The Body Economic: Why Austerity Kills

Subtitle: Recessions, Budget Battles and the Politics of Life and Death.
By David Stuckler and Sanjay Basu —thebodyeconomic.com

This book came out in 2013, and is frequently cited in discussions of austerity and the damage – short- and long-term – resulting from budget cuts, particularly at the national level. The book is organized in three sections: History, The Great Recession, and Resilience. The book focuses on the health impacts of budget cuts: not just cuts to health programs but broadly conceived impacts of austerity.

The book begins by describing the New Deal’s response to the Great Depression in the U.S., to the bump in mortality following the collapse of communism in the Soviet Union (driven by stress, alcohol, despair, and poor nutrition), and the Asian Financial Crisis.

The second and third parts of the book contrast Greece and Iceland (whose leaders rejected the IMF austerity prescription)

The authors use a combination of health data and reviewing economic data and public policy. Analyzing health indicators along with economic ones is an important, but difficult, endeavour. Questions of causality and of data quality dog any enterprise like this, and would be enormously difficult at a sub-national scale. (I once spent months trying to figure out how to measure access to healthcare in U.S. suburbs, and eventually abandoned the effort). There may be many other explanations for the difference between Greece – plagued by suicides and an HIV epidemic after EU-imposed austerity – and Iceland. The authors’ valiant and unsuccessful effort to get Greek politicians to take action on the spike in HIV – which they link to rising heroin use, unemployment, and the end of needle-exchange programs – raises questions about the relationship between multinational governance, local democracy, and science that can’t be simply answered. But the overall claims are well argued and documented, and bolster a hypothesis that most people would agree with on its face: a poor economy fuels poor health. Of course, so can a growing economy, as evidenced by the U.S.

The book’s U.S. segment features a common story of deferred healthcare leading to avoidable personal tragedy. The U.S. healthcare system has failed its citizens in good times and bad, but in recession more people may take such terrible gambles. This chapter is in the section on resilience, along with a chapter on the relationship between suicide and unemployment, and a chapter on U.S. homelessness that documents the rise of West Nile disease carried by mosquitos thriving in the pools of foreclosed and abandoned homes.

There is an anecdotal feel to the book, but many of the stories provide a compelling illustration of the misguided approaches to economic crisis that dominant the U.S. and Europe, and the way that austerity can backfire. It would be great if this study fuels more research into the relationship between health and public spending, especially research that moves beyond anecdotes and enables broader policy recommendations for public health spending in times of both boom and bust.

Suburban austerity

Five decades after President Lyndon B. Johnson declared a war on poverty, the nation’s poor are more likely to be found in suburbs like this one than in cities or rural areas, and poverty in suburbs is rising faster than in any other setting in the country. By 2011, there were three million more people living in poverty in suburbs than in inner cities, according to a study released last year by the Brookings Institution. As a result, suburbs are grappling with problems that once seemed alien, issues compounded by a shortage of institutions helping the poor and distances that make it difficult for people to get to jobs and social services even if they can find them.

In no place is that more true than California, synonymous with the suburban good life and long a magnet for restless newcomers with big dreams. When taking into account the cost of living, including housing, child care and medical expenses, California has the highest poverty rate in the nation, according to a measure introduced by the Census Bureau in 2011 that considers both government benefits and living costs in different parts of the country. By that measure, roughly nine million people — nearly a quarter of the state’s residents — live in poverty.

The New York Times looks at suburban poverty in California, mentioning the lack of social services in the suburbs, but doesn’t dig too deep. I worked on a research project several years ago that asked me to try to conceptualize the material difference in suburban versus urban poverty. Many fine-grained indicators of financial insecurity are hard to map at a sub-metro level: health insurance, use of food stamps, etc. Although there has been a boom in literature about suburban poverty (and a hearty anecdotal understanding across the country that poverty is not an inner city issue), I haven’t seen much in the way of robust research on what this means for policy.

This article is an example of a description that surprises less than it seems to think it will, and raises fewer questions than it should: Why don’t those suburbs, in some cases huge municipalities, offer services? Is the reliance on private charity really much higher in the suburbs, or are urban residents also drawing heavily on them?

Researchers and journalists, take heed!

Read: Hardship Makes a New Home in the Suburbs

The American Middle Class Is No Longer the World’s Richest – NYTimes.com

More and more coverage of American inequality, but I’m curious about how it’s often framed as the disappearance, or decline of the middle class. This article paints an interesting picture of American middle class decline relative to its counterpart in other countries, and paints a picture of economic crisis fueling the relative decline of Americans below the top income percentiles. Stagnant wages (relative to corporate profits) and America’s lost grip on education superiority are mentioned, but the role of government in mediating income distribution is only hinted at. Is this a story of austerity, or economic restructuring, or both? How Americans respond to their growing sense of falling behind, and of their children inheriting lower economic possibilities, will be driven by how they see government’s role in this story.

Read:

The American Middle Class Is No Longer the World’s Richest – NYTimes.com.

Boston Fed’s Latest Role: Community Organizer – NYTimes.com

Interesting initiative by the Boston Federal Reserve, making grants to small- and mid-sized distressed cities in Massachusetts. It’s called the Working Cities Challenge, funneling money from private donors to cities based on an application process. I think the headline “community organizer” is a bit of a misnomer, I’m not sure how I would characterize this odd combination of a federal, public economic policy body mediating between the private sector and local government entities.

Read: Boston Fed’s Latest Role: Community Organizer – NYTimes.com.

In History Departments, It’s Up With Capitalism – NYTimes.com

Yesterday I met a doctoral student at Berkeley studying the “history of capitalism” in the history department (in six years, the first history student I’ve crossed paths with, oddly enough). And then this morning I stumble on this piece from last year:

In History Departments, It’s Up With Capitalism – NYTimes.com.

(linked from an article about Thomas Piketty, who is in the U.S. promoting his book Capital in the Twenty-first Century, currently out of stock everywhere.)

Bailing on Detroit – Jamie Peck

Jamie Peck, Geography professor at The University of British Columbia, has written quite a bit about neoliberalism, what he calls “austerity urbanism” and the ongoing saga of Detroit’s finances. He has an insightful blog post on how terms like bailout, responsibility, and federalism are serving to seal Detroit’s fate as a sinking ship, forced to go under in the name of civic individualism, while the state and federal government stand by and watch.

These arguments are perfectly consistent with the conservative legal doctrine of fiscal federalism, where not only “each level of government,” but in effect each unit of government, must “internalize both the costs and the benefits of its activities.”[8]  This is the antithesis, effectively, of Keynesian redistribution, with its compensatory fiscal transfers and anti-cyclical stabilizers.  In contrast, the neoliberal version of fiscal federalism holds that cities, suburbs, and local-government entities must always be free to opt out, as in the logic of small-government suburbanism,[9] but they must never, in any circumstances, be “bailed out.”  This disaggregated, go-it-alone world is a world ruled by fiscal discipline, imposed across different tiers of government and between neighbors; (in)solvency duly becomes, rightfully, a local matter.  The new fiscal landscape can be crudely divided between free-riding, low-tax suburbs on the one hand, and indebted (or even bankrupt) cities on the other.  In the morality plays of austerity urbanism,[10]“irresponsibility” is perversely conferred on the latter, not the former.

Read the rest here: Bailing on Detroit | cities@manchester.

And check out many other great entries at cities@manchester

Chicago’s Credit Rating Downgraded by Moody’s – NYTimes.com

The pension battle in Chicago and Illinois will be fueled by Moody’s latest announcement:

Moody’s Investors Service downgraded Chicago’s credit rating, citing the city’s unfunded pension liabilities. The agency announced Tuesday it was lowering the rating on $8.3 billion in debt to Baa1, from A3, putting it only three notches above junk status. Moody’s gave Chicago a negative outlook, indicating another downgrade could occur if there is no pension fix.

Moody’s says the rating “reflects the city’s massive and growing unfunded pension liabilities.” It says those liabilities “threaten the city’s fiscal solvency” unless major revenue and other budgetary adjustments are adopted soon and are sustained for years to come. The lower rating means the city may have to pay higher interest rates. Moody’s said a commitment to raising tax revenue is a factor that could lift the credit rating.

Read: Chicago’s Credit Rating Downgraded by Moody’s – NYTimes.com.

Last year, Fitch Ratings downgraded Illinois just days after the state legislature adjourned (May 31) without passing pension reform. After the Governor threatened to withhold legislator salaries until pension reform was passed, the legislature rallied to pass legislation in November that was signed into law December 5, 2013. Litigation over terms of the reform is ongoing.

For some local coverage of the “reform” effort in Illinois, go here.

Are unions necessary?

Friday reading:

Are unions necessary? – latimes.com. Feb 27, 2014. Michael Hiltzik comments on the ongoing debate between Evan Soltas (Bloomberg) and Michael Wasser (Jobs with Justice), spurred in part by the interference of North Carolina legislators with the union election at Volkswagen’s plant there.

You can read more of the exchange here.

Aside from all of the many reasons Wasser gives, unions are also one of the few constituencies defending public services and indeed the role of government. Yes, people support government services by large margins, but they don’t get out and agitate for them very often, unless they are involved in the labor movement.

To Pay for Infrastructure Repairs, Obama Seeks Tax Changes

ST. PAUL, Minn. — Caught between a gridlocked Congress and a Highway Trust Fund that will soon be broke, President Obama on Wednesday urged lawmakers to overhaul corporate and business taxes to pay for repairing and replacing the nation’s aging roads, rails, bridges and tunnels.

New legislation to pay for transportation projects is an urgent priority for both parties because the highway fund is nearing insolvency. Anthony R. Foxx, the transportation secretary, has said the fund could begin “bouncing checks” by this summer. That would force a halt to construction projects around the country, officials have said, and could undermine as many as 700,000 jobs.

The president’s proposal, which he first suggested in a speech last summer in Chattanooga, Tenn., would eliminate business and corporate tax loopholes to finance a four-year, $302 billion transportation bill. White House officials declined to be specific, but said they would try to eliminate incentives for companies to ship jobs overseas.

Read: To Pay for Infrastructure Repairs, Obama Seeks Tax Changes – NYTimes.com.

Woops!

Fed Misread Crisis in 2008, Records Show - NYTimes.com

The New York Times gets transcripts of conversations between the economists responsible for guiding the U.S. economy past the financial crisis, and failing.

The hundreds of pages of transcripts, based on recordings made at the time, reveal the ignorance of Fed officials about economic conditions during the climactic months of the financial crisis. Officials repeatedly fretted about overstimulating the economy, only to realize time and again that they needed to redouble efforts to contain the crisis.

Some of this stuff just gets to depressing to read in its various reiterations, but I did anyway (in no small part because my 7-year-old saw the photo of Geithner, Bernanke, and Paulson on the front of our paper and asked what the story was about.) The fumbling, the over-confidence, the ingrained reluctance to believe that the system could be failing, and the apparent aversion to stimulus (even after things got worse) are all laid out in phone calls and emails.

By the end of the year, the Fed had cut interest rates nearly to zero and started to buy mortgage bonds in a further effort to stimulate the housing market and the broader economy. More than five years later, it is still pursuing both policies even as the economic recovery remains incomplete.Some Fed officials have argued that the Fed was blind in 2008 because it relied, like everyone else, on a standard set of economic indicators.As late as August 2008, “there were no clear signs that many financial firms were about to fail catastrophically,” Mr. Bullard said in a November presentation in Arkansas that the St. Louis Fed recirculated on Friday. “There was a reasonable case that the U.S. could continue to ‘muddle through.’ ”

Read: Fed Misread Crisis in 2008, Records Show – NYTimes.com.