed exports (what we sell to other nations) water drains out of the tub.
SAVINGS: DRAIN NUMBER 1
Here is one of the first counter-intuitives of modern economics. Savings by households and firms are important, and are a good measure of the economic health of a household or business. But sometimes the volume of savings is too large. When people and firms save too much the level of economic activity falls. Say what? How can this be?
Savings are the portion of income that is not spent, this part of income does not circulate through the economy, it is water leaking out of the tub. When households save they sock part of their income away in 401k plans, buy shares in mutual funds, or make deposits into their savings accounts. But they are not usingthe income they’ve saved to buy stuff at the mall or the grocery store. They are not going to the movies nor are they going out to dinner.
If consumers aren’t buying, firms aren’t selling. Are firms happy? Nope. The first thing a firm can do when faced with declining sales is lay off workers. Now these workers have no income. Can they buy anything? Nope. So sales by businesses will fall even more. You get the picture? A vicious downward cycle of layoffs, less spending, more layoffs can set in.
Business savings work pretty much the same way. The fancy name for business savings is “retained earnings,” these are the earnings that are not paid out as dividends or bonuses. Like household savings, business savings represent income earned but not spent. If the businesses are worried about the future which are they more likely to do: pay out their retained earnings or hold some back just “in case?” This could kick off a downward economic spiral.
Governments (federal, state and local) save (run a budget surplus) when the amount they spend (on schools, parks, libraries, health care, weapons, police, prisons, clean air, or summer recreation programs) is less than the amount they collect in taxes. If the taxes collected exceed the amount spent, then this fiscal decision is adding pressure to the flow out of the tub … government is, on net, taking spending out of the system.
Counterintuitive number 2: If there is a lot saving and banks are seeing lots of deposits then won’t the banks make more loans, and won’t this offset the drain of income out of our tub? Probably not.
Banks do not have to make loans. In fact bankers are notorious for their self-fulfilling prophecies. When times are bad (the level of income is falling, people are losing jobs, businesses are shutting down, bankruptcies are rising, and state governments are cutting programs because they no longer have the tax revenue needed to pay for things) banks become very conservative. They are less likely to make loans. This makes sense … aren’t loan riskier when the economy is tanking? As should be obvious from recent headlines, we can not look to the banking sector for relief when the economic tide is going out.
The bottom line: “too much” savings will trigger an economic downturn. Why? Because income has been earned, but not spent. The fancy name for this is “insufficient aggregate demand.” Taken together households, plus businesses, plus government (plus our foreign trading partners) are not spending enough to buy all the stuff that’s been produced. Firms can’t sell what they’ve already produced, so they slow down their rate of productioin. They lay off workers. Workers lose their incomes. They can’t buy stuff … so there is even less spending in the system and so on in a downward spiral until it stops.
When and why economies recover from recessions depends on government policies.
Take two aspirin, drink plenty of fluids and call me in the morning.
TAXES: DRAIN NUMBER 2
All levels of government impose taxes. No one likes paying taxes. Tax resistance goes back to biblical times, “render unto Ceasar that which is Ceaser’s.” When taxes are collected that money can’t be spent. Typically though, as soon as governments collect taxes, they turn around and spend them to buy things that we cannot buy as private citizens.
If no one in the US paid a penny in federal taxes, where would the spending power come from to maintain the national park system, clean up our rivers and lakes, rebuild bridges, provide public education, or inspect food, mines and workplaces for safety? Governments buy social goods, things that we all want and need, but which we can’t buy as individuals (either because the costs are prohibitively high or because there are no markets in which the goods are bought and sold). The spending would come from borrowing … this is how governments spend more than they take in in taxes.
It does matter how governments decide to spend: pyramids, wars, and espionage do not do much for citizens. Education, public health, parks, highways, police and fire protection, and dozens of other public programs are incredibly valuable to all of us. Many of the services provided by modern governments go a long way to improving women’s labor market opportunities.
I’m sure all of us are aware of how difficult it is for women to go out to work when there are young kids in the family. Absent affordable high quality childcare, women’s assumed (and instutionally reinforced) responsibility for children ties them to the home. Once kids are in school, women’s work options improve. Programs that provide care for the elderly or the chronically ill also improve women’s opportunities to advance their careers. Government subsidies for transportation and housing are also really important to women. Since women earn less than do men with comparable education and skills, government support for transportation helps women (and other lower income workers) afford their commutes to work. Housing supports work the same way.
Net Imports: Drain Number 3
If Americans buy more from the rest of the world than the rest of the world buys from us, than that spending can’t be recirculated through the US economy.Today the international sector is one of the largest flows out of the economic tub. (This is an important topic, and I’ll come back to it soon).
Feminism and Fiscal Policy: the punch line
In a recession economic activity is falling off and the tub is draining. The Federal Government has a legal responsibility to use fiscal policy to maintain the level of employment. (This is codified in the Humphry-Hawkins FullEmployment Act). It is important to protect citizens from the economic consequences of job losses that have nothing to do with their job performance.
When the economy is on a downswing workers are—by definition—losing their jobs. This is precisely when governments should run budget deficits. If government spending causes more income to flow into the tub than is leaking out (via taxes, saving, and imports), this fiscal policy decision will have major positive effects on women’s economic wellbeing.
If the federal government does not step in to slow the leakages out of the economic bathtub, women lose jobs and their incomes fall. For a variety of reasons women tend to be in jobs where they have few protections: they are not unionized, they work part time, and they work in smaller businesses that are very sensitive to economic downturns. (More on this later).
Part time workers are not eligible for unemployment benefits. Since many women work part time the income they lose when they are laid off is not replaced by unemployment compensation. Since women earn less than men, they save less than men. When they lose their jobs they don’t have much of a protective cushion.
Budget deficits are essential to women’s economic wellbeing. Federal deficits support the level of economic activity by offsetting the drains of savings, taxes, and net imports. Federal budget deficits are all that prevent permanent recession and economic stagnation. The most robust period of growth in recent US history is precisely when federal deficits were used most aggressively to maintain full employment.
Why are conservatives against deficits? It’s that power thing. When working people have jobs with some security, they are more willing to confront the power of bosses. Collective bargaining becomes stronger. During periods of high to full employment workers—including women—are usually able to get better wages and more control over working conditions.
Conservatives dress this up in all sorts of fancy argumentation. They are especially keen on comparing government deficits to household borrowing. They love to say, “We have to balance our budgets,” “We have to live within our means,” “When the government borrows we are mortgaging the future.”
The federal government is not a household. Nor is it a business. It can and must deficit finance. The most successful business enterprises in the world all borrow to pay for big ticket items, you don’t seriously think factories are built with cash? Well, the public has big ticket needs too: schools, roads, airports all have to be financed by borrowing. No big deal.
Is deficit financing all we need to get us out of the current economic mess? No. But a strong stimulus package based—estimates from several think tanks put the minimum amount at ±40 billion dollars—is one way we can protect women’s economic wellbeing.