What Are Economics for? Interview With Economist Jerry Epstein

Center for Popular Economics longtime staff economist and founding Co-Director of the University of Massachusetts Political Economy Research Institute Gerald Epstein spoke with Truthout's Leslie Thatcher on Thursday July 27 at Smith College about the history and role of progressive economists and the essential steps to right our economy so that it actually meets people's needs.

Leslie Thatcher for Truthout: Jerry, could you tell our readers about the extraordinary confluence of progressive economists in Pioneer Valley, the longtime work of the Center for Popular Economics and its mission?

Gerald Epstein: It all started at U. Mass. Amherst where in the late '60s and early '70s there were already some radical economists. The big change came when Samuel Bowles, who had been an economics professor at Harvard and some of his former students and colleagues started URPE, the Union for Radical Political Economics. They were influenced by Marx, Veblen, C. Wright Mills … In 1972 Bowles was denied tenure at Harvard, an example of the kind of political discrimination in tenure decisions that is well known. Escaping Cambridge, he came to Leverett MA near Amherst and began talking to a U. Mass. Dean then overseeing the economics department – which was then very neo-classical, but also conflict-filled. Dean Alfange and Sam cooked up a scheme to hire a whole group of radical economists from all over the country, including Herb Gintis from Harvard, Steve Resnick from Yale and some very prominent former mainstream economists from leading academic departments. A few years later, the department was essentially awarding PhDs in radical economics.

Sam and Julie Schor (author of The Overworked American) and several other faculty and grad students started the Center for Popular Economics [CPE] in 1975. U Mass was already a magnet for progressive economists; Smith, Mount Holyoke, Hampshire College – the whole Valley – became a mecca for progressive economists, now one of the few remaining places with a critical mass of radical economists. There are some, of course, at The New School for Social Research, Notre Dame, UC Riverside (now decimated by a hostile administration). The University of Utah has a heterodox program, as do Colorado State at Fort Collins and the University of Missouri in Kansas City.

I've been with CPE since the mid-'70s. Since the early '70s, CPE's goal has been to bring together political activists and economists to teach a new way of thinking about economics and to bring people involved in particular social and political struggles together to build a broader movement informed by economics. The newsletter Dollars and Sense developed around the same time. From the beginning, the summer institute [full disclosure: which Thatcher attended this year] was CPE's main activity. As it grew, CPE gave workshops as well as the summer institute – and since Emily Kawano became CPE's director, it has become increasingly, though not primarily, focused on the “solidarity economy.” Attendees came more and more from academia, as it had become more difficult to get activists to attend. But in recent years, I believe the balance has shifted back to more political activists and fewer academic types.

A lot of the impetus for alternative economics came from opposition to the Vietnam War and in solidarity with the Civil Rights movement and New Left feminism. It was oriented towards peaceful revolution. The idea was to develop a better economics for a democratic society, a theoretically more valid way to understand capitalism. While its origins were revolutionary, they were also somewhat theoretical. In the last twenty years, alternative economics has become much more policy-oriented, toward developing more equalitarian policies – a lost idea.

I set up the research institute PERI with Bob Pollin to develop policy-relevant research that could be used by people on the frontlines fighting for specific issues that needed a lot of attention.

Thatcher: Is it possible the attention to policy and specifics detracted from progressives' ability to tell a compelling story about how the political economy works?

Epstein: The other side had hundreds of experts and highly paid lawyers who could write laws that looked good, but with gazillions of loopholes, so that the progressive side was and is totally outgunned. That's what happened on Dodd-Frank: all the details were left to the regulators and the banks have been writing the regulations. In these areas, people like the researchers at PERI and elsewhere have been able to provide a counterweight.

I do think we're now at a juncture in the political economy of the US – and maybe of the whole world – where we have to return to our vision in a more believable concrete way.

We have to recognize we're getting beaten on the policy front, so we have to keep fighting there, but also stay prepared with ideas about what to do next.

Jane d'Arista – who had been a staff person for Wright Patman (D-Texas) and I started a group here, SAFER (SAFER: A Committee of Economists and other Experts for Stable, Accountable, Fair and Efficient Financial Reform) the goal of which was to put people together who could weigh in with Americans for Financial Reform – an umbrella for 250 labor and community groups – on relevant policy. It's been producing position papers and consultations on financial regulations.

Thatcher: In that vein, you've written about the implementation of the so-called Volker rule in Dodd-Frank. Why is this so important? What are the chances of getting it right?

Epstein: Well there were good things in Dodd-Frank that – were they to be implemented forcefully – would make a real difference and there are some regulators who want to implement them, but the GOP in Congress wants to defund those aspects of the bill that actually work.

Thatcher: One of your co-authors for “Globalization and Progressive Economics Policy,” Dean Baker, has written in “False Prophets” and elsewhere about how Greenspan and Bernanke were professionally negligent in failing to see the mortgage-backed securities/housing bubble. Why have progressive economists who did predict the bubble and who have been right about financialization not been heeded?

Epstein: Yes, classical and neo-classical voices are still dominant, but there are more outlets now for progressive voices and more people like Dean who can refute neo-liberal arguments point by point. We economists have to make more of an effort to make our voices heard. We're better at it now than we used to be, but more of us have to try. We're in a situation now where we need to rebuild from the ground up.

The bankers, with an assist from the mainstream media, have built up the power of the financial sector to such a point that they have us in a vise grip: “Give us what we demand or we'll go down and take you with us.”

There is a kind of structural blackmail. Look, for example, at the rating agencies' threat to downgrade treasuries [executed after this conversation]. Here are private companies who make a profit and have the wrong model for credit rating, a neo-liberal model and they attempt to force that model on the rest of us. And there is no way we can retaliate for their ideological stance on credit ratings. Governments around the world have given these ratings official credence. So there's also a form of price-fixing: they are also threatening to downgrade European banks with Greek credit risk if they have to take a hit on the debt. It's a vise grip on public policy.

Thatcher: Where does the bankers' power come from?

Epstein: They have the political power that goes with money since money now mostly determines our elections. The House banking committee is stuffed with new Reps who anticipate the need to raise campaign cash and vote for loopholes.

In the ideological realm, they have developed tremendous power as they have successfully sold the idea that the bankers know best and we should do what the bankers tell us. Mainstream economists have developed a whole theoretical apparatus, including the “efficient markets hypothesis” that “proves” markets should regulate themselves. Of course, the hypothesis assumes perfect information and no market power – and is totally wrong, but economists love it because it is very elegant.

And to make matters worse, some of them get paid by the bankers to defend it.

Mainstream economists may also have been personally blinded by the power of money (see “Inside Job“). Many have private associations with financial companies: 70% of them earned money by working for private financial firms and only 2 people revealed those connections when interviewed by the mainstream media.

Larry Summers is perhaps the best example of that: he was earning $5 million a year from D.E. Shaw while he was working on financial reform issues.

Finally, the financial regulatory agencies have been totally captured by the banking sector.

All this is happening as we are in the midst of three huge transitions that also favor finance:

• the US is losing its position as the most powerful country economically to China and, as we lose high-paying manufacturing jobs, the US economy becomes more dependent on the bubble economy and the non-manufacturing sector. With the loss of union jobs, we also lose a source of political power for working people.
  
• the US is moving from being a medium productivity economy to becoming a high (i.e. highly automated) productivity economy, so that the economy becomes more dependent on those sectors that may still generate high-paying jobs, e.g. finance.
  
• the US should be – but we are not – transitioning from fossil fuels to renewables and a green economy. That would help us transition out of a financialized economy. We need to shrink the financial sector – which before 2008 accounted for 60% of the profits in the US – and find another sector where we can create jobs.

Thatcher: So, you see the greening of the economy as a way forward?

Epstein: Yes, but we must also transform the financial sector and create public financial services institutions, make more public sector investment and get the money out of politics.

Moreover, the growth paradigm is no longer viable in industrialized economies because of environmental constraints and because it no longer produces jobs. We have to move toward basic guaranteed income for the majority of our people.

What's the economy for, anyway? We need to rethink: what are our needs and how do we meet those needs?

Also see:

Link to Gerald Epstein's articles on Truthout.

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