SF: Welcome back everyone, glad you are continuing to tune it.
SF: As we finish up today’s conversation I’m going to steer the conversation toward some questions of economic policy. In preparation for this dialog I asked WS to check with WS faculty and students for economic issues relevant too this election season. WS, what do your colleagues want to hear about?
WS: There’s a long list of questions, but here’s one that kept coming up. Seems like everyone agrees that the US economy is now in a recession, one that will get worse before it gets better. How can action by the federal government help the millions of people who are losing their jobs and their houses?
E: Another great question. First and unequivocally, the federal government can and should act to counter this recession. In fact, if economists and politicians were willing to admit that “free market fundamentalism” of the sort unleashed during the so-called Reagan revolution has been a disaster we could get on with doing what’s right.
Here’s the basic idea. In a recession, people are losing their jobs, businesses are cutting back, and the level of private spending is falling off. The government can step in and replace some of the purchasing power that’s disappead. People without jobs have no income so their spending goes down, a lot! In today’s world of highly indebted consumers the loss of a job is even more disastrous, since people have so little put aside in savings.
In the face of a recession government can, for starters, extend unemployment insurance. This puts spendable income directly in the hands of people who’ve lost jobs.
But, and here’s a critically important point for women: part-time workers are not eligible for unemployment compensation. Most part time workers are adult women. So extending unemployment insurance is not going to be much help. Congress could enact changes in the program that would make part time workers eligible.
WS: I didn’t know that. I can just see the debate now. If Congress can’t even approve equal pay laws I can just see them rallying to extend unemployment benefits to women workers. There must be other things the government can do?
E: Sure. Another little known fact is that women and people of color working in the public sector are better paid, and have better chances for career advancement than do their peers in the private sector. So expanding public sector employment is an important option.
Historically economic stimulus to fight recessions has led to federal spending projects that overwhelmingly favor male employment. I’m thinking of the hundreds of thousands of construction jobs created by spending on highways, municipal improvements, airports and that sort of thing. Because work in this country is still highly segregated by gender, these jobs are predominantly male.
Education, public health, and recreation programs are generally provided at state and local levels. The federal government could make substantial revenue grants to states to support these programs. This would boost women’s employment.
Revenue sharing is a powerful way to fight rising unemployment. Right now 22 states are planning to cut key education, health, and other social programs s. You see state constitutions don’t allow states to borrow to pay for current expenditures. So when a recession hits, states face a big problem. The revenue they collects from sales taxes falls because people are spending less. As foreclosures mount, property tax collections fall. As income falls, state income tax revenue also goes down. This puts states in a tight squeeze: just as the needs of citizens are becoming more and more pronounced, states are less able to meet those needs because their revenues are shrinking.
WS: Let me make sure I understand. I get the part about income going down in a recession. But if income is going down, and states — like New York, Kansas, California, right? — face huge revenue shortfalls, they have to cut programs because they don’t have the money to pay for them?
E: Exactly so.
WS: Well, if states can’t borrow to fund important programs, where will the money come from for these programs? How can the national government give money to the states if when federal tax receipts are falling too?
E: Magic? No, just joking.
The federal government can and does borrow. But it doesn’t just go the bank and say “Yo, banker, lend me 180 billion bucks.” Instead the federal government sells Treasury bonds. When the bonds are sold, the government has the money it needs. This is deficit financing.
WS: Wait a minute. If the economy is in a recession, who has the money to buy bonds?
E: That’s easy. The mega-rich are always looking for ways to earn interest and government bonds are the safest investment around. Pension fund managers also like government bonds, as do the Social Security Trustees. And then there are the foreign investors, like the Chinese, who absorb hundreds of billions in US debt. The United States is not going to default any time soon, or stop making interest payments. All of this makes holding US government bonds a quite attractive asset.
WS: “But how will the government pay interest on the treasury bonds? Isn’t government borrowing today a burden on our grandchildren in the future?”
E: “Nope. The whole point is that the deficit financing by the government creates jobs, people with jobs have incomes, as income and spending percolate through the economy we get economic growth that is several times larger than the initial increase in government spending. So ratio of debt/income actually falls. As income grows our ability to pay off our debts grows too.
I know this sounds crazy. It is certainly counter-intuitive. But it is, nevertheless, true.
One note of caution is in order: if borrowing by the government became “too large” relative to the overall size of the economy there would be financial consequences. But current borrowing is nowhere near this range. US deficits as a share of the economy are much smaller than are deficits in France, Germany and the rest of the European Union.”
SF: “Could I try to summarize as we are getting near the end of our time?”
WS, E: “yes, please.”
SF: “OK. Most of the economics people hear on the radio and TV or read in newspapers and magainzes is heavily biased toward maintaining the status quo of wealth, income and power. But alternatives do exist, and feminist economists are making important contributions to debates over economic policies that will improve women’s economic status.
E: So far, so good. Interested listeners should take a look at Dollars & Sense one of my favorite sources of alternative views on economics.
SF: Next thing we need to keep in mind is that women, every bit as much as men, depend on their jobs for their income. Economic downturns (recessions) hit them really hard, especially if they are the heads of lone-parent households.
E: Yep.
WS: Feminists have pushed for a long time for more government spending on social goods—like housing, education, health, recreation, and food assistance—that are provide essential aid to women trying to survive economic storms.
E: That’s right.
WS: And running deficits do pay for these programs is not the burden it’s made out to be. When government expands programs by borrowing money the economy grows, people are re-employed, much suffering is alleviated, and we are better off. Except maybe those who actually profit from misfortune.
SF: Economics, please, I’m confused. Explain again why conservatives—and even many Democrats—rail against deficits?
E: I’ll be very brief here because time is growing short. Recent big deficits come from two sources. First, massive tax cuts led to increased government borrowing. But these tax cuts were so heavily tilted to the rich that not many jobs were created. Instead, the rich used their higher income to build their private wealth portfolios. They built mega-mansions, bought private jets, hired butlers, and of course tax attorneys. They did not build factories, create green jobs, or make giant contributions that would help finance public education. Today an especially huge and ugly part of deficit comes from the war in Iraq. Billions are flowing to military contractors and private mercenaries. Again, this doesn’t do much for the rest of the economy, and it’s certainly not good for the Iraqi economy.
So Bush deficits are counter-productive. Deficits like these don’t help the economy. But that’s because of how the borrowed money is being used, not because of the deficits per se.
WS: Ah! I’ve got it. The problem comes from the tax cuts and the military spending. The ballooning deficits are the result not the cause.
E: Just so.
SF: Thank you WS and E for a most interesting conversation. Bye for now. (Applause)