Dollars and Sense

DOLLARS
The “Secular Stagnation” Debate
May | June
PAGE 7
2015
Will Abenomics Work?
&SENSE
PAGE 15
Primer on Land Reform
U.S. & CAN: $4.50

PAGE 24
What Full Employment Would Cost

REAL WORLD ECONOMICS PAGE 30
The Student
Loan
Crisis
and the
Debtfare State
Plus: The Assault on Retirement

• Social Security Absurdity
• The Pension-Busters’ Playbook
• Class-Based Pension Math
DOLLARS < From the Editors
&SENSE Reform and Revolution

REAL WORLD ECONOMICS
Dollars & Sense magazine explains the workings of

F or mainstream liberalism, it is an article of faith that our social ills can be fixed by this
or that relatively modest government intervention. There’s certainly some truth to the
view that economic outcomes—especially those of so-called “free markets”—can be im-
the U.S. and international economies and provides
left perspectives on current economic affairs. It is proved upon by well-designed public policy. Even an honest neoclassical economist
edited and produced by a collective of economists,
journalists, and activists who are committed to social
should recognize many instances of “market failure,” and so the need (at least sometimes)
justice and economic democracy. for government intervention. But political institutions in capitalist societies are not gen-
the d&s collective erally arranged so as to generate the right interventions—even “sensible” public policies
Betsy Aron, Nancy Banks, Nina Eichacker, that would seem to benefit virtually everyone, to say nothing of those that would benefit
Peter Kolozi, Lyden Marcellot, John Miller,
Jawied Nawabi, Kevin O’Connell,
the majority at the expense of powerful elites.
Linda Pinkow, Alejandro Reuss, In the exercise of government power, elites often hold the trump cards. The policies
Dan Schneider, Zoe Sherman, Bryan Snyder,
Chris Sturr, Jeanne Winner
adopted often exacerbate social problems, rather than reducing them. Thinking of social
problems as basically caused by the misdeeds of private actors coupled with the inaction
staff
magazine editors Alejandro Reuss, Chris Sturr
of government, then, is not generally correct.
business manager Nancy Banks Susanne Soederberg gives a shining example in her cover story “The Student Loan Crisis
development director Linda Pinkow
and the Debtfare State.” Soederberg argues that the “consumer protection” framing of the
intern problem—that the solution is to get government involved to rein in the predatory practices
Christopher J. Cooper
of private educational lenders—is fundamentally flawed. The “debtfare state,” in her view, has
work study actively facilitated such practices. Government policy has pushed higher education into debt-
Autumn Beaudoin
based financing, and the state has acted as the enforcer of student debt obligations.
the d&s board Christopher J. Cooper’s “Active Culture” article, “The Crisis at Corinthian,” provides a stark illus-
Jim Campen, Gerald Friedman, John Miller,
Linda Pinkow, Steven Pressman, tration—exposing not only the predatory practices a for-profit college educational chain, but
Alejandro Reuss, Abby Scher, Chris Sturr also the Department of Education’s harsh insistence on full debt repayment.
associates Junji Tokunaga’s article on the economic policies of Japan’s Prime Minister Shinzo
Aziza Agia, Randy Albelda, Teresa Amott, Abe, too, illustrates this point. There has been no lack of intervention by the Japanese
Sam Baker, Marc B aldwin, Rose Batt,
Rebecca Bauen, Phineas Baxandall, government to address the country’s decades-long economic stagnation. However, poli-
Marc Breslow, Chuck Collins, James Cypher, cies that make perfect sense from a mainstream Keynesian standpoint—expansionary
Laurie Dougherty, Laura Dresser, Janice Fine,
Ellen Frank, Tami J. Friedman, Sue Helper, monetary and fiscal policies—have gone along with others that both favor elites at the
Thea Lee, David Levy, Arthur M acEwan, expense of the majority and are likely to impede the country’s economic recovery—like
Mieke Meurs, Marc Miller, Ellen Mutari,
Amy Offner, Laura Orlando, Robert Pollin, tax cuts for corporations coupled with tax hikes on ordinary people.
Smriti Rao, Adria Scharf, Susan Schacht, In her piece on the current economic crisis in Europe, Marie Duggan points to a failure
Chris Tilly, Ramaa Vasudevan,
Thad Williamson of political institutions to deal with trade and debt imbalances, except in ways that are
design
extremely costly and painful for ordinary people. Europe’s main policy-making institu-
layout Alejandro Reuss and Chris Sturr tions have pushed—especially on Greece—austerity policies sure to inflict great suffer-
front cover illustration ing on the people and likely to undermine economic growth across Europe. Duggan
© Michael Morganstern (mmorganstern.com)
printing Boyertown Publishing points out that John Maynard Keynes developed a better solution way back in the 1940s:
Dollars & Sense (USPS 120-730) is published bimonthly
make surplus or creditor countries spend their surpluses (rather than hoarding them),
by the Economic Affairs Bureau, Inc., which will boost demand for goods in the deficit countries, allowing the latter to grow
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Both John Miller’s “Up Against the Wall Street Journal” and Arthur MacEwan’s “Ask Dr.
mailing offices. Dollar” point out that the burning problems in the U.S. economy—how to achieve sus-
For subscription information, contact Dollars & Sense, PO tainable growth and good jobs for all who want them—are not economic, but political.
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Sociological Abstracts, PAIS Bulletin, Alternative Press
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Jawied Nawabi’s “Primer” on land reform and its importance to economic develop-
2 years, $39.95; institutions, $45/year; Canada, $33/ ment really gets to the root of the matter. Part of the case for land reform, he notes,
year; other foreign, $49/year (airmail), plus $20 for
institutions. Back issues available for $5.00 prepaid, or is economic—for example, small farms actually produce more output per acre than
on microfilm from UMI, 300 N. Zeeb Road, Ann
Arbor, MI 48106. large landholdings. However, the crux of the case is not narrowly economic, but “socio-
political.” Land reform is so essential to economic development because the power of
www.dollarsandsense.org
large landlords stands in the way of needed development policies.
In other words, you may aim at sensible, necessary reforms. But to get those reforms,
you just may need a revolution. D&S
DOLLARS
&SENSE
REAL WORLD ECONOMICS
NUMBER 318 | MAY/JUNE 2015

CON TENT S
TH E R E GUL AR S
4 the short run
5 active culture
Corinthian 100 Debt Strike
page 15 page 19
7 up against the wall street journal
The “Secular Stagnation” Debate
FEATUR ES
24 primer
9 The Student Loan Crisis and the Debtfare State Land Reform and Development
How the government helped make the debt trap the new normal.
SUSANNE SOEDERBERG 28 in review
Jennifer Taub, Other People’s Houses
15 Can “Abenomics” Revive Japan’s Economy?
Why we need a progressive alternative. 30 ask dr. dollar
JUNJI TOKUNAGA What Would Full Employment Cost?

19 A Way Out for Greece and Europe
Keynes’ Advice from the 1940s
MARIE CHRISTINE DUGGAN
MAY/JUNE 2015 l DOLLARS & SENSE l 3

< The Short Run
By Alejandro Reuss, Zoe Sherman, and Jeanne Winner
Google at the Gate of the world. And that view is filtered ment, by funding research at universi-
On April 21, Google started giving pref- through a very small number of portals. ties, while the companies spend more
erence in search results to sites that The gatekeepers have real power, with- money on marketing than research.)
display well on mobile devices. A grow- out democratic accountability. Now, the proposed TransPacific
ing proportion of web activity takes “Don’t be evil” may be Google’s Partnership (TPP) would allow
place through smartphone screens, so motto. But power corrupts. —ZS pharmaceutical companies to add years
it is not an unreasonable policy. to their current patents, and even re-
patent known medications, quashing
However, the move provides a telling TPP: Tremendous competition from generic alternatives.
illustration of the concentration of pow-
er. Since Google’s February announce- Pharma Profits We only know details like these
ment of the new policy, businesses Do you worry that medical care might thanks to leaks, especially those pub-
have scrambled to update their website cost too little? Pharmaceutical com- lished by WikiLeaks. For some reason,
designs—a race in which bigger busi- panies do, even though the top com- negotiations for the TPP have been
nesses surely have the advantage. The panies reported profit rates of 20% or secret. Higher prices for medicine, ex-
change is also a boon to sellers of mobile more last year. porting more jobs, lowering wages,
and curtailing environmental protec-
tion. What’s not to like? —JW
CEOforPrez.org?
Former Hewlett-Packard CEO and
now presidential aspirant Carly Fiorina
forgot something on the way to the
Republican nomination—registering
the domain name CarlyFiorina.org.
A decidedly non-admiring member of
the public took advantage of the op-
portunity to grab the site, posting:
“Carly Fiorina failed to register this do-
main. So I’m using it to tell you how
many people she laid off at Hewlett-
Packard. It was this many: :( :( :( …”
The frowny-face emoticons go on for
rows and rows, then: “That’s 30,000
people she laid off. People with fami-
lies. And what does she say she would
have done differently? ‘I would have
done them all faster.’—Carly Fiorina.”
That made us think, what might
analogous websites look like for other
prominent presidential candidates? For
Chris Christie, maybe the number of
cars stuck in traffic during the infamous
Bridgegate incident. For Rick Perry,
perhaps a count of the federal agencies
devices. (Google is expanding that com- Since the 1980s, Big Pharma has suc- he wants to abolish (one … two …
ponent of its business.) In short, Google cessfully lobbied Congress to grant the oops, what was the third one again?).
says “Boo!” and the whole landscape of industry more and more years of mo- And for Hillary Clinton, the former sec-
commerce changes. nopoly control, allowing them to steadi- retary of state in an administration that
And the consequences are also politi- ly raise prices, ostensibly to pay for re- has killed thousands as “collateral dam-
cal, cultural, and social. What we see on- search and development. (In fact, much age” in drone strikes. Hmm … there’s no
line is a growing fraction of what we see of the research is paid for by the govern- emoticon for that, is there? —AR D&S
4 l DOLLARS & SENSE l MAY/JUNE 2015

< Active Culture
The Corinthian Crisis

Former students at for-profit college chain go on debt strike.
BY CHRISTOPHER J. COOPER
G abby had worked in call centers

for years, and was tired of it. She
had always wanted to work in the
medical field. Gabby (not her real
name) is a working adult, not a teen or
even in her twenties. She isn’t trying to
become a doctor. She just wants a
working-class job in which she can
make a decent living and feel fulfilled.
In 2012, she finally took the leap to-
ward a career change. She decided to
enroll in the Everest Institute, a branch
of Corinthian Colleges, Inc. (CCI), to get
the certification she needed.
Gabby graduated at the top of her
class, with a 3.9 grade point average,
and was selected to be an “ambassador”
for the institution. She was accepted for
an unpaid externship program in a
medical office. One year later, Gabby
holds a temp position in the medical
field, but she makes less money than
she did at the call center, has no health
insurance, and now has upwards of
$20,000 in student-loan debt.
Meanwhile, the school she attended
was forced to shut down due to accusa-
tions of fraud and misrepresentation. Screen capture from Debt Collective website (debtcollective.org/studentstrike).
She is still expected to pay the full debt
she incurred for her year at Everest. Education Department’s answer … Everest, WyoTech, and Heald. CCI
In a world that puts increasing value Keep on waiting.” made in excess of $1 billion in annual
on higher education, some are profiting Since the Corinthian 15’s founding, revenue via for-profit colleges.
from people who, like Gabby, look to it has grown to over 100 former- The accusations of fraud and mis-
education as a step up to better working- student debt strikers, and has changed representation at CCI go back years.
class jobs. But some former students are its name to the Corinthian 100. Clearly, Back in 2004, alumni filed legal claims
fighting back. The “Corinthian 15” were this number has the potential to grow against the company for misrepresen-
15 former students at CCI institutions larger, and the larger it gets the more tation of the ability to transfer credits.
who united, in February 2015, in a debt pressure it can put on the powers that In 2005, four students filed suit claim-
strike—refusing to pay back loans they be to cancel these debts. ing that they were not properly trained
took out to attend an institution that CCI was founded in 1995 by five to pass national accredited exams. In
failed them. The debt-striking alumni executives at National Education 2008, alumni filed lawsuits claiming
met with Department of Education Centers, Inc. (NECI), a for-profit com- that they were presented misleading
(DoE) officials in March 2015 to express pany in the vocational-education in- statistics about graduates’ employ-
their outrage about being targeted and dustry. If you have not heard of ment success. Their feelings of being
exploited for profits, and to ask for help. Corinthian, you may have heard of the targeted and used were essentially
As the Huffington Post put it, “The company by its school names, like verified during a later investigation.

< Active Culture
remaining 28 campuses. Still, former

NATHAN HORNES II students are left owing thousands of MAKENZIE VASQUEZ
dollars, not only to private education-
I graduated from Everest with Who should have to pay for
al lenders, but also to the DoE in the
a Bachelor’s degree in Corinthian’s misdeeds? Not
form of federal student loan debt.
Business and a 3.9 GPA. But me. How about Wells Fargo,
The Corinthian 100 are now de-
today I work two minimum Corinthian’s largest investor?
manding that the DoE cancel the feder-
wage jobs. I owe $78,000 in Wells Fargo is a billion dollar
al student debt they owe for attending
student loan debt even corporation that profited from
CCI. The idea of debt forgiveness makes
though Everest is being sued poverty. They should have to
sense: Students bore both explicit costs
for fraud. Still, the pay to cancel all Corinthian
(tuition and fees, interest on their edu-
Department of Education has loans and fund free college
cational debt, etc.) and many implicit
refused to cancel my debt. for everyone led into this stu-
costs (such as time they could have
been at work or in other educational dent debt trap.
In internal company documents ob- programs) as a result of CCI’s abuses.
tained by the Department of Justice, However, despite the fact that CCI has Yet, thanks to the Corinthian 15,
CCI described its target demographic been investigated, fined, and effectively turned Corinthian 100, and perhaps
as “’Isolated, ‘impatient,’ individuals shut down by the Department of thousands more from Corinthian and
with ‘low self-esteem,’ who have ‘few Education, the DoE is still expecting elsewhere, it will not be easy-going
people in their lives who care about students to repay. It is hard to figure out for the parties profiting from this
them’ and who are ‘stuck’ and ‘unable which is more shameful: The company misfortune either. That’s the unex-
to see and plan well for future.’” that markets career development via pected twist in the plan of preying
In 2014, the DoE began an investi- for-profit colleges, preying on low-in- on “easy” targets. The targets are now
gation of CCI. By that July, it forced come people who are just trying to soon the move. D&S
the company to shut down twelve lidify their place in the working class? C H R I S T O P H E R J . C O O P E R is an
schools and sell 85 others. The Or the Department of Education, which economics student at UMass-Boston and
Consumer Financial Protection Board knows what CCI has done, and is still a Dollars & Sense intern.
(CFPB)—after a ten-month investiga- charging the former students for the
tion—filed a lawsuit over CCI’s loan crime to which they are victims? S O U R C E S : Jeffrey C. Billman, “Bad Education,”
program and debt-collection practic- In general, the conditions for can- Orlando Weekly, April 4, 2005 (orlandoweekly.com); The
People of the State of California v. Heald College, LLC;
es. When the DoE leveled a $30- cellation of student debt are highly
Corinthian Colleges, Inc.; Corinthian Schools, Inc.; Sequoia
million fine against CCI in April restrictive. (See Susanne Soederberg, Education, Inc.; Career Choices, Inc.; MJB Acquisition
2015—having found widespread “The Student Loan Crisis and the Corporation; Titan Schools, Inc.; Rhodes Colleges, Inc.;
“misrepresentation of job placement Debtfare State,” p. 9) For example, one Florida Metropolitan University, Inc.; Everest College
rates to current and prospective stu- program requires former students to Phoenix, Inc.; and DOES 1 through 100 Inclusive, accessed
at the website of Inside Higher Education (insidehigh-
dents”—the company shut down its pay 15% of their disposable incomes
ered.com); “Class Action Suit Filed Against Corinthian
towards past educational loans. Then, Colleges, Inc. on Behalf of Medical Assistant,” Reuters,
after 25 years, a student can apply for March 12, 2008 (reuters.com); Danielle Douglas-Gabriel,
TANESHA MATTHEWS cancellation of the remaining balance. “A dangerous revolt: People are refusing to pay back
The National Consumer Law Center student loans,” The Washington Post, Feb. 25, 2015;
I owe $60,000 for an online Office of the Attorney General, State of California
degree. Everest promised that (NCLC), however, suggests that the
Department of Justice, Press Release, “Attorney General
I could transfer my credits. DoE has the authority to cancel the Kamala D. Harris Files Suit in Alleged For-Profit College
They promised me job place- illegitimate Corinthian-related debt Predatory Scheme,” Oct. 10, 2013 (oag.ca.gov); U.S.
ment assistance. But they with no strings attached. “Under the Department of Education, Press Release, “U.S.
Higher Education Act,” says NCLC at- Department of Education Fines Corinthian Colleges $30
broke their promises. I have million for Misrepresentation: Action complements
ended up in a worse situation torney Robyn Smith, “the Department
ongoing steps to protect students and consumers
than before I attended classes of Education has clear statutory au- against predatory for-profit colleges,” April 14, 2015 (ed.
at Everest. Now I am deep in thority to grant automatic debt cancel- gov); National Consumer Law Center, Press Release,
debt, and I can’t go to a real lations to Corinthian student loan bor- May 6, 2015 (nclc.org).
school because I owe too rowers.” Of course, this doesn’t mean All former-student testimonials on this
much money. that debt cancellation will be easy for page from Debt Collective website
former Corinthian students to win. (debtcollective.org/studentstrike).

< Up Against the Wall Street Journal
W $J
The Specter of Secular Stagnation
Will economists face up to the crummy, unequal economy?
BY JOHN MILLER
“The secular stagnation challenge then
is not just to achieve reasonable growth,
H yman Minsky, one of the 20th cen- do so in a financially sustainable way. but to
”
tury’s leading theorists of financial — Lawrence Summers, “What to Do
about Secular Stagnation,” World Econ
fragility, used to say that there was Forum, Oct. 31, 2014. omic
nothing wrong with the discipline of “Does the U.S. economy face secular
macroeconomics that another Great stagnation? I am skeptical, and the sour
skepticism go beyond the fact that the ces of my
Depression wouldn’t cure. Today, al- U.S. economy looks to be well on the
employment today.” way to full
most six years since the official end of — Ben Bernanke, “Why Are Interest
the Great Recession, such an effect Rates So Low, Part 2: Secular Stagnatio
Bernanke’s Blog, Brookings Institutio n,” Ben
might finally be taking hold. n, March 31, 2015.
Economist (and former treasury
secretary and World Bank chief econo- The Secular Stagnation Debate
mist) Lawrence Summers is champion- Nearly five years into the economic re- Great Recession in 2008, the European
ing what he calls the “secular stagna- covery, the U.S. economy expanded by Central Bank and the U.S. Federal Reserve
tion” hypothesis: the United States and just 2.4% in 2104, a far cry from the 4.1% Board did the same, with the Fed also
other industrialized economies have average for all other economic recover- buying long-term corporate and govern-
been suffering for nearly two decades ies since 1960. Even more importantly, ment bonds (engaging in “quantitative
from a chronic lack of demand—a secular stagnation is not just the “new easing”) in an attempt to bring down
shortfall of both private and public mediocre” since the Great Recession. long-term interest rates. “Interest rates
spending not just inducing a tempo- The U.S. economy has produced just two have been, and remain, very low,” Federal
rary recession, but causing long-term periods of rapid growth in the last twen- Reserve Chair Janet Yellen rightly cau-
(or “secular”) economic growth to slow. ty years—in the late 1990s and in the tions, “and if underlying conditions had
Summers maintains that underlying mid 2000s. Both were supported by low truly returned to normal, the economy
economic growth has declined to the interest rates, massive debt, and specula- should be booming.”
point that “it may be impossible to tive bubbles. Summers concludes that Today, short-term interest rates con-
achieve full employment, satisfactory the U.S. economy has been unable to trolled by central banks remain barely
growth and financial stability simulta- achieve adequate growth for a long above zero: 0.25% in the United States,
neously simply through the operation time, but that this has been “masked by 0.1% in Japan, and 0.05% in the euro-
of conventional monetary policy [that unsustainable finances.” zone. Such low interest rates leave cen-
lowers interest rates].” The signs of stagnation are even tral banks with practically no room to
It’s certainly ironic that Larry clearer around the world. The IMF has cut interest rates further to boost eco-
Summers is today’s chief proponent of repeatedly lowered its growth forecast nomic growth.
the secular stagnation hypothesis, since for Japan, which is mired in decades Real (inflation-adjusted) long-term
he played a key role in enacting policies of stagnation (see Tokunaga, “Can interest rates are down as well. Real
that contributed to stagnation. As trea- ‘Abenomics’ Revive Japan’s Economy?” interest rates on ten-year government
sury secretary under Clinton, he led the p. 15), and has done the same for the bonds in the Group of Seven (G7) in-
charge to deregulate derivatives trad- eurozone since 2007 (see Duggan, “A dustrialized countries (Canada, France,
ing, which would contribute mightily to Way Out for Greece and Europe, p. 19). It Germany, Italy, Japan, the UK, and the
the financial crisis. And as chief eco- estimates growth in both Japan and the United States) have fallen from just
nomic advisor in the Obama adminis- eurozone at little more than 1% a year under 5% in the early 1990s to 0.6% at
tration, Summers quashed proposals to through 2020. the end of 2013.
enlarge the size of the fiscal stimulus, The mediocre growth persists despite What explains this decline in inter-
which would have gone a long way very low interest rates, embraced by gov- est rates? Expansionary monetary poli-
toward boosting growth. ernments to encourage borrowing and cy, initiated by central banks to lower
Nonetheless, should the secular boost spending. As far back as the early rates and counteract slowing econom-
stagnation hypothesis take hold, it 1990s, the Bank of Japan cut short-term ic growth, is part of the answer. For
could help open up space for policies interest rates by dramatically expanding Summers, however, the chief explana-
that could improve many people’s lives. the money supply. With the onset of the tion for the drop in the real interest

< Up Against the Wall Street Journal
rate (the price of savings), is the chron- ing trade advantage.” But chalking up near-zero real interest rates for govern-
ic excess of savings (the supply of sav- excess savings entirely to developing- ment debt, public investment projects
ings) over investment (the demand for world trade policies, as Bernanke does— would generate enough revenue to ser-
savings). He calls this the “essence of not acknowledging the role of ever- vice the associated debt as long as those
secular stagnation.” Private savings rising domestic inequality and massive projects yielded any positive return. For
(largely retained earnings held by cor- debt burdens—is literally one-sided. those in the United States still concerned
porations) have exceeded private in- Moreover, changing exchange rates, as about the buildup of public debt,
vestment in the eurozone since 2001, Summer points out, merely transfers Summers has proposed that the U.S.
in Japan since well before 2000, and in spending from one country to another, government enact a carbon and gas tax
the United States since 2008 (after the instead of adding to it. to pay for infrastructure investments.
housing bubble burst). There are yet more radical implica-
tions of the stagnation hypothesis that
Demand-Side or Supply-Side? If the main problem get us closer to the roots of the ongoing
Summers attributes the excess of sav-
ings to too little private investment. A
is a shortfall in economic crisis. Among the factors that
Summers lists as contributing to a short-
shortfall of overall spending (or “aggre- private-sector fall of investment is income inequality.
Stagnant wages and booming profits
gate demand”) is holding investment
below the levels necessary for full em- demand, then the have reduced consumer spending and
ployment. In the middle of last year added to corporate retained earnings.
(second quarter 2014) business invest- public sector needs Worsening inequality—which Summers
ment in the G-7 countries stood at says threaten to turn the United States
12.4% of GDP, well below the 13.3% to boost spending. into a “Downton Abbey economy”—
level in 2008 and further behind the does not only diminish demand. It also
13.8% peak in 2001. On the other hand, if Summers is empowers moneyed interests to resist
That’s not the way former Fed Chair right and the main problem is a persis- public spending that would bring about
Ben Bernanke sees it. Yes, economic tent shortfall in private-sector demand continuous full employment.
growth is slow, interest rates are low, (in particular, due to lack of investment In the last analysis, the secular stag-
and private investment has fallen short demand), then the public sector needs nation problem is a political problem
of private savings. But Bernanke attri- to boost spending. For economist Paul rather than an economic one. With suffi-
butes that shortfall to a “savings glut,” Krugman, who has long maintained cient political will—and political
an over-supply of savings, rather than a that today’s economy suffers from a might—we could enact a program of
paucity of investment. What held back chronic lack of demand, that makes the large-scale public investment that would
economic growth (outside of the hous- secular stagnation hypothesis “a very put an end to secular stagnation.
ing sector) from 2002 to 2006, he ar- radical manifesto.” Investments in clean energy (retro-fitting
gues, was that China and other coun- homes, upgrading the electrical system,
tries with large trade surpluses saved A Radical Manifesto? building mass-transit) and education
more than they invested and used their The secular stagnation hypothesis (reducing class size, improving school
excess savings to buy U.S. securities. does have radical implications, some building, and boosting financial aid for
That helped to finance the housing more radical than others. students) are both worthwhile for their
boom, but also drove up the value of Summers, for instance, favors a pro- own sake and have been shown to effec-
the dollar, making Chinese exports gram of enlarged and sustained public tively create jobs.
cheaper for U.S. buyers, and causing investment, “a natural instrument to pro- Surely that would be far better than
domestic production to suffer. mote growth.” Public investment is, in- an economy that depends on financial
Does it really matter if the problem is deed, much needed. Net public invest- bubbles and unsustainable household
a glut of savings or a dearth of investment (subtracting out depreciation) in debt to keep it from stagnating—and
ment opportunities? In fact, it does. The the United States fell from 1.5% of GDP that rewards the elites who stand in the
policy implications are quite different. in 2008 to just 0.5% of GDP in 2012, and way of needed reforms. D&S
If what’s plaguing the global economy is had actually turned negative in the euro-
Bernanke’s savings glut, the appropriate zone. And he has an answer for those J O H N M I L L E R is a professor of eco-
policy is to get emerging economies “ concerned that increasing public spend- nomics at Wheaton College and a mem-
to reduce interventions in foreign ex- ing would push government debt to ber of the Dollars & Sense collective.
change markets for the purpose of gain- unsustainable levels: In a world with S O U R C E S : Available at dollarsandsense.org.

The Student
© Michael Morgenstern (michaelmorgenstern.org).

Loan
The Student Loan Crisis and the Debtfare State
How the government and lenders have made the debt trap the new normal.
Crisis
BY SUSANNE SOEDERBERG
and the
Debtfare State
B Y S U S A N N E S O E D E R B E RG
E DU C AT I O N A L D E B T H A S B E C O M E A T I C K I N G T I M E B O M B . W I T H
over $1 trillion in outstanding loan balances, the student loan industry has a lot in common with
the sub-prime mortgage industry, which went into a devastating crisis in 2007-8. Both rely on a
financial innovation called “asset-backed securitization” (see sidebar) to raise capital and to hedge
risk—in other words, to raise money for loans and to reduce the likelihood that investors will lose
their money. Student loans asset-backed securitization—or SLABS—means student loan agencies
package student debts and sell them to investors who expect to get their money back, plus interest, as
students pay back their loans. In theory, selling off nicely bundled packages of debt to investors allows
these institutions to turn around more quickly and make new loans. For this reason, SLABS is touted
as the main channel through which the lending industry moves funds from investors to students—
and so is supposed to be of mutual benefit to students, lenders, and institutional investors such as
hedge funds and pension funds.
Like the sub-prime housing industry, however, SLABS ultimately depends on the ability of borrowers
to meet their debt obligations. Herein lies the rub. Since as far back as the recession of 2001, the majority
of student debtors have not been able to get decent paying jobs upon leaving college.
Poor job prospects, as well as mounting costs of basic needs such as health care and housing, mean many
college graduates have not been earning enough to pay back their loans. Default rates on student loans have
been climbing since 2003. By 2012, student loans registered the worst delinquency rates in consumer
credit, worse than even mortgage debts and credit cards.
Despite the uneasy relationship between the profitable student loan industry and growing student debt
defaults, students continue to borrow to pay for college, and educational loans are the only form of con-
sumer debt to increase markedly since 2008. The industry has grown steadily over the past several decades
in lockstep with rapidly rising tuition and fees—and with the government’s prioritization of loan-based
funding over grants. To understand the growth of this risky business, we need to first grasp the basic alli-
ance between government and finance in the profitable world of student debt.
Sallie Mae and the Student Loan Industry

The student loan industry is made up of a wide array of overlapping public and private actors and institu-
tions. There are two main categories of educational loans and lenders: public student loans, which are
issued by the federal government and represent the largest category of loans (85%), and private student
loans (15%), which are issued by a few large banks such as Wells Fargo and JPMorgan Chase. ››
S T U D E N T LO A N S A N D D E B T FA R E student loans. By far the largest, Sallie Mae (or,
more precisely, its offshoot company Navient),
By far the most powerful private actor in the provides service to 3.6 million loan customers on
industry is Sallie Mae, a former government- behalf of the U.S. Department of Education. Sallie
sponsored enterprise, or GSE (see glossary). Sallie Mae has been growing at such a rapid pace that it
Mae’s original role when it was founded in 1972 has been diversifying into areas such as debt collec-
was to raise funds by selling student loans (also tion, insurance and consumer banking, and the
known as debt securities) on secondary markets, issuing of credit cards to college students. Sallie
where investors buy securities from other inves- Mae remains the main lender of private student
tors. In this way, Sallie Mae could finance low- loans and the largest issuer of SLABS.
interest rate loans to increasingly more students
by subsidizing and guaranteeing repayment to Raising Funds, Reducing Risks—for Whom?
their private lenders. In 1996, Sallie Mae became SLABS is often presented by economists and neo-
the first GSE to be privatized and was subse- liberal policy makers as a highly efficient method
quently renamed the SLM Corporation— of raising capital and reducing risk for lenders,
although the moniker of Sallie Mae remains. including the risks of default and bankruptcy. This
In 2010, the Federal Direct Loan Program (see view of SLABS conveniently ignores the unequal
glossary) assigned Sallie Mae and four other private relations of power in the educational loan busi-
educational lenders (FedLoan Servicing, Great ness—and how the business generates revenue
Lakes Educational Loan Services, Nelnet, and from commissions, fees, and interest.
Direct Loan Servicing Center) the role of federal Consider, for example, a first-year undergrad at
loan servicers. These are companies that handle, UCLA who gets a four-year, $25,000 student loan
for a fee, the billing and other services on federal from Sallie Mae. Depending on the repayment
schedule and an interest rate based on creditwor-
thiness, this student could end up paying Sallie
Mae anywhere from $50,545.95 (based on a 145-
STUDENT DEBT GLOSSARY month repayment plan) to $70,259.07 (based on a
Default on a debt is the failure to make payment on interest or 193-month repayment plan) to even $74,126.61
principal when it falls due. (based on a 144-month deferred repayment plan).
The deferred repayment option costs more because
Dischargeable debt is debt that can be cleared through bank- the student is not required to make payments dur-
ruptcy proceedings. The federal government has enacted laws ing school or, according to the Sallie Mae website,
to prevent students from attempting to wipe out their educa- is allowed to “pay as much as you’d like.” Sallie
tion debt by filing for bankruptcy, unless they can prove “un- Mae’s rosy language leaves out why student bor-
due hardship”—and even then courts have been unwilling to rowers might choose loan terms that are more
discharge student debt. expensive in the long run: they are worried about
Federal Direct Loan Program (FDLP) is a new law, enacted in their ability to repay, because their families have no
2010, under which public student loans originate directly from extra resources and they may end up unemployed
the U.S. Department of Education, effectively ending the abil- or underemployed after graduating from college.
ity of banks to issue federal government-backed student loans. Shortly after issuing the loan to the UCLA stu-
dent, Sallie Mae securitizes the debt, packaging it
Government Sponsored Enterprises (GSEs) were created by
with a bundle of other similar student loans. It then
Congress to enhance the efficiency of funds flowing between
sells this debt bundle to an outside investor, like a
saving and borrowing in key areas of the economy. GSEs
pension or hedge fund, pocketing the total amount of
Fannie Mae and Freddie Mac are associated with housing,
the original loans plus fees and commissions. In doing
while GSE Sallie Mae deals with education. GSEs assist in the
so, Sallie Mae receives payment on its student loans
flow of funds by providing loan guarantees, reducing lenders’
immediately, as opposed to receiving small monthly
risk of losses due to borrower default.
payments for twelve to 16 years from students and
Stafford Loans are a kind of fixed-interest-rate federal student bearing the risk that these students might default.
loan. They are the most affordable type of student loan. Revenue is extracted in student debt collection, too.
Thanks to amendments to the Higher Education Act

Asset-Backed Securitization
Asset-backed securitization (ABS) is a financial technique used by governments and corpora-
tions to obtain funding on the basis of present and future revenue streams. It is classic finan-
cial alchemy: a special-purpose vehicle (a corporation, a trust, a limited liability company, or
a partnership) is permitted to transform illiquid assets (mortgages, student loans, credit card
receivables, song royalties, etc.) into tradable securities (bonds, swaps).
The use of ABS was first made famous by the recording artist David Bowie in 1997, when
he turned to this method to raise $55 million. Bowie generated this vast amount of money
by using current and future music royalties from his first 25 albums as collateral. These royalties were transformed into
bonds with a maturity date of 10 years—“Bowie bonds”—that were then available for purchase by investors.
In 2001, a Greek finance minister suggested that the Parthenon should be securitized as a way of reducing Greece’s
large public debt. In this case, a securitization bond would be issued, backed by a stream of future revenues from an-
nual ticket sales to tourists. The deal fell through, but the point remains: there are no limits to assets that can be re-
packaged and subsequently traded as securities (such as bonds) to raise capital.
ABS has been touted by its supporters as an efficient way of raising capital for corporations and governments
(cheaper than turning to banks or other funders for loans) as well as an effective tool for managing risk of default, as it
diversifies and thus spreads the risk. One way it is said to reduce risk on the underlying assets is by what is referred to
as “tranching,” or subdividing the assets into several classes of securities which are then tied to a large number of un-
derlying loans—a process that has given it the moniker “slice and dice financing.”
The 2008 sub-prime housing crisis revealed the dark side of this financial innovation. Mortgage-backed securities
(MBSs) were used to raise capital to lend to people who wished to purchase a home but were categorized as high-risk (i.e.,
“sub-prime”) borrowers. Instead of receiving small monthly payments for a period of 30 years, a bank may prefer to move
the loan off its balance sheet by bundling it with other similar loans and—with the financial backing of a housing GSE
(see glossary) such as Freddie Mac or Fannie Mae—selling it to an outside investor such as a pension or mutual fund. This
method allows the bank to receive funds immediately by selling the loan (mortgage) and thus is motivated to issue more
loans to more people, including sub-prime borrowers. Put differently, banks are given incentives to engage in risky “loan
pushing,” since they can securitize and sell off the loans, thereby avoiding exposure to the risk of default.
in 1991, debt collectors that specialize in student debt secondary markets. This can be understood as the
are permitted to tack on hefty collection (25%) and “commodification of debt.” The underlying assets
commission fees (28%) to the outstanding loan, for SLABS are student loans that have been sliced
making debt collection a highly lucrative business. and diced to create packages of debt obligations that
Private lenders are not the only ones benefiting are then sold to investors such as pension funds.
from the educational loan business. The Department SLABS has proven to be a lucrative device to hedge
of Education, which also securitizes its loans, is risk for investors, raise capital, and even to generate
believed to have generated $101.8 billion in revenue income when student loan debtors default (through
from student loans from 2008 to 2013. It does so derivative contracts such as credit default swaps,
largely by exploiting a spread between the low inter- which pay off in the event of default).
est rates it pays to borrow money (e.g., 2.52% based Once we peel away the complexities of SLABS,
on the 10-year Treasury bond rate in 2013) and we are left with the basic problem: the success of the
what it charges students (e.g., 6.8% for Stafford “investment” ultimately depends on the ability of
Loans (see glossary)). the debtor to earn enough money to pay the princi-
The basic premise driving SLABS is that power- pal of the loan, plus interest and fees. The alchemy
ful financial actors and institutions are able, through of finance cannot erase the risk of how hard it may
regulatory and legal sanctioning by the government, be for the student to ever repay the loan because the
to transform a debt obligation (student loan) into a student will struggle to find gainful employment
financial asset (SLABS) that can be traded on the after graduation. From this angle, SLABS—like all ››
S T U D E N T LO A N S A N D D E B T FA R E cancelled) more difficult to access. Granted, federal
student loans have long been exempt from dis-
forms of credit—rests on the ability of the state to charge (the release of a borrower from the obliga-
ensure that debtors (students) will repay the loan— tion to repay her/his student debt through bank-
no matter what their incomes may be. ruptcy) under Chapter 7, but some legal loopholes
were available to highly distressed debtors, particu-
Debtfare and Discipline larly holders of private student loans. The passage
For the student loan industry to continue to of BAPCPA makes it nearly impossible to pursue
expand and remain lucrative in the face of increas- debt relief under Chapter 7.
ing rates of delinquency and default, the state Second, BAPCA made it more difficult for
must discipline the debtors. In my recent book, highly indebted students to qualify for the other
Debtfare States and the Poverty Industry (2014), I remaining option for bankruptcy relief—Chapter
refer to this new feature of neoliberal gover- 13 (adjustment of debts). Student debtors filing
nance—emerging alongside the rollback of the under Chapter 13 can only be granted bank-
welfare state, dereliction of labor laws, and ruptcy protection if they prove “undue hardship.”
increased levels of precarity among working- and Undue hardship is determined through means-
middle-class Americans—as “debtfarism.” tested procedures making human suffering reduc-
ible to algebraic equations. (Congress refused to
Private lenders are not the only ones benefiting provide a clear and transparent definition of
“undue hardship,” opting instead to transfer
from the educational loan business.
responsibility for interpretation to the courts.)
The Department of Education is believed to have Chapter 13 also requires debtors to jump through
more hoops, such as mandatory pre-bankruptcy
generated $101.8 billion in revenue from credit counselling and a rigorous repayment plan
for three to five years before the courts discharge
student loans from 2008 to 2013. It does so “some” debt. Despite these obstacles, desperate
student debtors continue to file under Chapter 13
largely by exploiting a spread between the low to seek relief from dischargeable types of con-
interest rates it pays to borrow money and sumer credit, such as credit cards, medical debt,
and auto loans.
what it charges students. Third, BAPCPA added private student loans
to the types of educational loans that cannot be
discharged without adequate proof of undue
Debtfarism represents a set of institutional and hardship. This means that private lenders such
ideological practices aimed at regulating and nor- as Sallie Mae now enjoy the same state protec-
malizing the growing dependence on expensive tion from debtor bankruptcy as the federal gov-
consumer credit to meet basic needs, such as edu- ernment. Moreover, private educational lenders
cation. Personal bankruptcy law is a core regula- such as Sallie Mae have been granted powers to
tory feature of debtfarism, as it acts to deal with garnish the wages, tax refunds, and even Social
defaults in the student loan industry and to ensure Security benefits of delinquent debtors with no
the legal and moral obligation of debt—regardless statute of limitations.
of the borrower’s ability to repay. The debtfare state’s extension of super-creditor
For many students, the draconian changes to status to dominant private institutions like Sallie
the bankruptcy code with the enactment of the Mae deepens the hold corporations have over edu-
Bankruptcy Abuse Prevention and Consumer cation financing. One out of every five students
Protection Act (BAPCPA) of 2005 represented a carries private loans, which have higher interest
major turning point. Among its notable features, rates than government loans and carry fees that
the BAPCPA was designed to keep student debtors add to the balance. Many students are turning to
out of bankruptcy in three ways. private loans to augment their federal loans due to
First, BAPCPA made relief under Chapter 7 the increasing costs of living (health care and rent)
(under which most debts are immediately and tuition (especially at for-profit colleges).

To manage the relentless wave of defaults, the 15% of their discretionary income for 25 years
government introduced the College Cost before applying for the remaining balance of their
Reduction and Access Act in 2007 (effective July debt to be cancelled.
1, 2009), which tweaked various aspects of the
BAPCPA. While the law included some small vic- The Rhetoric of Consumer Protection
tories for individuals holding public student loans, Framing private educational lending as a consumer
it also created a system of income-based repayment protection issue makes it seem as if the root cause
plans under which student debtors would be com- of the student debt problem is the predatory prac-
pelled to pay (through wage garnishment) 15% of tices of private educational lenders, distorting the
their discretionary incomes (earnings available for role of the debtfare state. The state has played a
savings or spending on non-essentials) for a period critical role in the construction and normalization
of 25 years. Only after this period would the bor- of students’ increased reliance on loans—both
rowers be able to apply for cancellation of the public and private—to fund their higher educa-
remaining debt. It should be underlined that this tion. It has withdrawn funding for education, over-
system applies only to public educational loans seen the rise in student tuition and fees, and shifted
(e.g., Direct Loan and the Federal Family from grant-based to loan-based financing. In other
Education Loan (or FFEL) programs) and to those words, the consumer protection framing veils the
student debtors who earn enough discretionary role of the debtfare state in actively facilitating
income to permit the garnishment. Moreover, it is predatory practices.
an income-based repayment system that favours Consumer protection has also remained
public-service employees over other workers. largely rhetorical. Consumer protection for stu-
Under the Loan Forgiveness for Public Service dent loans does not deal with the social dimen-
program, for instance, public-service employees sions of student debt risk, such as defaulting,
can apply for the remaining debt cancellation after dropping out of college, moving back home,
paying 15% of their discretionary income for 10 working two or more jobs, putting off marriage
years. All other student debtors are required to pay and starting families, and even—despite the ››
THE SHIFT IN SUBPRIME LENDING FROM HOUSING TO COLLEGES

Aside from forging the 2007 College Cost Reduction and Access Act for holders of federal loans, under debtfarism the
government has invoked consumer protection to deal with private loans. With rising concerns about mounting stu-
dent debt, the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Education released a 2012
joint-report about the state of student loans in the United States, with a specific focus on private student loans.
The report argues that risky lending practices tied to private student loans have not only increased more rapidly than
public student loans over the past decade, but have also come to share many similarities to the 2007 subprime mortgage
crisis. Private lenders (banks) issued loans without considering whether borrowers would be able to repay, then securi-
tized the loans and sold them to investors to avoid losses when students defaulted. According to the report, there have
been more than 850,000 defaults in private loans since the 2007 crisis, exceeding a total value of $8.1 billion.
Debtors who default are then subject to disciplinary measures such as a downgrade in credit scoring, which could
affect future employment opportunities due to the prevalence of employer credit checks. Defaulters are also doggedly
pursued by collection agencies eager to cash in on commission and collection fees.
Private student loans are a riskier form of credit for students than federal loans, because interest rates are far higher than
for public loans. The report suggests two main reasons for the increase in private student loans and subsequent defaults.
The first is the lack of proper financial education for students and their families. Public student loans have lower
interest rates and better consumer protection clauses than private loans, suggesting that people who are taking out
private loans are unaware that better terms are available.
The second reason is greed, fuelled by institutional investor appetite for SLABS. Aggressive lending practices,
which lie at the heart of this private lending growth, prompted the Secretary of Education to argue that subprime
lending has moved from the housing market to colleges.

S T U D E N T LO A N S A N D D E B T FA R E These activist organizations have been vital in
exposing the injustices and exploitative nature of
long odds—filing for bankruptcy to reduce over- the student loan industry. One of their most
all debt loads. important roles has been to politicize debt, con-
This has not been uncontested. Growing num- vincing insolvent borrowers that they should move
bers of student debtors have channelled their anger beyond the dehumanizing narrative of debt as an
and frustration with the management of these loans individual problem by collectively challenging the
through numerous acts of protest, active lobbying, moral sanctity of debt.
and advocacy to achieve debt justice. One of the Building on this momentum will require a focus
more popular mobilizations has been the Occupy on the powerful class interests that have benefited
Student Debt Campaign—a loose network of sev- from student loans—from the issuance of private
eral thousand student debtors and debt activists that and public loans, to servicing and securitizing stu-
sprang out of the Occupy Wall Street protests. dent debt, to collections. While protestors are right
Occupy’s Strike Debt Working Group and to vilify and target key corporate players such as
Rolling Jubilee Fund grabbed headlines with their Sallie Mae, more critical light needs to be cast on
“search and destroy” campaign in 2013. Using the role of the debtfare state in both legitimating
donated funds (largely through crowdsourcing), the profitable “poverty industry” and failing to
Rolling Jubilee located and purchased student debt provide adequate public support for social pro-
at discounted prices and then abolished it. The grams, including education.
campaign has cancelled $3.85 million of privately The poverty industry includes educational
lending, but extends to other forms of consumer
The “poverty industry” includes educational credit—such as payday loans, credit cards, sub-
prime housing loans—all of which feed off of and
lending, but extends to other forms of reproduce marginalization and insecurity. The
increasing reliance on expensive personal loans to
consumer credit such as payday loans, credit replace or augment wages—as well as obtain an
cards, sub-prime housing loans. The increasing education—is not a natural phenomenon. Rather,
it is a social construction that needs be revealed,
reliance on expensive personal loans to attacked, and uprooted, not negotiated within
the territory of consumer protection, which is
replace or augment wages—as well as obtain sponsored by the debtfare state and the capitalist
interests it represents. D&S
an education—is not a natural phenomenon.
S U S A N N E S O E D E R B E R G is a professor of political
studies and global development studies at Queen’s
held debt through this approach. Rolling Jubilee University, Canada.
acknowledges that this gesture was symbolic in
that it sought to expose how debt operates and to S O U R C E S : Consumer Financial Protection Bureau (CFPB) and
Department of Education, Private Student Loans, 2012 (files.con-
empower student debtors.
sumerfinance.gov/f/201207_cfpb_Reports_Private-Student-Loans.
The Debt Collective emerged from Rolling pdf ); Ozgur E. Ergungor and Ian Hathaway, “Trouble ahead for
Jubilee and from growing student outrage with the student loans?” Federal Reserve Bank of Cleveland, Economic
Commentary, May 2008 (files.eric.ed.gov/fulltext/ED505621.pdf );
exploitative strategies pursued by for-profit colleges.
Federal Reserve Bank of New York, “Are Recent College Graduates
The group aims to create a platform for advocacy finding Good Jobs?” Current Issues, Vol. 20(1), 2014 (newyorkfed.
and for debtors to unite in collective action. One org/research/current_issues/ci20-1.pdf ); Project on Student Debt,
such act of resistance has been the country’s first stu- “Student Debt and the Class of 2012,” The Institute for College
Access & Success, 2012 (ticas.org/sites/default/files/legacy/fckfiles/
dent debt strike, in which more than 100 former pub/classof2013.pdf ); Amy Traub, Tamara Draut, and David Calla-
students of the for-profit Corinthian College system han, The Contract for College, Demos, 2012; U.S. Department of
are refusing to pay their federal loans. For-profit col- Education (www.ed.gov); Susanne Soederberg, Debtfare States and
the Poverty Industry: Money, Discipline and the Surplus Population,
leges like Corinthian derive 66% of their revenues
Routledge, 2014.
from federal student loans. (See Chris Cooper, “The
Corinthian Crisis,” p. 5.)

Can “Abenomics” Revive Japan’s Economy?
Why we need a progressive alternative embracing
greater income equality and alternative energy investment.
BY JUNJI TOKUNAGA
J APAN ’S CON S ERVATIVE L IB ERAL D E MOC R AT I C PA RT Y ( LD P ) — LE D BY
››
Prime Minister Shinzo Abe (pronounced “AH-bay”)—won a landslide victory in the December 2014
Prime Minister
snap election for the House of Representatives, the lower house of the national parliament. The Liberal Shinzo Abe
Democrats and their partner party in the ruling coalition, the Komeito, won 326 of 475 seats, giving them laughing during
a two-thirds supermajority in the House of Representatives. a visit by
President
Why did Abe win so handily? Since the end of 2012, the Abe government has carried out an eco- Barack Obama
nomic revitalization program called “Abenomics”—its response to Japan’s ongoing economic stagnation, to Akasaka
the “lost decades” of the 1990s and 2000s. Abenomics consists of three “arrows”: aggressive monetary Palace in Tokyo,
April 24, 2104.
“quantitative easing,” massive fiscal stimulus, and “structural reforms” to the economy. The main reason
for Abe’s resounding victory is that he succeeded in persuading the electorate to stay the course, with Credit: Official
White House
slogans like “Abenomics is progressing” and “There is no other way to economic recovery.” Meanwhile, photo by Pete
he shifted voters’ attention away from more controversial matters, such as his plans to restart Japan’s Souza (public
nuclear power plants (which were shut down after the March 2011 Fukushima nuclear disaster) and to domain).
bolster the country’s military forces.
Rather than leading to a rebound of domestic consumption and investment spending, which could
lift the economy as a whole, however, Abe’s neoliberal reforms would lead to rising inequality and con-
tinued stagnation. We certainly need significant public spending. The Abe government, however, has
carried out pork-barrel public projects that will not revive the Japanese economy in the long term, while
averting another recession. Rather, we must explore programs to facilitate the development of new
industries, such as renewable energy (RE), instead of the defense and nuclear power industries that the
Abe cabinet favors.
What Is Abenomics?
Abenomics has been mainly about more aggressive monetary “quantitative easing”—central bank pur-
chases of various kinds of bonds (other than short-term government bonds, purchases of which are
considered “conventional” expansionary monetary policy) from banks and other private owners of
financial assets. The Bank of Japan, the country’s central bank, has been engaging in “Quantitative
and Qualitative Monetary Easing” (QQE) since April 2013, with the goal of raising the inflation rate
to 2% within two years. ››
ABENOMICS The Effects of Abenomics So Far
The effects of aggressive monetary easing have,
According to advocates of Abenomics, infla- mainly, been limited to higher stock prices on the
tionary expectations driven by aggressive mone- Tokyo Stock Exchange and the drastic depreciation
tary easing would reduce real interest rates (that of the Japanese yen in foreign exchange markets.
is, interest rates adjusted for inflation, which are The Nikkei 225, the index for the Tokyo stock
calculated by subtracting the inflation rate from market (analogous to the S&P 500 for the New
the nominal interest rate). In turn, lower real York Stock Exchange and NASDAQ), has soared.
interest rates will make corporations willing to The yen, meanwhile, has depreciated by more than
borrow more, raising investment spending and 42% relative to the dollar in the last two years.
generating domestic employment. The increase Some have pointed to these developments as proof
in investment would lead to strong corporate that Abenomics is working.
profits, eventually translating into higher wages, In fact, these effects will not contribute to the
which would in turn increase consumption trickle-down dynamic that advocates of Abe’s pol-
spending by households. This is basically a form icy expect, for two reasons. First, aggressive mone-
of “trickle-down economics,” in the sense that, tary easing will not stimulate overall household
according to its advocates, strong corporate consumption spending. The dramatic stock mar-
profits would trickle down to everyone else in ket rally has sparked a “wealth effect,” which might
the economy. lead those who own a lot of financial assets—feel-
ing flush with their new riches—to spend more.
Rather than leading to a rebound of domestic Meanwhile, however, workers’ wages have not kept
pace with inflation. In addition, the Abe govern-
consumption and investment spending, which
ment introduced a sales tax hike, from 5% to 8%,
could lift the economy as a whole, Abe’s in April 2014. Such conditions tend to make ordi-
nary people reduce their consumption spending.
neoliberal reforms would lead to rising The benefits of trickle-down Abenomics clearly
have not reached everyone.
inequality and continued stagnation. Second, corporations, particularly big multina-
tionals, are hoarding their profits. Corporate profits
have been rising significantly, underpinned by the
drastic depreciation of the yen. This has boosted the
Under the QQE program, the Bank of Japan competitiveness of Japanese industry in global mar-
(BOJ) pledged to double the size of the monetary kets. But corporations have held onto most of these
base (currency in circulation plus banks’ reserves profits as internal reserves, rather than engaging in
on deposit at the central bank). By the end of investment spending that would lift the economy.
October 2014, unsatisfied with the results of the According to Japan’s Finance Ministry, the reserves
program, it decided to accelerate this enlargement of Japanese nonfinancial companies reached a record
of the monetary base. With the BOJ being twice 304 trillion yen (nearly $3 trillion) by of the end of
as aggressive as the U.S. Federal Reserve in its fiscal year 2013. As a consequence, Japan’s GDP
bond-buying, its balance sheet has gone above shrunk for two consecutive quarters, a common def-
50% of GDP. inition for recession, after the second quarter of
Economist Paul Krugman has strongly sup- 2014. (Figures for the first quarter of 2015 were not
ported Abenomics—“the sharp turn toward mon- available at this writing.)
etary and fiscal stimulus adopted by the govern-
ment of Prime Minster Shinzo Abe”—and hailed What Kinds of Policies Will Abe Push Now?
it as a model for other countries to emulate. In a Abe’s landslide victory in the snap election could
2013 column in the New York Times, he stressed not only enable him to stay in office until late
that Japan could be the first major country to 2018, making him longest-serving prime minister
climb out of the kind of recession and stagnation in Japan since World War II, but also give him
in which has also befallen Western countries since abundant political capital for further pursuing his
the global financial crisis in 2008. economic agenda.

On what kind of policies will Abe spend this make it easier for big corporations to fire full-
political capital? First of all, he will likely purse the time employees, lowering incomes for wage
“third arrow” of Abenomics: structural reforms of earners even further.
the economy. The Abe cabinet announced a
• Third, radically reducing social welfare spending
“Revision of Japan Revitalization Strategy: 10 Key
in the fiscal year 2015 budget, in order to reduce
Reforms” in June 2014. Parts of the strategy, such
the massive fiscal deficit.
as enhancing women’s labor-force participation
and advancement could be epoch-making in Japan, • Finally, completing the final stage of negotia-
if they worked well. But most of structural reform tions over a free-trade agreement, the Trans-Pa-
plans are based on a neoliberal approach of low cific Partnership (TPP), with the United States.
corporate taxation, deregulation, reduction of fis- The TPP would open the agricultural market in
cal deficits, and free trade. Broadly, Abe would Japan to an unprecedented level of imports,
likely push four neoliberal policies: which would inflict big damage on many Japa-
nese farmers.
• First, lowering corporate taxes, while planning
the second stage of the sales tax hike from 8%
Do We Have a Progressive Alternative
to 10% in April 2017. The Abe government
for Reviving the Economy?
has agreed on the basic outline of fiscal year
Many voters understood the problems with
2015 tax reforms, including a 2.51 percentage-
Abenomics before the December snap election. An
point reduction in the effective corporate tax
November opinion poll by Nikkei, Japan’s leading
rate. The tax cut could be a further boost for
economics and business news company, reported that
big corporations that have already received the
51% of the public opposed Abenomics, compared
windfall from the depreciation of the yen.
with 33% who favored it. Disappointingly, a lack of
• Second, accelerating the push for labor market strongly progressive alternatives from the opposition
“flexibility.” Labor market deregulation would parties helped Abe win his landslide victory. ››
Soyamisaki (Cape Soya) Wind Farm in
Wakkanai City, Hokkaido, Japan,
August, 2011.
Credit: S. Kawamura, Wikimedia Commons,
Creative Commons Attribution-Share Alike
3.0 license.

ABENOMICS The financial system in Japan has the potential
to serve as a bridge between lenders and financial
What kind of policy should we implement to investors who want to finance RE projects, and
avert a return to recession? As economist Richard borrowers who plan to start renewable energy busi-
Koo argues in his recent book The Escape from nesses. On the lending side, Japanese individual
Balance Sheet Recession and the QE Trap, we have to investors have been among those most interested,
carry out not austerity policies but fiscal stimulus, worldwide, in “World Bank Green Bonds,” which
which can stabilize the economy. Reasonably, the are designed to raise funds for green economy proj-
Abe government announced expenditures totaling ects in developing countries. On the borrowing
3.5 trillion yen (US$29 billion) in 2015. But fiscal side, many firms and entrepreneurs, some sup-
stimulus and monetary easing can only buy time to ported by local governments, have applied to start
sow the seeds of economic revival in Japan. Now is businesses including solar, wind, geothermal, and
the time to explore an alternative program for long- biomass power generation.
term recovery. A “feed-in-tariff ” (FIT) law, passed in July
First, we need to increase real wages, which 2012, allows private providers to sell renewable
could lead to a rise in consumption spending. Abe energy to big electricity companies at prices to be
and Haruhiko Kuroda, governor of the Bank of fixed by the central government. This has fostered
Japan, are trying to encourage big companies to a boom in RE business, particularly in solar power
raise wages in 2015, which is part of their pro- generation. According to Japan’s Agency for
gram to achieve 2% inflation. To spread the ben- Natural Resources and Energy, renewable-energy
generating capacity has increased from about
Japan has to learn the lessons of the 567,000 kilowatts in July 2012 to nearly 72 mil-
lion kilowatts in October 2014. These develop-
Fukushima nuclear disaster and start to ments imply that Japan has both extraordinary
develop renewable energy. This could end financial resources that could provide funds to RE
businesses and numerous firms and entrepreneurs
deflation and move the country onto a path of eager to make use of them, if given a chance.
As Koo explains, Japan’s “lost decades” and its
sustainable economic growth. deflation are attributable to insufficient private
investment demand. It could take a significant
amount of time for these alternative programs to
create new investment opportunities and lift the
efits of economic recovery through the economy economy as a whole. But Japan has to learn the les-
as a whole, however, we have to extend higher sons of the Fukushima nuclear disaster and start to
wages not only to workers at big corporations, develop renewable energy. This could end defla-
but also to those at small- and medium-sized tion and move the country onto a path of sustain-
enterprises (SMEs), which are the main engines able economic growth. D&S
of the Japanese economy.
Second, we need a new set of public invest- J U N J I T O K U N A G A is an associate professor in
ment projects that could foster basic industry the Department of Economics, Dokkyo Univeristy,
for the next generation. Japan is a global leader Saitama, Japan.
in renewable energy technology. In fact,
the country accounts for the majority of SOURCE S: Paul Krugman, “Japan the model,” New York Times, May
renewable-energy patent applications world- 23, 2013; “Without reforms, Japan’s leader remains vulnerable,” Wall
Street Journal, Dec. 15, 2014; “Acquisitions, financing worries behind
wide. (Japan’s share is 55%; the United States’,
Japan Inc.’s bulging reserves,” Nikkei Asian Review, June 23, 2014;
20%; Europe’s, 9%.) The Japanese government Richard Koo, The Escape from Balance Sheet Recession and the QE Trap
should drastically redirect the energy research (Wiley, 2015); “Japan cabinet approves Y3.5tn stimulus spending,”
and development (R&D) budget away from Financial Times, Dec. 27, 2014; “Patent-based Technology Analysis
Report-Alternative Energy Technology,” World Intellectual Property
nuclear power generation—which reached 69% Organization, 2009; “Japan and nuclear power,” Mainichi, Jan. 22, 2012.
of total energy R&D spending in 2010—and
toward renewables.

A Way Out for Greece and Europe
Keynes’ Advice from the 1940s
BY MARIE CHRISTINE DUGGAN
I S T H E R E A WAY F O R G R E E C E T O H O N O R I T S D E B T S W I T H O U T
impoverishing its people? Most people see only two ways out of the current crisis: Either Greece services its
debts, and the wealth gap between creditor and debtor nations in Europe rises; or Greece defaults, and the
››
The signing of the
Anglo-American
European banking system is forced to write-down its assets by the value of the Greek IOUs. However, there loan agreement
is a third way: creditors could promise to spend the money they receive from Greece (in the form of debt ser- at the State
Department,
vice payments) on Greek imports or on long-term for-profit investments in Greece. This third way involves Washington, D.C.,
re-aligning institutional incentives so that the creditors only gain when the debtors themselves grow. Dec. 6,1945.
Problems like those Greece faces are not new. And, in fact, the best solutions are not new either. During Seated from left:
John Maynard
the Second World War, Britain faced a similar situation of trade deficits coupled with a cut-off of interna- Keynes, Lord
tional credit. John Maynard Keynes devised a solution which did not impose all the burdens on the debt- Halifax, James
ors by reducing wages. Instead, it would not be just debtor countries—but also creditor countries—that Byrnes, Fred
Vinson.
would have to “adjust.” The creditors would have to spend their surpluses (rather than building up reserves),
allowing the debtors, in turn, to grow their economies and pay back their debts. Dependence on the fickle UK National
whim of the foreign investor is the story line that unites the post-war British context with that of Greece Archives (public
today. In another similarity, the subtext for Greece, since it joined the eurozone in 2001, has been the need domain).
to increase its productive capacity and infrastructure so that its products—priced in euros—are produced
efficiently enough to compete with those from other eurozone countries. A solution like the one Keynes
proposed for Britain towards the end of the war would offer Greece the best way out today. ››
KEYNES AND GREECE Figure 1. As these moneys flowed in, they permitted
Greece to finance an excess of imports over exports
The Trap of Short-Term Debt which resulted in the growing current account defi-
The euro became Greece’s sole currency in 2002. cit shown in the bottom half of Figure 1.
This opened the door to marketers of credit from The fact that investors from other European
wealthier eurozone nations. The Greek government, countries were willing to lend to Greece was not the
firms, and households had previously been making problem. Rather, the problem was the short-term
payments in drachmas, which were considered nature of the loans. There are basically two types of
“funny money” by international investors because foreign investment: short-term and long-term.
the currency could lose value in a depreciation of its Portfolio investment and foreign bank accounts are
exchange rate relative to the euro. But after 2002, the both short-term purchases of paper assets. Foreign
Greeks began making payments in euros on loans direct investment, on the other hand, involves an
denominated in euros, so the creditors faced no risk institution in a creditor nation opening a physical
of exchange rate loss. No one had ever been so enthu- business in Greece as a subsidiary, or engaging in a
siastic before about lending to the Greeks. Between joint venture with a Greek business partner. Without
2005 and 2008, foreigners opened bank accounts or the option of a quick and easy exit, the direct inves-
moved into the country (capital account increases), tor has more of a stake in ensuring the growth of the
or invested in Greek stocks and government bonds business activity undertaken in Greece.
(portfolio investment), as shown in the top half of In 2008, foreign lenders provided Greece with
Figure 1. Greek short-term funds to the tune of 16.4 billion euros,
2010 Balance of2011
Payments, 2005-2008
2012
20.0 while foreign direct investment was barely one-
2005 2006 2007 2008 tenth that amount, only 1.7 billion euros! Such a
0.040.0
predominance of foreign portfolio investment and
30.0
-20.0 bank accounts is problematic because the flow can
Billions of Euros
20.0
reverse in the time it takes to push a button on a
Billions of Euros
-40.0
10.0
computer, giving the portfolio investor incentive
-60.0 0.0
to flee at even the slightest hint of trouble. As
-10.0
-80.0 Figure 2 shows, net portfolio investment demon-
-20.0
-100.0 strated its short-term nature by turning negative—
-30.0
into a net outflow from Greece—in 2010. The
-120.0
-40.0
outflow reached panic proportions by 2012.
Current FDI
AccountPortfolio
CapitalOther (Banks)
Account Direct Investment
When short-term investment dominates, foreign
Portfolio Investment Bank Accounts
creditors hold the debtor nation hostage. If the
Source: IMF Balance of Payments (billions of euros); bank accounts also include “other.” creditors don’t like the country’s public policies,
Note: The figures are based on the IMF balance-of-payments data. In this accounting system, foreign portfolio
investment (purchases/sales by private foreign sector or foreign governments of stocks and bonds) and foreign direct they can quickly sell off their holdings. Had the
investment are included in the “financial account.” The financial account “other” includes government-to-government
loans, bank loans, loans to and from international organizations, and trade credits.
eurozone wanted each nation to preserve its political
sovereignty, it should have put in rules to heavily
Figure 2. The Greek Financial Account: discourage short-term speculative loans between
Capital Flight from 2010 to 2012 eurozone partners. In fact, the opposite occurred.
2010 2011 2012
20.0
Greek entry into the eurozone was viewed as a mar-
keting opportunity for short-term credit from
0.0
financial institutions in wealthier nations.
-20.0 When foreign holders of Greek government
Billions of Euros
-40.0
bonds decided to sell in 2010, Greece was running a
fairly high trade deficit, on the order of 10% of GDP.
-60.0
It is possible for a nation to import more than it
-80.0 exports, but only so long as foreigners are willing to
-100.0 lend to or invest in the nation. In 2008, foreigners
were interested in lending to Greece, but the global
-120.0
economic crisis in 2009 made them jittery. By 2010,
FDI Portfolio Other (Banks) they no longer wanted to lend to the Greek
Source: Greek Article IV Report, IMF June 30, 2013 in billions of euros. “Other” refers mostly to bank accounts.

government, but rather to sell off their holdings of Figure 3. IMF Bailouts Plug Ever-Larger Hole in
Greek government bonds (for 8.5 billion euros). Greek Balance of Payments, 2010-2012
Meanwhile, Greece planned to import more than it 2010 2011 2012 2013
150.0
exported (23 billion euros), so the IMF came up with
31.5 billion euros to fill the gap. In the short term, it 100.0
would have been very punitive to the economic base
Billions of Euros
50.0
to cut off imports completely, since some are inputs
to the economy (such as computers) and others are 0.0
essential to subsistence (such as medicine).
Why did the international banking system step in -50.0
with the first 31.5 billion euro bailout? The answer is -100.0
that creditor institutions were unwilling to let Greece
default. Between 1990 and 2010, many banks made -150.0
loans around the world to borrowers who might Current Account Financial Account Capital Account IMF
never be able to pay those loans back. If the interna- Source: Greece: Article IV Report, IMF on June 30, 2013 (in billions of euros).
tional banking system were to admit that some loans
will never be repaid, then banks would have to write longer willing to buy them), so the government
down their assets by the amounts of those loans. reduced benefits (as the IMF was also urging). By
Greece is just the tip of the iceberg in that regard. The 2014, the Greek people had endured enough and
last thing that the international banking system wants voted the left-wing SYRIZA coalition in on a plat-
is for Greece to repudiate the loans. form to end IMF control of government policy.
IMF loans are designed to rescue the interna- IMF loans are not meant to rebuild a country,
tional banking system, rather than to assist the but rather to tide it over through a panic until the
debtor nation. That explains why the loans did not private sector is willing to lend to the country again.
end Greece’s problems. The IMF wanted Greece to
let holders of Greek bonds sell them off—for the Problems like those Greece faces are not new.
money that the IMF had newly lent. The IMF
hoped that the ability to liquidate Greek bonds
During the Second World War, Britain faced a
would deter the bondholders from actually selling. similar situation of trade deficits coupled with a
The IMF was playing a confidence game to prevent
portfolio investors from hitting the “sell” button. cut-off of international credit. John Maynard
The long-term solution for Greece, however, is
completely different. To reduce reliance upon foreign Keynes devised a solution which did not impose
financing, Greece would like to export more than it
imports. Winning over international buyers will all the burdens on the debtors by reducing wages.
require lowering Greek production costs. The way to
lower costs significantly and sustainably is to invest in
new technology and infrastructure that permits the If IMF loans fail to reverse a temporary panic, they
same workers to produce more during any given wind up growing dangerously large (look at 2010 to
period. However, the IMF insisted that Greece lower 2012 in Figure 3). As the SYRIZA government’s
the cost of production while also reducing imports finance minister, Yanis Varoufakis, has pointed out,
(read: no more new technology) and ceasing to bor- “We have resembled drug addicts craving the next
row above emergency levels. Under those circum- dose. What [SYRIZA] is all about is ending the
stances, the only way for Greek products to gain any addiction.” Greece is in a bind: IMF loans are emer-
market share would be for wages to drop—by a lot. gency funds that cannot be used to improve produc-
Real wages did drop and unemployment rose to 27%. tive capacity, educate the people, or build infrastruc-
Many households had accumulated debt between ture. Wages and employment are falling at the same
2002 and 2010, and as they lost jobs, debt burdens time as social insurance, so the people are under-
relative to incomes rose. At the same time, the Greek standably bitter. If Greece leaves the eurozone now,
government could no longer borrow by issuing bonds the return to the drachma will put salaries back into
(because Europeans, including Greeks, were no drachma, which will not have the purchasing power ››
KEYNES AND GREECE should have their surpluses confiscated if they did
not spend it by the end of the year. He never antici-
of euros. All exits seem to lead to a lower standard of pated any confiscation actually taking place—like
living for the people of Greece and greater income any “use it or lose it” account, the point was to pro-
inequality between nations in Europe. vide an institutional incentive for the creditor to
spend the entire surplus by a certain time.
Enter John Maynard Keynes The second rule would have consisted in limiting
Let us now turn to Keynes’ suggestion for Britain at the types of spending that creditors could make to
the end of World War II. Like Greece today, Britain long-term investments, imports, or donations. This
at the time had a damaged industrial base and poor brings us to the way out for the eurozone and Greece.
infrastructure (due to Hitler’s bombs). Furthermore, It will be safe for Greece to repay its debts to the credi-
wealthy foreigners who had lent Britain money in a tor nations of Europe, if the eurozone nations agree
short-term way were trying to liquidate their British that the creditor nations will spend the money they
holdings just when Britain needed long-term credit. receive from Greece on Greek imports or long-term
In Britain’s case, the short-term holdings of foreign loans or joint ventures in Greece. Since Greece is not
money came in the form of the London bank exporting enough to pay for imports that will build
accounts of imperialists in South Africa, Canada, up its infrastructure, then by definition the eurozone
Australia, India, and other nations of the collapsing nations do not find it sufficiently enticing to buy
British Empire. These wealthy families wanted to imports from Greece. In this case, eurozone nations
transfer their money to New York banks, and to would make long-term investments in Greece so that
Greece could generate the capacity to produce
In 1944, chastened by two world wars and the imports that were appealing to Europe.
Perhaps this scenario seems too draconian—
rise of fascism, governments were willing to put forcing creditors to purchase from or make long-term
restrictions on how banks made money, and to investments in Greece on penalty of losing the income
from annual Greek debt payments. Consider, then,
commit to economic policies that would bring that the eurozone nations could simply make a rule
that every member nation would need to spend its
jobs and prosperity to the working class. trade surplus with other eurozone nations by end of
year, and that such spending take the form of imports,
long-term investment, or donations. (Portfolio invest-
import products from the United States as well. ment would be highly discouraged.) Each nation
Britain was running a trade deficit, and the rest of could import, invest in, or donate to the individual
the world was trying to remove funds all at the same country of its choice, but since any surplus would
time. In both respects, the situation was similar to have to be spent by a certain time, the effect would be
Greece today. to make every eurozone economy balance its interna-
Keynes gave considerable thought to the prob- tional payments. Imagine an inflatable rubber glove.
lem: How could Britain’s banks honor the commit- As air goes into one finger, that finger inflates. Once
ment to permit depositors to remove funds while that finger is filled, the air will naturally flow to
also rebuilding its industrial base? And he came up another finger. In the end all five fingers of the rubber
with a logical solution: put pressure on creditors as glove will be equally inflated. In just this way, if every
well as debtors to “adjust.” His logic was that debtors creditor nation must spend its current account sur-
always feel the pressure to make payments—on pain plus by the end of the year in other eurozone nations,
of cut-off from future loans, threat of asset seizure, then the entire eurozone economy will expand.
or other punitive measures (such as the threat today
of pushing Greece out of the eurozone). However, Postscript for Europe Then,
creditor nations do not feel a similar pressure to Prescription for Europe Now
spend what they get from exporting more than they Keynes’ plan did not pass at the Bretton Woods
import—i.e., running a trade surplus. They can Conference in 1944, but his proposal did influence
hoard the surplus by building up reserves. The first debate. The United States rejected the “use it or lose
rule for Keynes, then, was that creditor nations it” clause that would have required it to import

from or physically invest in debtor countries until
its huge post-war surplus was gone. However, the
United States did donate via the Marshall Plan, and
financed long-term loans through the International
Bank for Reconstruction and Development. Britain
obtained a long-term loan from the United States
for reconstruction (see photo on p. 19), rather than
the gift that Keynes sought, and it was several years
before Britain permitted deposits to be freely con-
verted out of London banks. Yet the negotiations
did result in restrictions on portfolio investment, so
that foreign direct investment became the domi-
nant form of international investment between
1945 and 1973. During that period, global income
inequality was reduced.
In 1944, Europe and the United States had been
chastened by two world wars and the rise of Nazism
and Fascism. All 44 nations sending representatives to
Bretton Woods understood that economic forces had
contributed to the horror in which so many had lost
so much. Nobody wanted to live through it again. To
prevent political extremism and its deadly conse-
quences, governments were willing in that moment
to put restrictions on how banks made money, and to
commit to economic policies that would bring jobs
and prosperity to the working class.
For a similar scenario to come off today, poli-
cymakers must remember the fragile nature of
global institutions and the importance of curtail-
ing investments where creditors escape with prof-
its while debtors lose ground. Europe is a family,
and when the business owned by one family
member is small and precarious, other members
do not make short-term loans at high interest, or
push the firm into bankruptcy and seize the
assets. Family members buy from each other and
invest for the long-term in each other’s enterprises
because such willing and profitable action fosters
family strength and stability. D&S
M A R I E C H R I S T I N E D U G G A N is a professor of
economics at Keene State College in New Hampshire. She
received her PhD from the New School for Social Re-
search in 2000. Since then she has taught macroeconom-
ics, history of economic thought, and economic history.
S O U RC E S: Marie Duggan, “Taking Back Globalization: A China-United Greek anti-austerity protests in May 2010.
States Counterfactual Using Keynes’s 1941 International Clearing Union,” Credit: Philly boy92, Wikimedia Commons,
Review of Radical Political Economics, 2013; Eric Helleiner, States and the Creative Commons Attribution Share-Alike 3.0
Reemergence of Global Finance (Cornell, 1994); Robert Skidelsky, Chapter 36: Unported License.
“Keynes ‘New Order,’” John Maynard Keynes 1883-1946 (Penguin, 2003).

< Primer
Land Reform
A Precondition for Sustainable Economic Development
Green tea farm of Boseong, Jeollanam-do, South Korea.

Credit: Fred Ojardias (Creative Commons Attribution 2.0 Generic License).
world” (Global South)—it is high time form of rural communes or cooperative

B Y J AW I E D N AWA B I
we revisit the issue of land reform. We or collective farms. A combination of
need to bring it back to the center of the two models is also possible.
It is in the agricultural sector that the discussion on sustainable econom-
the battle for long-term economic ic development. Land reform is not Reemergence of Land Reform
development will be won or lost. political extremism; rather, it is a criti- Movements
—Gunnar Myrdal, cal policy mechanism for the world to Despite the attempts by international
economist and Nobel laureate address issues of poverty, hunger, ur- institutions (like the IMF and World
ban slums, and good governance. Bank) and oligarchic political elites in
T he phrase “land reform” often con-

jures up memories, for those lean-
ing right, of frightening extreme-left
What is “land reform”? It is usually
defined as the redistribution of large
landholdings to smaller ones. Land is
the global South to suppress land re-
form policies, there have been growing
social movements pushing for land re-
ideologies. On the progressive left, transferred from large landlords to form in the last two decades. Neoliberal
meanwhile, land reform is often treat- those who have been working the land “free trade” policies have exposed small
ed as a passé topic. as tenants (such as sharecroppers) or farmers to devastating global competi-
With the advent of rising inequality, paid agricultural workers, as well as dis- tion (especially from giant mechanized
climate change, weak government possessed underemployed or unem- industrial farms in the global North),
institutions, failed states, terrorism, ployed urban workers who migrated leaving hundreds of millions of them
corruption, and a whole slew of other from rural areas looking for employ- dispossessed, and have forced them
socio-economic problems—sown or ment and wound up living in urban into the reserve army of impoverished
exacerbated by three decades of neo- slums. That is one model of land reform. unemployed or underemployed living
liberal policies in the “developing Another model is redistribution in the in urban slums. From Brazil and Mexico

$
to the Philippines and Zimbabwe, social Besides moving inefficient peasants However, the changes primarily ben-
movements for a more just and fair dis- out of the rural sector, mainstream de- efited medium and large-sized land-
tribution of wealth—particularly land— velopment economists proposed to owners who used capital-intensive
are confronting these devastating con- boost agricultural yields by consolidat- technologies, high-yielding mono-
sequences of neoliberalism. ing small farms into large ones—sup- crop seeds, and large inputs of fertiliz-
Social protest has led even elite insti- posedly to take advantages of econo- ers and pesticides. “Rural inequity
tutions such as the World Bank to ac- mies of scale. Thus, instead of reducing worsened because of the growing
knowledge the issue. The Bank’s World land concentration, this would in- prosperity of the large and medium
Development Report 2008: Agriculture for crease it, essentially accomplishing a farmers and the unchanged position
Development, at least rhetorically put reverse land reform. Such an industrial of the landless and small farmers,”
agriculture and the productivity of model of agriculture would use expen- concludes Indian scholar Siddharth
small farmers “at the heart of a global sive capital equipment (imported from Dube. “And because large farms use
agenda to reduce poverty.” the global North), petroleum-based more capital and less labour per unit
fertilizers, herbicides, and pesticides. of produce than small farms, rural em-
Agriculture as Technical Problem? Today’s version of the model increas- ployment grew much less than it
The central tendency of mainstream ingly pushes the adoption of geneti- would have if land reform had taken
economic development theory since cally modified seeds controlled by cor- place and the increase in production
the 1940s and 1950s has been to view porations like Monsanto. come from smaller farms.”
agriculture as a mere stepping stone During the 1960s and 1970s, this
towards industrialization. Economist frame of thought led many interna- The Economic and Socio-
Arthur W. Lewis’ “dualist” model was tional institutions (such as the World Political Cases for Land Reform
particularly influential in casting agri- Bank, Asian Development Bank, etc.) There are two broad arguments for the
cultural labor in developing countries and governments in the global South importance of land reform. The first is
as redundant—with a “surplus” of to embrace the “Green Revolution.” based on the widely observed inverse
workers adding little or nothing to The Green Revolution was essentially relationship between farm size and out-
agricultural production. This surplus a plan to use “science and technolo- put per unit of land area: smaller farms
labor force, Lewis argued, should be gy” to increase crop production in produce more per acre of land than
moved out of the agricultural sec- developing countries. The use of fer- larger farms. Smaller land holdings are
tor—this would supposedly not re- tilizers, pesticides, and high-yield more productive and ecologically sus-
duce output—and into the industrial, crop varieties was supposed to boost tainable for a number of reasons:
which he viewed as the key sector of agricultural productivity, reduce rural 1) Higher labor intensity. Small
the economy. poverty, solve problems of hunger farmers use more labor per unit of
and malnutrition, and thus avoid land, which helps generate more out-
peasant movements and rural politi- put and more employment per unit.
LAND REFORM AND cal instability. This was, as econo- 2) Higher multiple cropping. They
COLONIZATION mists James M. Cypher and James L. grow more crops per year on a given
If we broaden the concept of Dietz put it, a “strategy wherein it piece of land.
land reform, the whole pro- was hoped that seed technologies 3) Higher intensity of cultivation.
cess of colonial settlement in could be substituted for missing land Small farmers leave a lower propor-
North America, Central and reform and for more radical ‘red revo- tion of land fallow or uncultivated. In
South America, Australia, and lutions’ of the socialist variety threat- addition, they cultivate crops that are
New Zealand was one big land ening to sweep across the globe at higher value-added per unit of land.
reform, appropriating the the time.” 4) Lower negative environmental
lands of indigenous peoples Viewing agricultural productivity impacts. Small farms use fertilizers,
and distributing it to the as a purely technical problem, advo- pesticides, and other agrochemicals
European settlers. So land re- cates of the Green Revolution did not more sparingly than large farms. This
form can be understood as a aim to transform the structure of land reduces negative impacts of harmful
much more common experi- inequality and landlord power. To chemicals on workers and neighbors.
ence of the “developed” world take the case of India, the Green Small farmers, overall, have a greater
than it is usually thought of in Revolution boosted agricultural incentive to employ environmentally
the economic literature. yields, making the country technically sustainable techniques than large
self-sufficient in food production. industrial ones.

< Primer
While the economic case for land

reform can be construed as a narrow GOOD GOVERNANCE
technical argument on how best to The “good-governance func-
boost agricultural productivity—which tions” of the state are policies
land-reform opponents could argue is beneficial to the large major-
The importance unnecessary due to the advent of the ity of the population. Good-
Green Revolution—the socio-political governance states exercise
of a land reform argument is aimed against this kind of control over a certain territo-
narrow technical thinking. The impor- ry, depend on a broad part of
is in changing tance of a land reform is in changing their population for revenue,
the hierarchical structure of agrarian and in turn provide the popu-
the hierarchical class relations while increasing produc- lation with a wide range of
tivity. The idea is to break the power of
structure of agrarian landlords, who keep peasants as a cap-
public goods: the rule of law,
transportation infrastructure
class relations tive labor force in rural areas and act as
a conservative political force at the local
(paved roads, extensive and
affordable public transporta-
while increasing and national levels of the state. tion, etc.), public utilities
The central mechanism by which (electricity, clean water,
productivity. The landlords wield their power is through sewage systems), human
patron-client networks that give them services (health, education
idea is to break the control over local and regional govern- systems), and job security
ment institutions. Landlords keep the or at least temporary unem-
power of landlords. poor majority dependent on them for ployment insurance.
jobs and access to land, while also using
them as a captive power base for local
elections (in countries where there are ment and breaking the grip on power
elections, such as India and Brazil). This of the upper-class elite (including not
way, they can block the development of only landlords but also big industrial,
state programs providing public goods— financial, and commercial capitalists
like public roads, clinics, schools, water generally allied with them). This de-
systems, etc.—for everyone. Instead, mocratization of society would make
they perpetuate a more narrowly target- it possible to orient the state towards
ed development relying on private long-term national development pol-
goods—fertilizer, pesticides, expensive icies which can create more condu-
high-yield seeds, privately controlled cive socioeconomic and sociopoliti-
water wells, loans that put peasants in cal conditions serving the population
››
ever-deeper debt, etc. They provide, also, as a whole, and not just the elite.
Urban agriculture a form of private insurance system for The socioeconomic conditions
in the Daeya-dong
neighborhood of the city those clients who exhibit proper loyalty, would include a more egalitarian class
of Gunpo, South Korea, in contrast to social support systems structure in the rural sector, greater
July 2014. available to all—which would reduce incentives for farmers to increase their
the peasants’ vulnerability and the land- productivity due to owning the land
Credit: L4 Ferguson lord’s power. The consequence is that they work, greater farmer incomes al-
(Creative Commons
Attribution-Share Alike the state’s good-governance capacities lowing the farmers to send their chil-
3.0 Unported license). are distorted and corrupted, favoring the dren to school, better nutrition due to
narrow interests of the landlords and the higher caloric intake, and greater small-
political elite that is connected to them farmer purchasing power leading to
(often by kinship). greater demand for the products of
Transformative socio-political land labor-intensive manufacturing. The
reform for developing countries is sociopolitical democratization would
aimed at diminishing wealth inequali- mean the breaking of landlord power,
ties in the initial stages of develop- political stabilization resulting from the

inclusion of the peasant masses in the Japanese and South Korean cases: In oriented states (as opposed to neo-
political system, and democratization Japan in 1945, 45% of the peasants liberal models that saw state promo-
of decision making now liberated from were landless tenants. By 1955, only tion of economic development as
landlord capture of local and national 9% were tenants and even they ben- anachronistic and “inefficient”).
state bureaucracies. efited from much-strengthened pro- Successful land reforms require fol-
tective laws. In pre-reform South low up—supportive policies invest-
Land Reform Is Not Enough Korea in 1944, the top 3% of land- ing in rural infrastructure develop-
There have been many more failed holders owned about 64% of the ment (irrigation, electricity, roads,
land reforms than successful ones. land, with an average holding of 26 health clinics, schools), plus provid-
Reforms have failed mainly because hectares. By 1956, the top 6% owned ing services such as clear and legiti-
they have not been thorough enough just 18% of the land, with an average mate land records, micro-credit at
in breaking the power of the landed of about 2.6 hectares. Meanwhile, reasonable rates of interest, and
elite, and in extending the role of the 51% of family farmers owned about training for farmers in the newest
government in an inclusive develop- 65% of the land, with an average skills for sustainable farming. Japan,
ment process. Across Latin America— holding of 1.1 hectares. Taiwan, South Korea, and arguably
in Mexico, Bolivia, Brazil, Chile, and Nowhere in Latin America or even China’s development paths
Peru—land reforms have had partial Africa, nor elsewhere in Asia, did land serve as examples of transformative
success, but for the most part have reforms come so close to such equal- land reforms in the last fifty years.
not dislodged rural elites and their ization and radical reshaping of tradi- What these countries achieved was
industrial counterparts from political tional social structures. The East Asian remarkable growth with equity. D&S
dominance. This has contributed to land reforms succeeded in bringing
an image of land reform, even among about the long-term national devel- J AW I E D N AWA B I is a professor of
the progressive left, as a tried and opment policies by creating more economics and sociology at CUNY Bronx
failed policy. There are also examples conducive socioeconomic and socio- Community College and a member of
of half-successful land reforms in political conditions—breaking the the Dollars & Sense collective.
South and East Asia—in India, existing power structure, allowing for
the Philippines, Indonesia, and the emergence of developmentally S O U R C E S : Available at dollarsandsense.org.
Thailand—where peasants did reap

some benefits like reliable ownership
titles, which allowed them to borrow
on better terms, boosted crop yields,
and reduced malnutrition, though
without fundamentally altering the
class structure.
On the other hand, successful
land reforms were thorough, exten-
sive, and swift. Key examples in the
twentieth century include Japan,
Taiwan, South Korea, and China.
Land in the first three countries
was distributed as family-sized
farms. (China initially had a collectiv-
ized land reform.) Looking at the
››
Mass march at the 5th Congress of Brazil’s
landless workers’ movement, Movimento
dos Trabalhadores Rurais Sem Terra
(MST), Brasília, June 14, 2007.
Credit: Wilson Dias, Agencia Brasil
(Creative Commons Attribution 3.0
Brazil license).

< In Review
ARM’d and Dangerous

Loan. By 1989, illness and job loss Thrift Supervision (OTS) was reluctant
led to financial problems for the to close WaMu because the OTS was
Nobelmans and they stopped mak- funded by assessments on the institu-
ing mortgage payments. Their mort- tions it regulated. WaMu supplied
gage company refused to modify more than 12% of its 2008 budget.
their loan and began foreclosure pro- Taub tells a riveting story about
ceedings. The Nobelmans sought problem mortgages, but she is at her
relief through bankruptcy, which best when identifying the institution-
postponed the foreclosure. al changes that led to these problems.
Their case eventually reached the First, there was deregulation. The
Supreme Court. A 1993 decision kept 1982 Garn-St. Germain Act allowed
the Nobelmans, and all homeowners, ARMs with low teaser rates and op-
from reducing their mortgage debt tion ARMs. The 1994 Riegle-Neal
via bankruptcy. At this point, financial Interstate Banking Act enabled state
Other People’s Houses: How Decades of institutions developed a false sense of thrifts (as S&Ls are known) like
Bailouts, Captive Regulators, and Toxic security. They thought borrowers WaMu to set up branches around
Bankers Made Home Mortgages a would be forced to repay mortgages the country rather than being con-
Thrilling Business by Jennifer Taub. no matter what, so they could lend fined to a single state. This raised
Yale University Press, 2014. without worrying about write-downs. the issue of which state would regu-
Washington Mutual (WaMu) bought late thrifts, something that came
BY STEVEN PRESSMAN American Savings & Loan, inheriting the under the jurisdiction of the Federal
latter’s corporate culture of risky lend- Reserve. Fed Chairman Alan
O ther People’s Houses is a must-read

for those wanting to understand
what happened to the American
ing. CEO Kerry Killinger grew WaMu into
a huge and reckless lender.
Option adjustable-rate mortgages
Greenspan let financial institutions
shop around, believing investors
could police markets better than
Dream of homeownership and build- (ARMs) became WaMu’s flagship prod- government regulators.
ing wealth by paying off one’s mort- uct, comprising more than half of its A second problem was securitiza-
gage. It is a scholarly, insightful, and mortgage originations. Option ARMs tion. The Secondary Mortgage
deeply depressing account of how offer low teaser rates. They also give Market Enhancement Act of 1984
the U.S. government let financial insti- homeowners the option to pay only allowed private mortgage-backed
tutions impose excessive risks on part of their mortgages each month, securities (MBS) with different tiers
middle-class households. The conse- with the rest added to the principal. or classes. Risky loans could be put
quences of this are still being felt. After five years the mortgage be- into lower tiers, giving investors
Jennifer Taub, a professor at the comes a regular loan at a higher inter- higher returns for greater risk. The
Vermont Law School, focuses on what est rate. Borrowers were told not to 1999 repeal of the Glass-Steagall Act
she knows best—the regulatory and worry about this because they could of 1933, which had separated com-
legal issues that impact financial insti- always refinance; at worst they could mercial from investment banking,
tutions and lending. She also weaves a sell the house and downsize. enabled banks to use their deposits
good deal of history and economics When option ARMs “reset” to high- to buy such securities.
into her story about how the American er rates, many homeowners found Third, collateralized debt obliga-
Dream of homeownership was killed. themselves underwater (their house tions (CDOs), which are insurance
Her book demonstrates that the recent was worth less than what they owed). contracts against a borrower’s default,
housing collapse was not some new With negative equity, they could nei- convinced regulators that there was
crisis, but a continuation of the 1980s ther refinance their mortgage nor sell no risk letting banks buy MBSs.
Savings and Loan crisis. their home for enough to pay off the Fourth, rule changes turned banks
Taub develops this link through remaining debt. into over-leveraged gamblers.
the story of one family and one American Savings had only $30 Leverage means that banks use little
mortgage. In 1984, Harriet and billion in assets when WaMu bought of their own money or capital to make
Leonard Nobelman bought a condo it. WaMu had $300 billion when it had investments or loans; the rest is bor-
in Dallas; eventually this mortgage to be shut down. Part of the reason it rowed from depositors or others. In
was owned by American Savings & grew so large is that the Office of November 2001, the Fed and the FDIC

Go
l !
Save —
lowered capital requirements on
MBSs. Capital requirements force
shareholders to bear some of the
they know that they are protected
against losses from theft.)
Taub correctly notes that there is
Dig
trees
i t a
costs of bad loans made by banks. no moral-hazard problem with mort-
They also reduce the cost to taxpayers gage write-downs because lenders
of bailing out banks and paying in- do not have to make risky loans in the
sured depositors. first place. In fact, the Durbin
Fifth, the system was rife with Amendment would have prevented
conflicts of interest. Regulators of the moral hazard of irresponsible
financial institutions were owned by lending using government-insured
the financial institutions in their re- deposits. Candidate Obama opposed
gion or, as with the OTS, they were mortgage write-downs during the
funded by those they regulated. 2008 election; President Obama has
Politicians, dependent on financial honored this pledge.
institutions for campaign contribu- Things remain precarious today.
tions, pressured regulatory agencies Homeowners cannot discharge or
not to regulate and threatened to reduce mortgage debt through bank-
reduce their funding (and force lay- ruptcy. Banks are over-leveraged, in-
Do you really want us to keep deposit-
offs) if they were too strict. sufficiently regulated, and remain too
ing ink on flattened wood pulp and
Credit rating agencies also faced big to fail. The government still sides trucking the results clear across the
considerable conflicts of interest. with banks rather than consumers. country? Please consider going
Before any security can be sold, it must And things may soon get worse. paperless with a Dollars & Sense
be analyzed and rated by an indepen- Homeowner-relief measures devel- e-subscription! We’ll send you a full-
dent agency. Ratings (AAA, AA, A, etc.) oped shortly after the fall of Lehman color pdf of each issue, as soon as it’s
are supposed to reflect the quality of Brothers and the start of the Great published. (Note: non-U.S. subscribers
the security or the likelihood that the Recession were inadequate, accord- can use the U.S. rates for e-subs.)
buyer will get repaid. The problem is ing to Taub. However, Taub does not E-subs also help reduce our expens-
that rating agencies make money from mention that much of this support is es. It costs much more than $23.95,
rating securities and banks send their about to end. our renewal subscription rate, to
business to agencies giving their secu- Home Affordable Modification produce, print, and ship six copies of
D&S to you each year.
rities high ratings. Wanting business, Program (HAMP) modifications re-
agencies gave high ratings to MBSs. duced mortgage rates to as low as 2% And please consider becoming a D&S
According to Taub, rating-agency em- for struggling homeowners, with the Sustainer. The sustainer rate—$60 for
ployees who tried to actually assess government paying the difference to one year, $120 for two years—more
closely reflects the real cost of produc-
the risk of MBSs were verbally attacked financial institutions. One million
ing the magazine. By subscribing
by their supervisors. HAMP loans will reset at higher rates
at this rate, you’ll help us keep the
Finally, there was a political prob- over the next four years. After a de- subscription price low so we can
lem. In 2008, Senator Richard Durbin cade of stagnant incomes, the home- provide our unique and incisive eco-
(D-Ill.) proposed allowing mortgage owners will not likely be able to make nomic analysis to more people.
modifications by changing the bank- higher mortgage payments. And with
You can subscribe or renew online
ruptcy code. The Congressional close to 40% of homeowners under- at dollarsandsense.org/subscribe.
Budget Office estimated that this water or nearly underwater on their If you’re currently a subscriber and want
would have helped more than one mortgages, and the Federal Reserve to switch to an e-sub, just e-mail us at:
million homeowners at no cost to tax- ready to raise interest rates, housing dollars@dollarsandsense.org.
payers. Finanical-industry opponents looks ARM’d and dangerous. The U.S.
DOLLARS
screamed “moral hazard.” (This is the economy sits in its crosshairs. D&S
economic term for a situation in
&SENSE
which insurance makes someone less S T E V E N P R E S S M A N is a
careful. For example, people with car professor of economics and finance at
insurance may be a little more likely Monmouth University and author of Fifty REAL WORLD ECONOMICS
to leave their car unlocked because Major Economists (Routledge, 2013).

< Ask Dr. Dollar
What Would Full Employment Cost?

Dear Dr. Dollar:
What is the cost, the minimum budget the U.S. government could spend, to tures on social infrastructure would
ensure everybody who wants a job can have one with decent pay and benefits? have both short-run multiplier de-
How could that be paid for? —Brett O’Sullivan, Denver, Colo. mand impacts and long-run impacts
by raising productivity.
Such actions by the government
B Y A R T H U R M ACE WA N the government would need would would not require large tax increases,
come from and be less than the cur- though higher taxes on people with
T he barriers to change of this mag-

nitude—creating good jobs for
everyone—are not so much economic
rent insurance premiums. The costs
would go through the government,
but there would be savings for soci-
very high incomes would help.
Moreover, as the economy approached
full employment, the bargaining pow-
as political. We can imagine arrange- ety. Because this benefit would be for er of workers would improve and
ments by which the economy could everyone, it would remove the prob- unionization could be facilitated. As
function well and would achieve full- lems that arise when health care is the economy moved back to full em-
employment, good jobs, and benefits. tied to employment. ployment and incomes rose, taxes
It is, however, hard in the present cli- Yet, full employment would also would increase without tax rate in-
mate to think that steps in this direc- require government spending to creases—thus preventing a continuing
tion would be politically possible (at stimulate job growth. While the econ- increase of the government debt.
least at the national level, though omy operates as it has over the last There would certainly be objections
there are political possibilities in some several years, deficit spending is nec- to these sorts of changes. Defenders of
states and localities). essary to move us toward full employ- the status quo would argue that stimu-
There are things that could be ment. Especially in the current cir- lation of the economy would cause
done to move the economy in this cumstances, with the economy far inflation and that raising the minimum
direction without significant costs to from full employment and with inter- wage and facilitating unionization
society. Examples of steps that could est rates on U.S. government bonds would harm businesses’ profits and
improve pay and jobs without major extremely low, deficit spending would lead them to cut back on investment
government expenditures include not impose large costs (i.e., the costs (a “capital strike”). The inflation and
raising the minimum wage and short- of paying the interest on the govern- cutbacks would, the argument goes,
ening the work week (e.g., requiring ment borrowing to cover the deficit). mean fewer jobs, and especially fewer
time-and-a-half pay for more than 30 It is not hard to figure out what good jobs.
hours of work per week). The former kinds of jobs should be created with With plenty of slack in the labor
would improve workers’ pay, and the government stimulus spending. Prime market, however, there is no reason to
latter would lead many employers to examples include environmental re- believe that government deficits
hire more workers to avoid the higher pair and preservation (including ener- would bring inflation, and as the econ-
overtime rates. Also, the rules sur- gy conservation), education and train- omy approached full employment,
rounding unionization could be im- ing, and infrastructure repair and deficit-based stimulus would no lon-
proved; indeed, simple enforcement extension (e.g., especially in public ger be needed. The real concerns
of existing rules (e.g., protecting transportation). of those opposed to stimulation of the
workers trying to form a union) would Further, stimulus through deficit economy are their opposition to the
be a significant step toward improv- spending could be used be used for social programs that would probably
ing workers’ opportunities. the government to directly create grow with larger stimulation and their
Also, in terms of providing bene- jobs. The quickest and most effective fear that the growth of those programs
fits, a major step forward would be way to do this would be for the feder- might ultimately lead to higher taxes
the establishment of a single-payer al government to provide funds to on people with high incomes—prime
(“Medicare for All”) healthcare system, the states to reverse the tens of thou- defenders of the status quo.
which would pay for itself by reducing sands of layoffs of educational work- As to the fear that business profits
the large overhead costs and profits ers in the last few years. Also, there is would suffer with the sorts of reforms
of the private insurance companies an increasing need for workers in uni- proposed here, that would also be
while providing everyone with a versal early childhood education, as likely. Yet, weaker profits, while a real
prime benefit. Because a single-payer has been instituted in New York City loss for those at the top, need not be
system would cost less than the cur- and a few states. Like expenditures on bad for the rest of society. It is only
rent system, the payments (taxes) that physical infrastructure, these expendi- necessary to look at the relatively re-

$?
cent period in our history when wag-

es—including the minimum wage—
were relatively higher, unions were
stronger, and the distribution of in-
come less unequal. Through the
1950s and into the early 1970s, these
conditions were largely met, and the
economy grew relatively strongly.
There were many economic problems
in those years (though not severe in-
flation) and many circumstances were
different from today, but the experi-
ence of that period gives the lie to the
claims that government stimulus, bet-
ter working conditions, and greater
economic equality would necessarily
result in economic disaster.
These changes are blocked by the
political power of business and the
very wealthy—the infamous 1%—who
employ specious arguments about
inflation and the undermining of em-
ployment to protect their own inter-
ests. Changes that would move us to-
ward more and better jobs would be
good for most of us. But they would
impose costs on those at the top, who
raise the fearful specter of “drastic
change of the economic system.”
Yet, these changes that would meet
the goal of more well-paying jobs with
good benefits could be accomplished
without some drastic system change
or some large increase in the costs to
society through greater government
expenditures and taxation. Could we
get more substantial improvements
with greater change? Perhaps. But let’s
first recognize that, even within the
profit system, things do not have to be
as they are today. D&S
A R T H U R M A C E W A N is professor
emeritus of economics at UMass-Boston
and a Dollars & Sense Associate.
Questions about the economy?

Ask Dr. Dollar!
Submit questions by email (dollars@
Browse our full book catalog:
dollarsandsense.org) or U.S. mail
(c/o Dollars & Sense, One Milk Street,
dollarsandsense.org/bookstore.html
Boston, MA 02109).

Connecting for impact
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DOLLARS

The “Secular Stagnation” Debate

Primer on Land Reform

U.S. & CAN: $4.50

What Full Employment Would Cost

Plus: The Assault on Retirement

&SENSE Reform and Revolution

Dollars & Sense magazine explains the workings of

NUMBER 318 | MAY/JUNE 2015

4 the short run

MAY/JUNE 2015 l DOLLARS & SENSE l 3

4 l DOLLARS & SENSE l MAY/JUNE 2015

The Corinthian Crisis

G abby had worked in call centers

MAY/JUNE 2015 l DOLLARS & SENSE l 5

remaining 28 campuses. Still, former

6 l DOLLARS & SENSE l MAY/JUNE 2015

MAY/JUNE 2015 l DOLLARS & SENSE l 7

8 l DOLLARS & SENSE l MAY/JUNE 2015

© Michael Morgenstern (michaelmorgenstern.org).

Sallie Mae and the Student Loan Industry

10 l DOLLARS & SENSE l MAY/JUNE 2015

12 l DOLLARS & SENSE l MAY/JUNE 2015

THE SHIFT IN SUBPRIME LENDING FROM HOUSING TO COLLEGES

MAY/JUNE 2015 l DOLLARS & SENSE l 13

14 l DOLLARS & SENSE l MAY/JUNE 2015

J APAN ’S CON S ERVATIVE L IB ERAL D E MOC R AT I C PA RT Y ( LD P ) — LE D BY

16 l DOLLARS & SENSE l MAY/JUNE 2015

MAY/JUNE 2015 l DOLLARS & SENSE l 17

18 l DOLLARS & SENSE l MAY/JUNE 2015

Keynes’ Advice from the 1940s

BY MARIE CHRISTINE DUGGAN

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MAY/JUNE 2015 l DOLLARS & SENSE l 23

Green tea farm of Boseong, Jeollanam-do, South Korea.

world” (Global South)—it is high time form of rural communes or cooperative

T he phrase “land reform” often con-

24 l DOLLARS & SENSE l MAY/JUNE 2015

MAY/JUNE 2015 l DOLLARS & SENSE l 25

While the economic case for land

26 l DOLLARS & SENSE l MAY/JUNE 2015

Thailand—where peasants did reap

MAY/JUNE 2015 l DOLLARS & SENSE l 27

ARM’d and Dangerous

O ther People’s Houses is a must-read

28 l DOLLARS & SENSE l MAY/JUNE 2015

MAY/JUNE 2015 l DOLLARS & SENSE l 29

What Would Full Employment Cost?

T he barriers to change of this mag-

30 l DOLLARS & SENSE l MAY/JUNE 2015

cent period in our history when wag-

Questions about the economy?

MAY/JUNE 2015 l DOLLARS & SENSE l 31

Over 45 sessions full of practical info

Registration deadline: June 24

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