It’s great to have you here, Barbara, as you are always a voice of sanity in the wilderness. And thanks for getting us started—your entry raises great questions.

“Crunch” really does purport to be more about how the economy should work than about how it is working. And that’s important, because it’s pretty clear that it’s not working and has been broken for awhile. It has, as you say, “fallen down on the job.”

Right now, we see that through the lens of the housing meltdown, its spillovers into credit, financial, and now labor markets, and the resultant recession. But the distributional failure—the failure of growth to reach so many of those that helped to generate that growth—has been with us for most of the past few decades.

Of course, you’ve been writing about this market failure with great resonance for years.

I think there are two important questions to ponder: how did we get here and how do we get “back to the garden,” as we said in the ‘60s (that’s the 1960s, not the 1860s—we’re old, not ancient). I’ll address the how we got here question in this post and save the “where to from here” for a later one. But I’d love to hear your thoughts, Barbara, on both of these questions too.

How we got here—to a point where economics doesn’t merely ignore the obvious imbalances, it exacerbates them—is a central theme of my last book (All Together Now: Common Sense for a Fair Economy), one I revisit in throughout Crunch. Here’s a relevant excerpt:

Critically placed persons are structuring government practices, policies, and philosophies to meet their economic agenda. What makes up that agenda depends on who’s running the show. But for the past few decades—and note, this is not simply a George W. Bush critique—that’s largely, though not always, been an agenda with two parts: (1) to unleash market forces from the alleged handcuffs of regulation, and (2) to redistribute wealth and power to those at the top of the wealth pyramid.

I wrote about this (d-)evolution in my last book, under the heading of YOYO economics. That’s an acronym for “You’re on your own,” and it embodies a political philosophy that got us in our current mess. Under YOYO economics, the sole plan to meet any economic challenge we face, from globalization to health care, is a tax cut, a private account, and a solid push off the plank into the deep and murky waters of competitive market forces, where “you’re on your own” to sink or swim.

Operating in this mode leads its proponents to oppose worthy ideas that strengthen the diminished bargaining power of most working persons— ideas like minimum wages; a level playing field for those who would organize unions; a universal, nonmarket-driven approach to health care and pensions; progressive taxes; and less porous safety nets. Each of these ideas strikes at the heart of YOYOism, as they seek to pool the risks of economic insecurity over large groups of people, while unifying less advantaged groups under a WITT (“We’re in this together”) agenda.

The point is that a WITT agenda obviously leads to a very different political economy than does a YOYO agenda. In fact, the history of economic policy is nothing more than a ride up and down this continuum.

As I write these words, the failure of YOYOism to meet the challenges of globalization, the growing health care crisis, not to mention category five hurricanes, has the YOYOs on the ropes. We may be poised—I’m confident that we are—to start moving down the continuum away from YOYO toward WITT. This cannot occur, however, if the YOYOs are dictating the terms of the debate.

In that spirit, “Crunch” addresses some of the YOYOs most common arguments and objections to a new political economics, one based on the WITT agenda. Needless to say, I find them wanting, which is a nice word for “lame.”

There may be a real political opening to make this case right now. Interestingly, both Democratic candidates for president have adopted this YOYO/WITT framing, Clinton months ago, and Obama more recently. And when the Treasury secretary in this Bush administration starts talking about regulating banks, even if his ideas are far from adequate to the task, something different is in the air.

There is a growing recognition that it’s not OK:

--to cut taxes quite massively and finance a war with years of “emergency supplementals” to the federal budget;

--for policy makers to watch huge speculative bubbles inflate and even nudge them along;

--for financial firms to keep some of their riskiest transactions off the balance sheet, or to take out derivative contracts worth much more than the underlying equity or bond from which their value is derived, so that a hedged position becomes a big, speculative bet.

--for almost all of the productivity gains to bypass those who are partly responsible for them--to end a productivity rich business cycle with higher poverty and lower real median family income;

--that extremely high levels of income inequality and downward mobility vitiate the principle of a fair chance for all;

--to ignore the spiral in health care costs until they’re swallowing up much more GDP than those of other advanced economies who have workable, attractive solutions to this challenge.

Today’s economists and the policy makers we advise either failed to recognize these deep policy failures or failed to correct them. So, we need a new economics that bespeaks a new policy agenda. Stay tuned for upcoming “Crunch” posts on that very point.