Is the U.S. Headed toward Another Recession? - TRNN Webathon Panel
Economists Dean Baker from CEPR and Robert Pollin from PERI say that
the U.S. economy remains weak 5 years after the recession despite recent
job growth, due to low wages and weakened unions - October 3, 14
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Robert Pollin is Professor of Economics and founding Codirector of the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst. His research centers on macroeconomics, conditions for low-wage workers in the US and globally, the analysis of financial markets, and the economics of building a clean-energy economy in the US. Most recently, he co-authored the reports Job Opportunities for the Green Economy (June 2008) and Green Recovery(September 2008), exploring the broader economic benefits of large-scale investments in a clean-energy economy in the US. He has worked with the United Nations Development Programme and the United Nations Economic Commission on Africa on policies to promote to promote decent employment expansion and poverty reduction in Latin America and sub-Saharan Africa. He has also worked with the Joint Economic Committee of the US Congress and as a member of the Capital Formation Subcouncil of the US Competiveness Policy Council.
Dean Baker is co-director of The Center for Economic and Policy Research (CEPR). He is the author of several books including, The United States Since 1980; Social Security: The Phony Crisis (with Mark Weisbrot); and The Benefits of Full Employment (with Jared Bernstein). He appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio.
JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I'm Jessica Desvarieux in Baltimore.PAUL JAY, SENIOR EDITOR, TRNN: And I'm Paul Jay.DESVARIEUX: And we are now joined by our esteemed panel. We have two guests joining us remotely. We have Bob Pollin. Can we see Bob? Is Bob there?ROBERT POLLIN, CODIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE: I'm here.DESVARIEUX: Okay. Bob is there.Bob is a professor of economics and founding codirector of the Political Economy Research Institute at the University of Massachusetts Amherst.And we also have joining us Dean Baker from Washington, D.C. He is the codirector of the Center for Economic and Policy Research.Thank you both for joining us.DEAN BAKER, CODIRECTOR OF THE CENTER FOR ECONOMIC AND POLICY RESEARCH: Thanks for having me on.POLLIN: Thanks for having me on, especially with my good friend Dean.JAY: So, Bob, let me start with you. The first quarter of 2014, apparently, against most forecasters, at least the forecasters mainstream news wants to quote, were surprised how growth slowed down. They were expecting growth, I think, to continue, and it actually went down to--growth was down to a half of a point. They were expecting something like more than two, I believe.Now there's--they blame this on a cold winter, amongst other things, but everybody kept talking about a cold winter. But now we see in April it seems to be some numbers that retail sales are down--again, less than expected. I don't know how they're going to blame that on cold weather. What's happening here?POLLIN: Well, I mean, it's very clear there is growth of the economy. The growth is very weak. And this is--you know, we're talking about the recession now ended. The recession ended in 2009, so we're talking about five years. We're still an economy that's very weak. I mean, there are certainly some issues, anomalous issues with respect to the data, the GDP date from the last quarter, but that does not gainsay the fact, as reflected in the retail numbers you just reported, that the economy is limping along. I mean, in other recovery periods from recessions, after the recession ends, the economy tends to grow very fast. We haven't seen that happen at all.JAY: And, Dean, there was a lot of predictions--in fact, they're still making predictions. Twenty-fourteen's going to be the turnaround year, the growth is going to explode, and life will be back to, quote-unquote, normal. I'm exaggerating a bit, but not too much. What do you think of what's happening, and what are you expecting?BAKER: Well, I agree pretty much with what Bob was saying there. You know, we're continuing to see weak growth. You know, again, I think people focus too much on the negative number. They had to revise the first quarter number downward to show, I think it was -1 percent GDP growth. There clearly was an anomaly. The biggest thing there was inventories. Those are, you know, sort of random movements there, and that pulled off 1.6 percentage points from growth in the quarter. And weather clearly was a negative factor.But you take all that away. So we're talking about growth two, two and a half percent. That's extremely weak. And, you know, basically that's just growing in pace with the economy's potential, meaning we're making up none of the lost ground from the downturn. So we're looking at a story where, if we're lucky, we're getting back to potential GDP by 2020, which is an incredibly dismal picture. And, again, there's a lot of reasons for thinking it could be worse than that, not a lot for thinking it'll be much better.JAY: Bob, one of the numbers I thought was interesting was exports are down. I remember it wasn't long ago President Obama was talking about an export-led economy--recovery. And, in fact, exports are significantly down. And you start looking at some of the numbers in other places. I saw yesterday Brazil's growth is again much lower than expectations. If you start to see this globalized slowdown, that means exports slow down, and which means there's even less impetus behind a U.S. recovery.POLLIN: Yeah, I mean, the--well, first of all, we've got to think of who our export markets are. The first one is Europe. Europe is still utterly in the grip of austerity. So we aren't seeing any significant growth throughout Europe, and therefore that export market is going to be weak. The Chinese economy, the Indian economy, the Brazilian economy, the stars of economic growth over the previous decade, have also slowed down. Those economies had grown largely on the basis of exports. So there's only so many exports that every country can sell. The transition that needs to take place in those countries, but also in the United States, is to shift more towards domestic economy led growth, that is, wage-led growth that is rising wages, rising capacity of ordinary people to buy things within each economy. And that can be a new engine of growth.DESVARIEUX: So you both are economists, and sometimes we talk in terms that I think might go over people's heads. But let's kind of make it real for people. When we say weak growth, things of that nature, Dean, what are we really talking about in terms of the job market, things of that nature?BAKER: Well, these relate pretty directly. We've actually been seeing surprisingly strong job growth, given the weakness of the recovery. But typically, you know, if we're seeing two, two and a half percent GDP growth, that would be the sort of growth you'd expect to associate with, say, 100,000, 120,000 jobs a month, which pretty much keeps pace with the growth of the labor force, meaning we're making up zero of the lost ground.Now, we've seen better job growth than that, and that is somewhat surprising, certainly to me, and I think to many others. So job growth, the most recent month--I forget--it was 270,000. We had very strong job growth reported for April. But that's hard to sustain in a context where you have an economy that's growing very weakly. Those numbers really are inconsistent. Now, you know, again, a lot of randomness in both numbers, but over a long period it's very hard to envision an economy that's, say, creating 250,000 jobs a month, you know, 3 million a year, but only growing at two and two and half percent annual rate. So those tend to be directly related, but any given month, any given quarter, there could be large divergences.JAY: Bob, you talked about, talk about a wage-led recovery and some of these economies like China being aware of the necessity--at least aware (I'm not sure how much progress they're making), but aware of increasing wages for more domestic demand and not being so dependent on exports. But you don't actually hear much about that in the United States. I've been reading various articles about the slow quarter in 2014 and generally, and the word I almost never see is wages.POLLIN: Right. We almost never see it. And, in fact, you know, U.S. average wages for non-supervisory workers are stuck at roughly or even a bit lower than where they were 40 years ago in 1972, when Richard Nixon was president. And this is the case even though average labor productivity, that is, the amount that each worker produces when she or he goes to work every day, has roughly doubled. So productivity, the amount everybody produces in a day has doubled; the wage has stagnated. This is a phenomenal kind of event that we don't put enough focus on. It is the core behind understanding inequality, because if the pie is getting bigger and the workers are just getting the same amount, the rest has to be going to somebody else, and it's going, of course, to the top.JAY: Dean, are wages stagnating, or in fact to some extent are they going down? I know when you see things like General Motors' starting wages going from $24, $25 an hour to now $14 an hour--you see the same things at places in Wisconsin. I mean, all across the country, you're seeing starting wages significantly lower than what they used to be, and these are in unionized shops, which used to be the upper tier. It's kind of like we're getting rid of the upper tier of the working-class wage.BAKER: Yeah, well, you know, Bob's referring to aggregate numbers. We're obviously a huge country, huge labor market. So if we say wages are stagnating at any point in time, there are workers that are seeing wage gains. But on the other hand, you know, as you mentioned, there's a lot of cases where you have workers that are seeing wage cuts, and oftentimes big wage cuts. And to a substantial extent this has been a result of conscious policy. We've taken a number of steps to weaken unions. Michigan, for example, just recently made it so that workers can't sign contracts where everyone who's represented by the union has to pay for that representation. That's, you know, quite explicitly designed to weaken unions. Our trade policy's been designed for that purpose. We [incompr.] of deregulation. You know, we used to have a lot of good-paying jobs and airlines and trucking, telecommunications. Many fewer of those jobs are there today because we deregulated the industry, which isn't to say deregulation was all bad, but clearly and quite explicitly, if you go back to the deregulation measures, one of the reasons for doing that was to push down wages in those industries, and it certainly has had that effect.JAY: Bob, why do you think we're not seeing more pushback from workers? I know I talk to workers around--who even have been working on our construction in the building, and we have been discussing the issue of higher minimum wage, and, you know, I've been saying it's actually a question of a living wage, like $15, not just this $10.10, which doesn't really get people out of poverty. But I get some pushback from, for example, a plumber that we talked to, who says, you know, if they raise it to $15, they're just going to raise all the prices, so what's the point?POLLIN: Well, the $15 minimum wage, you can't--I don't think you can increase it in one step. I think we'd have to do it incrementally, given how low it is now. But a $15 minimum wage is actually--again, relative to long-term trends, is actually pretty low, because the peak of the minimum wage in today's dollars was in 1968, and in 1968 the minimum wage was, in today's dollars, around $11 an hour. That was 1968. Now, again, productivity has more than doubled. So if we just had the minimum wage increase increment by increment with productivity, today it would be about $26 an hour. So we can easily afford a $15 minimum wage. That will be part of the thing that would improve the overall market in the economy.Now, the minimum wage only applies to a relatively small share of the population. What you also need, as Dean referred to, you need unions being represented by--workers being represented by unions. That's what's going to bargain up the wage for workers. And that's precisely why the right has been attacking unions so vociferously now for a generation and, unfortunately, quite successfully.DESVARIEUX: Bob, another argument from the right is essentially that when you mention productivity going up, they're saying productivity's going up, but not in those low-skilled jobs, like fast food workers, for example. Is there any truth to that? I mean, can you speak to that a bit?POLLIN: Well, actually, the last time I was on--and I debated the guy from Duquesne University on the minimum wage. He was saying productivity is soaring at McDonald's because they just give you a cup and then you go fill up your soda yourself instead of having a worker do it. So, actually, I've heard both stories, that--what I've heard is that, okay, if you raise the minimum wage, then the fast food restaurants are just going to automate, and that's going to raise productivity. So productivity has gone up, and in any case, the overall labor productivity means the economy's pie is getting bigger. That means there's more to share. That means that workers deserve to increase their take-home pay as the economy's productivity goes up.And as for the point Paul raised on prices, yes, prices will go up. As workers' wages rise, prices will go up, but very modestly. And so a modest increase in prices, a modest increase in inflation, is actually a positive thing. It will help the economy to grow. It'll be an indicator that there is a push of improving working conditions and wages for workers. It'll also send a signal to businesses that they can invest more. Small businesses can expand because you have a more buoyant overall market.JAY: Right. Dean, I have a question for you and Bob as economists, but also kind of a broader question about progressive economists. Are, generally speaking, economists not doing a very good job at educating the public, educating ordinary workers? Is there a little too much focus on trying to influence policy, which isn't getting very far? I'm trying--and, of course, this is not just about economists. But in terms of getting people to better understand some basic economics so they can better fight for their interests--I mean, I talk to, you know, low-wage workers who are resentful of unionized workers, and why are they being so demanding, you know, I'm making $9, $10 an hour, and they're making $17, what are they griping about. There's such a lack of understanding of these issues so people can fight better.BAKER: I think economists have done a horrible job educating the public, and I guess for the most part they don't seem to really care. You know, the reality: we have, you know, a hugely underemployed economy. This isn't my, you know, accusation; you can look at the Congressional Budget Office's, you know, estimates of this or other official forecasters. You know, we're producing somewhere around $1 trillion a year less than the economy's potential--again, their estimates, not mine. That's an enormous amount of money that's thrown in the toilet. And it's totally because of bad policy. We could just spend that money. We could just have the government spend a lot more money. You use it on education, on transportation, on reducing greenhouse gas emissions, all sorts of things we could think that could be done, which we don't do, just for politics, because people think, oh my God, we're going to have deficits, and that's bad. Economists--you know, I would say the vast majority of economists would agree with that statement. They know that to be true. And, you know, they don't care to educate the public on that. So I would say that's, you know, a huge problem. Similar vein, you know, we have a large trade deficit, about 3 percent of GDP, $500 billion a year. That's lost demand. The easiest way to get rid of a trade deficit: get the dollar down. You won't hear economists talk about that. You know. And so, yeah, I mean, I think economists do a horrible job educating the public. And, you know, part of that is 'cause they don't like to own up to the fact that this is all--this disaster, the downturn that we experienced in 2007, 2008--.JAY: But who's "they"? Because the people who are running these policies and, you know, the people that are financed--their campaign financing is Wall Street and various other major players in the elites, I mean, they're doing a very good job of de-educating the public. I mean, they got what they want. They got a public that's not resisting in mass numbers. I'm talking about us and I'm talking about economists that want change and don't want this kind of status quo. Don't we have to do a better job at speaking to ordinary people? Because the "they" is us, not them. They don't--they're not going to educate the public. Bob?POLLIN: Well, first of all I'd say that among economists that do a good job of educating the public, my comrade Dean is one of a very small group, and I'm very proud of all of his work over many, many years we've been close friends.But in general I agree with Dean in part that economists are not focused on educating the public, but I think the problem's broader, as you're suggesting.First of all, the economy is doing very well for the people who run the economy, as we know that almost 100 percent of all the economy's income growth since the recession ended, since 2009, has gone to the top 1 percent. They're doing great. Wall Street is doing great. Bonuses are wonderful. So, you know, at one level, they don't care. I mean, the GDP doesn't matter, the unemployment rate. These are abstract numbers. What matters to them is the income that goes to themselves, and so far that's doing fine.On top of that, what the ruling class in the country cares about, it appears, is maintaining an austerity agenda. They're very happy with what happened in Michigan. I mean, of all places, in Michigan, as Dean described, becoming a right-to-work state, that gives capital more power over workers, and that's a long-term change. So, yes, when we economists or progressive economists like Dean have to educate people, we have to educate people not only about the numbers that, as Dean said, we can all agree on, the lack of $1 trillion getting used. But I think it's also more fundamental to say that, yeah, there is class struggle. As Warren Buffett himself said, you know there's class struggle in this country, and my class is clobbering the hell out of the working class. And that's the reality, and that is reflected in policy. We don't have a strong enough counterforce to the interests of big business, the top 1 percent. We don't have strong enough counterforces in the society to counteract that and tell a story that is in the interests of the 99 percent.JAY: Alright. Dean, a last word?BAKER: Yeah. Well, I very much agree with what Bob was saying (I appreciate the compliments too). But, you know, I'd encourage people to look. Don't buy it, but look at Timothy Geithner's book, you know, the former Treasury secretary, 'cause I think that it's just incredibly revealing, because, you know, he really exposes, I think, the sort of self-reflection or lack thereof of someone who was obviously very much in the center. You know, before he was Treasury secretary, he was head of the New York Fed. So he was sitting there as these banks were filling themselves up with total junk and melting down. And he's very proud--reading the book--you know, he's very proud: look at this; we kept Wall Street on its feet. He doesn't say it in exactly those terms, but that's pretty much what he says. And to people like Bob and I, we're going, hey, look, we still have millions of people who are unemployed, underemployed, people losing their homes. His attitude is, well, you know, that's just really--you know, you can't get everything. So it's just a remarkable book that way, that he's just, as I say, I think, inadvertently incredibly revealing of the consciousness of someone in one of those top policy positions.DESVARIEUX: Alright. Dean Baker and Bob Pollin, thank you both for joining us.BAKER: Thanks a lot for having me on.POLLIN: Thank you very much. Okay. Bye.BAKER: See you, Bob.DESVARIEUX: And we are just going to quickly go to a pitch. We can talk about this a little bit. But essentially, as you all know, you guys are participating in our first ever webathon in our Baltimore studios. Thank you so much for joining us. We are here because we're looking to raise money. And if you'd like to donate, you can always call us. The number is 1-888-252-8006.JAY: What are we doing next?DESVARIEUX: Well, next up we--I don't know if we're running a pitch. Are we running a pitch? So we will be taking a quick break, running a pitch, and then we have a live in-studio musical performance. Alright. Thank you for watching.JAY: Yeah. Please join us.
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