The economy. It’s nearly all anyone talks about these days besides reality shows, and not without reason. Much of our time is spent on economic activity—working, buying, selling, borrowing, lending, producing, consuming, volunteering, and retiring. The economy is enormously complex—amazing, really. Consider the items right around you—this book, for example. Knowledge and technology were needed to produce it. Inputs of energy, materials, capital, and labor have been marshaled and combined to make it. Elaborate systems from forests to transportation to retail outlets helped too. The economy is really an awe-inspiring human creation. It is also constantly being transformed, for better or worse.
By any measure, the U.S. economy is not in perfect health. Recently, it shook as if in an earthquake. Millions of Americans were thrown out of work, businesses closed their doors, houses were foreclosed upon, students lost scholarships, and services were cut drastically. The crisis raised one question to a crescendo: How can we get the economy going again?
Contradictory answers abound: Reduce wages. Raise wages. Cut lavish benefits. Provide more basic benefits. Regulate less. Regulate more. Increase stimulus spending. Reduce the debt. Raise taxes. Lower them. The debate is important because policy decisions actually do determine whether an economy improves or gets worse. For example, while hundreds of American banks collapsed following the recent financial crash, Canada experienced no banking crisis at all because that country had different banking policies in place.
Yet these discussions of reviving the economy have all proceeded without considering a more fundamental question: What’s the economy for, anyway? What are our economic goals? What do Americans want from their economy? More stuff ? Affordable college education? More leisure? Universal health insurance? Lower taxes with fewer benefits? Fairness? A healthy and sustainable environment? A secure retirement? Happiness …?
Surveys show Americans want more time for friends and family. Yet they are actually spending more hours working and commuting to work than the previous generation. An economy that requires longer work hours cannot deliver increased leisure time for friends and family. Moreover, despite working more, 80 percent of Americans are earning less real income than they did ten years ago. “You’re lucky you have a job” has replaced the vision of rising middle-class prosperity.
People in other countries are beginning to notice what has been happening in the United States. Consider a recent ruckus in Sweden.1 The famous Swedish furniture company, IKEA, opened a factory in Danville, Virginia. Workers at the factory earn eight dollars an hour. They work a lot of mandatory overtime, often on short notice, which disrupts their family lives. They have few benefits and what vacation days they receive are mostly chosen by the company.
The workers are mad. When Danville granted IKEA big tax breaks to move there, the people it hired expected wages and benefits like those provided to IKEA’s Swedish employees. In Sweden, IKEA pays a minimum wage equivalent to U.S. nineteen dollars an hour. Workers receive at least five weeks of paid vacation and all overtime work is voluntary.
But while workers in the Danville plant complained, public officials there did not. They considered the poor salaries and meager benefits a fair trade for the jobs produced. Yet in Sweden, the story made the front page of Stockholm dailies. Many Swedes consider IKEA’s treatment of its U.S. workers a betrayal of the company’s reputation as a good corporate citizen. They argue that IKEA is treating American workers the way American companies treat workers in Mexico. “For us, it’s a huge problem,” declared one Swedish labor leader.
IKEA spokeswoman Ingrid Steen called the situation in Virginia “sad,” acknowledging the huge difference in pay, benefits, and working conditions between what IKEA provides Swedish and U.S. workers. But, she added, “That’s related to the standard of living and general conditions in the different countries.” Ouch! Evidently, the United States is IKEA’s destination for low-wage outsourcing, a third-world nation in its eyes.
Will Swedish do-gooders boycott IKEA for exploiting American workers? If so, perhaps American pundits will respond, “Maybe so, but Swedes pay high taxes.” And indeed they do. Yet even after taxes, IKEA workers in Sweden have larger take-home paychecks than their Virginia counterparts, and they get full health care, free college educations, and other benefits in the bargain.
American businesses say they couldn’t possibly offer what the Swedes do and compete in the global economy. Yet according to the World Economic Forum, Sweden ranks second in the world in competitiveness, higher than the United States. What’s wrong with this picture?
What kind of economy would Americans actually prefer? There are many aspects to this question, but consider one recent study. In a large-sample survey, Americans were offered three imaginary countries, and asked in which of them they would choose to live if they had the choice.2 In country A, the top 20 percent of the population own 20 percent of the total wealth (complete equality). In country B, the top 20 percent own 35 percent, and in Country C, the top 20 percent of the population own 80 percent of the wealth. Four fifths of Americans polled chose Country B. Nearly as many Republicans as Democrats made that choice. More Americans actually chose Country A than chose Country C.
Country A is fictional. No nation in the world has, or ever had, complete equality. But Country B represents the situation in a real country—Sweden—and Country C represents that in another real country—the United States. When offered a choice between the two based on wealth distribution, Americans of all political persuasions overwhelmingly chose Sweden over the United States!
A generation ago, Swedes didn’t earn more than Americans did, and they certainly didn’t talk about the United States as a third-world country. That was before the massive shift in wealth from the middle class to the richest Americans. Greater financial inequality is one outcome the U.S. economy has certainly delivered. While the productivity of American workers rose dramatically in the last decade, their median incomes actually fell. But somebody must be better off. And indeed, American corporations chalked up their largest quarterly profits in history recently while, as we reveal later in this book, the incomes of the richest Americans skyrocketed.
America has seen worse: the Great Depression. Out of that period, we adopted a new economics (macroeconomics) and with it, new economic goals (full employment), new measures (Gross National Product), new policies (including banking regulations), and new institutions such as Social Security. From the wreckage of the Great Depression and World War II, the United States reduced poverty, created the strongest educational system in the world, and built the largest middle class in world history. Life expectancy and health outcomes in the United States became the envy of most of the world, and our high-wage economy provided the highest-paying middle class jobs and a secure retirement for all workers.
Building a successful twentieth-century economy required changes in economic goals and policies to better reflect America’s ideals and fulfill Americans’ demands for a more just and prosperous economy. Yet today dozens of countries perform better than the United States in terms of health, education, economic security, and a host of other measures.
We’re not in the twentieth century anymore. The world is running low on oil. The climate is changing, with potentially disastrous consequences. Useful water is less available, while floods are increasingly prolific. Unlike in the 1930s, when roads and indoor plumbing were scarce and forests, water, and wetlands were abundant, now roads are abundant and natural systems and their services, such as flood protection, are increasingly scarce and more valuable. Yet neither our economy nor our measures of economic progress reflect these realities. To be successful in the twenty-first century, economies must become sustainable. They must be built to prosper within the physical limits of the earth and local natural systems. Making that possible will require vast changes to our economy, including our energy, transportation, food, and manufacturing infrastructures.
Impressively, Americans have developed solutions to virtually every environmental and economic problem. But only by shifting investment, improving and carefully targeting economic incentives, and actually reflecting true costs and benefits in our markets can these solutions actually be implemented and a better, more sustainable economy realized.
About thirty years ago, the United States took a different economic track from most other industrialized nations, reviving a nineteenth-century economic philosophy called laissez-faire, the view that government policies hinder economic development. This ideological turn included deregulating markets, cutting taxes for the rich, and reducing government services. In the aftermath of the financial crisis, it is time to reflect on what those changes actually delivered, and to ask again what Americans want out of their economy and how their goals can be achieved. That’s what this book tries to do.
Economic progress in America has always come through the efforts of people, working individually and together. Individual action devoted to improving personal capacity, paying attention to purchasing decisions, and rewarding work is critically important. But many improvements, social and economic, also require working together. Women did not get the vote through individual action. It took collective effort to change the U.S. Constitution. Additionally, our economy has often been viewed as a sector of society independent from others. But in fact, economic problems cannot be solved in isolation from other problems. Progressives in the United States came together one hundred years ago across class, race, gender, and other divisions to give women the vote, democratize the U.S. Senate, regulate food and drugs, institute progressive taxes, and eliminate child labor. Their accomplishments were possible because they worked together beyond the confines of narrow self-interest to invest in our common wealth.
The Big Question
The authors of this book have been activists for reforms that, in their minds, would make the United States a more livable, just, and sustainable society. As executive director of Earth Economics, Dave has been involved in the effort to identify, value, map, and model the economic benefits offered by nature. An economist, he has worked to improve real wages and banking policy in the United States and other countries. As executive director of Take Back Your Time, and as a producer of documentary films, John has tried to promote new ways of measuring happiness and to achieve such policy changes as a paid vacation law for Americans. And yet, for any economic, environmental, or social improvement either author has suggested, there seems to be a common rebuke: What will that do to the economy?
“If you can get them asking the wrong questions, you don’t have to worry about the answers,” writes Thomas Pynchon in Gravity’s Rainbow. In our view, there is a question that should take precedence over What will that do to the economy? It’s the question: What’s the economy for, anyway? John began asking that question in a series of lectures about four years ago. The question turned into a campaign fueled by timely support from the Rockefeller Brothers Fund. It became a college class at the University of Washington and another at the Evergreen State College. The idea was refined during dozens of speaking events and conversations with students. Then John teamed up with Dave to produce the film What’s the Economy for, Anyway? As interest increased, we decided to write this book to flesh out our ideas in greater detail.
What You’ll Find in These Pages
We have structured this book to ask a fundamental question and explore some answers that make sense to us.
In Chapter 1, we examine our nation’s primary economic measurement, the Gross Domestic Product, demonstrating its failure to tell us what we need to know about how well our economy is actually working. We question the goal of our economy: What should it really provide—mountains of more stuff, or something else?
Chapter 2 suggests an answer, offered long ago by a prominent American, and a different way to measure progress developed in the tiny Himalayan country of Bhutan.
Chapter 3 examines the basic needs that every economy should deliver: How should we provide food, shelter and clothing?
Chapter 4 dissects our health system, essential to a good quality of life. While expenditures on sickness are a ballooning portion of the economy, we’re actually less healthy than countries that spend much less. We ask why that is and offer some answers.
Security is the subject of chapter 5 as we examine debt, unemployment, crime, retirement, and some impressive solutions from Europe.
In Chapter 6, we discover that Americans are time starved. Yet time is the key to better health and happiness, closer friends and family ties, and stronger communities. Americans once enjoyed shorter working hours and more vacation time than workers in any other country in the world. Might we regain that distinction?
Chapter 7 is about fairness. Equality matters, and the gap between rich and poor in the United States has become the widest in the industrial world.
Chapter 8 examines opportunity for social mobility, once seen as an American birthright, but now sadly lacking in comparison to many other countries. How is our education system failing, and what can we do to make it a beacon for the world once again?
One of the greatest economic challenges of our time is ecological sustainability, the subject of chapter 9. This chapter focuses on the pivotal role of the economy in environmental quality, the tremendous number of solutions available to solve our ecological problems and the policies required to implement them.
With chapter 10, we take a peek at history, exploring the astounding improvement of the American economy between 1900 and 1968 and the inspiring and instructive lessons Americans learned as they rejected the laissez-faire economics of the late 1800s, and replaced them with policies that regulated markets, built infrastructure, created a middle class, and developed the world’s most powerful mixed economy. We see how Democrats and Republicans alike supported the transformation until the old economic ideology rose again in a new form.
Chapter 11 explores the re-emergence of laissez-faire economics during the last thirty years, and how this has led to a weakened economy and a more polarized America.
Chapter 12 examines the recent financial crisis and its impact on the wealth and well-being of all Americans. It highlights how bad policies can destroy economies, the urgent need for change, and improvements clearly within our reach.
Our final chapter 13, pulls together a positive overview of solutions that can help us create a sustainable economy capable of delivering happiness to all its citizens.
The Big Picture
Some caveats: this is a Big Picture book (albeit without many pictures!). It offers a broad look at the economy and economic policy. For any specific area of economic performance, it is generalized and necessarily incomplete. Stories that are exceptions to what we point out can certainly be found, but we believe that the trends outlined here are broadly representative.
But no picture in a book like this can ever be as big as the real picture. So there are some things this book does not explore, in particular, the broad issue of globalization. Globalization is a dominant factor in shaping modern economies, including the American economy. However, economic policy in the United States is largely determined at the national scale, and our primary question is focused on what Americans want from their economy.
One pat answer to “What’s the economy for, anyway” is “whatever markets provide.” Laissez-faire economists say markets provide what people want since they vote with their dollars (though some voters cast a billion votes …). We believe that markets are essential and provide some but not all of what Americans want from an economy. Greater market intrusion into our lives can even impair the achievement of some of our goals, reducing our quality of life and requiring larger government to provide effective market oversight. Successful economic policy in this century requires attention to non-market economic values such as quality of life, fairness, and sustainability. We believe the idea that an unfettered market will deliver basic needs, opportunity, sustainability, and broad prosperity is based on a false nineteenth-century ideology, disproven in practice and regularly rejected by Americans over the last century.
We have tried to keep up with the latest statistics. These change rapidly in any economy, and more so during crises. In 2005, for example, France’s unemployment rate was nearly double that of the United States. By 2009, the rates were virtually equal. We’re sure you’ll find in this book specific points or facts with which you quibble, but we believe our big picture approach points the way to the questions we all should be asking. It is our hope that it will inspire you to want to make our economy more humane, livable, prosperous, and sustainable.
As we write this introduction on May 22, 2011, the end of the world, predicted for yesterday by evangelist Harold Camping, has been unexpectedly delayed. Its coming was headlined in newspapers and trumpeted by millions of dollars in advertising, including full-page ads in USA Today and thousands of scary billboards. Mr. Camping has now offered a new date for the apocalypse—October 21, 2011, around the date of the publication of this book. So if you are reading it, it probably didn’t happen. If it did, please don’t blame our publisher.
Of course, most people considered Harold Camping crazy. Few expected his predicted rapture to actually occur. Most of us believe in facts and evidence. And yet, with regards to our economy, myths still abound. For some of our political leaders, the solution to the crisis that hit us in 2008 is to do more of what caused it, only faster. That those leaders can still push these myths and be taken seriously means that a real understanding of how our economy works, what we want from it, and how we might reach our goals, remains to be won. We hope to contribute a little bit to that ultimate victory.
Happy reading!
John de Graaf and David Batker
May 2011