JOANNE MYERS: Good afternoon. I'm Joanne Myers, Director of Public Affairs Programs. On behalf of the Carnegie Council, I'd like to thank you all for joining us, including C-SPAN's Book TV.
Today we have two speakers, with two different focuses, discussing the one topic that consumes us all, the economic crisis. Steven Greenhouse, author of The Big Squeeze: Tough Times for the American Worker, is a labor and workplace correspondent for The New York Times. He has covered business, economics, and foreign affairs for the Timesand has reported from Paris, Chicago, and Washington, D.C. His remarks will focus on the domestic crisis.
Randy Charles Epping, author of The 21st Century Economy: A Beginner's Guide, will provide a global perspective of these complex times. Although an American, Mr. Epping is based in Zürich and Säo Paulo. He has worked in international finance for over 20 years and has held management positions in both European and American investment banks. He is also the president of Central Europe Foundation, which provides scholarships to students from throughout Central and Eastern Europe. This foundation awards an annual prize to a person, persons, or organization for outstanding achievement in promoting economic cooperation in Central and Eastern Europe.
Back in 1992, when James Carville announced, "It's the economy, stupid," no one realized just how prophetic, far-reaching, or long-lasting his words would be. With a weakened economy and rising unemployment, all of us, from Main Street to Wall Street, have felt the financial blows. Although the entire planet was growing measurably richer, suddenly it all came to an end. The reasons why this has happened are, for most of us, obscure. Yet we know that this economic crisis has threatened every sector of the American workforce and is creating the same concerns the world over.
Today we will look at some of the causes, learn more about what some of the more baffling terms mean, and examine the effects this crisis has had on so many. As the origins and solutions for the current financial crisis will remain a subject of debate and interest for years to come, the need for economic literacy is growing in importance.
In The 21st Century Economy: A Beginner's Guide, Mr. Epping deftly articulates the hows and whys of the current economic crisis and provides the knowledge you will need to make sense of the latest headlines. The intent of his book, he writes, is to provide a basic understanding of how this 21st century economy works, so that we will not only survive, but thrive in the new global marketplace. Accordingly, he provides the tools for us to accomplish this and illustrates with compelling narratives explaining how business is done in the 21st century.
In The Big Squeeze, Steven Greenhouse tells us about how the current recession has affected jobs, the workplace, and the economy. Although what he has to say may surprise and even shock you, he provides suggestions for reforms that will preserve the welfare of our nation's workers and prevent further loss of employment benefits and workers' rights. The examples he draws upon demonstrate just how special it is when journalism becomes as compelling as fiction.
I believe that at the end of this program you will have more insight and more knowledge about the current state of our economy, both from an international and national perspective.
I ask you now to please join me in welcoming our speakers, Randy Charles Epping and Steven Greenhouse. Steven is going to go first.
STEVEN GREENHOUSE: Thank you for that wonderful introduction, Joanne. I thank the Carnegie Council for inviting me. I'm honored that all of you could come hear us. And I'm honored to be with Randy Epping, author of a terrific book.
I wrote this book, The Big Squeeze: Tough Times for the American Worker, and it came out a few months ago. I'm sorry to say that since it has come out, things have gotten much worse for the nation's workers. Last month the United States lost 663,000 jobs. In the past five months, we have lost more than 3 million jobs. That's a very scary number. The unemployment rate for blue-collar workers is a frightening 15.3 percent; for African Americans, it's 13.3 percent; for American teenagers, it's 21.7 percent. This is nasty stuff.
In my view, the nation has tumbled into this terrible downturn largely because the nation's leaders took their eye off the ball. They started ignoring the concerns of millions of typical middle-class Americans. I say that because the nation's leaders and regulators basically ignored for years and years the shenanigans of subprime mortgage brokers.
Hundreds of thousands, even millions, of Americans took mortgages that they couldn't afford. That helped precipitate this foreclosure crisis. That helped cause housing prices to plunge. That helped cause this whole banking crisis and Wall Street crisis.
I think if our nation's leaders had done more of the knitting and had regulated something like subprime mortgages and protected typical Americans more, the nation's economic health would be much better.
Another area where I think the nation's leaders have not done what they should be doing is, they have largely ignored the disappearance of millions and millions of middle-class manufacturing jobs. It startles me that since the beginning of this decade, the nation has lost 30 percent of its manufacturing jobs. It's an amazing number, in my view. That's 5 million jobs. Those are jobs that usually provide good middle-class wages and good middle-class health and pension benefits.
In my book I write about a refrigerator factory in Galesburg, Illinois that Obama spoke about in his keynote address at the Democratic Convention. At that factory, 1,600 people lost their jobs when Maytag moved the operations to Mexico. The workers were making nearly $15 an hour in Galesburg, Illinois, and at the new plant in Mexico, the workers are making about $1.50 an hour.
Another problem, I think, that the nation's leaders aren't paying nearly enough attention to is the offshoring of jobs. I'm a free-marketer. I think globalization does some very good things. It helps reduce costs for consumers. It creates jobs in India and China and helps lift many Third World nations.
But I think it's too often forgotten that globalization also has its downside, and the people who suffer most from globalization are the workers in wealthy, advanced industrial nations like the United States. According to some estimates, American companies are going to move 3.4 million white-collar jobs overseas between 2004 and 2016. Those are software jobs going to India, aerospace engineering jobs going to Russia and Hungary, I believe, accounting jobs going to the Philippines. This might be great for American companies, but it's not so good for college graduates who are looking for white-collar jobs.
In my book I quote Paul Samuelson, the great MIT economist. He talks about how pressure from offshoring is affecting American workers. He says, if you don't believe that offshoring changes the average wages in America, then you believe in the Tooth Fairy.
In The Big Squeeze, I write about a software worker in Washington State named Myra Bronstein. She is a quality-assurance engineer. She tested software for cell phone companies to make sure that the software worked. Myra was told by her software company, "As long as you work hard, as long as the company's doing well, don't worry, you'll have a job."
Myra told me she often worked 12-hour days, 14-hour days, even 16-hour days. Once, she told me, she worked a 24-hour day, because they were rushing to get some new software out to satisfy the customer's deadline. At the end of 24 hours, she told her boss, "I have to leave now. I have a longstanding doctor's appointment." She said the boss chewed her out for not showing enough loyalty.
After Myra was there for three years, she and 17 other quality-assurance engineers were called into a conference room and the human resources director said, "I'm sorry to tell you this. You're being laid off."
They said, "What? We've held up our end of the bargain. We worked very hard. The company's doing very well. Why are you laying us off?"
They said, "Sorry, your jobs are being offshored to India."
To add insult to injury, the human resources director said, "If you want to receive any severance pay whatsoever, you have to agree to spend the next four weeks training the workers from India who will be replacing you."
They reluctantly said yes, because they wanted severance pay. That was on a Friday. That weekend, 20 workers were flown in from India, and on the following Monday, Myra and the other departing American engineers were training their Indian replacements. Myra told me that the Americans who were losing their jobs called themselves "The Castaways" and "Dead Men Working."
I think, in a way, there has been this hollowing-out of the American economy. Sometimes I'm uncomfortable with that phrase, but when I see how the nation and its leaders have focused so much on the millionaire whiz-kids of Silicon Valley and the 28-year-olds working on Wall Street making a million dollars a year—that was kind of thrilling the nation and the news media—I think we took our eye off the ball and we stopped paying attention to what was happening with the nation's middle class.
By that, we weren't paying attention enough to the loss of manufacturing jobs. We weren't paying enough attention to the offshoring of all these white-collar jobs.
Perhaps it was presumptuous of me, but the reason I wrote this book, The Big Squeeze, was that I felt that there was this huge, overarching economic problem that the nation by and large wasn't paying enough attention to, and that was the squeeze on the typical American, the squeeze on the middle class.
Sometimes I say I really have the incorrect name for my book. I shouldn't have called it The Big Squeeze; I should have called it The Big Squeezes. There are really many different squeezes that Americans face.
One has been the severe wage squeeze. Basically, we had a recession in 2001. The recession ended in November 2001, and the economic expansion went from November 2001 until the end of 2007. During those six years, wages for the typical worker rose by less than 1 percent. Yet, during those six years, the economy grew quite well. Corporate profits rose by 13 percent a year. Productivity per employee rose by 17 percent.
So you had this unfortunate situation where companies were doing very well, thank you, employer productivity was really going up very strongly, yet the typical worker was going nowhere economically. I think some economists are saying that this economic expansion we had from 2001 to 2007 will prove exceptional, because it evidently is the first time in American history that median household income actually declined during an economic recovery. For typical working-age families, led by someone under age 65, income is down about $2,000 since 2000. That's very worrisome.
It was unhappy facts like these that caused me to write this book. I often think that unless we know where we are, unless we know the economic situation that so many of us are facing, it's really hard to know where we are going to go. It's really hard to know how we are going to fix things.
So there has been this wage squeeze that isn't sufficiently recognized.
There has also been, as many of you know, the squeeze on health benefits. Again, we had this economic recovery for years, and yet during that time 8 million Americans lost health insurance, which again shouldn't be happening.
When the economy was growing, before this horrible downturn began, the number of people without health insurance should have declined; it should not have increased.
Right now, according to the latest estimates, nearly 49 million Americans are without health insurance. That's nearly one in six Americans. As Randy will no doubt explain, we are considered the wealthiest nation on earth, yet we have one in six Americans without health insurance.
We as a nation spend more than $6,000 a year on health insurance per American. That's twice as much as France and Germany do, two and a half times as much as Japan does. They have universal health coverage; we don't. So there are problems there.
Even for workers with health insurance, they have to pay far more for their health insurance premiums than was the case just a few years back. The typical worker paying for family health coverage has to pay twice as much in premiums as was the case seven years ago. They have to pay $1,700 or $1,800 more.
So you have wages flat and people forking over more for health coverage.
Another part of the squeeze, again as many of you know, is what has been happening to retirement security, which I often think has become an oxymoron. We should really call it "the retirement insecurity system."
A generation ago, in companies with more than 100 workers, 80 percent of the workers got the traditional good pensions, where once you retired, you would get a nice monthly stipend. Now it's down to just 33 percent of workers at those companies getting regular pensions. Companies, understandably, are trying to save money. But the whole shift has been to 401(k)s. Probably many of you have 401(k)s. You know the joke: That we should now call 401(k)s 101(k)s.
For The New York Times recently, I have written stories about all these people in their 60s, someone who is 62 and was planning to retire at age 66 now says, "My 401(k) has fallen by 50, 60 percent. I'll be lucky if I can retire by age 70, 75, 76."
According to a recent study, the typical American worker aged 55 to 64 has just $40,000 in his or her 401(k). Imagine retiring at age 62 with $40,000 in your 401(k), and you get $18,000 a year from Social Security. How are you going to live, if you survive another 20 or 30 years?
This financial squeeze has had some unfortunate results. Many Americans trying to make ends meet took some unhealthy steps. One is, Americans are working harder and harder. The typical American works 1,800 hours a year. That is 135 hours (three and a half full-time weeks) more than the typical British worker, 240 hours (six full-time weeks) more than the typical French worker, 370 hours (nine and a quarter weeks) more than the typical German worker. These numbers come from the very establishment Organisation for Economic Cooperation and Development. So Americans work very hard.
Another way Americans are trying to make sure that they can make ends meet is, in a typical middle-class household, husband and wife, taken together, are working 540 more hours a year than they were a generation ago. That means 13 and a half full-time weeks more. That means spouses have less time together. That means they have less time with their kids.
So Americans work very hard. We are the only advanced industrialized nation that doesn't have a law guaranteeing paid vacation for every worker. In the 27 nations of the European Union, everyone is more or less guaranteed at least four weeks of vacation; in France, it's generally five or six. We are one of just four nations in the world that don't have a law requiring paid maternity leave. The other nations include Swaziland and Papua New Guinea.
Also to overcome the squeeze, a lot of American families have, understandably, gone deeper and deeper into debt. If your wages are flat and you want to live well and you want to keep up with the Joneses and you want to buy that SUV or flat-screen TV, you go into debt.
I think one of the reasons we have had this huge economic turmoil now is that Americans went hugely into debt, and they bought houses they couldn't afford. The typical family borrowed 130 percent of their annual income, which reached record levels. I think one of the reasons we have this horrible downturn now is that Americans fell behind on their housing payments. They had to stop spending because they were so highly in debt. They stopped buying. That hurt stores and hurt manufacturers.
I want to discuss one more aspect of the squeeze and then talk quickly about some of the recommendations I discuss in my book.
There has also been this horrible squeeze on young Americans. I think it's not fully understood. For the typical household led by someone aged 25 to 34, income is down 6 percent since 2000. Again, we had this pretty good economic recovery, and even before this terrible recession began, things were getting worse for young Americans. For workers under age 24, there are 2 million fewer young Americans working now than was the case three years ago, whereas the number of older American workers has increased by nearly a million during that period.
I wrote this story a few weeks ago about how older workers have been forced to come out of retirement, and they are often competing for the same cashier's jobs as 19-year-olds and 20-year-olds. So there is this unfortunate competition.
For young workers, under age 34, only 42 percent of them are in jobs that offer any retirement benefits, any 401(k) or pension. When my generation first went to work 20 or 30 years ago, for kids right out of high school, two-thirds of them got jobs that offered health insurance. Now, for kids out of high school, only one-third of them find jobs that offer health insurance.
One statistic that really amazed me and alarmed me when I was researching my book was that for the typical 30-year-old male American—and the study was just about men, pardon me—his wages, after factoring in inflation, are 12 percent below what his father was earning.
So there is this bad squeeze for older workers, younger workers, factory workers, white-collar workers. In my book I really try to lay it out there so Americans understand the difficulties that the typical worker faces.
I could talk for another half-hour about my recommendations, but I just want to touch upon two points very quickly—two and a half points, excuse me.
One is, again, we are the only advanced industrialized nation without universal health coverage. We have one in six Americans without health coverage. Mitt Romney in Massachusetts, Arnold Schwarzenegger in California, John Edwards, Hillary Clinton, Barack Obama—they are all talking about moving towards universal health coverage. I think it's time that we as a nation try to do something on that.
Secondly, I think our retirement security system is extremely broken. The 401(k) system is not working well. Not enough people have 401(k)s. A lot of people who get laid off drain all their money out of their 401(k)s to live on, and by the time they retire, their nest eggs have very little in them. I think, again, we as a nation have to bring some smart people together to figure out how we are going to have a satisfactory retirement system.
Last point. I pray that the stimulus program that President Obama and Congress have approved works. There are all these other problems out there that we as a nation face, like retirement security and problems for young workers. I worry that unless the stimulus package succeeds, we really can't address all these other problems that really need addressing.
Thank you. Again, I'm honored to be here.
JOANNE MYERS: Randy?
RANDY CHARLES EPPING: Thank you, Joanne.
I'm a big fan of Steven's articles, and it has been great to hear a summary. As Joanne said, I live in Switzerland most of the year, partly in Säo Paulo. In both places, we get the International Herald Tribune, where your articles do appear often.
A wonderful job of taking care of the first part of my speech, which was to go back and look at the origin of this global crisis that we are living through. I think it worked well for you to go first, because, as Joanne said, what I try to do in my book is to give people the tools to get a global picture.
The last thing I would want to do is to try to give answers, except Steven asked so many that I think, when we have time for some questions and answers later, we can maybe both try to do some brainstorming. They are enormously important issues that you brought up.
I was talking with Congressman Brademas before the event started today, and he was talking of his origins and the fact that he was the first Greek-American in the United States Congress, which I found a very interesting moment to begin a discussion on the world economy.
The idea of the world economy is that we are all in this together. Steven mentioned that we need to get a lot of smart people to come up with some good answers. We have a lot of smart people in the United States, but we have a lot of smart people abroad. A lot of times that gets ignored.
We have examples. You mentioned a few. The health care in many countries around the world is so much superior to what it is in the United States. Yet they spend half of what we spend in the United States.
So the idea of my talk today is basically to do a "what if" story. The phrase I mention in the first part is to say, "What just happened?"
Of course, there is a plethora of terms to describe this strange animal, the global economy that we are living in and the meltdown that we have just seen: credit crunch, recession, depression, fusion economics, global meltdown, mortgage-backed securities, carbon footprints, collateralized debt obligations—do we really know what that means?—quantitative easing, which apparently is now the next step, once central banks have removed all of their other options for reducing interest rates, credit-default swaps.
What do they all mean? Obviously, none of us can understand them all. Until now, unfortunately, though, we have all been sort of willing to let the economists take charge and let the politicians listen to the economists and say, "They're economists. They're politicians. They're going to do the right thing."
But as a journalist in The Economist once said, politicians will only act economically literate when the electorates are economically literate. The idea is that we all need to become economically literate.
The problem is that economists explain everything with numbers and graphs. The subprime meltdown led to this credit crisis, which then led to a global recession, and then started feeding back on itself, because you had other countries then going into recession, buying fewer products from the United States, job losses all across the board, not just in the United States.
Warren Buffett once said, "When the tide goes out, you can see who's swimming naked." What we have seen in the last few months is an enormous amount of naked swimming.
A perfect example is the AIG story. There is another brilliant writer from The New York Times named Joe Nocera, who wrote a brilliant article describing what exactly happened with AIG. It is amazing that they were able to go to London, outside the arm of the regulatory agencies in the United States, and essentially issue insurance policies for securities that banks then paid for.
They knew that if these subprime debt obligations were ever to fail, AIG would pay for them. So this group in London essentially made $400 billion of naked insurance policies. But they didn't call them insurance policies. They called them credit default swaps.
So what we have is a lack of knowledge on the part of governments and regulatory agencies. Even the economists have said they don't really know what's going on.
You look at what Madoff was able to get away with, in a country where theoretically the regulatory agencies should have been overseeing it. Then you look at Latin America, where the countries have done basically everything right in the last few years and have large current account surpluses.
The middle class in Brazil, quite the opposite of what is happening in the United States—and it's not unconnected—has been growing very strongly. For the first time, under the Lula government, more than 50 percent of the population is now in the middle class, or was before this global meltdown started.
What happened in Brazil is that people pulled out of Brazil because they needed money to cover their debts in the United States. They sold their Brazilian securities and their Brazilian investments. They then turned those into dollars, which made the real go down. You ended up with a feedback, a bit like if I were to talk into this microphone very loudly and they were to turn it up back there. You would have this feedback of a global meltdown in the United States leading to a meltdown in Brazil, leading to a meltdown in China, leading to a meltdown in other parts of the world.
The idea of the book is to try to find out how we understand what went on. Obviously, we are not economists, so we are not going to use the same models the economists use, even assuming that they would be appropriate. Obviously, if the economists had done everything right, they would have predicted what happened.
My idea is, let's do a "what if" experiment here today and look at maybe two or three other models and see how we can use other ways of looking at what happened to try to make sense of it all.
I thought it would be interesting to look back to the beginning of the Great Depression in the 1930s at John Maynard Keynes' model to look at the world economy as a machine. I quote: "We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand."
The idea that the loop that led to the meltdown can also be compared to a machine is a very interesting one. As Keynes said, these machines are very difficult to understand, and yet the machine does have a certain logic to it. But does this new world economy really have a logic to it?
Another great writer for The New York Times, Paul Krugman, also has a very interesting way of looking at it. He treats it as a loop. This loss of confidence would lead to a slumping economy, which it has, which then leads to financial problems at banks, at companies, which then affect workers and household income. The impact on income leads to a further loss of confidence. So that's another way of looking at it.
Yesterday I was giving a speech to the business community in Miami, and we were trying to do the same thing. Someone there brought up the idea of how the Florida ecosystem has been invaded with these tropical animals, these exotic animals that people have imported and brought into Florida. About 10 percent of them have been released into nature. The New Yorker did an article a couple of weeks ago about this. You have in certain counties in Florida—there's one called Cape Fear—where there are about 7,000 iguanas, some of them up to the size of seven feet long, living in this swamp-like area near the Everglades. They are basically coming and eating people's pets.
Once you release something into an ecosystem and you have inputs like open borders and trade and people coming in and out, it doesn't necessarily mean it's bad. I think in The New Yorker article there is an example of how these iguanas could actually be beneficial, because they were doing battle with the pythons that were also eating other animals. You have the Argentine beetle coming from Alabama up and meeting the Japanese ants, and then they would do battle.
So this idea that the world economy is something that we really can't understand, and yet somehow we need to understand, has led me to invent this idea of fusion economics, a bit like a fusion nuclear reaction, where you bring together a lot of molecules, and we don't really know what each molecule is going to do. But obviously, with fusion reactors, and even the bomb, you can control it, and then you can use it for whatever you would like to use it for.
I'm very glad that I was the second one to speak today, because Steven brought up some very important questions: What do we do with this money? What does a society do with its money? What does an economy do with its money?
In the last eight years, while the median income has gone down in the United States, I think the average income went up, because there was such a large amount of money going to the very, very top of the income group.
So the idea is to take the world economy, take the local economy, and say, "What do we do with it?"
In closing, I would like to mention that, in my opinion, this whole idea of the American dream has to be redefined. I did some research into where that term came from.
Somebody way back in the 1920s named James Truslow Adams coined the term. It was very interesting to read that he defined the American dream as that which would allow us to grow to our fullest development as a man and a woman, unhampered by the barriers which had been erected in the older civilizations.
It's interesting that his view of the American dream was not this mad rush to get as much money as you can and work as hard as you can, work 500 hours a week and ignore your children. Maybe in the new world economy that is coming, we can use that as an opportunity—the idea that the Chinese character for crisis is the same as for opportunity—we can use it to maybe change our lives and change, maybe, the way that our society works.
Someone at the meeting yesterday, which was to support the Miami Art Museum, mentioned that there is this whole new role that we could play.
They came up with a word for it, "philanthropreneur." As Joanne mentioned, I do work for a foundation in Switzerland part-time. I'm sure there are several people here who are doing the same thing. I'm sure Congressman Brademas is one of those who is devoting time outside of work to do something to help those that need it most.
In this new fusion economy, with all this energy that we have created, the question is, what do you do with it? Obviously, we don't know exactly how to use it, but we know that energy is there. So I guess our role is to use specific examples, like Steven brought up, and then to use the direction of our own lives to somehow find a way to make this world a better place.
Questions and Answers
QUESTION: On the issue of health care, I have not seen a study about how other Western countries provide more for less that would be informative for our government and our planners. Is anybody doing that, figuring out how they can do it and we cannot?
STEVEN GREENHOUSE: I'm sure Randy can help answer this. The studies and books I've read on this say the pharmaceutical companies in those countries don't take nearly as large a share of the overall health-care pie. Paul Krugman and others have written that the administrative costs in our health system come out to about 25 percent. For Medicare, administrative costs just represent 3 percent of all costs; in the private system, 25 percent of all costs.
Another thing—I'll make myself unpopular saying this—is that doctors in the United States get paid a hell of a lot more than doctors in many European countries as well.
So I think there are ways to begin to contain the costs. As you know, there are many doctors who assign way too many tests because there is money in it for someone.
I think in many European nations the government keeps a much firmer lid on costs and tests.
QUESTION: This isn't a question exactly on point. But, Mr. Greenhouse, your employer announced recently that they lost over $74 million in the first quarter.
Without trying to embarrass you, what are people at The New York Times saying about the future of the newspaper?
STEVEN GREENHOUSE: I think people at The New York Times are really very proud that our publisher, Arthur Sulzberger, Jr., is very committed to maintaining—and pardon my presumption—the world's greatest newspaper. He's investing a lot of money. It was wonderful to win five Pulitzer Prizes this week. I didn't win them, but the paper won them. It shows that they are investing in creating a great product.
What Bill Keller, the executive editor, said in announcing the Pulitzer Prizes is that some publishers are saying, "We can't afford to do this anymore," and he said—and I think this is great for any notion of democracy—"We can't afford not to do it."
I think we at the paper are really trying to pull together. We have been asked to accept a 5 percent cut in pay to help keep the company profitable.
There's a larger question. It's not just The New York Times, but, unfortunately, many, many newspapers are slipping. When I talk about smart people having to come together to figure out things, I think as a nation—and we could probably learn a lot from what's being done in Sweden and France and other countries—it's important to maintain newspapers as a pillar of democracy.
Some people are saying there has been no better time in American history to be a corrupt mayor, because the newspapers really aren't as vigilant in watching you. I think for the good of democracy—I'm not saying this blithely—we really have to figure out how to maintain a robust press, a robust news media.
We are proud of our paper for trying to do the right thing. But the ad market has gone to hell. Craigslist is running many of the real-estate ads. Monster.com is running many of the help-wanted ads that used to be our bread and butter.
It's really a very difficult time. I hope and I pray that the publisher of the Times and other smart folks figure out how to save not just The New York Times, but the whole newspaper industry.
QUESTION: I have given a lot of thought to the subject. If I may, I'll make it a two-part.
First, on the issue of jobs, if you have people who can do the job for $2 a day, corporations will put their factories in the place they make the most money. How do you sustain or bring manufacturing jobs to the U.S.?
I think health care and retirement are important. But those are the adjuncts. The foundation has to be, if we are not making financial bubbles, how are we going to create wealth for the middle class? How will we bring back the jobs?
The second part, which I think is connected, is, I have read that CDOs [centralized debt obligations] and CDSs [credit default swaps] are $75 trillion. So this stuff is out there. But we don't really hear discussion about to what extent we are going to back it up. What are we going to let fail? How much are we going to back it up? Could that money be spent in creating jobs and helping people and making factories, rather than just in these financial institutions?
STEVEN GREENHOUSE: I'll give Randy that second, easy question. Let me attempt to answer the first.
You asked one of the toughest questions in economics today. A lot of American companies have moved jobs overseas. Apparel jobs have moved overseas. Our once-great apparel district has all moved to China. The shoe industry has moved.
I think there are certain low-value-added manufacturing jobs that clearly are going to go abroad. But I think there are a lot of good jobs that could remain in the United States: auto jobs, jobs making machinery, software-engineering jobs. But I fear that too many companies, too many CEOs almost reflexively think, "Let's just move the jobs overseas. Labor costs are cheaper there." We are seeing some companies saying, "Well, it's not working out as well as it should," and they move companies back here.
Again, I support free trade. I'm not a protectionist. But way too often, companies think, "Let's just move the jobs overseas," and they show very little loyalty to the United States and to American workers. I'm all for increased foreign aid. I'm all for developing lower-income countries. But I think too often we are not taking care of our knitting back home. We are not doing enough to support American workers.
We used to make a lot of TVs here; now they are mainly made in China. We have to figure out ways to create new jobs here, and not just jobs at Target and Home Depot and Wal-Mart. I think President Obama has it right: We need to invest in R&D [research and development]. We need to educate our people more.
We are far behind the Japanese, the Taiwanese, the Germans, the Spaniards in green jobs, whether it's making hybrid cars or solar panels or wind turbines. We're way, way behind other countries.
Again, we have to pull up our socks. We have to pay attention. We have to take care of our knitting. We have been so focused on financial engineering, where so many of our best and brightest have gone in recent years. I think we as a nation have to refocus and make things and create jobs, not just for the 30-year-olds who get their $2 million jobs on Wall Street, but we have to try to figure out how to create good jobs for the middle class. We need more people going into teaching. We need more people going into engineering.
I think the vibes we are getting from Washington is that they are really trying to make some of that happen.
Now you can discuss collateral debt swaps.
RANDY CHARLES EPPING: Actually, I'd like to just continue what you were saying, because it's also very pertinent to the global economy. Last night in Miami, after the speech I gave there, I was meeting with someone from Guatemala who is studying at Oxford, and we were talking about precisely that issue.
This desire in the United States and in Europe to do the right thing for workers in our own countries often leads us to do the wrong thing in other countries.
You mentioned the $2 figure. That was the exact figure that we were talking about last night. My question to this person, who is very smart and obviously knows Guatemala very well, was, is $2 a lot of money? Is it not enough money?
He said that the people who would work for $2 in a Nike factory, for example, would be earning twice as much as they would earn in a coffee plantation, and they would be working outdoors in the heat and the humidity. So we cannot necessarily define on our own what's right for someone in another part of the world.
That's the idea of free markets. You let the market decide. The interesting thing is that, just because you give a job to someone in Guatemala or in Vietnam or even in China, that doesn't necessarily mean you are taking jobs away from someone in the United States. This is the idea of fusion economics. It does create energy.
I have a Web site called fusioneconomics.com, where I go into some of these issues. One of the examples that I use is the iPod. The iPods are mostly produced in China. People think, why aren't we producing these in the United States? In fact, if you look at the cost of the iPod, which, as you know if you have bought them, is well into the three-digit figures, $4 is spent to produce them. Where is the rest of that money going?
It's going into the pockets of the advertising people, the marketing people, the people in Cupertino who are sitting around coming up with these brilliant ideas.
So just the fact that you are giving a job to someone in China and you are paying them a lot less than you are paying someone here doesn't necessarily mean that you are removing the possibility for American workers to actually earn more money. But then you get back to the whole question of where all this money goes. That's the whole issue of then deciding, as a society, where you want to distribute the wealth.
But to take the view that there's just a limited amount of wealth and we need to keep it for ourselves kind of goes against this whole new age, which is part of the 21st-century economy, that there's a lot of energy out there, and let's just try to find ways to use it.
QUESTION: There are certain kinds of jobs you could bring back, high-tech, high-value jobs based on research and development, cutting-edge stuff that can't be produced overseas, only here. We have been doing that in the military realm, which is one of the mainstays of our economy. A high-tech export-free zone, like industrial job manufacturers in the major urban centers, can do that.
In addition, there are a number of other things you can do. As Steven Greenhouse pointed out, you have to have national health and a better national Social Security system to take that burden off our industries, so we can be competitive in the global economy. They can do that with a higher FICA [Federal Insurance Contributions Act tax] and withholding.
I would like you to comment on that.
RANDY CHARLES EPPING: The last part is a very good point. You should be able to afford national health care. But as Steven brought up, you can have a better national health program. You don't have to necessarily pay more for it. You just have to be smarter in the ways you do it.
But there was another question that Steven tried to answer as well that the lady over here asked before: Isn't there someone we can be talking to about this? My view on it is that we actually are starting to do it. The fact that President Obama came under a lot of criticism for shaking hands with people at various conferences recently or talking to people at various conferences recently or even accepting books at various conferences recently does mean that we are starting to open our minds and open our eyes and saying that we can learn things from other parts of the world.
We might not want to be reading Las Venas Abiertas de América Latina, which was the book that Chávez gave to President Obama, but at least we are willing to take the book and to look at other ways of doing things. In the end, it can lead to a better society and more money for the middle class as well. It doesn't just have to be the wealthy or the people who own Apple who benefit. It can be everyone.
QUESTION: China and India have taken certain steps to be part of global affairs, this fusion in economic relations. Those are the countries that have money.
The United States is talking about a stimulus package that we created. We don't even have that money, technically, and we don't even know where to spend it right now. There are a lot of things that we cannot address.
So what has happened in India and China that we should be discussing right now?
RANDY CHARLES EPPING: My first answer is quick. I don't agree. I don't think the United States has lost its way. The United States is still a beacon of economic innovation. The talent and the workforce here are unrivaled in the rest of the world.
China, yes, is doing very well, and India as well. Brazil is doing very well. That doesn't mean it's bad for us, just because they are doing well. It maybe means that they can then be buying things from the United States that they couldn't have afforded before.
As everyone has heard, China now owns about $1 trillion worth of the United States government debt and another $1 trillion of other debt, other stocks and bonds. So they have basically $2 trillion invested in this part of the world. The question is, why would they be investing money here? They could invest it anywhere they want. Of all the places they could invest, they are investing in the United States. There's a reason for that.
STEVEN GREENHOUSE: I don't think our relationship with China is as economically healthy.
RANDY CHARLES EPPING: I didn't say it was healthy. I just said it was strong.
STEVEN GREENHOUSE: Clearly, China has been wonderful in producing all these products for us. But I think there are years when we took our eyes off the ball and we allowed ourselves to develop this horrendous $700-billion-a-year trade deficit. It was unsustainable. We let so much of our manufacturing go to China. We are letting so many of our white-collar jobs go to India.
In many ways, that's good. Don't get me wrong. That's good for development there. But I think so many companies are ready to move jobs over there and we as a nation are not thinking about what we are going to do to create good jobs to replace them. Yes, China production allows us to buy things cheaply in Wal-Mart, and that's great. Maybe when companies move software jobs to India, that enables companies to increase their profit margins by 20 percent and save 50 percent in labor costs.
But what's going to happen to the kids who go to school in the United States to get software jobs?
It's something that we were not paying attention to for years and years. I think now, finally, with this economic crisis, the nation is focusing on what we are going to do for middle-class families, for people graduating from college now.
QUESTION: Last week, an airline—I believe it was Delta—announced that it was going to move its communications back from India to the United States. Do you know of any other businesses that are contemplating the same thing?
STEVEN GREENHOUSE: I know Dell moved some of its operations early on from India back to the United States, because there were so many complaints. But, clearly, a lot of companies are satisfied in moving their call centers to India or Ireland.
QUESTION: In India, we have had a lot of pressures to deregulate our economy, to bring it in consonance with the economy here, so that we can take advantage of whatever is happening. But we said, no, our regulations will be in place. Therefore, we were saved all this trouble, to an extent.
In President Obama's speech at the Inauguration, he mentioned something to the effect that the world should not have any complaints or envy of the living standards and the standards that have been established in the United States. Fair, very fair.
But then we should also have to see the history of how the workers, the producers, have benefited from the production bases that were in those parts of the world, in China or India, when the terms of trade were absolutely abysmal. The workers there had been working at half a dollar or a quarter of a dollar, when the same type of work which was being carried out here was being done for $5 or $10. So the terms of trade were somehow skewed.
That has brought in this prosperity, which is very evident in this part of the world. To that same extent, the impoverishment of those countries or those people or those producers, whether it's farmers or coffee workers, had been taking place. Now there is some semblance of balance coming. Therefore, we should also view the crisis, which is seen as a crisis here, as not so much a crisis as some sort of balance coming up on the world.
RANDY CHARLES EPPING: In my opinion, the crisis is a crisis, and it's a crisis everywhere. I think everyone is hurting. This global economic meltdown is not taking anyone up. In fact, it's amazing.
If you had looked at The Economist a few weeks ago, before they switched to the new year's reporting for all stock markets around the world, if you looked down the list since the beginning of 2008, every market in the world was down 30, 40, 50 percent. So you have basically a meltdown. Thirty-five trillion dollars disappeared, and workers all over the world are hurting.
But I think it's important to stress this idea that you mentioned, the disparity in wages. Keep in mind that the world economy is not a zero-sum game. Just because you take $1 away from someone in America and you give it to someone in India, one plus one doesn't necessarily equal two.
So the idea is that there are possibilities to work with each country to find out what each country does best, and do it in a way that is not going to ignore certain classes of the society. That is possible, but it involves the government getting involved as well. As Steven said, free markets are a good thing. But you have to also use the fruits of the free-market system in an equitable way.
QUESTION: Although unions probably started in the Middle Ages with the guilds, I'm curious about what the future of unions is in this country.
STEVEN GREENHOUSE: That's an excellent question. I suspect, if you asked union leaders, they might not even know. The percentage of workers in unions is down from 35 percent in the 1950s to 12 percent now in the United States, 7.4 percent in the private sector. I don't see anything on the horizon strengthening unions, unless there is some new legislation passed in Washington. Unions are pushing very hard to pass this legislation that would make it easier to organize workers, but they are having a heck of a time.
In such difficult economic times, many workers should, in theory, be upset and should, in theory, gather together and should, in theory, want to support unions to help them. But I think a lot of workers are so scared and so worried, they're feeling too insecure to try to support a union, because often when you support a union in the United States, you get fired or you get demoted or things happen to you. So I think that's part of it.
Also a lot of American workers see that there has been union corruption and see that unions often don't produce. They are ambivalent, at best, about unions.
Even when many workers say, "Things are not good at my workplace. Let's form a union," they find it's extremely difficult, because companies fight so, so hard against unions.
I have a chapter in my book about unions and why they have fallen upon hard times and what might be done to enable unions to recover. I think the main reason unions have declined in the United States is that companies have gotten much smarter, much more aggressive in fighting unionization efforts. There are some companies that provide great wages and great benefits as a way to keep out unions, and more power to them. A lot of companies do not provide great wages or benefits, and they have very smart, aggressive anti-union arms to keep out unions.
There are some very smart union leaders in the country now, such as Andy Stern. They are trying to bring the union movement back together. That might help revitalize unions.
If Barack Obama were to say, "I think you should join a union tomorrow, because that might help win you better health benefits," that would make a big difference. I don't see that happening.
I think unions need some changes in the law that would make it easier to organize. I think they could use some more aggressive and smarter union leaders as well. They have to do a better job educating workers on how unions can help, because a lot of people don't think unions are that helpful.
JOANNE MYERS: I thank you both, Steven and Randy, for beginning a conversation that I invite you all to continue as we celebrate the publishing of their books. Thank you for joining us.