Market Opportunities

Dean Baker

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.

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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