A Cracked Foundation

Book cover
Failure by Designby By Josh BivensCornell Univ. Press. 120p $18.95

Think of the Great Recession as a Hurricane Katrina brought on not by the weather but by the hand of humankind. It was not inevitable that unemployment would hit a 25-year peak—and stay high for the foreseeable future. The suffering inflicted had to do with the way policymakers managed the economy before it happened.

That’s more or less the message of the economist Josh Bivens of the Washington, D.C.-based Economic Policy Institute. He draws parallels between the stark picture of poor residents of New Orleans stuck in a stadium for lack of a car, money for a motel room or a place to go, and the millions of unemployed without health insurance, kids going hungry, facing eviction and bankruptcy.

Of course, a careful observer might note that planning for Katrina was next to nil. In contrast, repeal of the 1933 Glass-Steagall Act’s firewall between the insurance, banking and investment businesses was proposed in the era of Reagan and was sneaked through Congress behind the smoke screen of the Lewinsky scandal years later.

Similarly, the responses to the Great Recession were deliberate. A Republican president threw $700 billion virtually without strings at Wall Street. His Democratic successor offered $800 billion recovery legislation that was roughly a third tax cuts and a third business aid.

What about the rest of us? That is Bivens’s focus. Since 2002 he has been involved in the development of the biennial The State of Working America, the Economic Policy Insti-tute’s flagship publication, now available online at www.stateofworkingamerica.org. The labor market seems stuck in a net loss of jobs that will take years to make up; economists debate whether it will happen in 2016 or later.

Bivens argues that the employment and gross domestic product growth that has taken place, small as it is, can be attributed to the Recovery Act. Certainly, things would have been much, much worse without it. He does not quite invalidate criticisms such as those of Christina Romer, former Council of Economic Advisers chair and Paul Krugman: President Obama should have pressed for twice as large a recovery package and directed most of it to the households most likely to spend it fastest, such as those living on food stamps and public aid.

He succeeds, however, at exposing the “cracked foundation” of the economy that remains too weak to sustain a widely felt resurgence: falling wages, assaults on unionism, globalization for workers and insulation for elites, the rise of the nonproductive financial sector and the abandonment of full employment as a policy target. In graph after carefully and simply explained graph, Bivens walks the reader through the historical trajectory of these and other economic developments that have come to define the current situation.

Health insurance coverage remains stuck at 1971 levels. The value of the minimum wage has risen in the past couple of years to match its 1960 level. The number of union workers has dropped from 26 percent of the labor force in 1973 to 13 percent in 2009.

The historical sweep of those and many more trend lines are the key to the book, which is a light, convenient resource for anyone seeking to put the continuing crisis in context. Bivens illustrates again and again that this past recession and the trends of the past 30 to 40 years, when the postwar gains that created the broad American middle class began to fade away, were not mere happenstance.

“The economy that generated sub-par outcomes before the Great Recession and that turned a housing bubble into an economic catastrophe,” Bivens argues, “was designed, specifically, to guarantee that the powerful reaped a larger share of the rewards of overall economic growth. And in this purpose it succeeded.”

The author urges the reader to think of the U.S. economy as “a patient suffering from chronic ailments driven largely by bad choices—smoking, eating unhealthy foods, and not exercising.” To heal the immediate wounds is fine, but then the patient needs to change overall behavior. “Clear economic remedies exist,” he writes, “but politics and ideology lie in the way.”

Edward Ray
5 years 9 months ago
The $787 billion stimulus was mostly aid to the states, not business aid.  The $800 billion TARP money was paid back with interest, except for GM and Chrysler.

It would have been cheaper to reduce everybody's income taxes to 0 over the last 2+ years instead of stimulus plus deficit spending.  Although for more than 50% of the taxpayers they did not pay any income taxes, in fact some even got money back!

There is trillions of dollars sitting idle in bank accounts.  As a small business owner I see no need to expand and hire until I see a better long term future.  The current climate is rife with uncertainty.

Although I here that $1 in food stamps = $1.84 in the economy (according to the Secretary of Agiculture) and $1 in unemployment payments = $1.20 in the economy (according to Obama's economic advisors and Nancy Pelosi.  By that math we could balance the budget and repay out debt is everybody in the US stopped working and collected unemployment and food stamps...

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