Opinion pieces and speeches by EPI staff and associates.
[THIS WRITTEN TRANSCRIPT IS FROM MORE JOBS, GOOD JOBS, AN AGENDA FOR SHARED PROSPERITY EVENT HELD ON JUNE 22, 2007.]
More Jobs, Good Jobs
Rep. Barney Frank’s Agenda for Shared Prosperity keynote address
by Rep. Barney Frank, introduction by Lawrence Mishel
LAWRENCE MISHEL: Welcome to our forum of the Agenda for Shared Prosperity. Let me say a few words about this policy initiative and then I’ll introduce our first speaker. EPI, as well as most of the country, has concluded that the economy isn’t working for working people. But we also have concluded that it’s not enough to be able to say that and argue with those who deny it. We do that, and we do it very well.
But we have to go beyond that. We have to be able to propose policy solutions that will resonate with people so that they understand that things can be different. One of the biggest barriers to addressing progressive policy change is that too many people think nothing can be done about the economic firestorm that they find themselves and their families and communities in, which is why we developed the Agenda for Shared Prosperity initiative.
Its assumptions are that the economy is not working for working people and that this has a lot to do with policy. We’ve debated the tax cuts for a number of years. But too few people say that the tax cuts haven’t worked. There are many people who will say “Oh, it’s caused big fiscal deficits or rang up the debt.”
Many people will appropriately say that it’s very unfair and inequitable because the tax cuts disproportionately go to those who have the most. But the name of the last tax bill was about employment and growth. That was what they sold it as, something that would produce jobs and growth.
You all should know that this recovery is inferior when it comes to GDP and employment growth. It certainly is dramatically inferior when it comes to income growth for typical workers because we know that there’s been 18% productivity growth over the last five years but the wages of both college-educated and high school-educated workers have gone nowhere in that time period. This is why this period is now widely describes as one where there’s a giant disconnect between pay and productivity.
So we have set out to bring forth policies that are going to reconnect pay and productivity. That’s the litmus test that we think should be applied to every candidate or every organization that offers policies: What are you doing to reconnect pay and productivity?
We also acknowledge that there are some new assumptions we have to address. One is that the employment-based, employer-provided health and pension programs are unraveling. We can no longer proceed as if we just have to supplement for low income people what other people get from their employers.
Right now retiree health insurance is becoming a thing of the past. Employer-provided health coverage has been falling throughout this recovery. Pensions have weakened tremendously over the years as you had a loss of defined benefit plans with guaranteed payments and the rise of 401(k) plans. But even in the last four or five years there’s been a decline of pension coverage even when you include 401(k)s.
So that is unraveling. The other thing I’d like to say is that an assumption of the Agenda for Shared Prosperity is that solutions have to be at the scale of the problem. There are many people who mistakenly think that you can just offer a few middle-class tax credits and you’re going to do the job.
It won’t do the job. Neither will conventional policies which just say, “Let the economy rip. Let’s have globalization accelerate on the terms that we now have it. Let’s seek a balanced budget and give some wage insurance to those who lose their jobs and everything will be okay.” That won’t cut it either because that does nothing to reconnect pay and productivity. Today we examine this issue at the level of the aggregate economy, macroeconomics, and the importance of having full employment and how do you get there.
To kick us off on this we have a very special speaker which I’m honored to introduce. Congressman Frank is a great guy to have on your side because he’s clearly one of the smartest folks in Congress. He’s got a searing wit, he’s humorous, and he’s very knowledgeable about the issues that we care about and he fights for them.
He’s knowledgeable about the parliamentary procedure and everything else. So he’s a real progressive juggernaut in my view, and it’s really great he’s now a chairman of a very important committee over economics. And so we welcome Congressman Barney Frank from Massachusetts.
BARNEY FRANK: Thank you. I was really delighted to come here and we have obviously benefited a great deal from the work that’s done at the Economic Policy Institute. Dave Smith, as many of you know, became the chief economist for the committee, and I think under my recent predecessor there was no economist. They just accepted the received wisdom.
Yes it is a nice thing to have gotten the chairmanship, but you have to point out to people who aren’t familiar with Washington and sometimes introduce me and point to my having gotten the chairmanship as a mark of the respect my colleagues have for me, that you know, you get the chairmanship from outlasting other people.
I’m reminded of a great quote from Lord Melbourne who was distressed by the increasing democratization in England in the 19th century, and he said at one point, “The thing that I most like about the Order of the Garter is that there is no damn nonsense about merit connected with its being given.” That’s the way it works with chairmanships. There’s no damn nonsense about merit.
As to today’s agenda, things have been moving in good direction on this set of issues from a political standpoint, but we obviously have a long way to go. About a year ago we were still debating whether or not there was a lag in real income for most workers, I had one very big debate during a Federal Reserve hearing with Spencer Bachus, now the senior Republican on the committee. I had been arguing the facts of the decline in real income for workers and how real wages had been declining.
He came back at one hearing, very vigorously, with numbers given to him by the Treasury talking about how compensation was in fact increasing, and we quickly realized it was compensation versus wages. In fact, in the Fed report for that year, they pointed to a great increase in worker compensation in 2004, which consisted almost entirely of the Pension Guarantee Corporation ordering companies to put money into underfunded pensions.
By their calculation, that counted as an increase in compensation for the workers. But when you looked at it, all of the rest of the increase in compensation came from increased health care premiums, meaning not a penny went into any kind of take-home pay for any worker. Belatedly, they now acknowledge this.
For a while it seemed that there was a great identity between global warming and income inequality. My Republican friends had finally been forced to concede that they were both increasing but they were arguing that it was a fact of nature neither caused by nor curable by human action. They are gradually giving way on both fronts. There really is a great intellectual parallel on these issues.
Now almost all of them agre
e that there’s been increase in inequality. Congressman Chris Shays asked Secretary of the Treasury Paulson at our hearing this Tuesday why there was such angst in America about the economy given how great things are supposed to be going. In his answer, Paulson said part of it is what the Chairman was referring to my comments about the increased inequality.
So they do now acknowledge that, (and it was important to have won that argument.) But then the question is what do we do about it? I think we now need to get to, “OK, it’s here and what do we do about it?” I want to talk specifically this morning about what I think our agenda should be.
The first thing we have to do is still to play some defense, and that is to deal with Ben Bernanke’s yearning to go to inflation targeting and to de facto amend Humphrey-Hawkins. But he will be appearing before us again in July for the semi-annual Humphrey-Hawkins hearing about a month before Gus’ 100th birthday. We’d love to have Gus there on his 100th birthday – we’re not sure it will work out – to be introduced, of course, by his successor Maxine Waters.
But they still have this itch to do inflation targeting, and they’ve got an argument for it. As some of you know, Governor Mishkin has been arguing that inflation targeting would actually be very good for reducing unemployment because controlling inflation now is a matter of managing expectation.
The more business people expect inflation to be controlled, the less inflation we will have. Therefore if they get tough and tell people 2% is the number, we are much less likely to get above that target and therefore their need to clamp down on the economy to reduce inflation will be diminished and they will be less likely to cause unemployment. This is the anchoring of inflation expectation they have talked about.
We have been resisting that. It’s a very jerry-rigged argument. Chairman Bernanke and Governor Mishkin, Bernanke’s close collaborator on this, acknowledge that there is still a cost to getting rid of inflation. “They talk about the “sacrifice ratio” in terms of reducing inflation, and they now say average estimates obtained from a comprehensive battery of equations and specifications suggest that the sacrifice ratio may be 40% larger than previously believed. That is, it may be 40% more costly to reduce inflation than it was two decades ago; i.e., it will take more unemployment..
It may be 40% more costly to reduce inflation than it was two decades ago. Remember, the cost is entirely in higher unemployment. Of course one other way to look at the sacrifice ratio is that 100% of the sacrifice will come from people who work for wages and none from the profit sector of the economy. But again, it may be 40% more costly to reduce inflation than it was two decades ago. Is this really bad news, he says? I will return to this question later.
It is striking to me that in the financial pages of the New York Times, a typical story might read. Well, there’s bad news and good news. The bad news is that wages are rising. The good news is that profits are rising. The Times—there was a quote. I’m gonna ask Bernanke about this, but a week ago in the Times, a story – not a direct quote – was reporting that “meanwhile the Federal Reserve is worried that wage increases will cause inflation.”
So we are determined to continue this debate and I do think we have had some success. The Financial Times did an editorial about the Frank Bernanke debate, and it ruefully acknowledged that we have deterred him for going to inflation targeting. We will continue to press. But there is that ongoing fight.
One of the things someone should write about is how my great predecessor Henry B. Gonzales went after the Fed on procedural grounds. Twenty years ago when I was a junior member, the Open Market Committee didn’t announce for six weeks what it’s decision had been. They not only wouldn’t publish the minutes, they also denied that they had any. Henry, through the force of his intellect and personality often underestimated at the time, forced them to do a much greater degree of openness.
We don’t do enough of this. Expensing of stock options is another example or the hue and cry about Sarbanes-Oxley which reads like the hue and cry about the Securities Act of 1939. In both cases the claim was the end of capitalism. We don’t do enough of going back and looking at the predictions of gloom and doom that people made and holding them to the absence of any such.
In fact I said yesterday to a group of securities industry people that the two phenomena that most resemble each other in my mind from that standpoint are the expensing of stock options and same sex marriage in Massachusetts. In both cases there were widespread predictions of chaos and disruption, and by now most people have forgotten that they happened unless they were directly involved.
This is at a time when real wages have started to go down again and have never come close to matching productivity growth over the last decade. Bernanke, to his credit, will say that, but more typically was the first time Bernanke testified a year and a half ago, and we looked at the semiannual monetary policy report. There were 13 different chapters on various sectors of the economy. In every sector of the economy the numbers were real numbers corrected for inflation except wages, which were nominal. It was not that they consciously sat down and said, let’s play with these numbers. It’s even worse. That’s the way they think.
So we still have this defensive argument. That’s why these two papers today are particularly important because the argument that shared prosperity is anti-growth has to be attacked and it is obviously done very well. What I then want to get on to is, “What’s our affirmative agenda?” And I meet with various business groups and I’ve been severely disappointed.
I began my chairmanship by saying, let’s make a deal. I want to see an immigration bill. I would like to see us be able to get to trade. There are poor people overseas who could benefit if we did the right thing although my conservative colleagues who have been all for trade and the WTO, etc., continue to insist on agricultural policies that are the single greatest obstacle to a successful Doha Round.
I listen to my free market, anti-government, anti-subsidy colleagues talk and then I see how they vote on agricultural policy.
There are three affirmative things I think we need to deal with; first, health care. The business community has itself to blame because in 1993 when Bill Clinton was trying to do something about health care, it wasn’t a plan that many of us thought was the best way, but at least it was a recognition and a need to act.
Big businesses sat on their hands. When General Motors and Ford and the others now complain about the oppressive cost of health care, it is legitimate for us to say, “Yeah, where were you in 1993 when we could maybe have done something about that at that moment?”
So this is a self-inflicted wound. It’s still something that we should deal with and if I could just do one thing, it would be to establish a universal single pay health care system both for equity reasons and to get health care out of the employment system.
There’s some recognition of that. There were two others where the business community has been more resistant. I met with them and they still don’t get it. I think the problem frankly is they still think they run the country and they don’t have to listen to our concerns.
You know I regret some of the difficulties in immigration, but at least out of this stalemate may come some recogni
tion of what’s going on. Secretary Paulson is starting to acknowledge it. Don Evans, the former Secretary of Commerce, and a great personal friend of the President, has commissioned a study of the costs that globalization imposes on workers.
And there is a good argument that the inequality is retarding growth. I mean Henry Ford in 1925 had it figured out better than these guys, when he said he had to pay the workers $5 a day because, if they didn’t have any money, who was going to buy the cars? Well whatever they want to think about the economic issue, the political issues was very clear. There will be real gridlock on everything they want until we go forward on the concerns of ordinary families. So there are two other things besides health care that I think we should be explicit about.
The first is unions, and I keep telling them to get over this dislike of unions and accept unions as a very important thing. I know when I went to college 50 years ago, I remember taking a course with John Dunlop and there was this big argument among economists: Do unions really affect wages?
Whatever the conclusion was about whether unions raised wages in the 50s, it is clear that the absence of unions has helped lower wages today.
Today’s low wage service sector workers are the least venerable to outsourcing and, nonetheless find their wages find their wages under attack. They desperately need unions and it is time to pass the Employee Free Choice Act.
And there is a link here to the current debate about, I very much agree with the notion that they should be paying their fair share of taxes which they aren’t close to doing now. And then the argument is “if you tax us more, we’ll stop doing this.” Well, do they think this is a favor to me and who asked them to do it in the first place?
The notion of real value added from a change in the form of ownership leaves me, very skeptical. I’m not ready to stop them doing it, but I’m not ready to bribe them to keep doing it either Private equity is the largest single owner of hotels in America today. They are increasingly very large owners of office buildings and one thing that came from 9/11 is a good unintended consequence – the best make-work program in the history of America, better than anything Harry Hopkins ever did. There are very nice people who sit in the lobby of office buildings all over America and ask you to sign your name on the theory that that will keep you from blowing up the building. It has of course no safety impact whatsoever. But there are tens of thousands of people who are now employed doing that, and that is a good thing. The Service Employees Union is trying to organize them, and that would be a good thing. I think we have to be very clear. Unions are important and they are one of the prerequisites to turn around a growing inequality. The restoration of unions to a central place in the economy particularly for these low wage workers is one of the things that have to be done to diminish inequality.
Remember Bill Clinton saying “the era of big government is over?” It implied that we had big government. When was this era of big government? Maybe it was from 1933 to 1936. I mean that’s the only period in American history it seems to me that could be described as an era of big government; and this notion that we always cheer when government is shrunk. It is very clear any effort to diminish the growth and inequality in America that’s caused by globalization, technological change and all these other factors will require a much more active government role, and I think we have got to insist on that.
In sum, there is broad agreement that our health care insurance system is broken., The only question is how to fix it. But we have to win the argument that unions and government have a role. I found the best way to argue it has to do with education.
While Greenspan and Bernanke concede that there’s inequality, their answer is increased education. While increased education would be a good thing, they greatly exaggerated the extent to which it’s going to diminish inequality. First of all, when 40-year old factory workers are losing their jobs I don’t know what they think they’re going to educate them for, particularly when, as I recall, a lot of the jobs people for which people were being educated 15 years ago have been outsourced.
Secondly they forgot economics 101, it seems to me. What they’re saying is you get a great wage premium for having a college education, and therefore, let’s substantially increase the number of people who have a college education. Well, by their own logic, if you significantly increase the supply of something, you’ll probably decrease its price. So that if everybody does have a college education – there goes the education premium – I don’t know what it’s going to be as you make everyone a college graduate.
But here’s one that I think we can get them on, really. Part of it is because elementary and secondary education is clearly a governmental function. So is higher education – training people for jobs, etc. Greenspan already said the best program for that was community college.
The way in which we finance higher education in America today reinforces inequality and deepens it. It does not diminish it. That’s in large part because of the assault on government. Every public university in America has lost money from its state government. It’s the exception now for a state university to get as much as 50% of its revenue from the taxes.
Community colleges are being overwhelmed by the public and they are hurting. The example I always give is Bristol Community College in my district in Fall River, Massachusetts. They’ve got a very good nursing program. The president said here’s my problem. I’ve got 42 slots. Now we have a terrible nursing shortage in this country, so they’re telling us we have to import nurses. Massachusetts in particular has a lot of hospitals. We have a lot of people in the area and we’ve lost the traditional manufacturing base there.
It makes a great deal of sense to train a lot of people to be nurses. I think one other advantage for these jobs is that are very unlikely to be outsourced. It is very hard to stick a needle in someone’s ass from Bangalore. So we would be giving people jobs that would be sticking around. But because the state legislature has been told to cut taxes and that government is bad, etc., we’ve only got 42 places. They could use 200 places and health care would be better off and we would have nurses.
But when you cut taxes and of course run this disastrous war, which is prohibitively expensive along with its other problems, you then say OK. What they’ve done is set up a set of zero sum situations. So that you can help people in Africa only if you cut health care, education and the women’s, infant’s and children’s program back home.
So we have got to go on the offensive about the importance of government. Now that should be self-evident. But one point that I want to make is to my friends on the left. If we, in general, tell the average citizen that government stinks and that the people who run it are entirely corrupt and don’t care about them, don’t be surprised when they then say, “Oh let’s not give those people any more authority.”
It doesn’t mean we shouldn’t be critical but we need to be more specific and more refined. You tell people that the politicians don’t care about how they vote and they only care about big money, etc. Why wo
uld you be surprised if they don’t vote? But we have too much joined in the demonization of government as an entity. We have to start personalizing our criticism of government and stop dismantling respect for government in general.
Just to summarize, they now acknowledge that we have increased inequality. But the latest figures by the best measures show there is now greater income inequality than at any time since 1929. Think about what that means. It’s now worse than it was in 1929. That means Hoover made it better than it is today. We’re back now to the pre-Hoover era of inequality.
I think Frank Levy, Peter Terpin and others have done a very good job of making this clear. They’ve stopped arguing about not paying attention to inequality. It’s just a matter of jealousy. That argument we’ve also won, when they acknowledge there is growing inequality, and there is a substantial disparity in that virtually all of the increased wealth is going to profit.
So they acknowledge that there is increased inequality. They acknowledge that it’s a bad thing morally as well as something that causes political problems. Now we need to engage in what to do about it. As I said I think three things for sure are getting health care out of the employment system. I say the only way to do that is obviously have some government role and a broader government role in general, including the tax system, and support of unions. The first thing to do is to get the Democrats in line on that.
I was at a Democratic leadership meeting a couple months ago, and some of my moderate colleagues said that we’ve got to stick with PAYGO. We can’t be for raising taxes. Then one of them said, “I need $20 billion more for agriculture.” Another one needed $30 billion more for the military. Then another one wanted money for NASA. We’re not going to raise taxes and $70 billion dollars in increased spending was just asked for in a year?
What are we talking about? Well, the argument is PAYGO is our way of keeping them from doing more tax cuts. We have got to start making the case intellectually as was made in these papers. I think we’ve gotten as much political use as we’re going to get out of the deficit argument.
It’s become an obstacle to our own ability to go forward. So we need to expand the role of government. There needs to be an institutional response to increased inequality caused by these factors in the economy, and that has to include both government and unions in an appropriate way. We have to begin arguing that within some of the Democratic ranks that the unions are okay and even government is okay, but don’t get too wedded in deficit. Then go beyond that. I am encouraged because if I look back compared even to two years ago, we’ve won the argument that there is increasing inequality caused by factors in the economy that could be changed, and that it does have negative consequences.
We ought now to be able to make that argument about what to do about it and finally I would hope that people would be approaching all the presidential candidates to get them to pick up that argument. Now let me throw it open and I’ll be glad to respond if there are any questions or comments.
[THIS WRITTEN TRANSCRIPT IS FROM MORE JOBS, GOOD JOBS, AN AGENDA FOR SHARED PROSPERITY EVENT HELD ON JUNE 22, 2007.]
[POSTED TO VIEWPOINTS ON JULY 24, 2007.]