Have you ever heard of the economist Steve Keen? In 2010 he received the largest number of first place votes for the “Revere Award in Economics.” This award was created to identify the three economists whose writings most strongly warned of and anticipated the financial meltdown of 2008. Listeners may recall that I have repeatedly referred to the work of Dean Baker who as early as 2002 wrote that the rise in housing prices had all the characteristics of an unsustainable bubble. It turns out that Steve Keen had done similar writings and in fact “beat out” Baker for first place in the Revere Award. (Baker garnered 3rd place, the financial expert Nouriel Roubini took 2nd).
[For details, see Keen, Roubini and Baker win Revere Award for Economics, Real World Economics Blog, May, 13, 2010, available at https://rwer.wordpress.com/2010/05/13/keen-roubini-and-baker-win-revere-award-for-economics-2/]
The point of the award was to break through the almost unanimous drumbeat in the media and among the mainstream economic profession that “no one” could have foreseen the dangers of the housing bubble – arguing that it was a “black swan” event. (A “black swan” event is a situation that is a complete surprise. Though no one has ever seen a black swan – it is possible [given the randomness of genetic mutations] that someday someone might see a black swan? There is an interesting book called The Black Swan: Second Edition: The Impact of the Highly Improbable: by Nassim Nicholas Taleb. (Incerto) Paperback, 2010.)
The writings of Keen, Baker and Roubini suggest that the problem was not the randomness and unlikeliness of the financial meltdown of 2008 but instead it was the failure to recognize the severe limitations of the economic theories that came to dominate in the era of neoliberalism. (I focused a previous commentary on the work of David Kotz especially his recent book The Rise and Fall of Neoliberal Campitalism (Harvard University Press, 2015.) Neoliberalism, in brief, is a set of views that support deregulation, lower taxes on the wealthy, a macro-economic policy that privileges reducing inflation over reducing unemployment and an indifference to rises in income inequality – in short the policies adopted by the Ronald Reagan Administration that have not been reversed despite 8 year Presidencies of Democrats Bill Clinton and Barack Obama.)
Before the crash of 2008 jolted them into reality, Journalists, politicians and economists fell all over themselves celebrating the role of Fed Chairman Alan Greenspan as a “maestro” who guided the economy through the roaring 90s. Bob Woodward’s book about Greenspan was even entitled Maestro. During the first decade of the current century there was much praise for Fed Chairman Ben Bernanke for presiding over what he called the “great moderation.” (The “great moderation” was the idea that appropriate Federal Reserve policies since the 1980s had helped sustain economic expansions without accelerating inflation. See, for example “The Great Moderation” Remarks by Governor Ben S. Bernanke [before he was appointed to Chair the Fed] at the meetings of the Eastern Economic Association, Washington, DC, February 20, 2004.)
While all these folks were celebrating, they were ignoring the long run increases in inequality, and growing private sector debt. They were ignoring the fact that the 1990s were driven by an unsustainable bubble in stocks despite the warnings of economists Robert Pollin in his book Contours of Descent and Robert Shiller in his book Irrational Exuberance. In the zeroes, Keen, Baker and Roubini were not the only ones warning that the housing bubble was a symptom of a seriously dangerous trend. See for example Fred Magdoff and John B. Foster “The Financialization of Capital and the Crisis,” Monthly Review (April, 2008) available at http://monthlyreview.org/2008/04/01/the-financialization-of-capital-and-the-crisis/. These writers had been warning about a bubble arising from the financialization of the economy as early as 2006. See by the same authors “The Household Debt Bubble” (May 2006), “The Explosion of Debt and Speculation” (November 2006), “Monopoly-Finance Capital” (December 2006), and “The Financialization of Capitalism” (April 2007), all in the Monthly Review.
Unfortunately, even as well known an economist as Robert Shiller whose warnings about the stock market bubble in 1998 were featured in the New York Times Magazine was ignored before the stock market crash of 2000. Similarly, Nourial Roubini a former member of President (Bill) Clinton’s Council of Economic Advisers, was ignored when he began playing the role of Paul Revere vis a vis the housing bubble in 2006. The writers at Monthly Review, Robert Pollin, Baker and Keen were easy to marginalize and much easier to ignore. The result was the catastrophe from which we are too slowly emerging.
Meanwhile, Steve Keen is back with a blistering column on the Forbes.com website entitled: “Washington: Don’t’ Think It’s Over When Trump Loses.” http://www.forbes.com/sites/stevekeen/#58adc39c6e6b (October 24, 2016)
In this article, Keen notes that despite the xenophobia, racism and misogyny that has fueled the Trump campaign, many Trump voters (as well as virtually all the Sanders voters in the Democratic Party) have real grievances about the economy. These grievances are based on reality. Keen notes it is a mistake to measure the underperformance of the US economy using the measured unemployment rate. On its face, things are going well with the rate at 5%. But Keen notes that the employment to population ratio has still not recovered from its peak back in 2000. That is a much better measure of how well the population is able to take advantage of economic opportunities. In the crucial age group between 25 and 54, the peak was 82% in 2000 and it is still below that at 78% today. Note, this is even after seven years of recovery from the great recession of 2008-2009. Meanwhile, real median income was still lower in 2014 than it had been in 2000 and even after a jump in 2015 it is only two percent higher than it was in 2000. (that averages to 13 hundredths of a percent per year – for every $100 of income in one year, you get an extra thirteen cents the next!) No wonder there is severe discontent across the population. Virtually all the gains since 2000 have accrued to the top of the income distribution and it is cold comfort to those suffering in this sluggish unequal recovery to be reminded of how much worse it could have been had President Obama not averted the catastrophe of another great depression.
Keen warns Washington policy makers --- and this is especially aimed at Hillary Clinton and her policy-making team (I wrote this on November 4th with great trepidation) ---- that if she does not push vigorously for policies that will truly end the squeeze on American workers, the next time a Trump-like character arises he (or she) will not have all the disgusting baggage that led to Trump’s defeat. The fact that the US appears to have dodged the bullet of fascism American style this Presidential cycle should not lead the second Clinton Administration into complacency.
For those of us who believed that the Bernie Sanders prescription for economic and political revitalization of the US was the correct way to go, it is essential that we continue to push President Clinton to actually fulfill the promises made in the Democratic Party platform and to go beyond it as well. 2017 will be no time to attempt the “reach across the aisle” compromises that President Obama tried to accomplish. Only bold proposals backed up by a strong grass roots movement will prevent a Republican wave in 2018 and the election of a Trump 2.0 to the White House in 2020.
Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author (with Howard Sherman) of Principles of Macroeconomics: Activist vs. Austerity Policies.
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