PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. We’re in the midst of what many people are calling the third great depression recession, depending how–guess how long this one lasts. There was 1873, there was the 1930s, and now there’s now, I guess, 2008, and we’re still in it. So what is it about these three periods that were so serious? And I guess in–specifically, what is it about the one we’re in that makes people call it the next great recession? Now joining us to talk about the current great recession is John A. Miller. He’s a professor of economics at Wheaton College in Massachusetts. He’s also the coauthor of the book Economic Collapse, Economic Change: Getting to the Roots of the Crisis. Thanks for joining us, John.
JOHN A. MILLER, PROF. ECONOMICS, AUTHOR: Oh, thanks. Thank you for having me on the show.
JAY: So talk a little bit about why we’re calling this not just a recession, not just another business cycle, but another great recession.
MILLER: Well, this–by the usual standards of economic downturns since World War II, this is by far the most severe. If you look at and measure by an array of different measures, it stacks up that way, if you look at the amount of output that was lost, if you look at the number of jobs that were lost. If you look at what happened to the retail sector, which usually does very well in a downturn, it suffered. And even if you go back and compare it to the double-dip recession, which–and again we’re talking about a double dip in the downturn of 1982–it’s more severe. And if you look at the other severe downturn of the postwar period, 1975, it’s more severe. But I think what really distinguishes this downturn, beyond its severity, from previous recessions since World War II is the fact that it’s coupled with a financial crisis. The financial crisis that hit in the fall of 2008–the culmination of the collapse of the housing market and the kind of speculation and proliferation of deregulated financial instruments in the financial sector on Wall Street–really brought the economy to a near halt. If you can think of it as–it’s as if the lubricant, the money that needs to be–flow through the economy for firms to hire people, for you to take money out of your ATM, for–to acquire credit for to buy a car, to get credit to send your children to college, even to continue to get credit card credit to sort of–which people rely on more and more to meet their needs, really came to a halt.
JAY: Okay. But when you go into the roots of why this took place, I mean, isn’t to a large extent that so much capital was tied up in finance and so much capital was tied up in gambling and such and non-productive investment? And if you go into the roots of that, how much does that have to do with the fact that, partly through normal, quote-unquote, downturns, but also just–even during supposed upturns, people’s wages just weren’t going up. There wasn’t enough real demand in the economy.
MILLER: Yeah. I think those two are directly related. What we saw was that average income, up to 2007, continued to go up. But what happened was more and more people and more and more families missed out on that increase in average income. It was because the people at the top were making out so well that they were pulling up the average. Sixty, eighty percent of working people, working families, saw their incomes stagnate. As a result, they had to turn to credit to meet their needs. It wasn’t as if they were no longer part of a market economy. And to survive, they needed to borrow, and the borrowing was product of the stagnation of their income. And you found ready lenders. The Federal Reserve board continued to throw money into the economy. And at the same time what we saw was a kind of rise in housing prices that was wholly unprecedented by historical standards. Anyone that takes the time to look at what happened to average housing prices sees a pattern where you see an upturn in the ’80s that looks like a lump, and then all of a sudden, in 1995, as money flowed from the Federal Reserve Board, as more and more people relied on credit, as money flowed in from abroad to finance the budget deficit of the United States, and [incompr.] importing more than we export, it just permeated the entire economy. And that money and that spending drove up housing prices at a rate that literally you haven’t seen since–in the history of housing prices, going all the way back to 1890. People then used their house as an ATM. That added more borrowing and more spending to the economy. It pumped it up in a way that really provided little income growth, but led to large and unprecedented profits for the financial sector that were at about twice the level that they were before, compensation for the heads of the financial firms that were unprecedented. And, you know, back 30 years ago, 40 years ago, people in the financial sector on average got paid just about what other people got paid in different industries. And that throwing money sort of led to a process that was obviously unsustainable, a housing bubble, and when it burst, the drawing out and the pulling back was enormous.
JAY: Now, that suggests that while more finance regulation will stop some of the extreme of this, it won’t deal with the underlying issue of stagnant wages and, you know, growing inequality gap and all of that.
MILLER: Yeah, that’s true. And if you actually look at this pattern, what [incompr.] look at the pattern of inequality in the mid ’70s, in which we were still reaping some of the benefits of the period right after World War II, as we escaped the crisis of the second great depression, the depression of the ’30s, we saw inequality, and particularly the share of the richest 1 percent, decrease rather steadily; we saw a period of economic growth where the gains were spread rather widely. In fact, on a percentage basis, those in the lowest fifth of the income earners and the next fifth saw larger percentage gains in their income than those at the top. There was a period of a kind of compression of inequality. It didn’t make inequality go away, but it moderated it. And it was also a period where we saw fewer bank crises, fewer banks going under, few–. It was a period where, really, the economy put together a record, by historical standards, of sustained economic growth that we haven’t seen in any other period.
JAY: So if the underlying issue seems to–at least one of the major issues is the issue of wages, and right now wages are going down–like, contract after contract, you’re seeing concessions. The auto industry, you know, sort of ushered in by the Obama administration, went to this two-tier contract where new workers are getting half the wages. You’re seeing this in places all over North America now. What kind of public policy could reverse this?
MILLER: Spending, and spending on a much larger scale than the Obama administration is talking about now.
JAY: Why would spending increase wages?
MILLER: When you interview small businesses and you ask them, why aren’t you hiring someone, what’s the biggest problem that you’re facing, name us three, and two of them are the ones that you might expect an advocate of deregulation in the free market to say, is, oh, there’s overregulation, and that’s affecting us, and they also talk about taxes–. But the largest single element, according to small businesses, that’s holding them back is a lack of sales, as you know and as we just said, that households aren’t in a position to do that kind of spending now. And banks, we didn’t–we didn’t–we bailed out both the banks and the bankers and got little control over the financial sector, so we don’t have direct levers to be making banks lend money and finance investment in the way we would have seen in other recoveries. So that leaves us one sector to turn to, and that’s the public sector. And if we could add massive–two times, three times the kind of stimulus that we saw earlier, massive spending, that would, I think, promote jobs and promote–by promoting jobs, we would get people income, and that income would flow through the economy and get it going again, and it would be the beginning of a wave of hiring that would tighten labor markets. Tighter labor markets, where there are more jobs to be had, increase the bargaining power of working people, who can then turn to their employer and say, no, no, no, no, no, I’ve really suffered in this downturn, we’re in bad shape, you’ve got to pay us better. Oh, no? You don’t want to do it? Well, I can get a job down the street. When there’s no job down the street, it’s awfully hard to go in and push for higher wages.
JAY: Now, how long can that be sustained? I know you’re talking for a much bigger stimulus, but the stimulus that the Obama administration did do, you know, when it ran out, states and municipalities started laying off again. And why wouldn’t that happen again? I mean, at some point you would think you can’t keep stimulating jobs in the public sector. So how does that then not just wane out at some point?
MILLER: Well, I don’t think you’re stimulating just jobs in the public sector, but it’s reliant on public spending and it’s a bet. You’re putting money into the economy in order to really spark economic growth, to really accelerate economic growth. You need to get a widespread process of economic growth going. And by doing that, you can actually increase people’s incomes, you can increase the potential tax revenues of the government–because people have more income, you’ve got more money to tax. If corporations hire more people and produce more, at least on a volume basis, they’ll make more profits. And if we had a real corporate income tax that we’re–or that wasn’t riddled by loopholes, where people get out of paying it, you could collect more revenues that way. So I think the alternative is, if we don’t act now, we do move–we at minimum continue to stagnate. That means tax revenues–there’s not revenues out there or income to be taxed and revenues to be collected by government. And the deficit isn’t going to get smaller; it’s going to get larger, because the tax base is disappearing. We need to get economic growth going. We need to do it in a way that will actually provide clear and visible benefits if we’re going to get people behind this. And–you know, and one of the problems is, when you propose stimulus packages that aren’t large enough, people turn around and say, look, it didn’t work; well, it slowed the downturn, but it didn’t spark economic growth. And if you’re worried about how much we can spend, I think you can think back to World War II. At the close of World War II, government debt relative to the size of the economy was about 120 percent. Today it’s about 60 percent. By those standards, we’ve got a long way to go.
JAY: Some people are arguing that the only kind of stimulus that would really work is a big, massive, 1930s style direct jobs program. Do you think that’s true?
MILLER: I think it would help. I think infrastructure spending spread across the economy–I mean, you can think of the Hoover Dam. But you know what, if you look at the jobs program of the ’30s, it had, you know, a multitude of different facets and different areas of intervention. In the backwoods and [incompr.] of Kentucky, they paid public librarians to go out on horseback delivering magazines and books to poor people. They worked for the WPA, for the Works Project Administration. You know, on–you know, in New York on Broadway and off-Broadway, you know, there was a whole program promoting the arts. In Oregon, they built a resort on top of Mount Hood, where they hired designers to put in Native American decorations on the walls. They put people to work across the economy. And those people had money, and their spending actually promoted rather rapid growth after the worst of the Great Depression in 1933. And the economy was growing at just about double-digit levels after 1933, once the interventions got underway. And that growth then disappeared when the Roosevelt administration began to worry about the budget once again. And it’s really important to remember that Franklin Delano Roosevelt came into office promising to balance the budget and cut government spending by 25 percent, and it was the severity of the crisis that convinced him, ultimately, to do something different. Four years later, he made a famous speech in Pittsburgh at Forbes Field, which was then the home of the Pittsburgh Pirates, the same place where he had four years earlier promised to balance the budget, and he reported that to balance the budget in 1933, 1934, and 1935 would have been a crime against the American people. That’s a tremendous reversal and turnaround in policy. That’s what we need today, and that’s the kind of change in political position that–with popular forces and with pushing for putting people back to work, first and foremost, that we could make that I think would cure an economic crisis, that would put the lubricant of spending back into the economy and get us going again.
JAY: Thanks very much for joining us, John.
MILLER: Thank you very much. I’ve enjoyed it.
JAY: And thank you for joining us on The Real News Network.
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