Exposing the textbook scam: How to save us from economists
Paul Solman: I first met Michael Meeropol at Elisabeth Irwin High School in what later became SoHo, in the Cold War ’50s. He was among the most personable kids at “EI,” surprising to some in that he was the elder son of Julius and Ethel Rosenberg, executed by the U.S. government for espionage only a few years before.
Many years later, I ran into Michael at America’s annual economics conference and learned that he had become a professor of economics. In the year 2000, he wrote “Surrender: How the Clinton Administration Completed the Reagan Revolution,” published by the University of Michigan Press. And I interviewed him briefly that year for a NewsHour story on the state of the economy as the new millennium dawned.
A politically passionate progressive, Michael has retired from his longtime post at Western New England University and has, in the past few years, been teaching — public spiritedly, as always — at the John Jay College of Criminal Science, a senior college of The City University of New York. He has also collaborated on an alternative economics textbook with Howard Sherman, emeritus economics professor at the University of California, Riverside.
I asked them why the world needs yet another econ textbook. They took the double occasion of the recent 50th anniversary of the March on Washington and this week’s Martin Luther King Jr. Day to explain.
Howard Sherman and Michael Meeropol: America recently remembered the 1963 March on Washington and this week, the birthday of Dr. Martin Luther King Jr. But it continues to forget half of what brought over a quarter of a million Americans to the nation’s capital 50 years ago and motivated King throughout his life: not just the desire for freedom, but for jobs.
In 1966, A. Philip Randolph and Bayard Rustin, the two men who organized the march, came up with what they called the “Freedom Budget,” which demanded massive government intervention to guarantee full employment. Too many Americans remember only Dr. King’s “I have a dream” speech. What most do not know is that King signed his name to the Freedom Budget and demanded that the United States guarantee everyone either a job or an income. Instead, what we have now in this country, according to Paul Solman’s inclusive “U-7” reckoning of under and unemployment, is more than 24 million Americans who want a full-time job but don’t have one.
Most economics textbooks implicitly argue that such a guarantee is impossible to achieve and that any effort to attempt to do so will result in more harm than good. But our new text, “Principles of Macroeconomics: Activist vs. Austerity Policy,” presents the evidence that suggests otherwise. Moreover, we think textbooks that accept the conventional wisdom are doing a grave disservice to students all over the country.
As we see it, the problem begins with a failure to diagnose the problems of unemployment and inequality. Many macroeconomics textbooks today accept as plausible, if not gospel, that there can never be a deficiency of aggregate demand — a deficiency of spending, that is — caused by our present economic system. According to this orthodoxy, economic downturns are caused by factors external to the system itself and can usually be attributed to the government mucking with the market: government overspending, for example, which racks up a ruinous debt load or profligacy by the central bank, creating too much money out of thin air. If this were the case, the best policy for recovery would be to cut back government spending, taxation, regulation and money creation.
And what about economic inequality — an inconvenient yet stubborn fact about our current economy? The usual argument is that it is a natural occurrence, based on rapid technological change that unfortunately leaves many individuals without the skills needed in a changing labor market, and/or the so-called “winner-take-all” phenomenon in which modern technology and global markets combine to turn small individual advantages into huge ones, with commensurately huge pay premiums.
But what conventional textbooks conspicuously ignore is economic policies that arguably cause rising inequality by favoring the rich and powerful over everyone else: lower marginal tax rates on the rich, for example, or greater restrictions on unions.
Our opposing point of view has a small but growing minority of economists, among them Paul Krugman, whose textbook ranks third in the macroeconomics market and whose basic economics textbook, written with Robin Wells, has also gained some popularity.
This alternative view of macro is popularly called “Keynesian,” but it includes all kinds of leftist views, from institutionalist to radical. It asserts that downturns and crises are not due to technological change or any other external forces, but primarily to the extreme swings of the economic system itself, which government must moderate. It also argues that inequality has a seriously negative impact on the macro-economy — decreasing aggregate demand — as well as obviously harming so many of the individuals that the economy supposedly serves.
Our textbook’s introductory section contrasts the old, conservative view of economics with the newer progressive view. It spells out the strengths and the weaknesses of the old view in verbal, technical and graphic detail, but also shows the alternative view of Keynes and other progressive economists, emphasizing the role of a deficiency in aggregate demand in causing downturns and crises and the way inequality contributes to that deficiency.
In addition, the book introduces the reader in detail to the business cycle analysis of Wesley Mitchell, which shows that the same basic pattern occurs in every expansion because it is based on the same basic bipolarities of a capitalist economy.
The dominant view in textbook American economics is still the conservative notion that since the problem is government, the answer is to cut government. That is also the supposed logic behind the House Republicans and their intransigence with regard to raising the federal debt limit. Less government spending would supposedly lead to lower interest rates and thus more private investment — because it will be cheaper. In addition, lower taxes will leave the wealthy — America’s investors — with more money to put to work and grow businesses, which will in turn, theoretically hire new workers. Finally, relaxed regulation, the thinking goes, will lower costs and also translate into higher profits, even further encouraging investment.
The progressive view, by contrast, is that companies will not invest so long as the outlook for profits is bleak and the outlook for profits is bleak if there is insufficient aggregate demand. Why invest in more capacity to produce if consumers aren’t buying what you’re already turning out? And why aren’t they buying? Because wages and salaries are contracting. In brief, profit falls because of lack of demand, which sets off a recession or (sometimes) a depression.
Our textbook reports both sides of the argument in full, but we present the progressive argument as more persuasive. What is necessary is to stimulate the economy, change institutions to provide more equality — through more progressive taxation, a higher minimum wage and support for unions, for example — and also change institutions to provide more stability in the economy: by making major government investments in infrastructure, say, and generally providing greater job security.
More concretely, we argue that some sectors of the economy are especially crucial to maintaining both economic equality and employment stability. These are sectors neglected by private enterprise or ones in which businesses make unnecessarily high profits that reduce equality without compensating benefits to the rest of us. The clearest example is health care, which provides no better care than other industrialized countries, but costs at least twice as much per person. What is needed is universal public health care at low cost, which will, for example, create more jobs in elder care like home nursing.
A second area that demands extensive public investment to create jobs, as the March on Washington urged a half century ago, is higher education. Why not free education at public universities, paid for by higher taxes on the increasingly well-off? Education investment has the highest return to the public of any sector. If education is free to students and paid for by progressive taxation, it will shift income from rich corporations and individuals to people who will, eventually, have more skills to sell in the global economy, again increasing employment, spending and aggregate demand.
A third area, of which some conservatives deny the very existence, is global heating caused by fossil fuel-driven production. Public money invested in research and the production of clean energy would propel the green energy industry to create jobs that don’t require advanced degrees.
Fourth, at least a trillion dollars is required to make American roads and bridges safe. Everyone knows it. And yet in Texas, conservative politicians, operating on conservative textbook theories, have begun to change paved roads into gravel roads to save maintenance money. Meanwhile, it is a simple fact of engineering that potholes will inevitably cost more to fix the longer they go unattended. Yet potholes remain unfilled all over this land.
Last but not least, subsidies should be given to states to restore jobs to their peak level of employment.
Conservative economics books either attack all of the above or don’t even present them, even though they seem obvious ways to reduce the problems of inequality and inadequate employment.
As we remember Martin Luther King Jr. and the March on Washington, let us remember that there’s nothing especially radical about any of this. King, Randolph and Rustin recommended virtually the identical program back in the 1960s.