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Pt2. Stephanie Seguino: Elites profit from “smaller” government while youth unemployment soars

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore. And we’re continuing our discussion about the root of the economic crisis. Is it a debt crisis, a banking crisis, or an inequality crisis, as our guest argues?

Now joining us again from the PERI institute in Amherst, Massachusetts is Stephanie Seguino. She’s a professor in the department of economics at the University of Vermont, and she joins us from the PERI institute, where she is a research scholar.

Thanks for joining us again, Stephanie.


JAY: So in the first part of this interview–and you really should go watch part one if you haven’t, ’cause we’re going to pick up from where we were–we talked about that at the root of the crisis is the stagnant wages, in terms of any growth in wages, higher productivity creates a lot of wealth that goes into very few hands, and those very few hands tend to speculate with it rather than invest it ’cause there’s not enough demand. And we’ve done this–we’ve talked about this before on The Real News. It gives rise to this massive derivatives market, it gives rise to subprime mortgage craziness, and who knows which bubble or insanity is next.

But, Stephanie, my question to you is, first of all, the austerity measures, which is all focused on the real danger is debt, not lack of demand, which is, of course, the Republican mantra–but to a large extent the leadership of the Democratic Party buys into it as well, maybe not as much. It’s more a difference of quantity, though, I think, their argument, than quality. They do buy the underlying thesis. Otherwise, President Obama would be out storming for a $15, $16 minimum wage and he would be storming, you know, the ramparts to go back to the labor legislation reform that would let people get more organized so wages would go up. But no, he’s also more or less talking about we need to address the debt.

So my question is: who benefits from this line? If what we see in Europe is this not dealing with the demand side leads to deeper recession and it’s kind of obvious it heads there, it’s got to be more than just ideology, isn’t it? Who wants debt to be the primary focus and not worry about demand?

SEGUINO: Well, it’s a good question. I think that, you know, one of the things one ought to take note of, of course, is that the stock market is now over 14,000, right? It had fallen to 8,000 during the beginning of the crisis. So, stock market is doing fine.

But I think that really what’s happening is the focus on the debt and austerity is really a Trojan horse, and that Trojan horse is to reduce the size of government. So if you have austerity, what you’re doing is reducing public spending on particular goods and services. And what that means is that there’s more space for the private sector to dominate in the provision of these goods and services.

So I think ultimately the real goal is to reduce the reach of government and to privatize more of the economy.

JAY: I understand that argument more in a place like Canada, where there’s still a lot of public ownership, or in Europe, where there’s still a lot of public ownership. I mean, but there isn’t as much public ownership in the United States to privatize, is there, unless you get down to–at the municipal levels, which I suppose is a big deal when you start privatizing water and those kinds of services. And certainly this crisis is leading to the bankruptcies of cities, and the push for privatization is on them.

STONE: Well, I mean, if people can get services from the government, if they can get public support for food stamps and so on and so forth, they have less need to borrow from banks, for example. So when you have public lending, if you will, to the public, to households, then the households have less to rely on in terms of borrowing from the financial sector. So I think that, you know, much of this is related to shrinking the reach of government and to–you know, weakened workers are more pliant workers in the workplace. And so I think that there is a lot that’s ideological behind it.

And one of the reasons they aren’t being calculated by those who are really driving this austerity agenda is that we tend to overly focus on the market and not really take into account the negative effects of austerity on social reproduction, on our ability to take care of our kids, on our ability to take care of ourselves, to reeducate ourselves. We aren’t taking into consideration the effect on lost skills, people that are unemployed for a long time, all of which ultimately will be costly to business as well as to the individuals that are suffering this. But because we overly focus on the market, we really miss the social reproduction and care sector of the economy.

JAY: I understand the market being up. Wages are down. You know, they’re getting more productivity out of less people with all this pressure on workers. But I still don’t get any kind of long-term logic–and by long-term I mean months, not years. Isn’t it–it’s a no-brainer with the cuts in the public-sector jobs, less demand. Wages are going down, not just stagnating–I mean the number of companies now going to these new two-tier contracts, the model that was set in the auto industry where new employees are starting at half the pay that they previously did. I think in the auto industry they used to start at $26 an hour. They’re now starting at $14 an hour. And that’s now been replicated at places like, in Wisconsin, Harley Davidson and [koUl] plumbing, and right across the country, this whole two-tier thing. I mean, wages, I think we’re going to see when the numbers are all coming in, are not just static; they’re really going down in some of the places that were the most highly paid jobs. So you add cuts in the public sector, lower wages, and then with austerity less social safety net. How is it not obvious that this bubble, even in the stock market, can’t continue? I mean, where are they supposed to be making their money? India and China are not going to come to the rescue here.

SEGUINO: I think you make a good point. And what we’ve just seen happen recently in Great Britain with the recent numbers, that the debt has actually increased and GDP growth has slowed, has really given pause to the support for the Cameron government. I think the only thing that’s really going to stop this juggernaut of focusing on cutting the deficit and the debt is continued bad economic news that makes people recognize that this particular model of austerity is really a failed model.

I mean, what happens when you impose austerity and it leads to declining wages, it means that as middle-income households’ spending declines, it means that there’s just not enough consumer spending to get the economy going. And if that’s the case, there’s less tax revenues and there’s an even larger deficit.

So really what we’re watching and what we’ve seen in the U.K. is a worsening of the deficit as a result of austerity, not an improvement. And I can only imagine that that real evidence is going to be what shakes people from this theoretical framework that began with the Reagan administration that’s just not working.

JAY: And then one of the things we talked about in the first interview was about the racial inequality and how disproportionate that is, gender inequality and how disproportionate that is. But you also point out–I guess others have, too, but the incredible disproportionate effect of the crisis on youth and youth unemployment. And, I mean, it’s crazy numbers in Europe. I think, what is it, in Spain 50 percent, in some of the other countries. And I don’t see any reason to think we’re not going to be headed that way in the U.S., and perhaps in Canada as well.

SEGUINO: Well, in fact, the youth unemployment rates amongst children of color is almost as high as Spain and Greece, but we don’t talk about that as much as we should here. And you really have, you know, lost generations if young people can’t get jobs and are excluded from the labor market.

One of the things we’re seeing from Europe is that in some countries in Europe they’ve raised the retirement age. So that leaves even less space for young people to enter the labor market. And here, people who lost money as a result of the crisis, their savings were depleted, are not retiring. And so again we have this slower ability of youth to enter the labor market and delaying their ability to accumulate for the future or to generate higher earnings in the future. So we have this really despondent youth class. And, in fact, I was just in Ireland, and one of the major topics of discussion is the high suicide rate amongst young men.

JAY: So what should be done? If there was a reform-minded government in power in Washington and they actually controlled Congress–which we supposedly had in ’08 and ’09, but I don’t know that we saw legislation that reflected that. But what should be done?

SEGUINO: Well, I mean, I think that, you know, Paul Krugman and Bob Pollin and others have described precisely what needs to be done. Many of the problems that I discussed by race and gender are solvable by supporting the kinds of spending that will stimulate job growth. And what you would want to do is you would want to target that spending in a way that ensured access to those jobs by single mothers, access by people of color, and so forth.

And I think that you also want to think about targeting social spending, so that you also support those households. So, for example, childcare subsidies for families is an example. Or food stamps has been a very, very successful program, both in improving household well-being and in stimulating spending in the economy. So once you stimulate spending in the economy, families can invest in their kids, can raise their productivity. They have higher incomes that generate taxes that can help pay down the deficit.

So you have to think of this spending, this public spending not as wasting money, but as a real investment that yields a payoff in the future. So you then have to be careful about how you use this public spending. You know, spending it on gambling in Las Vegas might not yield a return into the future, but certainly investing in early childhood education, certainly investing in environmental and green jobs and so forth are the kinds of investments that precisely will yield a return in the future and that can help pay down the deficit then, but not now. Austerity simply is a mistake in the midst of an economic crisis. It worsens the crisis rather than benefits it.

JAY: Alright. Thanks very much for joining us, Stephanie.

SEGUINO: My pleasure.

JAY: And thank you for joining us on The Real News Network.


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Stephanie Seguino is a professor of economics at the University of Vermont and a research scholar at the PERI Institute at the University of Massachusetts Amherst. She is also a Professorial Research Associate at the Department of Development Studies, School of Oriental and African Studies (SOAS) at the University of London.