Labor & Employment Law

Dean Baker: Recession Didn?t Have to Happen

By James Parks

Dean Baker

If the Federal Reserve had done its job, the worst economic downturn since the Depression of the 1930s would not have occurred. Rather than heeding warnings that the sharp upturn in the housing market was a bubble that inevitably would bust, economists at the Fed ignored all the warning signs, says Dean Baker in a Point of View (POV) guest column at the AFL-CIO website.

Baker is co-founder of the Center for Economic and Policy Research (CEPR) and author of several books and the popular blog Beat the Press. He will speak tonight about his new book, False Profits: Recovering from the Bubble Economy, at Busboys and Poets in Washington, D.C., at 6:30 p.m. For more information, call 202-387-7638.  

Baker says there was more behind the near-collapse than greed and incredible economic mismanagement.

Wall Street greed has received considerable attention?but the failure of those in policy-making positions is still not fully appreciated.

Many economists pointed out as early as 2002 that the huge run-up in housing prices did not make sense given the low demand for new homes and an increase in supply. The only plausible explanation was a financing bubble, Baker said. But Fed officials and economists kept insisting everything was fine. We all know how wrong they were, but they are not being held accountable. Here’s Baker:

Remarkably, the economists at the Fed and the others responsible for this disastrous policy are suffering no consequences. Unlike the school bus driver who drunkenly crashes his bus or the restaurant worker who leaves the stove on and burns down the restaurant, the economists who burn down the economy get to keep their jobs. In fact, Ben Bernanke, the chairman of the Federal Reserve Board who was at the center of economic policymaking since 2002, seems likely to be approved for a second term.

This shows how badly the nation needs to change the course of politics in this country, Baker adds.

It was bad enough that the Wall Street banksters were allowed to run wild for a decade and bring the economy to the brink of a Great Depression. However, it is truly amazing that the people who failed to rein them in get to keep their jobs.  We have some real work ahead of us.

 You can read Baker’s POV column, “The Great Recession Didn’t Have to Happen,” here.

Full post as published by AFL-CIO NOW BLOG on January 28, 2010 (boomark / email).