1. Turning the Corner: U.S. Economic Policy and National Recovery
Alumni Affairs Dinner
Alumni Center
Northeastern University
Barry Bluestone
Dean, School of Social Science, Urban Affairs, and Public Policy
March 4, 2009

2. The 1970s - Troubled Times OPEC and the Energy Crisis
Declining Productivity; Sluggish Growth, Rising Unemployment
Wage Declines, Stagnant Family Incomes
Growing Inequality

3. The 1980s Supply Side Economics Massive Tax Cut/Massive DOD Buildup
Growing Federal Deficits
Deregulation
Privatization
Rising Inequality

8. Why Prosperity Ended? The Conventional Wisdom
Oil Crisis
Strong unions generate Wage-Price Spiral
Mushrooming Federal Deficits
Inflationary Pressures
Falling Family Saving Rates
Too much Government Regulation
Too much Social Welfare Spending
Corporate Myopia in face of Import Challenge

9. Prosperity Regained

12. Wall Street Model Policies
Tight monetary policy to keep inflation under control
Deficit Reduction/Surplus Generation to raise aggregate savings rate
Free Trade to keep prices down
Weak Trade Unions to keep wages down
Welfare Reform aimed at increasing labor supply

13. The Wall Street Model of Growth

14. The Wall Street Model

15. You Live by the Wall Street Model … You die by the Wall Street Model
Based on stock market appreciation
Focus on financial transactions, not real production of goods and services
Casino Society
Massive Debt – Government, Households, Foreign
Massive Redistribution of Income and wealth
... CREATES MASSIVE INSTABILITY

17. 11,616,000

18. January 2009:
7.6%

19. Loss in Employment (December 2007-December 2008)
Change in Employment
Percentage Change
Construction
-632,000
-8.5%
Manufacturing
-791,000
-5.7%
Retail Trade
-522,000
-3.4%
Financial Services
-148,000
-1.8%
Temp Services
-490,000
-19.0%

22. Personal Savings Rates Plummeting

24. Federal Debt nearly double since 2000

25. The Debt Bomb
With massive personal debt, federal debt, and adverse balance of trade
With the Wall Street psychology of quasi-Ponzi schemes, the tinderbox was set for ignition
The unraveling of the subprime mortgage market was the spark that set in motion the economic collapse we have experienced

26. Economic Collapse Massive Foreclosures
Massive Wealth Effect … with personal portfolios in free-fall
Translation of financial collapse into real economy … with sharp cutbacks in demand and consequently sharp increases in unemployment
Now states and cities in free fall, adding to the crisis
Vicious Circle … with a stimulus package perhaps not large enough or soon enough to keep unemployment from reaching 10 percent by late this year

27. A Better Stimulus Package

28. What Really Needs to be Done? – National Economy
Phase I – Instant Stimulus
“Uncle Sam” Debit Card
Home Price Insurance System
Phase II – Short-term Stimulus
Massive General State and Local Revenue Sharing
Extended Unemployment Benefits
Phase III – Longer-term Stimulus
Public Infrastructure Investment