Susan Feiner, PhD is a professor of economics and director of the Women’s and Gender Studies at the University of Southern Maine. In addition to her academic work, she writes for Dollars & Sense, Women’s Enews, and the Women’s Review of Books, as well as her own blog, Economics, She Wrote. She brings a no-nonsense progressive critique to discussions of economic issues, from microcredit to the bank bailouts, and took time to chat with GlobalComment’s Sarah Jaffe about the economic crisis and the way we think about it.
GlobalComment: I wanted to talk about why women’s groups seem to avoid talking about labor issues, and how specifically the Employee Free Choice Act, and, more generally, how economic policy decisions are women’s issues.
Susan Feiner: I don’t want to speculate about why women’s groups avoid these issues. It probably has to do with the way economic news is dominated by business news, or else by huge numbers going up and down , so that it seems unrelated to women as women.
I want to go back to FDR’s 1944 inaugural address where he outlines a Second Bill of Rights, or Economic Bill of Rights. And talk about how these rights (to housing, jobs, health care, and education) are all vital to women.
GC: More specifically, I’d love to get your view on how unions play a part in real economic recovery and creating real wealth.
SF: You are using the term “real” in two different ways. Regarding “real” economic recovery, you are suggesting a measure of economic well-being that more closely tracks people’s lived circumstances than, say, the Dow Jones average, or the interest rates.
Regarding “real” wealth, this is a quite precise term: “real” means “adjusted for price changes” As in “the real wage,” which is wages adjusted for inflation. Hence we can say that real wages in 2007/08 were lower than real wages in 1973. That’s how economists reach the conclusion that incomes have stagnated. Increases in the general level of prices are greater than increases in the level of money wages.
To be absolutely technically correct, there are “real” values (corrected for changes in prices) and “nominal” values (not corrected for changes in prices). So if the news reports that the deficit was 400 billion in 1980 and 1 trillion in 1999, we have no way from these numbers to know if one is real, one is nominal? Both are real? Both are nominal?
This is a big problem in reporting economic news.
We would have to decide on a measure of real well-being. I am inclined to use as a first proxy, the level of employment. Next is the level of pay and benefits in those jobs. This is a much better proxy than GDP per capita, or the stock market.
Real wealth – for the vast majority of Americans, the only wealth they have in the difference between the market price of their house, and the amount they owe on their house. So the housing bubble first inflated their wealth, because the market price of houses increased, and if you kept the same mortgage/same house, you paper “net worth” increased. As people saw this happening, they borrowed against their paper assets.
Once the housing bubble burst, and home prices started to fall, their paper “net worth” fell too, so they no longer had the collateral/wealth to support the value of their borrowing (assuming they used the equity in their homes as security for loans).
When the lenders saw this, they got nervous. “Oh no,” they said. “The Jones family no longer has a house worth $500K and a mortgage worth $400K. Now the house is only worth $300K, but they owe us $400K, so they are negative $100K. We’d better call their loan.”
So, do we want to create lots of private economic wealth, or are we actually trying to get at a measure of social wealth as embodied in parks, orchestras, clean transport, libraries, schools?
In my book, Liberating Economics: Feminist Perspectives on Families, Work and Globalization, there is a good discussion in the last chapter about how feminists would go about conceptualizing “a healthy economic system.”
The definition of “healthy” would include measures of equality, which are very different today. A nation like Kuwait can be really rich (as measured by GDP per capita) but have intense inequality, and limited freedom for anyone, certainly [limited freedom] for women.
GC: How do you think this crisis creates opportunity to change things? We seem to be at a unique moment where Americans are finally getting annoyed with the rich that we’ve been taught to aspire to imitate for so long.
SF: Here’s one way to think about things:
Work —> jobs —> income —> spending
Spending —> sales —> income —> jobs
These two chains of events are flip sides of each other, and are actually both occurring at the same time.
Mainstream economics, like mainstream media, starts with line 2 and spending. But if you start with line 1 and work you come up with very different policies.
If people have work, then they will spend. Does it matter what their jobs are? Are dishwashers, cooks, and waiters in restaurants for the rich as beneficial for society as a whole as are teachers? Of course not.
But if the rich have purchasing power to keep such restaurants in business, and the society does not impose enough in taxes to staff classrooms, then there will be more restaurant employees than teachers.
Meanwhile, in a society, there are basically four types of spending:
Households “consume,” so we have C – consumer spending.
Business firms “invest,” – I; governments “spend,”- G, this is public sector spending. Then we have the international sector with net exports – NX (exports minus imports equals net exports, which can be either positive – we sell more abroad than we buy from abroad, or negative – we buy more from abroad than we sell abroad).
The sum of these four (C + I + G + NX) is the total of spending in the economy.
There has to be enough spending to buy up all the stuff that’s produced. If there isn’t then firms lay off workers, and we get into the kind of downward spiral we are in now.
The question is: how to prop up total spending?
Cutting taxes is supposed to increase C, but it doesn’t when people use the tax cut to pay down credit card debt.
Lowering interest rates is supposed to increase I, but it doesn’t when (a) firms already produce more than they can sell – why borrow in such a case; and (b) when banks are too fearful to lend.
Raising G always increases spending. Does it matter what government spends on? Yes. A billion spent in healthcare creates a lot more jobs than a billion on the military.
There is really no way to influence the balance of exports and imports.
The policy tools are: increase/decrease taxes, increase/decrease interest rates, and increase/decrease government spending.
Since 1980, the US has relied on cutting taxes and manipulating interest rates. Rich people unleashed a storm of spending, the rest of us followed in imitation, government coffers depleted because tax revenues fell, so government deficits had to increase to maintain the same level of services. Fed used its power to hold down interest rates, which triggers bubbles.
The way out is to support a much stronger mix of G, government spending, in the economy: so as a share of economic activity G rises with respect to the total spending. In Western Europe, the ratio is about 55% to 65%, in the US it is only 35% to 40%.
GC: I also want to get your opinion on the so-called “Geithner plan” to recapitalize the banks. I know that it’s based on easing the restrictions on mark-to-market accounting for the “toxic assets” but that’s one of the many things that it’s hard for most people to understand.
SF: The point of “mark-to-market” is to allow the banks to unload these assets at prices that are way too high relative to the existing market prices. Many of the “assets” on the balance sheets of the largest banks and non-bank financial institutions are in fact liabilities, not assets.
If the banks were forced to record these “toxic assets” at their current market value (less than zero, they can’t sell them at any price) the bank’s net worth positions (total assets minus total liabilities) would be negative, which is the definition of bankruptcy.
So the “Geithner plan” is a way to enable banks to unload these assets, basically by getting taxpayers to buy them. Any price for these securities is too high a price, that’s why they are not being traded right now. Mark-to-market is “just” a fancy accounting scheme.
GC: Related to that, would you be in favor of nationalizing the banks, temporarily or otherwise?
SF: Nationalization means that “we the people” decide who is in charge of the banks. The government picks and installs the top management. Clearly the existing top management of the big banks is at best incompetent, at worst engaged in wholesale fraud.
GC: Who would you consider a truly progressive economist?
SF: I find the work of James K. Galbraith to be progressive, and the work of Robert Pollin. Right now there are not too many women weighing in on the financial crisis. Barbara Bergmann, Nancy Folbre and Randy Albelda are progressive economists.
GC: Finally, on an up note, this is a frightening time but also one where it seems that a lot of assumptions about our economic system are finally going away. What can we, as well as unions and other activists do to capitalize on this moment and make sure that things don’t just go back to how they were?
SF: We need to restore the levels of regulation, not just in finance but in all sectors. I bet if you were to compare federal, non-post office employment in 1990 and 2008 you would find close to a 25% decrease in total personnel. I would further guess that the lioness’s share of the reductions in staff were in the “watchdog” arms of the various agencies. Hence we have lead in the baby toys, god knows what in the peanut butter, highly toxic carcinogens in the TVA sludge, and toxic assets. People with the training and expertise to evaluate products for safety need to be hired by government to inspect all products for safety.
Also, where criminal behavior can be found – people should go to jail, including CEOs. I’m sure [there is criminal behavior] in the financial sector: for starters, the rating agencies gave the mortgage backed securities AAA ratings without ever investigating the quality of the underlying mortgages. So there was fraud on the face of it: no down payments, no income, no job and a mortgage was issued – at any interest rate there is clearly no possibility to repay.
At the same time, as we push for stringent regulations and restaffing of federal agencies responsible for oversight and enforcement, we need to push for full employment programs. The federal government needs to enact programs that make it the “employer of last resort.”
The actual unemployment figures are heartbreaking, and are going to get worse. Over 15 million Americans are without jobs, or working reduced hours. I just read if you add up the number of hours that are not being worked because full-time workers are working part-time, that equals 8 million jobs.
Obama’s 3.4 million saved is not even close to the number of jobs needed. We need the WPA, the CCC, and more.
Simple math: Obama’s $780 billion stimulus – once you take out the the tax cuts – is about 5 billion. Divide 5 billion by 3.4 million and you see how expensive these jobs are.
If people were paid by the Federal Government to do something (library, parks, get trained to do energy insulating, etc) at $12/hour, that would be $25K per year. We could employ 10 million people for $250 billion. That’s 3 times the number that will be employed by Obama’s plan for roughly half the amount of money.