January/February 2021 Issue

January/February 2021 cover

Our January/February 2021 issue is at the printers and will go out to e-subscribers very soon!

The cover story, “State and Local Austerity: Are we doomed to repeat the mistakes of the past?,” by Amanda Page-Hoongrajok, is posted here, and John Miller’s article on why the stock market is soaring while the economy is so bad for ordinary people is posted here.

Here is our p. 2 editorial:

Against Austerity

Who would have thunk it? A contributor to Dollars & Sense has been appointed as an economic advisor to a U.S. president! Heather Boushey, who will serve on President Joe Biden’s Council of Economic Advisors (CEA), wrote “Good Times, Bad Times: Recession and the Welfare Debate” for our September/October 2002 issue. (Boushey’s D&S piece was mentioned in that year’s Project Censored list.) Boushey’s research focuses on inequality and economic growth, and if you needed any more evidence that she’s in D&S’s camp, her article “Unbound: Releasing Inequality’s Grip on Our Economy” appears in the most recent issue of Review of Radical Political Economics, the journal put out by our comrades in the struggle for economic justice at the Union for Radical Political Economics.

The other good news was the appointment of Jared Bernstein to Biden’s CEA. Bernstein, currently at the Center on Budget and Policy Priorities, served as an economic advisor to Biden during the first two years of the Obama administration, and was a senior economist at the left-leaning Economic Policy Institute.

Having at least two economists at the White House whose research focuses on inequality and labor economics from a left perspective gives us some hope that the incoming president might resist calls for austerity in response to the current economic crisis.

In this issue’s cover story, economist Amanda Page-Hoongrajok addresses the dangers of imposing austerity at the state and local level. Hampered by balanced-budget rules—or at least by misguided norms that dictate that expenditures must match dwindling revenues—states and localities are making budget cuts that lead to damaging job losses and reductions in public services when they are needed most.

The federal government can play a role in preventing the downward spiral that state-and-local austerity creates, by relying on its ability to borrow at low rates to provide relief funds to struggling state and local governments. But as Page-Hoongrajok shows, there are alternatives if federal relief doesn’t come through. States and localities can raise taxes on the wealthy without worrying about dragging down demand, since wealthy households “spend smaller proportions of their disposable income than low-wealth households.” And cities and states can also buck the balanced-budget norm and borrow to meet today’s needs.

The idea that “there is no alternative” to austerity is a focus of this issue’s excerpt from the late John F. Weeks’s book The Debt Delusion. Weeks shows how political frameworks and ideology, not economic principles, have for decades made it seem as if we need to hand over decision-making—about exchange rates, monetary policy, and fiscal policy—to “experts,” but mostly to the private sector. But there is an alternative: public, democratic control.

The decades of ceding decision-making about the economy to private interests, along with the resulting massive growth of inequality, is what has created the situation that John Miller addresses in his “Making Sense” piece in this issue—a soaring stock market in the midst of an economy struggling to recover from pandemic-induced collapse. How is this possible? The answer is partly about investors’ choices—with interest rates low, investment in bonds is less profitable and the stock market is more appealing. But this, too, is the result of policy choices: a government that lavished “unqualified and unstinting support” on financial markets instead of preserving jobs and providing income-support.

This issue also includes two features that take mind-bendingly broad perspectives on the global economy today. John Bellamy Foster and Itan Suwandi look at the role of global commodity chains and agribusiness in creating the conditions for the rise of dangerous diseases like Covid-19. (We have paired this with a primer on the “shock doctrine,” as applied to the current pandemic, by our own D&S collective member, economist Bryan Snyder.) And Sasha Breger Bush sketches out the vast scope of the global drug economy—enormous even before the operation of economies depended on finding treatments and vaccines for Covid-19.

Last but not least, Steven Pressman reviews Thomas Piketty’s Capital and Ideology, and Gertrude Schaffner Goldberg reviews William A. Darity Jr. and A. Kirsten Mullen’s important book on reparations for Black Americans, From Here to Equality.

The Euro “Recovery” in Real Time (in Case You Missed It)


If you read the Financial Times on 2 May, you learned that at long last recovery gathered pace among the countries of the eurozone, “the eurozone’s recovery is spreading from the bloc’s core to its periphery”.  This merely confirmed the intrepid prediction a month earlier of a certain Patrick Chovanec of a financial outfit named Silvercrest Asset Management, “The recovery in Europe is real, and will likely continue and strengthen.”

It may be wise to avoid this source for your asset management, because two months later in the same newspaper you discovered that the spread of euro prosperity did not survive into July, “a slowdown in the eurozone’s recovery was confirmed on Thursday [3 July], after the final reading of a poll of purchasing managers hit is lowest level this year”.

The fleeting apparition of recovery brings to mind the occasional reports of earthly visitations of Christian saints, which bring ecstasy to the observer but prove transitory in their broader impact.  Transitory the alleged recovery has been to say the least, as confirmed by both the New York Times (return to recession in France) and the International Business Times (manufacturing slowdown in Germany).

As I demonstrated a month ago, the so-called recovery was not “real”, nor brief and fleeting.  It has yet to occur.  The chart below, up-dated with preliminary statistics for the second quarter of 2014, demonstrates the euro recovery that never was.  Of the four largest economies on the euro zone, the “best performer”, that of Germany, is a merger four percent above its level at the beginning of 2008.

And that only starts the bad news.  The economies of two countries, Italy and Spain, are at a lower level of GDP than at the depth of the Global Crisis of 2008-2009.  For these two countries returning to the lowest point of the worst recession in eighty years would be an improvement.  That might be taken as a working definition of “been down so long it looks like up to me“.

GDP compared to 2008: Largest 4 EU economies (percentage points, 2008 1st quarter = 0)


Source: www.oecd.org/statistics.

The news for national income is bad and for unemployment even worse.  The chart below shows the percentage point change in unemployment rates, again compared to the first quarter of 2008.  Setting the first quarter of 2008 as zero allows easy visual comparison.  For only one country, Germany, is unemployment lower, 5.1% of the labor force now compared to 7.9 at the beginning of 2008.

Among the others, the unemployment rate is 16 percentage points higher in Spain (at 25% of the labor force), six higher in Italy and three in France.  Only for Spain do we see improvement, if that word applies to a change from 26.3 to 25.1%.

Unemployment rates compared to 2008: Largest 4 EU economies

(percentage points, 2008 1st quarter = 0, numbers in legend rates for 2008Q1)


Source: www.oecd.org/statistics.

What is going on in the euro zone? Market economies are supposed to grow, driven by the “animal spirits” of capitalists (to use the term coined by John Maynard Keynes).  What is the cause of the stagnation that seems to affect even the Teutonic dynamo?  The answer is quite straight-forward and obvious to all those not blinded by ideology — a lack of demand.

Businesses produce things when their owners think those things can be sold.  They can be sold domestically to other businesses (capital goods), to households (consumer goods), to the public sector (government demand), or to foreign markets (exports).  The austerity policies championed by the German government and enforced on euro zone countries by the European Commission have public expenditure contracting in real terms in most countries.

The chart below tells the public expenditure story.  In constant prices, public expenditure in Germany was six percent higher in 2013 than in 2008, and five percent higher in France.  Both countries grew compared to 2008, albeit by not very much.  In Italy public expenditure was down by 6% and by 5% in Spain.  The economies of both countries contracted compared to 2008.  There is a lesson from those numbers — don’t cut spending in a recession.

Ratio of public expenditure in 2013 compared to 2008,  4 largest euro economies

(constant prices)


Source: www.oecd.org/statistics.

What of the animal spirits of the private sector?  Bad news again, with private investment lower in all four countries in 2013 compared to 2008.  The falls are 8% for Germany, 10% for France, a debilitating 27% for Italy, and a disastrous 41% in Spain.  As for exports, virtually no change for France and Italy in constant prices (up 2% and down 2%, respectively).  Germany exports increased by 10%, sufficient to compensate for the fall in investment and stimulate a bit of growth.  But in Spain not even a 20% export increase could raise the economy off rock-bottom in face of the declines in private investment and public expenditure.

Ratio of Private Investment in 2013 compared to 2008,  4 largest euro economies

(constant prices)


Source: www.oecd.org/statistics and www.worldbank.org..

Has recovery come to the largest countries of the eurozone?  No, because austerity has depressed public-sector demand.  The low growth or decline in public expenditure has lowered private-sector growth expectations, keeping investment low.  And except in Germany increases in exports have been less than the contraction in private investment.

Public expenditure down, private investment dismal, and export growth inadequate to keep the total demand for goods and services from falling.  What about households (aka “consumers”)?  No prizes for figuring out what happens to household expenditure when unemployment continues at a high rate and other sources of demand stagnate.

But, isn’t all this austerity, public and private, the necessary price to pay for running up those huge public debts and budget deficits?  That’s a story for another day.  I show in chapter 9 of my new book, Economics of the 1%, austerity and slow growth make both debt and deficits worse.  Which leads to the one-liner of the euro economies — they suffer from policy-induced stagnation, self-inflicted.  Stop the policy sabotage of these economies and growth will return  It really is that simple.

–John Weeks