Tools of free trade
Economist Dean Baker teaches progressives how the free market can improve lives
A decade ago, Dean Baker was one of the few economists who sounded the alarm about the economic dangers of the housing bubble. Baker, co-director of the Center for Economic and Policy Research, believes that bank bail-outs and fiscal restraint are the wrong policies for ending the Great Recession. He argues that the current rules of the so-called “free market” are set up to siphon wealth from the 99 percent to the 1 percent.
Baker’s books include “The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer” and the more recently published “Plunder and Blunder: The Rise and Fall of The Bubble Economy.” He also has a blog, “Beat the Press,” where he discusses the media’s coverage of economic issues.
Why did so many economists get it wrong about the housing bubble?
It’s always difficult to say something else than what everybody else is saying. If you’re wrong with the consensus, you suffer no risk. If you end up being right [against the consensus], it’s not like anyone gives you a prize for it.
[Former chairman of the Federal Reserve Alan] Greenspan commented that in his last month as Fed chair,
25 percent of mortgages were subprime, tripling [the historic amount.] He first became aware of that in January of 2006. If Greenspan really didn’t know, he should retroactively have his pension taken away!
When I say people should be fired, they [economists] go, “Well, that’s not fair!” Economists complain that in a lot of countries it’s difficult to fire workers. If economists messed up, how come they’re not fired? Invariably people think I’m joking, and then they think I’m vindictive.
And why aren’t they fired?
The people who are in a position to do that, for the most part, are complicit.
What did you think of Larry Summers, formerly Obama’s candidate for Federal Reserve chair?
Why on earth would you want to give one of the people responsible for the worst economic calamity in 70 years the most powerful economic position in the country? It’s like bringing back the captain of the Titanic and saying, “Oh, you get an even bigger boat.”
So what do you think of Janet Yellen, now considered the top contender for the post?
In the scheme of things, she’s about as good as you’ll get. She takes the responsibility of high employment very seriously. I can’t say for sure that she’ll crack down on the banks.
What do you see realistically for the economy in the next five to 10 years?
Very slow progress. That’s important not just because people are out of work, but also workers aren’t in a position to raise their wages. If you don’t have a tight labor market, most workers don’t have any bargaining power.
There are things that could change. People often talk about the dollar losing its status as a world currency. That’d be great. One of the largest imbalances in the U.S. economy is the large trade deficit. If countries hold fewer dollars, the dollar would fall, our goods would become more competitive, and we’d get back to full employment much more quickly.
Another wildcard is efforts for a $15-an-hour wage in the fast food industry. You could see this catching on, you’d see a difference for those people in their lives and the movement would spread. That could make a very big difference in the economy.
Would manufacturing jobs come back if the dollar fell?
A lot of them would. Our trade deficits are on the order of $500 billion. If we had full employment it would be around $650 [billion], because we import more if the economy grows. So, let’s make that 4 percent of GDP; current manufacturing’s around
10 percent of GDP; so then there ought to be 40 percent more manufacturing jobs. If we’re talking about currently
13 million manufacturing jobs, 40 percent is about 5 million more jobs.
I [also] would like to see a reduction in work time. We work about 20 percent more than people in Europe. They offer five or six weeks of paid vacation, paid parental leave, paid sick days. Let’s imagine that we reduce work time by 20 percent. If we then have the same amount of demand for labor, we’re getting 20 percent more [jobs]. Nothing ever comes out exactly even, but the basic story does hold.
You’ve said that what conservative economists advocate is not a free market economy, it’s an economy that funnels money to the rich.
I go through that in several of my books, like “Taking Economics Seriously,” but also “The End of Loser Liberalism.” For example, we have too-big-to-fail banks. That amounts to a subsidy, because they can borrow money at lower interest than if they had to rely just on the market. Also, the financial sector isn’t taxed like other sectors.
Patents and copyrights: These are government guaranteed monopolies. They’re extremely inefficient, particularly patents for drug research. We’re transferring hundreds of billions of dollars a year to the drug industry for drugs that would be selling for a tenth or less their current price.
Our trade policy’s explicitly focused on putting our manufacturing workers in direct competition with low-wage workers in the developing world. That drives down the wages of manufacturing workers. We could do the same with doctors and lawyers. We don’t because doctors and lawyers are very powerful.
So there’s a whole list of ways in which we put up restrictions for the market that have the effect of redistributing income upwards. I always find it annoying when people, including progressives, say, “Oh, we don’t like the market.” We didn’t get inequality because of the market: We got inequality because people structured the market to redistribute income upward.
What are some of the ways you would redistribute income downward?
Breaking up the too-big-to-fail banks, that’s an easy one. A tax on financial transactions: That should be a no-brainer.
I would look to an alternative method of financing prescription drugs. I would pay for the research up front. Pfizer could do the research, I don’t give a damn, but [with] two conditions: That all the findings are posted as soon as they’re practical, so other people can take advantage, and all the patents are in the public arena, so whatever they develop is a generic. You’d get better drugs. Right now the industry has an enormous incentive to lie [about side effects]. For example, Vioxx, where they’re selling arthritis drugs, and they have evidence that it made it more likely that people would have heart attacks. And they concealed that information. If this was just a generic, at five bucks a prescription, they wouldn’t have an incentive to lie.
If we want [free-] trade deals, I would focus on putting our most highly paid workers in competition. Make it as easy as possible for smart kids from India or Mexico to study to our standards and then practice medicine or law. Raise that with economists, and they look at you like, “What are you talking about?” And that’s not economics; it’s corruption. Doctors are their brothers or sisters, their kids, their parents. That’s very different than auto workers. You get things like, “Well, people go to med school, they get big debts, they work hard.” Auto workers ruin their health.
Another thing is full employment. Whatever level of employment we’re at, we’re there by policy. We have a policy against full employment.
I often talk about the asymmetry of labor-management relations. We created an NLRB — National Labor Relations Board — to enforce labor law. We joke about it: If management violates labor law, you go to children’s court. If it’s the other way around, you go into adult court. If we have workers striking and the Teamsters go, “Oh, we’re not going to cross this picket line,” the court [could] go, “No, you have to deliver the goods,” with the local Teamsters people put in jail if they don’t advise all their members, “We can’t, as an organization, honor this picket line.” When workers take action, people risk jail. If employers violate labor law, the worst thing is very minor sanctions: They don’t go to jail. If you suggest that employers should face criminal penalties, they go nuts. Why is one taken seriously, and the other isn’t?
What kind of changes in laws would help?
One simple thing that can be done at the state level is having just-cause discharge, so that if someone got fired for organizing a union, that would provide protection.
What if organizers are fired, but the employer claims they did something unrelated, like some act of violence?
Under just cause dismissal, if they actually did some act of violence, they [the employer] can go into court and argue that. They can’t just assert it.
So where do we start?
First off, people have to understand that it isn’t the market. Criticizing the market is like criticizing the wheel. Wheels can run you over, but you don’t like wheels? It’s a tool. It can be used to ruin people’s lives, or it can be used to make people’s lives better.
What if the labor market drives down wages?
The market won’t guarantee that we all get living wages. Where we sit today is not just the market. We have a very weak demand for labor. Our policy has been very bad. We fueled the bubble, the bubble burst, and we didn’t take the steps needed so they could pick up the pieces.
Would this include having a higher minimum wage?
We used to have a policy of having the minimum wage rise in step with productivity, meaning that minimum wage workers shared in the overall gains of economic growth. The minimum wage rose very substantially, adjusting for inflation, from where it started in 1938 until 1968. If the minimum wage had continued to keep pace with productivity, it would be over $17 an hour today. Think of a minimum wage that’s in that neighborhood. Even the workers at the bottom would be sharing in the gains of productivity over the last 40 years. I don’t think it’s unreasonable. We did have minimum wages that were that high relative to the economy in the late 1960s and the unemployment rate in 1968 was like 3.5 percent. It didn’t lead to mass unemployment.
As an economist, you seem very sympathetic to the perspectives of poor and working people.
This is why I wanted to do economics. There’s a lot of injustice in society, but economics lies at the center of it. Most economists were saying things that weren’t true, that benefited the rich and powerful, so it was worth getting a credential to challenge things. It’s not just some of us work hard, or some of us, we’re lucky. We rigged the deck.
CommentsI like this guy's thinking. Dan
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