Dean Baker: What Was Actually Happening While You Led a Life

Tuesday, 22 January 2008 06:03 by: Anonymous

Also see:     
AOL/Microsoft-Hotmail Preventing Delivery of Truthout Communications    [

    What Was Actually Happening While You Led a Life
    By Leslie Thatcher
    t r u t h o u t | Review

    Tuesday 22 January 2008

Dean Baker's "The United States Since 1980," published 0aby Cambridge University Press, New York, 2007.

    With "The World Since 1980," Cambridge University Press has designed a "series... to examine politics, economics, and social change in important countries ... over the last two and a half decades." Dean Baker, a macroeconomist with a PhD in economics from the University of Michigan and co-director of the Center for Economic and Policy Research in Washington, DC, has written the volume on the United States, a succinct 243 pages that read for me like a thriller, despite Baker's spare prose and cool, almost forensic, voice and the fact I lived through the entire period as an adult. Actually, Baker's clinically dispassionate tone and my own presumptive personal knowledge made reading "The United States Since 1980" all the more engrossing: There are many "Aha!" moments, as in "Aha! That was what was going behind the headlines." "Aha! That was what I missed!" as Baker elucidates the reverberations and ramifications and trends set off by events and policies that may have seemed singular - one-off anomalies - at the time.

    The book's amply supported thesis is the United States took a sharp right turn in 1980, both from its own previous half century and, perhaps even more tellingly, from the economic, social and political norms of other developed countries. As Baker points out in the first chapter, by the end of the period, the United States was at odds with European and Asian allies in the developed world on Kyoto, on the International Criminal Court, and on other key matters. The United States's increasing unilateralism in international affairs was paralleled by the progressive and deliberate dismantling of the "institutional supports that ensured most of the population a decent standard of living."

    And Baker makes clear it was not "The Market," but government policy in trade, immigration, macroeconomic policy, labor-management rules, regulation of communications, and other industries that effectively weakened the earning power and the economic security of workers in the middle and the bottom ranks, with an unquestionable cumulative impact of massively redistributing income to the top, without any conclusive increase in economic efficiency.

    Not only did the two Reagan and first Bush administrations promulgate these policies, but the Clinton administrations continued them to a large degree. Clinton's "win" on NAFTA is one example; while Baker suggests we may have Monica Lewinsky to thank at least in part, if inadvertently, for Social Security escaping privatization. The book details how the Clinton administrations' foreign policy push of the "Washington Consensus" was a continuation of Bush I's policies of foisting US economic ideology on other countries, even when they were manifestly ineffective economically and disastrous politically. And by the end of the 1990s, poor countries were financing the United States as they have been ever since. Any progressive who imagines electing either of the current Democratic front-runners - both advised to a large extent by recycled Clinton administration figures - will alone provide a panacea for the United States's current political, economic or social woes, should be required to read Baker's chapters on the Clinton years.

    Baker makes clear the right turn in US policy has come at profound cost to Americans' common good. We work far longer hours, pay more for worse medical care, live shorter and more brutish (less educated, less leisurely, less informed, less equal, more polluting) lives than our European counterparts. That there are no easy solutions should come as no surprise: "The political system in the United States is largely structured so that it can be oblivious to the long-term costs of public policies. Those who try to raise such concerns are systematically excluded from public debate."* He identifies the current political system's essential failures in the domains of health care provision, the trade deficit, climate change policy, and provision of an international structure that will protect the US when it is no longer pre-eminent - an inevitability given economic power shifts, but one to which the US has been as blind as it has become to every kind of power but military power.

    The clarity and concision of Baker's exposition, his grasp, choice and synthesis of wide-ranging and apparently disparate phenomena, the calm power and cohesion of this alternative narrative, the utility and accessibility of the various tables he includes, the cogency and transparency of Baker's analysis of events and policies makes "The United States Since 1980" essential reading for the informed citizen this election year.


    *Dean Baker: "The United States Since 1980"; Cambridge University Press, New York, 2007, p. 237

    An Interview With Dean Baker
    Conducted by Leslie Thatcher
    t r u t h o u t | Interview

    Tuesday 22 January 2008

    Leslie Thatcher for Truthout: Dr. Baker, I first want to thank you for your book, "The United States Since 1980," as well as your wonderful essays for Truthout. Although your book covers the history of the 25 years from 1980 to 2005 from a political and social as well as an economic perspective, in this interview I would like to focus primarily on the economic issues you have raised in your book and elsewhere, partly because I find it so difficult and frustrating to obtain good economic information in the mainstream press, a difficulty your work - along with that of a few notable others - provides some antidote for. The most obvious current example is the solvency of the Social Security system: Your book tracks the 1996 debates, and your current work addresses administration manipulation of data. Another example I found particularly egregious were the 2000 Bush-Gore budget debates in which Bush famously accused Gore of using "funny math," while it required no higher order math skills to verify that the funny math was not Albert's. Why is it so difficult to get accurate and objective reporting on economics issues rather than the spuriously "objective" he-said, she-said reporting of issues that can actually be verified?

    Dean Baker: There are three main reasons why we get the he-said, she-said reporting on economic issues. First, reporters are lazy. It is much easier simply to write down what candidate one said and then what candidate two said then to actually investigate which one is telling the truth. I have had many reporters tell me with a completely straight face that they gave both sides, as though a school teacher with two kids is going to have time to check the numbers for him/herself when they read the paper in the evening.

    The second reason is inertia. This is the standard practice; so, a reporter who actually made a point of checking the numbers and saying that one candidate is being truthful and one is making up numbers would be accused of bias. So, if you get in less trouble for being lazy than for actually doing work, it is generally better to be lazy.

    The third part of the story is actual bias. Media outlets feel very uncomfortable being in the position of saying all the time that the president, or a presidential candidate, is not telling the truth. I say that this is bias because they don't always have trouble saying that people are not telling the truth. For example, I don't think the media had any problem reporting that much of what Saddam Hussein said was not true. Similarly, when a progressive political figure makes a statement that is questionable in some way, reporters don't feel any qualms about constantly reminding their audience of the mistake. In fact, this even happened to some extent with Al Gore in 2000 with reporters referring to his tendency to embellishment.

    In your book, you highlight how the Fed's response to the stock market bubble in the late nineties set up the dotcom and housing market bubbles. In an article in Harper's last year, in the context of the overvalued dollar and housing market, you wrote: "the next administration cannot let the Federal Reserve Board write its own job description. Preventing future financial bubbles has to be placed at the top of its list of responsibilities."

    How do you suggest the next administration go about that? How much price correction do you think remains for the dollar and the housing market?

    There is always a fair bit of turnover among the governors at the Federal Reserve Board. The next administration can openly say that it is going to use a commitment to tackling financial bubbles as a criterion for selecting members of the board of governors of the Fed. It can openly demand that the Fed embrace this as one of its responsibilities. Bernanke and other current members of the Board may object, but my guess is that there will be considerably public outrage over the pain from the collapse of the housing market bubble. If the Fed were to resist making bubble fighting part of its responsibility, then the president could ask Congress for legislation that explicitly mandated this responsibility. Greenspan had interpreted his responsibilities to include preventing a market meltdown in 1987. I know of no economic theory that says an undervalued stock market poses any greater threat to the economy than an overvalued market.

    House prices rose by 70 percentage points more than inflation over the period from 1995 to 2006. Ordinarily, they just keep pace with inflation. My best guess is that most or all of this excess price increase will disappear. This implies a real price decline of close to 40 percent. If inflation over the next three years is 10 percent, then nominal prices will have to fall by close to 30 percent. We have seen a decline this far of a bit more than 5 percent. We have just seen the tip of the iceberg with this down market.

    The current issue of Harper's includes an article by Eric Janszen, "The Next Bubble" which suggests that another financial bubble is actually necessary - given the structure of our economy and its reliance on FIRE (finance, insurance, and real estate) rather than manufacturing - to pull the economy out of its accelerating slump. An article by the late French social philosopher and journalist Andr Gorz, that I am in the process of translating, similarly suggests that the FIRE economy is the apotheosis of capitalism, cannibal capitalism that creates real value out of nothing for some, while at the same time destroying value for most. Do you see this divorce or even cannibalism between financial capitalism and the real economy of goods and services? If so, what public policy remedies are available?

    Well, we relied on a bubble to support growth in the 1990s and in the current decade, but I don't think that this is the only route. We have to adopt different policies. First and foremost, I would say that we have to reduce the value of the dollar (which may happen without any policy action) to get the trade deficit down to a manageable level. This will by itself provide a substantial boost to demand. We also should give up the cult of balancing the budget. We should not run excessive deficits, but there is no problem of running modest deficits in the range of 1 to 2 percent of GDP. We can do this indefinitely, because with deficits of this size, the debt to GDP ratio would be constant or falling through time.

    Most importantly, we should be willing to consciously use the public sector to build the sort of physical and social infrastructure that is most consistent with a strong economy and healthy society. We should be thinking broadly on this score. It is worth noting, that Europeans work on average about 20 percent less every year than we do. Everywhere in the European Union, workers are guaranteed at least four weeks a year of vacation, and in many countries they have five weeks or even six weeks.

    This is a great story. How many workers in the US would love to have five weeks to six weeks a year of vacation and still know that they had decent-paying jobs, secure health care and their kids could go to good schools and grow up in a safe neighborhood. On top of this, they also emit about half as much greenhouse gas as per person as the United States. Europe has plenty of problems, but the typical European lives much better and has much more security than the typical person in the United States. It should be possible to design policies so that people in the United States can enjoy the same sort of lifestyle and security as people do now in Europe.

    Kim Phillips-Fein, in a Nation review of the last books by Paul Krugman and Jonathan Chait, suggests that both authors are naive about the appeal of the market:

    "Moreover, if conservatives aren't the only politicians to have embraced the free market, the victories of free-market economics can't be explained solely in terms of the opportunistic attempts of leaders to link conservative economic and social agendas. The beliefs of social scientists to the contrary, there is nothing simple or automatic about how people come to define their economic interests. Especially in the absence of organizations like labor unions, which can offer an alternative understanding of how the economy operates, it should not be surprising that the vision of the marketplace itself exercises a certain deep appeal, even for people who do not benefit from the policies it prescribes. After all, the market model suggests that individuals exercise tremendous power over their own destinies. It argues that people can determine their economic fates. It provides a way of connecting one's actions to the larger outcome of social and historical processes. These ideas have their own logic and their own attraction, quite aside from the politics of cultural backlash with which they are frequently joined."

    In a similar vein, organizers I know constantly remark that people see their own problems as personal, "their own fault," not as part of larger political issues.

    What shift of consciousness and expectations is necessary? How can it be effected?

    It is essential that people recognize that the wealthy didn't just get ahead through talent, hard work, and luck - they got ahead by rigging the deck. The rich have written the rules so that they will be the winners; we have to make this as clear as we can and point out all the ways in which it is done.

    Economists are incredibly complicit in the effort to conceal how the rules have been rigged. The most obvious case is with the neo-liberal trade agenda. This agenda is routinely dubbed "free trade" and those who oppose the agenda are called names (most often "protectionist," but it can get worse). This is one of the few areas of public policy where it is absolutely the norm to use ad hominem arguments against your opponents.

    Of course, the proponents of this trade agenda are not in support of free trade, they want selective protectionism. They want to subject the broad segment of working population to competition with low-paid workers in the developing world, but they insist on maintaining protections that sustain high wages for doctors, lawyers, journalists, accountants, and other highly paid professions. The predicted and actual result of this policy is to redistribute income upward (that is what standard economic theory shows), but economists do their best to conceal the nature of our trade policy and call people names if they don't support it.

    Anyhow, this is just one of many examples, but people have to realize that they are being ripped off. It is not the natural workings of the market that makes life difficult for them; it is rich people rigging the rules for their own benefit.

    In "The Conservative Nanny State," you wrote:

    "The key flaw in the stance that most progressives have taken on economic issues is that they have accepted a framing whereby conservatives are assumed to support market outcomes, while progressives want to rely on the government. This framing leads progressives to futilely lash out against markets, rather than examining the factors that lead to undesirable market outcomes. The market is just a tool, and in fact a very useful one. It makes no more sense to lash out against markets than to lash out against the wheel.

    "The reality is that conservatives have been quite actively using the power of the government to shape market outcomes in ways that redistribute income upward. However, conservatives have been clever enough to not own up to their role in this process, pretending all along that everything is just the natural working of the market. And, progressives have been foolish enough to go along with this view."

    What do you feel is the single most important action progressives can take to unmask and reverse this manipulation of outcomes?

    I don't know if there is a single most important item that can be identified. This is going to be a long hard battle, and the first step is to be clear on the enemy. I wrote the "Conservative Nanny State" (available for free download at because I felt that many progressives were just fighting the wrong battle. I see the market as a tool. It can be used for good and it can be used for bad, but to lash out against the market as a matter of principle would be like lashing out against the wheel.

    We need a clear view of the market to both design good policies and to get a good political program together. Much of the public has a negative view of the government, and this is often with some cause. They don't want government bureaucrats telling them how they should live their lives. They do want the government to do very specific things, like making sure that the meat they eat is safe, and also ensuring that kids get educated and that people get health care. It is incumbent on progressives to try to develop programs that use the government to structure markets to bring about desirable outcomes, with the government filling whatever additional role is necessary.

    A related question: In "The United States Since 1980," you contrast NAFTA with the EU's social charter and economic development program for (economically disadvantaged) regions. The implicit back story is how the ruling class in the US has capitalized on economic (and other) fears to undermine social solidarity and shift the country to the right in a kind of vicious circle, as right wing economic policies increase individuals' vulnerability and real fears.

    What steps are necessary to reverse that cycle?

    Again, there is no easy process to reverse the path that we have followed. The one thing that we can learn from the right is to try to be opportunistic in selecting policies that both advance an immediate policy goal and also affect the long-term political balance of power.

    At the top of the list for the right was undermining unions. This had the effect of allowing corporations and the highest-paid workers to get a larger share of the pie in the short-run. In the longer run, it weakened one of the main supports for progressive policy.

    It's not clear that we have policies that can be equally effective. Certainly rebuilding unions, for example, by reforming labor law with the Employee Free Choice Act, would be an obvious step in the right direction, but I don't know that we can expect that unions will play the same role in pushing a progressive political agenda in the future as they did in the past. Other steps that we can do would be to promote the development of alternative media through any mechanism we can develop. More diverse new sources will certainly benefit progressives.

    Do you believe there was a way the Clintons could have gotten health care reform approved in the early nineties? If so, how should they have proceeded then?

    I would like to see a universal Medicare-type system in place, and perhaps Clinton could have gone this route if they really were prepared to put the full power of his presidency behind it. This would mean using the bully pulpit of his office and threatening and bribing members of Congress to get the votes needed to get such a measure through Congress. He lost this opportunity when he instead made NAFTA his top legislative priority after the budget package. He used up his threats and promises to get NAFTA through. After that, there was no way that he could have had the political support to pass a major overhaul of the health care system.

    If he couldn't go big, the question is then whether he could have gone small, whether he could have tried to push through some sort of plan like the ones being pushed by Sens. Clinton, Edwards and Obama in the current campaign. The key part of these plans is that they reform the private system and offer a good public plan that competes with it. I think that a proposal like this might well have been doable in 1994. The key point is that by leaving the private system in place and letting people buy into the public option, if they want, it doesn't force anyone into a different system if they like their current health insurance plan. This fear was the main weapon used by the right to undermine public support for the Clinton health care proposal.

    Do you see a national health care plan being developed under the next administration?

    All three leading Democratic candidates have proposed a plan. I would be very surprised if they don't actually move forward with it. The odds are that they will be able to pass something; the bigger question is whether the final product will look like reform. This will depend on the size of the public pressure to produce a good plan.

    Moving on to social and political history, you refer in your book to the "embellishment of facts" that occurred in the reporting of events in the first Gulf War. Was this, in your view, a continuation of the disinformation campaigns that characterized US activity in Central America or a qualitative change in government-supported propaganda?

    I don't see the reporting around the first Gulf War as qualitatively different from the reporting around the wars in Central America or other foreign policy ventures. I would say that the media in general have been very willing to accept government statements on foreign policy as being true, even when known facts indicate that the government's statements are not true. For example, in the 1980s, the media routinely reported that the Nicaraguan government was sending arms over the border to the rebels in El Salvador. This claim was ridiculous on its face because Nicaragua has no common border with El Salvador, but it was nonetheless widely repeated. The media was equally negligent in its reporting on both Gulf Wars.

    To what do you ascribe the immunity that most of the Iran-contra participants ultimately enjoyed?

    The right felt it was very important to protect these people because they did not want there to be a precedent that could send government officials to jail for breaking the law on the president's orders. This is a case where both the media and most progressives have been enormously negligent. The media has given little attention to the fact that none of the Iran-contra criminals went to jail. In fact, the media treated the efforts by the special prosecutor as unreasonable harassment of good, upstanding people.

    Progressives were far too willing to drop these prosecutions, probably out of a fear of appearing vindictive. In fact, the prosecution and punishment of these people was hugely important. If they had spent significant time in prison, it is unlikely that so many people in George W. Bush's administration would be so willing to break the law.

    One of the stunning tables in your book compares 1999 math and science literacy scores of 15-year-olds in wealthy countries, with the US coming in close to the bottom. Do you see a relationship between those scores and the apparent effectiveness of disinformation in the US, American magical thinking, our unwillingness to tackle climate change, and the hopelessness and lack of imagination that characterize US energy and foreign policies?

    Has it had an impact on US productivity?

    I think that low education levels and, perhaps more importantly, little interest in reading by most people, makes it easier for conservatives to sustain policies that harm a large majority of the population. This is a good example of a policy that has good short-term benefits and also longer term political benefits. Insofar as we can improve educational outcomes we will be helping less advantaged segments of the population get decent jobs, and we will increase the likelihood that they have a better understanding of policies that redistribute income to the wealthy. A more educated population is also a more productive population, so this is another benefit.

    Finally, you talk about social changes due to the diffusion of technology: the videotapes of the Rodney King beating and the Abu Ghraib photos that graphically contradict official versions of events. Do you think that "private" or "dissident" reportage and the technology that allows its diffusion will grow in its power to contradict official versions of events - the naval encounter in the Straits of Hormuz last week is the most recent example, or the October fatal Tasering of Polish immigrant to Canada Robert Dziekanski - or that countermeasures, such as the destruction of net neutrality or increased surveillance and crackdown on all independent reporting as is now occurring in China, will become more effective and widespread?

    I am very optimistic about the potential for new media to alter politics in this country. I think that it is already having a very large impact. Millions of people turn to new outlets and bloggers to get perspectives that they could not have heard just a few years ago. Also, the blogosphere has had a huge impact on the mainstream media's reporting. I know that my blog, "Beat the Press," has affected the reporting of economic issues on many major news outlets.

    This is also an area where progressives can be very opportunistic. We should do what we can to promote the development of alternative media outlets. One proposal that I developed, the Artistic Freedom Voucher (AFV), would use give each person a modest sum (e.g. $75) to support whatever creative work they chose. The condition of getting the money is that the material cannot be protected by copyright so it can be transferred freely all around the world over the web. This is intended as a support for artistic work, but it can also be used to support alternative news networks. If the mainstream media had to compete with tens of thousands of people who could research news items as a full-time job and then have their work distributed for free, they would have a very difficult time.

    I originally conceived of the AFV as a national policy, but it actually can be used as a development policy at the state or even local level. It just requires a bit of creativity.


     Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is a regular Truthout contributor.

    He has written numerous books and articles, including "The United States Since 1980," Cambridge University Press, 2007; "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer" (2006); "Social Security: The Phony Crisis" (with Mark Weisbrot), University of Chicago Press, 1999; "Asset Returns and Economic Growth," (with Brad DeLong and Paul Krugman), Brookings Papers on Economic Activity; "Financing Drug Research: What Are the Issues," Center for Economic and Policy Research, 2004; "Medicare Choice Plus: The Solution to the Long-Term Deficit Problem," Center for Economic and Policy Research, 2004; "The Benefits of Full Employment" (with Jared Bernstein), Economic Policy Institute, 2004; "Professional Protectionists: The Gains From Free Trade in Highly Paid Professional Services," Center for Economic and Policy Research, 2003; and "The Run-Up in Home Prices: Is It Real or Is It Another Bubble," Center for Economic and Policy Research, 2002.

    His book, "Getting Prices Right: The Battle Over the Consumer Price Index" (M.E. Sharpe, 1997) was a winner of a Choice Book Award as one of the outstanding academic books of the year. He also is the author of the weekly online commentary on economic reporting, the Economic Reporting Review (ERR).

    He has worked as a consultant for the World Bank, the Joint Economic Committee of the US Congress, and the OECD's Trade Union Advisory Council. Baker's blog, "Beat the Press" which comments on media economics reporting is at The American Prospect. Another blog at TPM Cafe comments on current economic issues. His columns have appeared in many major media outlets including the Atlantic Monthly, Washington Post and the London Financial Times. He is frequently cited in economics reporting in major media outlets, including The New York Times, Washington Post and National Public Radio.

Last modified on Monday, 21 April 2008 16:16