Dean Baker is obsessed with the U.S. stock- and housing-market bubbles. The economist and author has written a book to help laypersons get a better grasp on our post-bubble mess, the end of which is nowhere on the horizon.
Plunder and Blunder: The Rise and Fall of the Bubble Economy begins by introducing the “very human policy choices” made since the Reagan era. These policies paved the way for today’s wave of home foreclosures, job losses and taxpayer bailouts for bank failures. A post-World War II trend of rising wages which helped create a middle class ended, thanks to company owners and lawmakers attacking labor unions. The deregulating of finance spawned a debt trap for working Americans.
Next, Baker turns to the roots of the stock and dollar bubbles in the Clinton era. What responsibility do former Federal Reserve Chairman Alan Greenspan and former Treasury Secretary Robert Rubin have in spurring both market bubbles? Baker examines the duo’s roles, revealing the causes and consequences of their policies for capital and labor.
Then Baker delves deeper into the boom in stock prices. Energy firms like Enron, politically connected as fundraisers to former President George W. Bush, profited from weak auditing practices, looting (as we well remember) ratepayers in California and elsewhere. Baker, who is not anti-capitalist, understands that the system needs more, not less, oversight to prevent such fraud. “Bubble euphoria” made this fact hard to see, infecting reporters who should have been watchdogs in the public interest.
The housing bubble emerged at the turn of the 21st century. Greenspan, as home prices began to rise in 2002, testified before Congress on the reasons for the real-estate boom. He offered factors of supply and demand, standard microeconomics. Baker spends a chapter investigating the validity of each of Greenspan’s claims.
Then Baker moves on to survey the excesses—from toxic loans to risky investments—that worsened the current economic and financial disaster. Mid-2006 marked the end for the housing bubble, with the newest homebuyers the most at risk, writes Baker. The “perverse policy incentives” that underpinned the speculative insanity were not the half of it. Recently, our politicians bailed out the financial institutions at fault, a bit like a fire department giving gas cans to arsonists.
Baker’s final two chapters cover ways to learn from the past 15 years of a bubble-driven economy. His expertise comes from his day job as co-director of the Center for Economic and Policy Research, a progressive think tank in Washington, D.C.
To this end, Baker argues for the Fed to regulate rather than promote bubbles. He also makes an argument against U.S. currency policy that supports a high value for the dollar. This choice prices American-made goods out of the global market, a force in the loss of 4 million factory jobs nationwide since 1998.
Some with power in the worlds of economics and politics speak of the need for those below them to be accountable. Baker agrees, but he also calls for those at the top to lead by example. Begin with the high-paid heads of major institutions whose policies have failed and caused widespread harm. They should deal with the consequences of their actions, as do cooks, custodians, nurses and teachers—in short, most of us.