Market Opportunities

BY Dean Baker

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What’s the difference between the New York Times, the Wall Street Journal, National Public Radio and In These Times? In These Times explicitly predicted the impending collapse of the stock market bubble (see “After the Fall,” December 12, 1999). So, if you lost a fortune in the market, don’t blame us.

The stock market crash was both predictable and inevitable, as we noted at the time. The list of people who deserve blame for contributing to an unsustainable bubble is long. At the top are Alan Greenspan, Bill Clinton and Treasury Secretaries Robert Rubin and Larry Summers, all of whom must have recognized the existence of the stock bubble and should have warned the public of the danger. Wall Street and the financial industry are also real villains in this story. They herded people into the market by assuring them it was virtually a sure bet. In the process, they collected huge commissions on brokerage and account management fees.

But we have to move beyond gloating and finger pointing: The stock market crash has created real problems for the economy that must be dealt with quickly. Most immediately, the decline in the stock market threatens the economy with a severe recession. The stock market was propping up demand both through the wealth effect on consumption and by providing investment capital to start-ups. With the plunge in stock prices, these sources of stimulus fall away. Consumers seeing their 401(k)s shrink are likely to cut back their spending and start saving in a big way. The boom in high-tech investment has turned into a bust, as firms struggle with both overcapacity and a shortage of investment capital.

To limit the extent of the downturn, it is essential that Greenspan and the Fed go much further in lowering interest rates than they have to date. Greenspan was way too slow in lowering interest rates in the 1990-1991 recession. It will take a lot of political pressure to make sure that he gets it right this time.

The federal government must also be prepared to come forward with serious fiscal stimulus. This will mean forgetting about “saving” the Social Security surplus and paying down the debt. Deficit spending to fund progressive tax cuts or neglected social needs can do much to stimulate the economy and keep people employed. There was never a real point to paying off the debt anyway, and the sooner the congressional Democrats recognize this fact and return to reality, the better.

While addressing the immediate economic problems created by the crash must be the first priority, progressives should seize this opportunity to change the terms of political debate. The market worshippers had everything their way and it led to disaster. This point should be said loudly and clearly in every forum available.

Not only should we attempt to rein in financial markets, with measures such as stock transfer taxes, but we have to move beyond the ideological fixation with the market that has dominated the nation’s politics in the past two decades. At the top of the list, we can throw the plans for privatizing Social Security in the trash heap. Tens of millions of investors are thankful that Social Security will still be there for them.

It’s time to get serious about a progressive agenda and push for a national health care system modeled along the lines of the old Medicare program. Every industrialized nation in the world can provide universal health care coverage at less than half the per-person cost of the U.S. system. The evidence is airtight and overwhelming–government-run systems are more efficient.

The list of areas requiring new thinking is long and stretches into every segment of the economy and society–electricity regulation, airline regulation, regulation of the airwaves, copyrights and patents. The era when the right could count on a reflexive bias toward its solutions should be over. It is time for a new pragmatic progressive agenda.


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Dean Baker is co-director of the Center for Economic and Policy Research and co-author of Social Security: The Phony Crisis (University of Chicago Press, 2000).

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