Busted

In 2002 the unprecedented growth in the housing market was widely viewed as evidence of a healthy economy, but to economist Dean Baker the numbers did not add up. That year he published a prophetic brief, The Run-up in Home Prices: Is It Real or Is It Another Bubble? For the first time ever, Baker observed, housing prices were far outpacing inflation and rent increases. Aided by lower interest rates, looser credit standards, and questionable lending practices, the already indebted were taking on more debt, believing the boom would continue. Baker predicted a bust and prescribed reining in the institutions that were encouraging the bubble. As he tells it, his predictions were dismissed or ignored.

Today Baker is widely acknowledged as being among the first economists to have pointed out the bubble, but when asked about his prescience, he says, “Any competent economist could have seen it. They just had to look. Most chose not to.”

Baker has long been a lone voice in a profession dominated by those who recommend tax cuts for the wealthy and privatization and deregulation as means to promote economic growth. Baker reframes common assumptions about economic issues. It is not the market, he says, but “very human policy choices” in macroeconomics, trade, labor management, immigration, and other industries that have cumulatively weakened the earning power and economic security of the middle and lower classes. Conservatives have smartly learned to use the market to achieve their policy goals. That same system, he says, can be used just as effectively to distribute wealth differently. He sees the current crisis as an opportunity to challenge the conventional thinking and start rewriting the rules of the marketplace. Progressives “have to understand economics to make progress,” Baker says. “Well-intentioned policies that lead to bad economic outcomes will not advance social justice.”

Baker grew up in Chicago and attended Swarthmore College, graduating in 1981. He began his studies as a history major, but as his interest in world affairs grew, he found that the issues he cared most about were economic at their core. He didn’t agree with the trickle-down theories promoted at the time, which said that tax relief at the top would eventually benefit everyone, and he earned an economics degree so that his challenges to the status quo would be taken seriously. He went on to get his PhD in economics from the University of Michigan.

In 1999 Baker and fellow economist Mark Weisbrot founded the Center for Economic and Policy Research (CEPR), and they serve as its codirectors (www.cepr.net). He exposes biased economic reporting in the media in “Beat the Press,” his popular blog for the American Prospect (www.prospect.org). His writing has been published in the Washington Post, the Atlantic, and the London Financial Times, and he is the author of several books, including Plunder and Blunder: The Rise and Fall of the Bubble Economy (PoliPointPress), The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer (Center for Economic and Policy Research), and, with Mark Weisbrot, Social Security: The Phony Crisis (University of Chicago Press).

I spoke with Baker one rainy afternoon at a busy cafe in Dupont Circle, a few blocks from CEPR’s offices in Washington, D.C.

 

Blackshaw: What is the story behind the current financial crisis?

Baker: The basic story is that we had a huge housing bubble, and housing is central to the economy. Most people have little or no stock and perhaps some money in a savings account, but their most important asset is their house. The rise in housing prices sparked huge surges in residential construction and consumer spending. If people’s houses went up $100,000 in value, they would spend more, because they assumed it was real wealth. This seemed a perfectly reasonable thing to do. So we had a bloated housing sector and a huge consumption boom, both of which were not sustainable.

What is key in a bubble is that people see prices increase and expect them to increase further in the future. A couple may look at a $300,000 house and think that it’s too expensive for them. But if they expect it to be worth $400,000 in three to four years, then they would make a very different calculation. If they somehow can make the mortgage payments over this period, they come out as big winners. People thought they were doing just fine because they had significant equity in their homes, even though they might not have had much in their retirement accounts. When the bubble burst, most of that home equity just disappeared. All these middle-class people who thought they were saving money now found themselves with nothing. Housing construction collapsed, and consumption plummeted, throwing the economy into a steep recession.

There were other contributing factors to the bubble. Bad loans and deregulation of financial markets all allowed it to grow much larger than otherwise would have been possible. But the price of houses was at the center.

Blackshaw: You have said that the tragedy of the economic crash is how preventable it was. Can you explain?

Baker: It was easy to see it was a bubble. We had an unprecedented run-up in house prices. If you look back a hundred years, from 1895 to 1995, housing prices nationwide were on track with the overall rate of inflation, but in the mid-1990s they began to hugely outpace inflation. By 2006, after you adjust for inflation, they had risen more than 70 percent. This created more than $8 trillion in housing “wealth.” It should have been easy for any economist to see, but Alan Greenspan, the chair of the Federal Reserve Board, either didn’t see it or, more likely, saw it but let it keep growing to ever more dangerous levels and just figured it would work itself out. The Federal Reserve Board is most directly responsible for preventing bubbles and could have taken any number of measures to prevent the run-up in house prices.

Blackshaw: What should the Fed have done?

Baker: Well, most immediately what Greenspan should have done was just talk. He should have used every forum he had to say that there was a housing bubble. He should have documented the case as clearly and unambiguously as possible and said that if we did not do something, it was going to collapse and cause real problems. Greenspan testified before Congress at least two times a year and gave public speeches that received enormous attention. He knew that people were listening. The government had the regulatory authority to stop this. But instead Greenspan said that there was no bubble, citing research that it was just a problem of inaccurate price measurements.

The Federal Reserve Board employs thousands of economists; he could have had them all working on documenting the evidence that there was a bubble. Had he done that, it would have made people more fearful about buying homes, and it would have made the banks fearful about making these loans. But he made about as big a blunder as anyone could possibly make. Or he did it deliberately, take your pick. Either way he certainly did nothing to stem the growth of the bubble. In fact the Fed arguably took steps that encouraged the bubble.

Blackshaw: Didn’t Greenspan also dismiss growing concerns over the questionable lending practices that became more widespread as the bubble grew, including the predatory practices that disproportionately preyed on low-income families?

Baker: It is inconceivable that he did not know about the bad mortgages that were being made. In the 1990s and the early part of this decade subprime mortgages made up about 8 percent of the market; by 2006 they exploded to 25 percent. The Federal Reserve Board should have cracked down on the mortgage fraud that was taking place, but Greenspan was encouraging it. In 2003, when long-term fixed-interest mortgage rates — the safest choice for buyers — were almost at a fifty-year low, Greenspan said that more-risky adjustable-rate mortgages (ARMs) were often a better option. With an ARM the mortgage payment is lower to start but can steeply increase if interest rates rise, possibly becoming higher than the homeowner can afford. He later said that he was not advising people to get ARMs, but his opinion was widely cited by mortgage brokers who gave the green light for millions of people to get ARMs and the other bad mortgages that helped fuel the bubble.

Blackshaw: At what point did you first become aware of the bubble?

Baker: I noticed it in 2002, after Greenspan gave testimony that there wasn’t one. His arguments did not make any sense. He cited four factors that supposedly provided a basis for the rapid rise in home prices: shortages of land, environmental restrictions on new construction, rising incomes, and growth in population. But they did not square up. Environmental restrictions had been in place since the 1960s and had not become stricter in the 1990s. Income growth was not particularly strong at that time, and population growth was actually slowing. There was no obvious reason why the supply of land should have suddenly pushed up housing prices. Plus, if it had been supply and demand in the housing market causing these huge price increases, one would have expected comparable increases on the rental side, but rents were going nowhere.

I started looking more closely at the historical trends and found that for forty-five years housing prices had kept in step with inflation, and suddenly they were outpacing it. That seemed like a bubble to me.

Blackshaw: How was your critique received?

Baker: It was mostly dismissed and ignored. But I know how the system works. If you are going to be outside of the establishment, the main technique for dealing with you is to ignore you. People would point out that there had never been a nationwide fall in housing prices, so we did not have to worry about it. But then, there had never been a run-up like this. David Lereah, the former chief economist for the National Association of Realtors, said that you couldn’t talk about “national housing markets” because real estate is all local. He said that prices in Miami were going up because everyone was moving down from the north, and prices in New York City were going up because it’s such a great city. But this did not explain why both markets were going up at the same time, along with so many other markets.

Lereah was working for the realtors and had written a book titled Why the Real Estate Boom Will Not Bust — and How You Can Profit from It, yet the media treated him as if he were a serious independent voice. The Washington Post would write about the housing market and present his view as the only expert opinion. They might also talk to a realtor or a potential home buyer, but they would not talk to another economist.

Blackshaw: How do people who dismissed your concerns about a bubble explain the crash of the housing market?

Baker: They say, “Well, no one could have known,” or, “Well, it was all very complicated.” This is true, because, unlike the bubble, the specifics of finance are complicated. Most people cannot follow the details of collateralized debt obligations or credit-default swaps. But focusing on those aspects of the crisis will lead the public to believe that the collapse was difficult to see coming. All you had to know was that housing prices were hugely out of line, which meant $8 trillion of wealth was going to disappear in a very short period of time. There was no other plausible explanation. These were not small warning signs. These were huge neon lights saying, “Bubble.”

Blackshaw: The noted economist James K. Galbraith says that the downturn has been an enormous blot on the reputation of economists. Do you agree?

Baker: Economists missed this, and I think they need to own up to the enormous mistake they made. You could have been a totally mainstream economist using mainstream tools and seen the housing bubble. The injustice is that they will pay no price for it. Galbraith is largely right in the sense that the whole profession was not actively engaged in the debate. But the sociology of the profession is that you are rewarded for deferring to those in authority, so there is very little incentive to openly challenge those at the top. It begins in the university: students see that the way to get ahead is to befriend a powerful and important professor. If all the powerful and important professors are treating Greenspan as if his voice is the only one that matters, and you want to get ahead, you are not going to challenge that opinion.

Economists think they are doing their job if they are saying the same thing everyone else is saying. If Greenspan and other prominent economists say there is no housing bubble, it would be a career risk to differ with them. Had there been a real debate — if a group of prominent economists had said there was a housing bubble — it would have opened the doors for differences of opinion. But no one stepped out of line.

Blackshaw: I heard an interview on the radio with an appraiser who talked about the pressure he was under during the bubble to constantly appraise homes for higher and higher values. When he started to question the logic, he stopped getting referrals and eventually went out of business.

Baker: Historically banks didn’t want to issue a mortgage for more than a home was worth, because they stood to lose money on it. So they demanded accurate appraisals. But during the bubble lenders sold the vast majority of mortgages in secondary markets immediately after issuing the mortgage. Because they made their profit right at the start, they couldn’t have cared less what the real, long-term value of the home was. Banks wanted high appraisals so they could issue bigger mortgages and sell them for higher prices. So if an appraiser did not give them the appraisal they wanted, that appraiser simply did not get called back.

People thought they were doing just fine because they had significant equity in their homes, even though they might not have had much in their retirement accounts. When the bubble burst, most of that home equity just disappeared. All these middle-class people who thought they were saving money now found themselves with nothing.

Blackshaw: What are your relationships like with other economists?

Baker: I try to be cordial with them — at least, with the ones who are willing to talk to me. I can think of several prominent conservative economists I can count on for a serious discussion of the issues. Unfortunately some economists are more interested in name-calling. I make my arguments as simple as possible, so that neutral observers can judge for themselves.

Blackshaw: In 2004 you sold your home in Washington, D.C. What was dinner-party conversation like after you decided to sell in the midst of a housing boom?

Baker: People would humor me, but I’m sure they thought I was crazy to be selling a condo that was only going to go up in value. All my friends would ask my opinion on whether they should buy a home, and I’d tell them not to, and then they would go out and buy anyway. They could not believe that this market wasn’t real. And even if they thought I was right on a nationwide scale, they thought that D.C. was different, because the federal government would always be there. People everywhere were convinced that even if prices were too high in other places, they weren’t too high where they lived.

Blackshaw: You have said that there is nothing inevitable about financial bubbles and that the stock and housing bubbles of the last decade are largely the culmination of “very human policy choices” that began in the early eighties.

Baker: In the three decades prior to 1980 the U.S. economy was relatively strong. It grew steadily, productivity increased rapidly, the unemployment rate was low, and the benefits of that economic growth were shared widely. It was a virtuous circle in which more productivity translated into wage increases, which gave people more buying power, which translated into more demand, which caused firms to expand production and invest more. In the fifties and sixties unions were strong and represented more than 20 percent of the workforce. When you have strong unions, they set wage patterns that spill over to the nonunion sector of the economy.

In the eighties President Ronald Reagan wanted to reduce the power of the unions, which he saw as an impediment to growth. When Reagan broke up the air-traffic controllers’ union, it really changed the framework for labor relations. The air-traffic controllers were government employees, and when they were fired, it gave private employers a green light to also fire striking workers and hire permanent replacements. A number of major corporations adopted that policy, which deeply weakened unions. Workers became reluctant to strike, because they feared losing their jobs.

When unions are strong, workers are well positioned to say that if productivity grows 2 percent this year, they are going to get something like a 2 percent increase in wages. But as unions lost strength, gains in productivity didn’t translate into wage growth. Workers were not powerful enough to demand their share. Instead the benefits of all that productivity increasingly went to those at the top.

Reagan also blocked increases to the minimum wage, which meant that the real value of the minimum wage was eroded each year by inflation. Average American workers saw their real wages stagnate between 1980 and 1995.

Because many people were losing income, borrowing was the only way they could maintain their standard of living. People borrowed on credit cards and home equity, and there were spikes in student-loan debt. There had been increases in borrowing relative to household income since the 1950s, but the rise had been relatively slow until the eighties. Prior to the 1980s home-equity loans had been rare. You’d get one mortgage and keep it until you moved or paid it off. Refinancing became even more common in the nineties.

All my friends would ask my opinion on whether they should buy a home, and I’d tell them not to, and then they would go out and buy anyway. They could not believe that this market wasn’t real.

Blackshaw: Could you explain how home-equity loans work?

Baker: Equity is the amount of money you have invested in your home and is equal to the home’s value minus the amount you owe on the mortgage. You gain equity when you pay down your mortgage or your house goes up in value. When you get a home-equity loan, you take out some of your equity as cash, increasing the amount you owe. Home-equity loans leave people vulnerable to a market decline, because if housing prices fall, they could end up owing more than the value of the home. That’s what happened to millions of Americans when the housing bubble burst.

Blackshaw: The stock market crashed in 2000, but it seemed that average Americans were not much affected.

Baker: That’s right, because most of their money was in their homes, not in stock. There was considerable democratization of stock ownership beginning in the eighties with market-based retirement plans like 401Ks, but by the time the stock bubble hit its peak in 2000, only half of the population owned any stock at all, and the median amount was less than $30,000. On the other hand, some 70 percent of the population owns a home.

Blackshaw: Do you see the financial crisis as a challenge to the free-market model?

Baker: No, because I don’t think we have a free-market model. What we have is the wealthy using their power to control government and shape the rules in ways that redistribute income upward. The so-called free-marketers don’t want the market left alone; they just want the government to structure the market to serve their interests.

People often view the economic debate as being between conservatives, who want to leave everything to the market, and progressives, who want the government to intervene and ensure basic standards of living. In reality both sides want to intervene, but progressives sometimes take at face value the claim that conservatives want a free market. This framing leads progressives to futilely blame the markets, rather than examining the factors that lead to unfair market outcomes.

Markets are a useful tool. Raving against them is like raving against the wheel: you can either do bad things with the wheel, or you can do great things with the wheel. The point is not to get rid of the market; the point is to structure the market in a way that benefits society as a whole.

That is what is really at issue at the moment, and I think it’s a much smarter position for progressives to work from.

Blackshaw: And yet the free market is touted as the holy grail of our economic system.

Baker: Conservatives tout the free market as the backbone of our economic system but hide the fact that they’re stacking the deck to serve their interests. The option of leaving the market alone doesn’t exist. Show me someone who’s made lots of money, and I’ll show you how we wrote the rules so that he or she made money. Bill Gates is a rich man because the government granted him a monopoly on his Windows software programs. If I sell you Windows without Bill Gates’s permission, he’ll sue me. That’s not the free market; that’s the way we wrote the rules. The government doesn’t have to give Gates copyright protection for Windows; there are other, better ways to finance software development.

Another example is prescription drugs. This is a $300 billion annual industry because we give pharmaceutical companies patent monopolies. The excuse is that the monopolies fund research, but we could find different ways to finance prescription-drug development. We make rules that weaken unions, but we could create rules that would make unions stronger, so ordinary workers could get a larger share of the gross national product. We write trade policies in ways that put U.S. blue-collar workers in competition with low-wage workers in the developing world.

Blackshaw: “Free trade” also seems like a misnomer, when in fact it is highly managed trade, developed to achieve certain outcomes.

Baker: Yes, it is very highly managed trade, and economists are complicit in concealing the ways the rules are rigged. One of the main components of the trade deals struck over the last quarter century has been increasing copyright and patent protection for corporations. This is not free trade; it is a form of government intervention. In a true free market, the government wouldn’t give out monopolies, and the market would set prices. In a truly competitive market most AIDS drugs could be produced cheaply and sold for just a few dollars per prescription, allowing even poor governments to purchase them for their citizens. But the patent monopolies enshrined in trade agreements allow pharmaceutical companies to charge prices that make mass distribution of AIDS drugs in the developing world unfeasible.

Blackshaw: And yet conservatives rail against policies like steel protection, which would actually help keep Americans working.

Baker: Yes, there is an incredible elitism in this idea that autoworkers, steelworkers, and textile workers are losing their jobs or facing pay cuts because they don’t have enough skills or education to compete in the twenty-first-century economy. Thus they are subjected to competing against workers in China who get a buck an hour or less. Whereas the professional classes, the doctors and lawyers, do have the skills to make it in this economy — or so we’re told. But in reality there are many protections that make it difficult for someone from China or India to come to the U.S. and work in those fields, even if those immigrants do have the skills and education. Plenty of foreign doctors would be delighted to come here and work for less than most American doctors, but they are not allowed to, because our doctors are protected in trade agreements. Yet in these same trade agreements conservatives dismantle protections for American blue-collar workers, calling the protections “barriers to trade.”

The bank bailout is another example of government intervention favored by conservatives. The bankers were counting on government support when they needed it, but they didn’t want to have to pay for it beforehand in the form of regulations or taxes. Banks made enormous amounts of money during the bubble, and when everything fell apart, the government threw more money at them. If conservatives really believed in the free market, they would have let Goldman Sachs and Citibank and others go under. But their policy is to get these banks back on their feet again, because otherwise the economy will pay a big price.

We did let Lehman Brothers, a huge investment bank, collapse, and it did have serious consequences. It created a panic in the financial markets and caused the heads of the banking industry to run to Congress and ask for this bailout. But we don’t need to be bailing out the banks. What we should do is what we did with Indy Mac in July 2008. When Indy Mac went bankrupt, the Federal Deposit Insurance Corporation (FDIC) took it over, restructured it, and then sold it back to the private sector. So rather than handing these banks money that goes straight to shareholders and executives, allowing those people to get rich at taxpayers’ expense, the government should just take the banks over, split them up, sell them, and move on.

Blackshaw: Why are so many Americans suspicious of government programs?

Baker: Conservatives have been very effective at pointing out the failures of government, and progressives have been less successful at pointing out its successes. The so-called Social Security crisis is an example of this. Social Security is a hugely popular government program created as part of the New Deal to give workers economic security in their old age. It’s an efficient program, the administrative costs are low relative to costs in the private sector, and all Americans benefit from it. Conservatives have opposed Social Security since President Franklin D. Roosevelt created it, but because of its popularity, their best hope to eliminate it has been to convince the public that it’s mismanaged and facing bankruptcy. And by the mid-1990s a large portion of the public came to believe that Social Security needed a major overhaul to survive. Proponents of privatization argued that workers would get larger retirement benefits if their money was invested in individual stock-market accounts, instead of being paid into the Social Security system. But there were no stock projections to show how this would be possible. Their calculations for high returns were grossly exaggerated, and their efforts ultimately failed.

Social Security is a model of what governments can do, and we could devise similar programs for healthcare, pensions, and student loans, among other things. It is the crown jewel of government programs, and for that reason conservatives want to kill it. If they destroy Social Security, they will destroy the model.

Blackshaw: The Great Depression brought us Social Security and many other advances for American workers: the forty-hour workweek, the minimum wage, and the legalization of labor unions. The current economic crisis so far has brought us a federal stimulus package. Is it enough?

Baker: It’s a good start. The best way to boost the economy is to avoid laying people off and cutting back services, and to focus on building infrastructure. In short: spend money and put people to work. The stimulus package will definitely reduce the unemployment rate. It gives money to state and local governments so they don’t have to cut healthcare and unemployment benefits and can undertake neglected infrastructure projects. It also gives money to retrofit government buildings and make them more energy efficient, which will put people to work. There is a tax cut for businesses and homeowners who improve energy efficiency.

My biggest complaint about the stimulus is that it simply is not big enough. It is probably about half of what we spent after the Great Depression, relative to the size of the economy. We need more.

I don’t think people have really come to grips with how bad the economy is. We are in a deep hole, and I think there is going to have to be another round of stimulus programs. We have to find more-innovative ways to boost the economy. We need innovative thinking to alleviate the pain from the economic crisis and to build an economy that goes beyond these boom-and-bust cycles. One of the ways we could do this is to support initiatives like the pay-for-play tax cut, a voluntary program that would give tax credits to employers for giving employees more paid time off. It could be family leave, sick leave, or a shorter workweek. If an employee reduced his or her hours by 5 percent, then the government would give the employer a tax credit equal to 5 percent of that worker’s time. Workers would have the same amount of money in their pocket, even though they’d be working fewer hours. Since everyone would be spending less time at work, employers would need to hire 5 percent more workers. If everyone did that, it would create 7 million new jobs, moving us toward full employment. In the real world, it will never be that simple, but we need to start thinking more creatively about solutions.

Blackshaw: What about raising the minimum wage?

Baker: It certainly would be reasonable to bring the minimum wage up to the same real value it had in the sixties, which would be close to ten dollars an hour now.

Blackshaw: How could we restructure the income-tax system to make it more fair and equitable?

Baker: It should have fewer deductions, all of which should be sharply limited. The mortgage-interest deduction should certainly be no higher than $400,000. And we should treat capital gains as ordinary income and have a higher top bracket.

Really the tax code is the less important side of the problem. The bigger problem is on the before-tax side. We’ve let the wealthy rig the rules so that they get more of their income before taxes.

Blackshaw: What can be done to change the behavior of Wall Street?

Baker: I think the thing to do is to downsize it, both economically and politically. One simple way to accomplish this would be to establish a modest transaction tax along the lines of the one in the United Kingdom: every time there’s a trade in stock, there would be a small tax on the transaction. This could easily raise over $100 billion a year and would reduce frivolous buying and trading of stocks, making the market more manageable and efficient. The financial industry needs to be brought down to size, so that it can serve its economic purpose of allocating funds for investment, rather than being an arena for speculation.

Of course the financial sector goes absolutely ballistic at the very mention of this, but there have been efforts to push it occasionally, and there has been interest from members of Congress over the years. You might imagine that labor unions would champion it, but their pension managers hate it, because they are enmeshed in the financial industry. In reality the pensions would be fine; there’s no reason for pension funds to make trades all the time.

Getting rid of outlandish pay packages for corporate executives would also be an enormously important move. Nowhere else in the world are CEOs’ salaries so out of line with the rest of society’s. Thirty years ago the ratio of a top executive’s pay to the average worker’s was fifty or sixty to one. Today you have executives who are making a thousand times what the typical worker makes. We need to make executive pay packages subject to shareholder approval at regular intervals. These salaries impact the whole society. There are presidents of universities who get more than $1 million a year, which is outlandish, but they could get three or four times that much in the private sector, they’ll point out. We need to rein in these excesses.

Blackshaw: You mentioned the transaction tax in the UK. Are there other practices or policies in foreign countries that you think might work here?

Baker: The Western European welfare state is not my ideal, but if Americans felt the level of economic security that people take for granted in, say, Germany, France, or Denmark, it would be a huge improvement over what we have now. People should be able to count on healthcare, a decent retirement, and other basic necessities of life. To a large extent even upper-middle-class Americans can’t assume this level of security.

Markets are a useful tool. Raving against them is like raving against the wheel: you can either do bad things with the wheel, or you can do great things with the wheel. The point is not to get rid of the market; the point is to structure the market in a way that benefits society as a whole.

Blackshaw: Are you concerned that President Barack Obama has chosen as his economic advisors some of the same people who contributed to the current financial crisis?

Baker: It is a real concern. These are people with close ties to Wall Street, and what we really need is people who are prepared to lay down the law to Wall Street, because it needs to be seriously restructured. Obama so far has been unwilling to confront directly the financial industry and restructure the financial sector, instead focusing on repairing the existing system and keeping it largely intact. We need a radically different financial system, and it is difficult to imagine how these people are going to be the ones to restructure it. We need regulators who are truly independent of Wall Street. Private banks even have a direct say in the running of the Federal Reserve Bank. That makes no sense. The Federal Reserve was structured to give it independence from Congress, the argument being that Congress should not be setting interest rates — which is true, but neither should the banks.

The mainstream economists produced this ungodly disaster, yet all of them still hold their positions in government and in academia. With Greenspan being the major exception, their standing has been unaffected.

We have an opportunity right now to make a difference. Obama’s election was a great historical moment. He is the most progressive Democrat to come into office since Johnson or Roosevelt. What his presidency ends up becoming is up to him. There are a lot of things to worry about, but there is enormous potential that we have not seen in a long time. People are looking for alternatives. The dominant economic paradigm is hugely vulnerable. We just need to reframe the debate. Progressives have often been complicit by not exposing the dishonesty in the U.S. economic model. It’s time to question how we want the market to operate. We can get where we want to go by shaping the market in the right way.