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2009-08-25

"One Nation, Two Economies"–As Obama Nominates Bernanke to Second Term, a Look at Who Benefits from Economic "Recovery"

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President Obama is nominating Federal Reserve Chair Ben Bernanke to a second term today because of his attempts to combat the financial crisis and the recession. Last week, Bernanke gave his most positive assessment of the economy yet, saying, "the prospects for a return to growth in the near term appear good." We speak with economist Max Fraad Wolff, who cuts through the numbers to expose the deepening long-term inequality in the United States. [includes rush transcript]

Transcript

This is a rush transcript. Copy may not be in its final form.

SHARIF ABDEL KOUDDOUS: President Obama is nominating Federal Reserve Chair Ben Bernanke to a second term today because of his attempts to combat the financial crisis and the recession.

Last week, Bernanke gave his most positive assessment of the economy yet, saying, quote, "the prospects for a return to growth in the near term appear good." Bernanke added that, quote, "fears of financial collapse have receded substantially," noting that the economy is, quote, "leveling out." He was speaking to a group of central bankers and economists from around the world at the Federal Reserve’s annual retreat in Wyoming last Friday. Bernanke also warned that despite the, quote, "noteworthy progress," the recovery is likely to be slow and unemployment would decline only gradually. The Nobel Prize-winning economist and New York Times columnist Paul Krugman has called this jobless recovery a kind of economic purgatory.

AMY GOODMAN: Well, our next guest argues the bottom 80 percent of Americans will continue to live in this economic purgatory well into the foreseeable future. Max Fraad Wolff is an economist here in New York. His latest piece on the Huffington Post cuts through the numbers to expose the deepening long-term inequality here in the United States. It’s called "One Nation, Two Economies."

Welcome to Democracy Now!, Max.

MAX FRAAD WOLFF: Thank you for having me.

AMY GOODMAN: Lay it out for us.

MAX FRAAD WOLFF: Well, I think we’ve seen a lot of discussion that really pertains to the top ten to 20 percent of the country. And for them, their sentiment, their sense of how the economy is doing, is very sensitive to the performance in the stock and bond markets.

AMY GOODMAN: Well, isn’t that who’s also represented on television?

MAX FRAAD WOLFF: Absolutely. That’s who you’re going to interview on TV. That’s who the experts work for on TV. That’s who the experts are on TV. And that’s kind of who matters in America, not that I’m saying I think that’s the way it should be, but if we’re going to be honest, maybe that’s why we need some change in the country. That’s sort of who’s relevant, who’s on the radar. So when they were in pain, let’s say roughly September to March, the world was coming to an end. Right?

And a lot of everyday, let’s say, mainstream Americans kind of felt like they’d somehow skip it. They had an outlook on the US economy that I would call “it’s fine and dry down here at the bottom of the hill, but, boy, they’ve got quite a rainstorm up there on the top of the hill.” And as often happens, when there’s a rainstorm on the top of the hill, the water finds its way to the bottom of the hill. And that’s what we see with nine-and-a-half percent unemployment, with 350,000 foreclosures a month, and with, you know, crazy stories coming out yesterday of people in California, which has better than ten percent unemployment, not even bothering to look for work anymore, but to get into backyard prospecting for gold that may have been left behind 150 years ago. I think that’s a pretty quirky indicator, but it’s not a good sign.

AMY GOODMAN: Your assessment of Bernanke?

MAX FRAAD WOLFF: My assessment of Bernanke is that it’s about as shocking that he was reappointed as the sun came up again today like yesterday. So I don’t think it was a real nail biter, but I do think it makes a certain sense. And I think that it would be hard to get rid of him, because getting rid of him would suggest some of the things he’s done were a mistake. And you now have a White House as well as a Congress very interested, probably more than anything else, in telling the public what they did was a good idea and it’s working. So, firing the guy who helped do it would be a really dangerous move, and he doesn’t seem to be hated enough to be someone who has to be pushed out.

AMY GOODMAN: What’s your assessment of him?

MAX FRAAD WOLFF: My assessment of him is he probably did a lot of what anybody else like him would have done, and I don’t think it’s uniquely great, I don’t think it’s uniquely bad. I think a lot of what happened was that when you went to Congress and you asked for all kinds of economic help, the public found out about it, and they get mad, even more angry than they get at these town meetings, even if it showed up on TV less. And so, the White House and the banking industry figured out that you could remove all this from the democratic process by doing it through the Fed. So the Fed did an extra $1.5 trillion worth of activity, and nobody really noticed until it was too late. So he was a linchpin in the system that we have and the way we decided to respond to it, which saved the top at the cost, to some extent, of the bottom. And he’s earned his place for another four years.

SHARIF ABDEL KOUDDOUS: And the gap between the rich and the poor in this country, I mean, you write that the trend towards inequality is growing, despite this massive economic meltdown that we’ve just had and the outrage over bonuses. Despite that, the trend is growing towards inequality.

MAX FRAAD WOLFF: Yeah, well, the inequality fell probably from September to March, as asset values tanked. The problem now is that the speculative asset values that wealthy people own — stocks, bonds, mutual funds, hedge funds, etc. — are beginning to rise again, while the average home price fell 15 percent July 2008 to July 2009. So middle-class people have roughly one asset in America: their home. And lower-income people have no assets. So, if the only thing that we’re really seeing recover so far is assets, stocks, bonds and wealth, but jobs are not recovering and house prices are falling, the middle and the bottom are still falling, and the top is beginning to rise again to recover some of the ground it lost in 2008.

SHARIF ABDEL KOUDDOUS: And what about the massive unemployment in this country? How has the Obama administration tackled that problem? Do you see it as ongoing?

MAX FRAAD WOLFF: I think they have tackled that problem largely in two things. One, a material benefit, extending unemployment benefits, which was a good idea and did save some folks, and people got an extra thirty-three weeks of possible entitlement to unemployment benefits, which is probably keeping a lot of families solvent, so I’ll give them credit where credit’s due. Most of their response to it has been rhetorical, like their response to a lot of things. So it’s thus far largely based in rhetoric. And as we sit here and talk to each other, fifteen US states and the District of Columbia have unemployment rates north of ten percent. And almost anyone you talk to thinks that the unemployment rate will either stay in the nine-and-a-half to ten percent range or rise through the next six months.

So, could it have been worse without their policies? Yes. Might it have been worse? Probably, but that isn’t quite good enough, and that wears off over time. So what we did might now have worked, but it would have been worse had we not done it — is that true? Yes. I don’t know how long you can sell that story to the general public before it becomes a little bit underwhelming.

SHARIF ABDEL KOUDDOUS: And this whole issue of whether we’re out of the recession technically or not, the New York Times columnist and Nobel Prize-winning economist Krugman writes that we’re in economic purgatory. Where do you see it?

MAX FRAAD WOLFF: Yeah, I think what he means by that is that we’re — it’s going to feel like a recession to 50, 60, 70, 80 percent of the public, whether or not massive government spending can in fact push you into positive technical growth. My guess will be we’ll have one or two quarters, you know, three-month periods, of anemic technical growth based on massive government spending and some increase in debt. But we got into this crisis by spending more money than we had. And spending more money than we had on the part of the government and moving it onto government balance sheets from private balance sheet is a strategy that might fairly be described as kicking the can down the road.

AMY GOODMAN: We have to wrap in a minute, but there was an interesting piece also in the Huffington Post, “The Destruction of the Black Middle Class” by Dedrick Muhammed and Barbara Ehrenreich, that talks about black unemployment now hovering around 15 percent, 14.7 percent, saying what’s happening now in the black community in the United States is not a recession, it’s a depression.

MAX FRAAD WOLFF: Sure. We’ve seen the evisceration of the upper Midwest and lots of unionized industrial jobs. And those were areas where there was a lot of opportunity historically for a black middle class to form, to grow and to develop and to nurture a community of black successful professionals. And seeing the kind of absolute tornado swath of destruction rip through the industrial heartland of this country has ramifications for people who were once beneficiaries of that boom. And the industrial portion of the US economy, the heavy industry, upper Midwest portion of the US economy, is now on its thirty-seven month of decline. So, thirty-seven consecutive months of decline is, unfortunately, record-breaking and not in a positive way.

AMY GOODMAN: Finally, the most important single thing President Obama could do in this country, in your view, Max Fraad Wolff?

MAX FRAAD WOLFF: In my view, at this point, if we’re going to spend this much federal money, we need to bail out a structural shift that jacks up opportunity. I think we need national healthcare. I think we need massively subsidized education. I think we need to move the public toward an understanding that we can’t afford every single person to have private wealth, so we need public goods — public transportation, national healthcare and national education — so that we can become a little more of the meritocracy we claim to be, and we can give people a chance, and we don’t begin to nurture a genetic underclass and two national economies slumbering under one uneasily pledged-to flag.

AMY GOODMAN: Max Fraad Wolff is a New York-based economist. His latest piece in the Huffington Post is “One Nation, Two Economies.”

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