Monday, June 05, 2006

Bush Yoyos While the U.S. Burns: An Interview With Economist Jared Bernstein

The conservative shift in American politics undermined the economic security of working people. Increasingly, individuals are absorbing more risks, working longer hours and earning less. Meanwhile, corporations and government benefit from less accountability to tax payers, consumers and employees. Renowned economist Jared Bernstein proposes in his new book, All Together Now: Common Sense For A Fair Economy, (Berrett-Koehler Publishers, Inc.) that we're ensnared in a "YOYO economy". The acronym YOYO means, "You're On Your Own." Bernstein's book illustrates how the "YOYOists" have schemed to transfer the burden of economic risk onto individuals and their families.

Former Senator John Edwards said that,

"Jared Bernstein provides a smart look at the American economy, one deeply rooted in American values. All Together Now explains the importance of having an economy that puts people first and ensures a fair shake for all."

Bernstein draws on his experience as an economic policy analyst to reveal that the majority of Americans are fed up with the "hyper-individualism" ethos promoted by corporatists and the political class. From health care to globalization, Bernstein maintains that Americans yearn to replace our YOYO economy with a society based on the values of "WITT" (We're All In This Together"). He presents both an economic plan and political strategy to alleviate the burdens of risk from working people and their families.

Bernstein also provides anecdotes from focus groups he helped run in the Midwest and South on the economic challenges confronting middle-income families. His encounters have persuaded Bernstein the public is ready to embrace an agenda that balances the burdens of risk:

"For a beltway wonk like myself, the discussions were revealing and important. Those on the project with more focus group experience warned me to be careful not to over interpret these results. After all, went their caveats, we ultimately spoke with fewer than a hundred people. As an economist with lots of experience crunching data sets with hundreds of thousands of observations, surely I appreciated the risk of extrapolating beyond the sample.

You'd think so. But I'm choosing to ignore their starchy warning and offer this conclusion, because my gut tells me I'm right: people are not nearly as divided along WITT and YOYO lines as you'd think, given partisan rancor, tight election results, and all that blue-state/red-state stuff. They, and by `they' I mean a majority of the electorate, see a role for both dynamics, and they feel the pendulum has swung too far toward YOYOism. They are thus open to a moderate agenda that provides them with the opportunity to get a fair shake. They'll take it from there."

Bernstein has promoted economic fairness on the national scene for over a decade. In 1992, he joined the Economic Policy Institute to direct their research on living standards. He is a widely published author in both the popular press and academic journals. Bernstein is also a frequent commentator for CNN and has been interviewed on PBS and National Public Radio. He earned a Ph.D in social welfare from Columbia University and is the coauthor of The State of Working America (Economic Policy Institute). Kevin Phillips, an esteemed conservative scholar praised the most recent edition:

"The State of Working America is the ultimate authority on what the American economy means to ordinary Americans."

Bernstein generously agreed to respond to questions about his current book, the economy, and politics.


ILJ: Typically our national conversation about deficits refers to the federal budget. Aren't we also confronting a fiscal crisis in state and local governments? In late March, the Center on Budget and Policy Priorities released a report that estimates that new tax cuts in Bush's 2007 budget will cause states to lose $38 billion over the next ten years. By the year 2016 they estimated the states will lose $8.1 billion in revenues annually. How significant is the revenue shortfall on the state level for the national economy and what is the potential impact for society? Do we need a federal bail out of state governments along the lines implemented by Treasury Secretary Alexander Hamilton in the early days of the republic?

BERNSTEIN: I wouldn't say we need the feds to bail out the states as much as we need some grown ups to take charge of Federal fiscal policy. A key point here is that state fiscal problems are always going to be intimately connected with that of the federal government. For e.g., as the document you link to points out, many states base their tax collections on federal tax policy. It's an important example of how these reckless tax cuts reverberate throughout the country. In fact, I would argue that progressives should carefully follow the money on this one. While federal tax and spend policy probably seem pretty disconnected from people's lives, diminished state and local services do not. If the library has fewer hours, or the quality schools, parks, and roads are diminished by cuts like these, it will be important to tie such developments to the tax cuts.

The trillions of dollars of tax cuts since 2001 seem painless because we've not cut spending. So we're enjoying $400 billion more government per year than we're paying for. Of course, the arithmetic of all this is as simple as it is unforgiving. Unless things change in unforeseen ways (the baby boom finds a new planet to settle for their later years), at some point you either have to cut spending or raise taxes.

And of course, you can already here the chorus by policy makers: "We'd love to pay for all kinds of medical care and programs for disadvantaged folks and so on, but we simply don't have the money." I don't buy it and neither should anyone else. As my colleague Max Sawicky writes, "He who names the constraints controls the debate"

ILJ: Your book doesn't cover the bankruptcy legislation signed into law last year. Under the new rules an entrepreneur now assumes far more risk if his business fails and therefore has less incentive to start a new business and create jobs. Meanwhile, banks and credit card companies are assuming virtually no risk as they solicit cash strapped working people with poor credit history. Shouldn't your WITT program include scrapping the so-called bankruptcy reform passed by Republicans and some Democrats?

BERNSTEIN: Most definitely. It's a classic example of the risk shift that myself and others (Peter Gosselin, Jacob Hacker) are documenting. Like most such legislation passed over the last few years, it's basically structured to reduce the financial exposure of businesses, especially consumer credit providers, and shift that exposure onto borrowers. Look for the nation's private insurers to be up next at the Congressional trough for this kind of package. They're already engaging in a similar risk shift operation re homeowners in coastal areas.

ILJ: Do you believe nationalized healthcare would liberate small business entrepreneurs to create more jobs? Could universal healthcare actually serve as a job stimulus? Have you seen data from other countries that provide universal healthcare to suggest more jobs are created in the private sector when the government assumes the risks and financial burdens of healthcare?

BERNSTEIN: As I stress in the book, seeking a more efficient way to provide health care coverage is as much a competitiveness issue as it is one of social justice. Though I haven't thought enough about the large v. small business differences, there are a few ways in which smaller entrepreneurs would meaningfully benefit. First, compared to larger firms, small firms don't have access to a large risk pool and thus cannot spread costs around more broadly. Under universal coverage, all players access the benefits of large-scale risk pooling and avoid adverse selection. Second, as it is, smaller firms are less likely to provide coverage, and thus suffer a competitive disadvantage in terms of the quality of the jobs they offer. A universal coverage program would level that playing field.

ILJ: Do you agree with the new law passed by the Massachusetts legislature and signed by Governor Romney requiring all citizens to obtain health insurance? Will that lower the cost of healthcare or create additional hardships for the poor?

BERNSTEIN: I do support the new law. There are challenges to be worked out--will premiums be set at a level affordable to low-income families? But even in Massachusetts, in this day and age, it's tremendously complicated to build the political coalition to pass legislation like this.

Regarding the characteristics of the bill, I wouldn't get too hung up on them. Throughout our history, the state's have served as laboratories for what's to come at the national level. In my book, I argue for what I think is a simpler, more efficient approach to solving the growing problem of the uninsured: Medicare for All. But I'm all for an incremental, bottom-up approach for getting there.

ILJ: Where do you stand on the current immigration debate? Are advocates for a guest worker program correct that immigrants perform work most Americans won't do? Or is that merely an excuse so the business community can import cheap labor? How can America improve Mexico's economy so their citizens won't need to cross our borders?

BERNSTEIN: Myself and my colleagues at EPI have written on the topic on the Viewpoints section of our website, I think `guest workers' are a mistake. I just can't see a rationale for creating a new, clearly inferior status for people who are living here and working and paying taxes. To the contrary, it sound like a great way to preclude economic and social intergration. No, there is no relation between where you were born and the type of job you might do--that's just political nonsense. True, if you degrade the quality of a job down to the point where only the most desperate person will accept the job, then by definition, only someone in dire straights do the job. Needless to say, that's not a basis for crafting useful policy. Re reducing the push from Mexico, read Jeff Faux's oped on our website.

ILJ: Is the immigration issue a potential wedge for your WITT coalition?

BERNSTEIN: To the contrary, it fits right in. The WITT agenda argues that we use the breadth and scope of federal government to might the challenges we face, and immigration is no different. It's important not to view this issue in a vacuum. One of the points I stress in my book is the importance of a full employment economy. We had very large immigrant flows in the latter 1990s yet wages were rising in the low wage sector at the rate of productivity growth for the first time in decades (click here for an op-ed Bernstein wrote about this topic).

So here's my program. A path to citizenship for those who are here already and are willing to work, pay taxes, etc. No guest workers, and we wrest control of the border by getting serious about employer sanctions.

Sounds easy, right?

ILJ: Are the doomsayers correct that the eminent retirement of the baby boom generation has put the future of Social Security and Medicare in jeopardy? Or is that merely propaganda? What needs to be done to insure the solvency of Social Security and Medicare for Generation X?

BERNSTEIN: First of all, in the spirit of my response to question 1, I want to be very clear that this is a YOYO framing of the question (I know--them's fighting words...let me explain).

Why don't you ask me if the future of the defense build-up is jeopardized by the need to provide a comprehensive, equitable, and efficient system to deal with the challenge of the baby boomers' retirement and health care needs?

How about, "Does meeting future health care needs mean that we won't be able to spend $280 billion making the estate tax cut permanent?"

If the Bush tax cuts are made permanent, they will cost three times as much as the Social Security shortfall over the next 75 years. Just the value of the cuts to the top 1%--about 0.5%--would be enough to offset most of the Social Security shortfall.

To address your points, I'd say Social Security is not in jeopardy in a fiscal sense in that some well-considered and worthwhile policy changes could ensure the programs fiscal health over the long-term. For example, raising the salary cap on payroll taxes would go a long way, as would embedding more realistic assumptions into the actuarial forecasts. (Click here and here to read two pieces about this topic as recommened by Bernstein.)

Health care spending, however, is on an unsustainable track, but it's not just Medicare: private sector health care is on the same path, and given the Promethean inefficiencies in that system, as I articulate in the book, it's even more scary. Since unsustainable trends are just that, something's gotta give. The YOYOs have a plan: Health Savings Accounts, designed to make us all better `health care consumers.' But as every other advanced economy on the planet has realized, market solutions alone simply won't cut it.

Here's an excerpt on this from the book:

"...the YOYOs think individual savings accounts and more head-to-head competition will solve the [health care] problem. That approach works wonderfully for millions of commodities in our economy, from pork belly futures to toothpaste at the drugstore. But access to health care is not a commodity; it's a basic human right in an advanced society like ours. So we need to take it out of the market and ensure that it's delivered equitably and efficiently. At least in this regard, we are simply not that different from every other industrialized economy that figured this one out long ago."

ILJ: What if the federal government funded a program to underwrite 401K pension plans for small businesses so all levels of employees from low skilled labor to high skilled workers could benefit? Is that plausible? Could we establish a system in which even workers earning minimum wage might have wealth generated for their future retirement? Why not combine the insurance provided by Social Security with a wealth generating initiative for the entire workforce?

BERNSTEIN: It's a fine idea, especially in combination with a strengthened Social Security system. The key word in your question is "combination." Savings, pensions, and Social Security are the three legs of the retirement stool, and all need strengthening. As a guaranteed pension system, Social Security is particularly important, but as you suggest, we ought to have a universal system along side to encourage wealth accumulation. There's tons of good work on this. Google "Individual Development Accounts" or look for the work of Ray Boshara at the New America Foundation regarding such programs for low-income persons.

Also, see the work of the Hamilton Project, a DC based policy group, on this point.

ILJ: Are there any policies or issues on economics that upon reflection you no longer hold? How has your views evolved and changed over time? Or has your philosophy remained consistent?

BERNSTEIN: I think my views have evolved over time. I certainly hope so! For example, early in my career, I think I initially had less of an understanding and appreciation for the importance of a well-functioning macro-economy. Like many in my field, I pretty much assumed that was "taken care of elsewhere" and that, except for recessions, we were always generating enough growth to meet society's needs.

I've come to recognize that over the last 30 years, we've often been underutilizing our human resources. Plainly put, we simply have not invested enough in quality jobs and quality skills to create the necessary opportunities for all our fellow citizens to realize their potential.

YOYO economics, as I stress in Chapter Two of the book, is a big reason. Here's an excerpt from that chapter:

"Today's economics also has two goals: (1) getting rid of the policy set associated with the old economics and (2) making sure that individuals are offered the optimal incentives, the ones that should lead them to behave in ways that, according to the mathematical models, bring about the most efficient results.

When the goal of economic policy makers shifted from full employment for the society to the optimal incentives for the individual, YOYO was born. Today, we're seeing the outcomes: greater inequality, a fiscally bankrupt government, the shifting of risk from the government and the firm to the individual, and the loss of the systems and institutions--like pension coverage, minimum wages, overtime rules, and a durable safety net--that insulated workers from market failures and inequities.

With this change in the thrust of economic thinking, the central question of economic policy went from, What can government do to be sure that everyone can contribute to and benefit from the available resources? to, What can government do to get out of the way? The former question considers the challenges inherent in national economies since Adam (Smith, of course) and points to collaborative solutions; the latter, especially when mixed with our unique brand of heavily lobbied government, ignores workers except to tell them, 'You're on your own. Here's a tax cut. Now go out there and optimize.'

It is extremely unlikely that we as a society will be able to implement WITT policies under the current economic regime. What's needed is a shift in the way we talk, think, and plan for dealing with the risks and opportunities in today's economy. The first step to building an All Together Now movement requires exposing the class biases inherent in YOYO economics and stressing the advantages of a different approach to government, economic policy, and risk sharing. A brief history of how we got to the present state of affairs should help set the stage."

For too long conservatives dominated the market place of ideas by controlling the terms of the debate. Their communications infrastructure of think tanks, corporatist media collaborators and special interests machine has successfully shifted the center of gravity to the far right. However, five and half years of GOP hegemony have thoroughly discredited conservative ideology. Bernstein's book presents a viable alternative because it is based upon decency and common sense. What ultimately replaces the conservative era will evolve over time. Decency and common sense is a good place to start.


Anonymous said...

This is an excellent framework for discussing the state of the economy with average citizens. Thank goodness someone finally did a wonk-ectomy and explained the implications of economic policy in common sense terms.

jay lassiter said...

Such a trenchant analysis.
Rob, i always have to read you twice to really appreciate and absorb....

Might you be doing podcast-able interviews with anytime soon?

Bill said...

This post is ahead of the lead. Bush landed in Iraq today, (Friday the 13th came on Tuesday this month). He sat in the cockpit while AF1 landed so he could make signs of the cross over the heaps of rubble, thought he was landing in New Orleans. Being informed of his mistake he immediately "declared victory" and then said, "take me to your leader."

The bleary eyed Iraqi PM was woke and informed he had a visitor. He said to his house boy, "another drunk lost his way trying to get home? Call him a cab and stop bothering me!"

"No master" replied the house boy. "It's his most royal majesty, king George from the kingdom of God, the maker of the Almighty Dollar."

mdotbair said...

I read the book and I highly recommend it. It's very readable and the author even channels the spirit of Paine at different points in the book.
Makes a great gift.