Crunch: Why Do I Feel So Squeezed? (and Other Unsolved Economic Mysteries)

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Is Social Security really going bust, and what does that mean to me? If I hire an immigrant, am I hurting a native-born worker? Why does the stock market go up when employment declines? Should I give that homeless guy a buck? What's a “living wage”? How much can presidents really affect economic outcomes? What does the Federal Reserve Bank really do? And when the pundits say the economy's doing so well, why do I still feel so squeezed?

If you'd like some straight answers, premier economist Jared Bernstein is here to help. In Crunch he responds to dozens of questions he has fielded from working Americans, questions that directly relate to the bottom-line, dollars-and-cents concerns of real people. Chances are if there's a stumper you've always wanted to ask an economist, it's solved in this book.

Bernstein is fed up with “Darth Vaders with PhDs” who use their supposed expertise to intimidate average citizens and turn economics into a tool for the rich and powerful. In the pages of Crunch, Bernstein lays bare the dark secret of economics: it's not an objective scientific discipline. It's a set of decisions about the best way to organize our society to produce and distribute resources and opportunities. And we all can, and must, participate in these decisions. “America is a democracy,” he writes. “And in a democracy all of us, not just the elites and their scholarly shock troops, get to weigh in on biggies like this.”

Our economy will be only as fair as we can make it. In this lively and irreverent tour through everyday economic mysteries, Bernstein helps us decode economic ”analysis,” navigate through murky ethical quandaries, and make sound economic decisions that reflect our deepest aspirations for ourselves, our families, and our country.

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1 The Big Squeeze

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As I solicited questions for this book, the one above kept coming up, in one form or another. And while I’m not happy about that, it is affirming, because it is, in my view, the great, unanswered economics question of our time.

It’s not that middle-class people are sliding into poverty, hunger, and homelessness, though in an economy as wealthy as ours, too many people do face those conditions. The sense I got from questioners, a sense I’ve tried to convey in the answers I offer below, is that something is “off” in the new economy. We hear great economic news about financial markets, prices, profits, growth, productivity, and globalization, yet many of us live with a weight of economic anxiety that our parents would not have recognized. Most of us are making progress as we age, but the path seems steeper than we might have expected, with deeper potholes along the way. For some of us, things we aspire to, like secure health care or the ability to send our kids to a good college without taking on a lot of debt, are still within our grasp, but we have to reach farther to grab them, and it’s harder to hold on.

 

2 Don’t Know Much About GDP

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As a guy who never paid enough attention to professional sports—I love watching skilled athletes, but there are too many commercials and time-outs—to this day I get anxious and uncomfortable when people start talking about sports. For one, I don’t know enough of the vernacular. (For example, pre-Google, I didn’t know what a “triple-double” was in basketball. When I finally asked a friend, he was so convinced I was kidding that he wouldn’t tell me.)1

A lot of people feel that way about economic terms of art, so this section presents the skinny on some of the biggies. Be forewarned: These are not Google or Wikipedia definitions. Along with the basics, I try to impart a sense of what these statistics reveal about how well our economy is working, and not necessarily from the perspective of the financial market analyst but rather from that of working families throughout the income scale.

My hope is to both guide you through a painless tour of ideas and concepts you’ve been dying to get under your belt—like what does GDP stand for, anyway? And what’s up with the Federal Reserve?—and provide some commentary on how they relate to the three principles that frame much of our analysis.

 

3 Political Economy

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Principle #1—and it’s first for a reason—emphasizes the role of power in economic outcomes, a role that gets virtually no attention in formal economics training. Yet, as stressed throughout these pages, the power to steer economic goodies your way is at the heart of our most fundamental economic challenge: the growing gap between overall growth and most families’ living standards. Imbalanced economic power is at the heart of the crunch.

In this country more than any other advanced economy, when you’re talking about power, you’re in spitting distance of politics. Thus, it’s not enough to be an economist—to know the rules of economics. You’ve got to be a political economist: You must know how the rules of economics interact with the power structure of politics.

I’m not simply talking about lobbyists’ tweaking legislation their way, or the congressperson who gets the “pork projects” for his or her district (that is, wasteful spending projects that line pockets back home), though of course that’s no small part of understanding the intersection between politics and economic outcomes. I’m talking about political economics that goes on beneath the radar—which is where most of it takes place.

 

4 The World Ain’t Flat As All That

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I’m glad the economy is more global now than ever before. I personally think it’s exciting to contemplate the implications of connectedness— the fact that ideas, people, money, food, books, products, parts, energy, and gazillions of gigabytes of ones and zeros now transverse the globe with unimaginable speed. As a parent of two children adopted from China, I wake up every day in a global household, often much earlier than I’d like. And as an economist, I appreciate the opportunity that globalization affords the less advantaged to improve their living standards, their health, and their personal and societal potential through trade.

OK, that was all heartfelt and true, but I’m done channeling Thomas Friedman. Globalization is all of the above, but it’s also part of the crunch we’re deconstructing here. That is, to understand all sides of this issue, you’ve got to analyze globalization in the context of early-21st-century, American-style economics, where principle #1—power is a key economic determinant—dominates. The problem is that the minute you start to do so, some economic zealot wants to label you a protectionist and cast you from the temple.

 

5 The Reconnection Agenda

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So, you want to change the world?

Certainly there has been a strong critical strain in much of this book. Yet I’ve tried to stress the tremendous potential of our economy to lift the living standards of the broad majority. It is well within our means to loosen the squeeze, unpack the crunch, and reconnect the growth of incomes across the income scale to that of productivity growth, and not just for a couple of quarters. This reconnection of growth and shared prosperity needs to be the central goal of economic policy, and each idea below was conceived of (and not necessarily by me) in that spirit.

When choosing the policy ideas proposed here, I’ve employed one other selection criterion: Each is under discussion in some prominent circles. In the interest of realism, there’s nothing too pipe-dreamy here. Of course, that doesn’t mean any of these ideas will reach fruition. Making that happen is the subject of the final chapter.

The idea is to outline the framework for the solutions to our most important economic challenges. The devil may be in the details, but my goal here is not to wrestle with Satan (that’s my day job). It is to distill these challenges down to the one or two key policy pressure points (PPPs) that form the core of a successful initiative in these various areas. The PPPs are the points that any serious attempt to address the issue must speak to. My hope is that readers can then look for these core themes when policymakers start trotting out ideas.

 

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