Starr (ed ) consequences of economic downturn; beyond the usual economics (2011)

CONSEQUENCES OF ECONOMIC DOWNTURN PERSPECTIVES FROM SOCIAL ECONOMICS Series Editor: Mark D White, Professor in the Department of Political Science, Economics, and Philosophy at the College of Staten Island/CUNY The Perspectives from Social Economics series incorporates an explicit ethical component into contemporary economic discussion of important policy and social issues, drawing on the approaches used by social economists around the world It also allows social economists to develop their own frameworks and paradigms by exploring the philosophy and methodology of social economics in relation to orthodox and other heterodox approaches to economics By furthering these goals, this series will expose a wider readership to the scholarship produced by social economists, and thereby promote more inclusive viewpoints, especially as they concern ethical analyses of economic issues and methods Accepting the Invisible Hand: Market-Based Approaches to Social-Economic Problems Edited by Mark D White Consequences of Economic Downturn: Beyond the Usual Economics Edited by Martha A Starr Consequences of Economic Downturn Beyond the Usual Economics Edited by Martha A Starr CONSEQUENCES OF ECONOMIC DOWNTURN Copyright © Martha A Starr, 2011 Softcover reprint of the hardcover 1st edition 2011 978-0-230-10531-7 All rights reserved First published in 2011 by PALGRAVE MACMILLAN® in the United States—a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010 Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN 978-1-349-58422-2 ISBN 978-0-230-11835-5 (eBook) DOI 10.1057/9780230118355 Library of Congress Cataloging-in-Publication Data Consequences of economic downturn : beyond the usual economics / edited by Martha A Starr p cm.—(Perspectives from social economics) United States—Economic conditions—2009– United States— Economic policy—2009– Recessions—Social aspects—United States Financial crises—Social aspects—United States Global Financial Crisis, 2008–2009—Social aspects I Starr, Martha A HC106.84.C66 2011 330.973—dc22 2010036901 A catalogue record of the book is available from the British Library Design by Newgen Imaging Systems (P) Ltd., Chennai, India First edition: March 2011 Contents List of Tables and Figures vii List of Contributors xi 1 Beyond the Usual Economics Martha A Starr Part I Ethics, Social Responsibility, and Economic Policy The Economic Crisis and the Crisis in Economics George DeMartino The Financial Crash of 2008: An Illustrative Instance of the Separation of Risk from Reward in American Capitalism Robert E Prasch Rising Inequality and the Financial Crises of 1929 and 2008 Jon D Wisman and Barton Baker Inequality and Its Discontents: The Real Causes and Consequences of the Crisis Steven Pressman We’ve Been Nudged: The Effects of the Downturn on Dignity and Responsibility Mark D White Part II 25 45 63 83 103 Distributional Effects of the Downturn Race and Recession: A Comparison of the Economic Impact of the 1980s and 2007–09 Recessions on Non-College-Educated Black and White Men Niki Dickerson vonLockette 121 vi CONT ENT S Who Pays the Price When Housing Bubbles Burst? Evidence from the American Community Survey Cynthia Bansak and Martha A Starr 139 Gender Equality in U.S Labor Markets in the “Great Recession” of 2007–10 Caren Grown and Emcet Tas 167 Part III Social Economy and the Economic Downturn: Communities, Needs, and Capabilities 10 Recession and the Social Economy Martha A Starr 189 11 Beyond the Wasteland: A Report from Detroit Bruce Pietrykowski 215 12 Teaching Financial Literacy in the Wake of the Financial Crisis Deborah M Figart Index 239 259 Tables and Figures Tables 5.1 Gross domestic product per employed worker: Average annual growth in constant 2005 U.S dollars (adjusted for purchasing power parity) 84 7.1 Percent of male workers without college degrees employed in manufacturing and goods-producing sectors, by race 128 7.2 Average hourly wages of black and white men employed in manufacturing (constant 1980 dollars) 129 7.3 Synthetic cohort analysis: Changes in average wages and hours for non-college men aged 30–39 in 1980 130 7.4 Dissimilarity index: Occupations of black and white men 130 7.5 Employment outcomes of non-college men, 2007–2009 131 7.6 Industrial and occupational distribution of white and black non-college-educated men, 2008 132 7.7 Dissimilarity index: Occupations of white and black non-college-educated men, 2008 133 7.8 Dissimilarity index and wage ratio for non-college-educated men in the 50 largest metropolitan areas, 2008 134 8.1 Categorization of metropolitan statistical areas 145 8.2 Homeownership rates 154 8.3 Measures of poverty and inequality 156 8.A Appendix table: Metropolitan areas classified as having had housing-price bubbles 158 9.1 Alternative measures of labor underutilization, by sex 177 9.2 Change in payroll employment 178 10.1 Conceptualizations of basic needs and social responsibility for meeting them 192 10.2 Changes in correlates of unmet need: Unemployment and poverty 196 viii 10.3 10.4 10.5 10.6 10.7 11.1 11.2 TA B L E S A N D F I G U R E S Access to consumption support and health insurance Insecurity in access to food and health care Inadequate access to shelter Profile of frontline food-assistance programs Agencies’ problems accommodating needs for food and people’s satisfaction with the food they receive Percentage change in manufacturing employment over selected intervals, City of Detroit Employment in motor vehicle manufacturing and parts production, 2000–2009 197 198 199 202 205 218 218 Figures 1.1 1.2 1.3 4.1 7.1 7.2 8.1 8.2 8.3 8.4 8.5 8.6 9.1 9.2 9.3 9.4 9.5 9.6 9.7 National unemployment rate (percent) Average household income, by income quintile, constant 2008 U.S dollars Unemployment rates by race/ethnicity, gender, and education (percent) Income share of the top 0.01% of households, 1913–2008 Recent downturn shows steep decline in nonfarm payroll employment compared to the 1980s recessions Recent downturn shows slippage in the ratio of black to white unemployment Housing market characteristics Distribution of home prices Housing finances Year-over-year percent change in employment Unemployment by education and by race/ethnicity Poverty rates by education and race/ethnicity Unemployment rates by sex (%) Labor force participation rates for men and women Unemployment rates for men and women, by race and ethnicity Unemployment rates by gender, age and education (%) Unemployment rates for married men and women and single women maintaining families (%) Average duration of unemployment for men and women (in weeks) Part-time employed wage and salary workers paid hourly rates at or below minimum wage (thousands of workers) 13 66 126 127 147 148 149 151 152 155 168 170 171 173 174 175 180 TA B L E S A N D F I G U R E S 11.1 11.2 11.3 Total manufacturing employment, number of workers, City of Detroit, 1954–2007 Number of average monthly caseloads, Family Independence Program (FIP), Department of Human Services Example of a Heidelberg project house ix 217 221 225 T E ACHING FINANCIAL LIT ER ACY 255 depts.washington.edu/ccce/citizeneconomy/main.html (accessed July 5, 2010) Council for Economic Education 2009 Survey of the States: A Report Card New York: Council for Economic Education Davidson, Paul 2009 Alternative Explanations of the Operation of a Capitalist Economy Challenge 52(6): 5–28 Emami, Zohreh, and John Davis 2009 Democracy, Education, and Economics International Journal of Pluralism and Economics Education 1(1/2): 37–45 Federal Deposit Insurance Corporation 2009 FDIC National Survey of Unbanked and Underbanked Households, Washington, DC: FDIC (Dec.) FEFE 2010 About FEFE and About the Take Charge America Institute Available at http://www.fefe.arizona.edu/aboutfefe and http://tcainstitute.org/about.html (accessed June 7, 2010) Figart, Deborah M 2010 Editorial: Teaching During the Global Financial Crisis International Journal of Pluralism and Economics Education 1(3): 236–241 Financial Capability in the United States (2009) Prepared for the FINR A Investor Education Foundation by Applied Research & Consulting LLC Available at http://www.sec.gov/spotlight/invadvcomm/finranationalfinancialcapabilitystudy.pdf (accessed June 17, 2010) Fox, Jonathan, Suzanne Bartholomae, and Jinkook Lee 2005 Building the Case for Financial Education Journal of Consumer Affairs 39(1): 195–214 Johnson, Elizabeth, and Margaret S Sherraden 2007 From Financial Literacy to Financial Capability Among Youth Journal of Sociology & Social Welfare 34(3): 119–45 Kotz, David 2009 The Financial and Economic Crisis of 2008: A Systemic Crisis of Neoliberal Capitalism Review of Radical Political Economics 41(3): 05–17 Langrehr, Frederick W., and J Barry Mason 2005 The Development and Implementation of the Concept of Consumer Education The Journal of Consumer Affairs 11(2): 63–79 Lucey, Thomas A 2007 The Art of Relating Moral Education to Financial Education: An Equity Imperative Social Studies Research and Practice 2(3): 486–500 ———, and Kathleen S Cooter 2009 The Other Side of Wall Street: How Educators Should Approach the Financial Crisis EducationNews.org (Jan 28) Available at http://www.ednews.org/articles/the-other-sideof-wall-street-how-educators-should-approach-the-financial-crisis.html (accessed February 21, 2010) Lyons, Angela C 2005 Financial Education and Program Evaluation: Challenges and Potentials for Financial Professionals Journal of Personal Finance 4(4): 56–68 Mandell, Lewis 2008 Financial Literacy of High School Students In Handbook of Consumer Finance Research Ed Jing Jian Xiao, 163–83 New York: Springer 256 D EBOR A H M FIG A RT Mandell, Lewis 2009 Two Cheers for School-Based Financial Education Aspen Institute Initiative on Financial Security, Issue Brief (June) Mandell, Lewis, and Linda Schmid Klein 2009 The Impact of Financial Literacy Education on Subsequent Financial Behavior Journal of Financial Counseling and Planning 20(1): 15–24 NEFE 2010 Welcome! and NEFE History Available at http://www nefe.org/AboutUs/tabid/56/Default.aspx and http://www.nefe.org/ AboutUs/NEFEHistory/tabid/61/Default.aspx (accessed June 7, 2010) Nussbaum, Martha C 2003 Capabilities as Fundamental Entitlements: Sen and Social Justice Feminist Economics 9(2/3): 33–59 Nussbaum, Martha C., and Amartya K Sen, eds 1993 The Quality of Life Oxford: Clarendon Press Palley, Thomas I 2009 America’s Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and the Great Recession Real-World Economics Review 50(8): 52–74 Pollock, Alex J 2008 Your Guide to the Housing Crisis The American 2(3): 36–39 Pressman, Steven, and Gale Summerfield 2000 The Economic Contributions of Amartya Sen Review of Political Economy 12(1): 89–113 Scott, Robert H III 2010 Credit Card Ownership Among American High School Seniors: 1997–2008 Journal of Family and Economic Issues 31: 151–60 Sen, Amartya 1987 The Standard of Living, Lectures I and II In The Standard of Living: The Tanner Lectures, Clare Hall, Cambridge, 1985 Ed Geoffrey Hawthorn, 1–38.Cambridge: Cambridge University Press Sebstad, Jennefer, and Monique Cohen 2003 Financial Education for the Poor Microfinance Opportunities, Working Paper (April) Available at http://www.microfinanceopportunities.org/docs/Financial_Education_ for_the_Poor April 2003.pdf (accessed July 5, 2010) Shiller, Robert J 2008 The Subprime Solution: How Today’s Global Financial Crisis Happened, and What to Do about It Princeton, NJ: Princeton University Press ——— 2009 How About a Stimulus for Financial Advice? 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Financial Literacy Education and the New Regulation of Consumer Financial Services Law & Policy 29(2): 226–56 Willis, Lauren E 2008 Against Financial Literacy Education Iowa Law Review 94(1): 197–285 ——— 2009 Evidence and Ideology in Assessing the Effectiveness of Financial Literacy Education San Diego Law Review 46: 415–58 Wray, L Randall 2009 Money Manager Capitalism and the Global Financial Crisis Levy Economics Institute Working Paper No 578 T E ACHING FINANCIAL LIT ER ACY 257 Xiao, Jing Jian, ed 2008 Handbook of Consumer Finance Research New York: Springer Zandi, Mark 2009 Financial Shock: A 360° Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis Upper Saddle River, NJ: Pearson Education, Inc Index 1929 financial crash, 63–77 and federal government GDP, 63–4 and laissez-faire ideology, 73–5 and millionaires, 65 and rising inequality, 65–6 and speculation, 69–72 1980s, 8–9, 14, 28, 33, 49, 59n13, 83–5, 88, 121–36, 158, 167, 174, 178, 180, 216 recession, and race, 121–36 2008 financial crash, 45–56, 63–77 and asymmetric behavioral norms, 52–3 and asymmetric information, 51–2 and automobiles and homes, 67–9 effects of See economic downturn, effects of and externalities, 53–4 and federal government GDP, 63–4 and inequality, 65–71 and laissez-faire ideology, 73–6 and limited liability, 48–50 and risk shifting, 45–8 risk-bearing and economic behavior, 54–5 and speculation, 64, 69–73 and status, 66–9 adjustable-rate mortgage (ARM), African American population in Detroit, 225, 233n5 and housing bubble, 15 men and recession, 12–16, 121–36, 168–70 as one of hardest hit groups, 180 unemployment, and gender, 168–70, 182, 183n4 agency, 3, 12, 36, 193, 205, 207, 209–10 Alt-A mortgages, American Community Survey (ACS), 14, 140–1, 144, 146–50, 153, 155, 157, 160n11,12,19 American Economic Association (AEA), 26 American Enterprise Institute (Washington, D.C.), 240 American Financial Services Association (AFSA), 248 American Recovery and Reinvestment Act (ARR A), 180–2 Andrews, Edmund L., 249–50 Arizona, 1, 52, 57n3, 145, 184n9, 246 “arm’s length” contract, 51 Arthur Andersen, 50 Association of Fundraising Professionals (AFP), 204 asymmetric behavior norms, 52–3 asymmetric information, and insiders, 51–2 Ausubel, Lawrence, 108 automobiles ownership, and status, 67–9 260 INDEX autonomy, 12, 103, 106, 110–11, 113 average household income (figure), Babson, Roger, 75 Baker, Dean, 6, 35, 37, 58n5, 140, 220 Bar-Gill, Oren, 107–9, 114 Baron, James, 94 Barr, Michael, 107, 110–11, 114, 116n13 Basu, Susanto, 92 Bear Stearns, 56 behavioral law and economics, 103–8, 110, 116n11 Bernanke, Ben, 4, 33–4, 41n4, 77n1, 158 Bernstein, Irving, 65, 75, 78n12 Bernstein, Michael A., 69, 78n12, 79n18,19 Bing, Dave, 220 Black Community Food Security Network (Detroit), 226 black men, and recession See African American population, men and recession blaming the victim, 240–4 Blank, Rebecca, 86, 142, 152 Blethen, Frank A., 75 Blinder, Alan, 86 Bloom, Matt, 94 Boggs, Grace Lee, 226 Born, Brooksley E., 29 Bostic, Raphael, 141, 160n8 Boy Scouts of America, 194–5 BP Gulf oil disaster, 41n6, 53, 55 Brown, Christopher, 92 bubbles, 2, 6–8, 15, 32–8, 55, 57n3, 58n7, 63, 65, 72–3, 84, 139–58, 241 See also dot com bubble; financial bubbles; housing bubble; intellectual bubbles Buiter, Willem, 33 Bush, George W., 45, 56n1 business-cycle dynamics, 12–13 California, 1, 52, 145, 172, 181–2, 208 California Work Opportunity and Responsibility to Kids (CalWORKs) Program, 182, 184n10 capitalism, and risk-shifting, 45–56 “carelessness,” and unequal distribution of wealth, 59n14 Carroll, Christopher D., 141, 160n7 Case, Karl, 140–2, 144, 146–7, 157, 160n7, 161n20 Catholic Charities, 204–5 Catholic Social Thought, 192–4 Caucasian population, and recession, 12, 121–36 CDOs See collateralized debt obligations Center for Automotive Research, 219 Center for Responsible Lending, 253 “choking under pressure,” 92 Civil War, 65 Clinton, William Jefferson, 29, 83–4 Coats, A.W., 26 “Code of Ethical Principles and Standards of Professional Practice,” (AFP), 204 Code of Ethics (Catholic Charities), 204 code of ethics for economists, 6–7, 38–40, 41n7 “cognitive flaws,” 11 “cognitive hazards,” 112 Colander, David, 40, 41n7 collateralized debt obligations (CDOs), 50–1, 242–3 Commodity Futures Trading Commission (CFTC), 29 Community Benefit Agreements (CBAs), 223 “complete markets,” 47 conspicuous consumption, 66–8 construction employment, 12, 14, 128, 132, 136n2, 142–3, 150, 157, 178 INDEX Consumer Financial Literacy Survey (2010), 239 Consumer Financial Protection Agency Act, 107 Cook, Leah, 140 Cooter, Kathleen, 240–1, 251 Corporate Social Responsibility (CSR), 193–4, 196 Council for Economic Education (CEE), 244–6 Cowherd, Douglas, 94 creative class, 223–5, 230, 232–3 credit, 4, 6–7, 9–10, 28, 33–4, 47–8, 64–5, 70, 72–3, 77n4, 78n7,8, 79n18,19,20, 83, 85, 107–9, 111–12, 116n8, 158, 162, 229, 239–40, 243, 245–8, 253 credit cards, 18, 72, 78n8, 85, 107–10, 112, 116n8, 239, 243, 247–8 credit instruments, 9–10, 64–5, 77n4, 78n8 credit-ratings agencies, 47–8 Current Employment Statistics (CES), 15, 121, 126, 168–9, 178–9, 184n8, 218 Current Population Survey (CPS), 9, 15, 19n2, 121, 131, 152–3, 157, 162n28, 167–71, 173–5, 177, 180, 210–11, 250 Cutler, David, 121 Davis, John, 252–3, 254n4 debt, 6–7, 10–11, 50, 64, 67–70, 72, 78n8,9, 84–5, 108–9, 143, 148, 239, 242–3, 245, 250, 252, 254n2 consumer debt, 64, 78n8 and status, 67–9 decision-making, and psychology, 11 demand and productivity, 90–1 deregulation See financial deregulation 261 derivatives, 6, 29, 46, 79n20 Detroit, 215–33 and automobile industry, 17 and Community Benefit Agreements, 223 community economies of, 224–32 creative class, 223–5, 230, 232–3 crisis of families and poor, 220–2 cultural production, 224–5 economic crisis of, 215–19 “economies as usual” response, 222–4 employment and housing, 219–20 food assistance, 221–2 and human capital, 223 local production and consumption, 231–2 manufacturing employment figures, 217–18 official unemployment rate, 17 re-valuing skills, 229–30 and urban farming, 18, 225–9 Dewey, John, 254 dignity, 103–7, 110–16 dissimilarity index, 124–5, 129–30, 133–4 distributional effects of downturn, 12–16, 121–83 See also gender equality; housing bubble; race and recession dot com bubble (2001), 73, 139 dual labor market theory, 123 Duncan dissimilarity index, 125 Dupuis, E Melanie, 232 Dworkin, Gerald, 106 Earthworks (Detroit), 226–7 economic crisis/recession (2007–09), 19, 25–40, 83–96, 103–16, 130–5 and 2008 crash See 2008 financial crash causes of, 83–96 effects of, 103–16 262 INDEX economic crisis/recession (2007–09)—Continued and financial deregulation, 83–7 and financial liberalization, 28–32 as “Great Man-cession.” See “Man-cession” and Greenspan, 32–6 and group think, 36–40 and health, 87–9 official end-date to, 19 overview of, 25–40 and policy response, 95–6 and productivity, 90–5 and professional ethics, 38–9 and race, 130–5 and unmet basic needs, 196–200 economic downturn, effects of, 103–16 and borrowing, 107–10 and dignity, 104–7, 113–16 distributional, 12–16 and libertarian paternalism, 104–7 and responsibility, 110–13 economic growth/output See growth economic security, as “normal” good, 54–5 economic theory, pre-crash, 32–6 economists, 6–7, 25–40, 41n7 and close-mindedness, 38–9 code of ethics, 6–7, 38–40, 41n7 as contributors to crisis, 26–9, 38–40, 41n7 and ethics, 6–7, 25–8, 35–6, 38–40, 41n7 and financial deregulation, 28–32 and group think, 36–40 and professional error, 38–40, 41n7 and theory, 25–7, 32–6 education, race, and recession, 121–36 efficient market hypothesis (EMH), 32–3, 37–8 Eichengreen, Barry, 36–7 Emami, Zohreh, 252–3, 254n4 emergency food, and social economy, 200–5 Enron, 50, 56 “ethic of care,” 17, 194, 204, 206, 208 ethics, and economists, 6–7, 25–8, 35–6, 38–40, 41n7 European Bank for Reconstruction and Development, 33 European Union, 69 externalities, 53–4 Fair and Accurate Credit Transactions Act of 2003 (FACTA), 246–7 Family Economics & Financial Education (FEFE), 246 Family Independence Program (FIP), 221 Fannie Mae, 34, 144 FareStart program (Seattle), 208 Federal Deposit Insurance Corporation (FDIC), 247, 250 Federal Housing Finance Agency (FHFA), 144, 160n14, 161n19 Federal Reserve System (“The Fed”), 3–4, 7, 15, 27, 32, 34–5, 37, 45, 57, 139, 141, 159n2, 247 Federal Trade Commission (FTC), 247 Feeding America, 5, 190, 201, 203, 206–7 Ferguson, J David, 69–70, 72, 78n13,15,16 Fernald, John, 92 finance, canonical theory of, 45–56 and asymmetric behavior norms, 52–3 and asymmetric information, 51–2 and externalities, 53–4 and limited liability, 48–50 and risk-bearing, 54–5 and risk-shifting, 45–8 INDEX finance, insurance, and real estate (FIRE), 71, 150 financial bailouts, 4, 8, 46, 116n12 financial bubbles, 33–8, 55, 58n7, 63, 65, 241 Financial Capability in the United States (2009), 239 financial crashes 1929 See 1929 financial crash 2008 See 2008 financial crash financial crisis (2007–09) See economic crisis/recession (2007–09) financial deregulation, 10, 28–40, 46, 49, 55, 63, 65, 73, 75, 83–7, 253 Financial Industry Regulatory Authority, Inc (FINR A), 248 financial liberalization, 28–40, 84–5 financial literacy, teaching, 239–54 blaming the victim, 240–4 emerging mandates and curricula, 244–8 government role in, 243–8 and personal responsibility, 18–19, 244 and pluralism, 248–53 Financial Shock (Zandi), 242 FIRE economy See finance, insurance, and real estate Fitzgerald, F Scott, 59n14 Florida, 1, 72, 145 Florida, Richard, 223, 233n5 food, and social economy agencies’ problems accommodating need, 205 assistance programs (table), 202 emergency, 200–5 insecurity to access, 198 food-assistance programs (table), 202 food pantries, 5, 17, 190, 200–5, 207, 226–7 food stamps, 5, 181, 189, 197, 200, 207, 222, 226 263 Food System Economic Partnership (FSEP), 226 Ford, 71 foreclosure See home foreclosure 401(k) retirement plans, participation in, 11 Frank, Robert, 77n5, 78n9 Freddie Mac, 34, 144 free-market ideology, 5, 58n5, 75–6 Friedman, Milton, 77 Fujita, Shigeru, 87 Gabriel, Stuart, 141, 160n8 Galbraith, James K., 36, 56, 58n5 Galbraith, John Kenneth (1908), 72, 78n17, 96 gender, and unemployment, 2, 15–16, 167–83, 183n4 and ARR A, 180–2 explanations for, 178–80 industry segmentation hypothesis, 178–9 and labor force participation, 169 and labor market outcomes, 169–77 overview of, 167–9 and race, 183n4 equality, 15–16, 168 “reserve labor force” hypothesis, 178–80 and stimulus package, 180–3 “substitution” hypothesis, 178–80 and underemployment, 2, 16, 175–7 and unemployment duration, 174–5 and unemployment rates, 169–74 See also “Man-cession” General Electric, 71 General Motors, 71, 222 Glass-Steagall Act, 83 Gleaners Food Bank (Detroit), 225–6 Globalcrossing, 56 264 INDEX GMO (global investment management firm), 37–8 Goodman, David, 232 government regulation, 74–5, 103–16 See also financial deregulation government size, 64–5 Government Sponsored-Enterprises (GSEs), 34 Gramlich, Edward, 6, 143 Gramm-Leach-Bliley bill (1999), 84 Grantham, Jeremy, 37–8 Great Depression, 1, 77n1, 168 See also 1929 financial crash The Great Gatsby, 59n14 Greenspan, Alan, 3, 7, 27–36, 71 and financial deregulation, 28–32 and theoretical elegance, 32–6 Gross, David, 108 group think, 36–40, 53–4 growth, 1–3, 58n7, 69–71, 114–15 Guyton, Tyree, 224–5 Hall, Thomas E., 69–70, 72, 78n13,15,16 Hantz farms (Detroit), 228 happiness, 87, 93 Harvey, David, 216, 232 Hausman, Daniel, 111 health, 10, 87–9, 198–9 heath insurance, 10, 87–9, 197–8 hedge fund, 3, 34–5, 73 Heidelberg project (Detroit), 224–5 Heritage Foundation, 75 High School Financial Planning Program® (HSFPP), 246 Hill, Claire, 105 Hispanic populations, 13, 15–16, 123, 142–3, 145–6, 151–5, 157, 161n17, 168–71, 180, 182, 183n4, 196–8, 250 and food, 198 gender and unemployment, 170–1 and health care, 197–8 and home ownership, 153–4, 157 and the housing bubble, 15, 153–4 and poverty, 155 and recession, 168, 180 as “unbanked,” 250 and unemployment, 13, 15–16, 142–3, 151–2, 169–71, 182, 183n4, 196 home foreclosure, 1, 4, 19n2, 52–3, 143, 200, 219–20, 239, 242, 249 home ownership, 15, 65, 67–9, 71–3, 83, 141, 143, 146–54, 157 and automobiles, 67–8 and home prices, 148 and housing bubble, 146–54 housing wealth and costs, 146–50 rates (figure), 154 and speculation, 71–3 statistics on, 152–3 and status, 65, 67–9 Homeboy Industries of Los Angeles, 208–9 household income, 8–9 housing bubble, 2–4, 6–8, 15, 32–8, 57n3, 72–3, 84, 139–59, 162n26, 241 and data, 144–6 and employment, 150–2 existing research on, 141–4 and expectations, 3–4 and the Fed, 15, 139–41 home ownership, 152–4 housing wealth and costs, 146–50 metros classified as having, 158–9 and monetary policy, poverty and inequality, 15, 155–7 and race, 15 and speculation, 72–3 and theoretical elegance, 32–6 and unemployment, 150–2 housing wealth effect, 141, 146–50, 160n4,7,8 human capital, 14, 122–3, 135, 208, 223–4 INDEX ideology, and the wealthy, 10, 64–5, 73–6, 77n3, 79n21 incentives, 92–5 income, household, 8–9, 66 income inequality and poverty, 155–7 rising (2008), 65–6 income share of the top 0.01% of households (1913–2008), 66 individual consent, 114 inequality and automobiles and homes, 67–9 and consumption spending, 92 and health, 10, 87–9 and income, 65–6, 155–7 overview of, 8–9 and policy, 95–6 and poverty, 155–7 recent history of, 65 rising, 63–77, 83–7 and speculative excess, 64, 69–71 and status security, 66–7 and stress, 88–9 and unions, 64 and wages, 65 inflation, 2, 8, 12, 71, 90, 139 In-Home Supportive Services (IHSS) Program, 182, 184–5n10 insiders, 51–2 Integrated Public Use Microdata Series (IPUMS), 124, 131–2, 134 intellectual bubbles, 36–8 interest rates, 9–10, 63–4, 72, 79n19, 85, 95, 108–9, 149–50, 153, 158, 239 Internal Revenue Service (IRS), 247 International Monetary Fund, 76 investors, and solitude, 59n12 Islamic Economic Thought, 192–3 Jäntti, Markus, 86 Johnson, Elizabeth, 251 265 Johnson, Simon, 36, 45, 52, 56n1, 71, 76, 248–9 Jump$tart Coalition for Personal Financial Literacy, 244–6 Kaldor, Nicholas, 91 Kalecki, Michał, 9, 64, 69, 76 Kant, Immanuel, 103–4, 106, 116n5 Katz, Lawrence, 121 Kaufman, Henry, 58n10 Keynes, John Maynard, 9, 33, 36, 41n3, 47, 54, 63–4, 74, 76, 77n6, 92, 95 Klick, Jonathan, 111–13 “Knightian Uncertainty,” 47 Kohn, Alfie, 94 Kohn, Donald, 35 Krugman, Paul, 26, 32–4, 37–8 labor underutilization See underemployment labor unions, 64, 74–5, 216, 219, 228 laissez-faire ideology, 29, 63, 73–6 Langton, Nancy, 94 Le Grand, Julian, 88 Lehman Brothers, 56, 58n7 Leibenstein, Harvey, 94 Levine, David, 94 Lewis, Michael, 58n7, 59n12 “libertarian paternalism,” 103–14, 117n14 and dignity, 104–5 and individual consent, 114 and responsibility, 110–13 and “society,” 114 limited liability, 8, 48–50, 58n8 limited liability partnership (L.L.P.), 50 literacy, financial See financial literacy Lo, Andrew M., 35 location quotient (LQ), 231–2 Long, Clarence D., 65 Lucey, Thomas, 240–1, 251–2 266 INDEX macroeconomic policy, 2, 12, 32–3, 36, 90–2, 95 productivity, 90–92 theory, 25 “Main Street,” 4, 45 “Man-cession,” 15–16, 167–9, 182 See also gender equality Mandell, Lewis, 241 manufacturing, 12, 14, 69–71, 78n12,14, 92, 94–5, 122–4, 128–9, 132, 135, 136n2, 151, 178–9, 215–19, 226–30 market fundamentalism, 58n5 Marmot, Michael, 88 Martin, Joanne, 94 Marx, Karl, 9, 36, 41n3, 57n3, 63–4, 76 Maslow Abraham, 191–2 Massachusetts, 145, 181 maxi-max, 28–32, 41n2 Mayer, Christopher, 140, 143, 145, 153, 161n21 McMansions, 68 media, 74–6, 77n3 Medicaid, 181, 189, 197 men, and unemployment, 12–13, 15–16, 167–83 men, race, and employment, 121–36 Mendershausen, H., 86 metropolitan statistical areas (MSAs), 130, 133, 144–57, 160n14 microeconomic productivity, 92–5 Milken, Michael, 83 Mill, John Stuart, 17, 113, 211n1 minimum wage (table), 180 Minsky, Hyman, 36 MIT Laboratory for Financial Engineering, 35 Mitchell, Gregory, 111–12, 114 Moody’s Economy.com, Inc., 242 moral hazards, 112, 241 Morgan Stanley, 35 mortgage lending, 1, 6–7, 72, 109, 242 Mortgage Securities Market, 59n13 MOSES (Metropolitan Organizing Strategy Enabling Strength), 228 Moss, Philip, 123 Mullainathan, Sendhil, 107, 110–11, 114, 116n13 National Bureau of Economic Research (NBER), 2, 126–7, 168, 183n1, 247 National Endowment for Financial Education (NEFE), 246 National Income and Product Accounts, 142 national unemployment rate (percent) (figure), neoclassical economics, 19, 31, 33, 74 Nevada, 1, 57, 145 New Deal, 54, 83 “New Economy,” 59n10 New Jersey Coalition for Financial Education (NJCFE), 248 New Keynesian theory, 33–4 New York Stock Exchange (NYSE), 248 No Child Left Behind Act (NCLB), 245 non-college educated men, and recession, 121–36 nonprofit organizations, 5, 16–18, 194–5, 200–3, 206, 226, 240, 246, 248 “normal” good, 54–5 Nozick, Robert, 30–1, 115 Nudge (Thaler and Sunstein), 103–7 nudging, 103–13 Nussbaum, Martha C., 2, 3, 192, 251 Nussbaum’s 10 capabilities, 192 Obama, Barack, 45, 56n1, 57n3 occupational segregation, 121–36 Office of Thrift Supervision (OTS), 47 INDEX Ostrom, Elinor, Otsuka, Misuzu, 141, 160n7 Painter, Gary, 141, 160n8 Panel Study of Income Dynamics (PSID), 87 Pareto optimality, 41n2 part-time work, 16, 169, 175–7, 179–80, 184n7, 203, 216 paternalism, 112–13 Paulson, Hank, pay differentials, 94–5 payroll employment, 125–8, 178 Pfeffer, Jeffrey, 94 Pickett, Kate, 68 Pine Street Inn’s “Boston Handiworks” program, 208 pluralism and economic policy, 38–9 and financial literacy, 248–53 policy responses, 3, 38–9, 45–6, 95–6, 182–3 and gender, 182–3 to inequality, 95–6 and pluralism, 38–9 and reward/risk separation, 45–6 politics, 10, 57n3, 63–5 Pollock, Alex, 240 Ponzi scheme, 72 Posner, Richard, 116n11 poverty and Detroit, 220–2 escaping, and employment, 87 and housing bubble, 15, 155–7 measures of (table), 156 rates by education and race (figure), 155 statistics on, and unmet needs, 196 privatization, 28, 49, 55 productivity, 65, 69–71, 83–95 and demand, 91–2 and gross domestic product, 84 growth, 85, 87, 90–2, 95 and inequality, 83–7 macroeconomic, 90–2 267 microeconomic, 92–5 and wages, 65, 69–71 worker, 93–4 productivity growth, 85, 87, 90–2, 95 professional error, 38–9 profits, financial sector, 71 Public Use Micro Data Sample (PUMS), 124 Quesnay, Franỗois, 91 Quigley, John, 140–2, 146, 157, 160n7 race, gender, and unemployment (figures), 13, 171 race and recession (1980s vs 2007–09), 14, 121–36 background of, 122–4 data for, 124–5 dissimilarity index, 124–5, 129–30, 133–4 payroll employment, 125–8 results overview, 125–36 and worker preference, 123 Rajan, Raghuram G., 34–5 Ranieri, Lewie, 59n13 Rao, Vilas, 87 Raphael, Steven, 140 Rawls, John, 67 recessions and education, 121–36 and gender, 15–16, 167–83 and race (1980s), 121–36 and the social economy, 189–210 Red Scare (1919–20), 74 Reich, John M., 47 Reich, Robert, 79n23, 96 “relational” contract, 51 relative income, 93 Republican party, 57, 74–5 responsibility, 1–12, 18–19, 52, 110–13, 116n12, 189–96, 211n3, 244, 248 Restaurant Opportunities Center (ROC), 230 268 INDEX restaurant workers, 229–30 “restructuring,” 90, 122, 128–9 reward/risk separation, 45–56, 58n8 Riegel-Neal Interstate Bank Efficiency Act, 83 risk, 1–10, 15, 18, 45–56, 56n2, 58n4,8 and return, 7–8 and reward, 45–56, 58n8 risk aversion, 58n4 risk-bearing, 54–5 and risk-shifting, 45–8, 56n2 warnings about, 5–6 Roach, Stephen, 35 Robbins, Lionel, 250 Rodgers, G.B., 88 Rodgers III, William M., 152 Rosnick, David, 140 Roubini, Nouriel, 6, 35 Salomon Brothers, 50, 59n13 Sanchez-Jankowski, Martin, 229 savings, 8, 10, 18, 53, 57n3, 64, 68, 70–1, 77n6, 78n15, 96, 105–6, 108, 189, 241–4, 246–7, 249–53 savings and loans (“S&L”) debacle, 49–50 Sbordone, A.M., 92 “scarring,” 12–14 SCHIPS programs, 197 Scott, Robert, 78n8, 85, 97, 239 securitization, 1, 8, 26–7, 34, 59n13, 72, 240, 242 Sen, Amartya, 2, 3, 250–1 Shafir, Eldar, 107, 110–11, 114, 116n13 shelter, inadequate access to (table), 199–200 Sherraden, Margaret, 251 Shiller, Robert, 6, 26, 32, 35–8, 54, 141, 144, 147, 153, 161n20, 242–3, 254n3 Shui, Haiyan, 108 Simon, Herbert, 94 Slacalek, Jirka, 141, 160n7 Smith, Adam, 90 social economy, 16–19, 189–210, 211n3 communities, needs and capabilities, 16–19 defined, 189–90 and donations, 195–6 of emergency food, 200–5 and “ethic of care,” 194 and recession, 189–210 and unmet basic needs, 191–200 and volunteering, 190, 194–5, 202–3, 206 social responsibility, 1–12, 52, 189–96, 211n3, 248 Social Security, 66, 95–6, 184n7, 192, 244 social status, 9, 64, 66–9 and automobiles, 67–9 as “earned,” 66–7 and homes, 67–9 and rising inequality, 66–7 struggle to maintain, 64 See also conspicuous consumption social welfare, 1–9, 12 “soft” paternalism, 111–13 solitude, and investors, 59n12 Souleles, Nicholas, 108 soup kitchens, 5, 17, 200–4, 226–7 speculation, 45–56, 64–5, 69–73 2008, 64–5, 72–3 and externalities, 53–4 inequality and speculative excess, 69–71 1929, 64–5, 71–2 real estate (2008), 64–5, 71 and risk, 45–56 and stock market (1929), 64–5, 71–2 split labor market theory, 23 “spot” contracts, 51 Spriggs, William, 130, 136, 142, 152 standard of living (U.S.), 2, 83, 90, 192 status See social status INDEX stress, 89, 96n2 Stricker, Frank, 65, 70, 77n1 subprime lending, 6–7, 18, 41n4, 109, 143, 149, 153, 158, 161n21, 162n27, 240–3 The Subprime Solution (Shiller), 242–3 subsistence farming, 18, 227 Summers, Lawrence, 29, 35 Sunstein, Cass, 11, 104–6, 116n2 Supplemental Security Income/ State Supplementary Payment (SSI/SSP) Program, 182, 184–5n10 Survey of Income and Program Participation (SIPP), 87 Take Charge America, Inc., 246 tax cuts, 64–6, 86, 96n4 Tea Party movement, 57 technological innovations, 69–70, 78n10,11 Temporary Assistance for Needy Families (TANF), 181 Thaler, Richard, 11, 104–6, 116n2 Tilly, Chris, 123 “too big to fail,” 2, 4, 95 “truck farms,” 227 ultimatum game, 93 “Unbanked,” 250 underemployment, 2, 16, 175–7, 179–80, 184n6,7, 203, 216 unemployment, 1–2, 5, 12–17, 19n2, 65–6, 86, 95, 121, 123–4, 127–8, 130–1, 139, 142, 150–2, 157, 161n23, 167–77, 180–2, 183n4, 189, 192, 196, 215–16, 225, 233n2 and business-cycle dynamics, 12 and earnings, 12–14 and education, 12–13 and gender, 12–13, 16, 167–75 and housing bubble, 150–2 national, and race, 12–14 269 rates See unemployment rates as regressive tax, 86 and sustainable growth, and unmet needs, 196 unemployment insurance, 5, 86, 181, 189, 197 unemployment rates (figures) and age, 173 and duration of unemployment, 174–5 and education, 13, 127, 151, 173 and gender, 13, 167–75 and marital status, 174 national unemployment rate, and poverty, 196 and race and ethnicity, 13, 121, 127, 151–2, 170–1 and recession, 169–70 United Auto Worker (UAW), 219 United Food and Commercial Workers Union, 228 U.S Bureau of Economic Analysis, 70 U.S Bureau of Labor Statistics, 2, 13, 167, 250 U.S Census Bureau, 9, 15, 19n2, 124, 140, 144, 157 See also American Community Survey U.S Congress, 6, 27, 29, 34, 41n4, 47, 74, 76, 83, 181, 246 unmet basic needs, 189–200 urban farming, 18, 225–9 utilitarianism, 114–15 Veblen, Thorstein, 9, 63–4, 66–7, 69, 76, 77n6, 79 Vermont, 181 vertical mobility, 66–9 Vietnam War, 74 Voltaire, 33 volunteering, 16, 190, 194–5, 202–3, 206 wage earners, 66 waged work, 55–6 270 INDEX wages, 55–6, 65–6, 69–70, 75, 78n12, 79n23, 85–6, 94, 122–5, 129–31, 133–5, 179–80, 208, 219, 222–3, 228–31, 233 Wall Street, 4, 37, 45, 50, 53, 58n10, 59n13, 72, 76, 86, 242 Warren, Elizabeth, 107–9, 114 Washington, D.C., 35, 59n13, 134, 145, 159, 217–18, 240 Washington Mutual (WaMu), 47–8, 56 Washington Post, 47 wealthy class and disposable income, 70 and economic security, 55 and home ownership, 68 and ideology, 10, 64–5, 73–6, 77n3, 79n21 and income share, 65–6, 68 and media, 74 and policy, 96 tax cuts for, 64–6, 86, 96n4 Welch, Brynn, 111 White, Brent, 52–3, 65 Whitman, Douglas Glen, 112–13 Wilkinson, Richard, 68 Williams, Toni, 248 Willis, Lauren, 248 Windows on the World (World Trade Center), 230 women, 12–13, 15–16, 58n4, 69, 167–83 See also gender, and unemployment women, infants and children (WIC), 200 work hours, 67–9 “working hard,” 66 World War I, 65, 71–4 World War II, 71, 77, 180 WorldCom, 56 “x-efficiency,” 94 Xiao, Jing Jian, 244 Yellen, Janet, 159n2 Young, Allyn, 90 Zandi, Mark, 242 ... Economic Downturn: Beyond the Usual Economics Edited by Martha A Starr Consequences of Economic Downturn Beyond the Usual Economics Edited by Martha A Starr CONSEQUENCES OF ECONOMIC DOWNTURN Copyright... of Tables and Figures vii List of Contributors xi 1 Beyond the Usual Economics Martha A Starr Part I Ethics, Social Responsibility, and Economic Policy The Economic Crisis and the Crisis in Economics. .. as President of the Association for Social Economics Chapter Beyond the Usual Economics Martha A Starr T he economic downturn of 2007–09 inflicted considerable economic hardship on the U.S population.1