Redlands Economics Professor Explains Steps Toward Recession

By Ande Spencer
Special to Patch

Dr. Dorene Isenberg, past chair and current professor in the Economics Department at the University of Redlands, addressed the Redlands Area Democratic Club on Saturday at Napoli Restaurant in Loma Linda.

Her talk, entitled “Our Walk on the Wild Side: Neoliberalism Unleashed,” educated listeners about the ideological shift from New Deal economic policies to the currently vogue neoliberal free market philosophy.

Isenberg illustrated two distinct time periods: post-WWII to the mid-1970’s and the latter part of the 70’s to the current day. The former period resulted in economic growth defined by the impacts of the Great Depression and the policies which originated as the result of dealing with that trying time.

These include a complete restructuring of the financial system, the strengthening of Savings and Loan banks, introduction of the Glass-Steagall Act, and the development of FDIC. The New Dealer philosophy embraced the importance of regulation to structure the flow of money. It separated investment banking for commercial purposes (the writing of checks) from savings and loan banking that dealt primarily with mortgages (thirty-year fixed rates, amortization of mortgage loans).

The policies produced sustained stable growth characterized by relatively quick fluctuations. During the 1950’s, the U.S. quantified rate of growth was 3.8 percent; the next decade saw a 4.4 percent growth rate.

Alternatively, the 1970’s, along with the rise of neoliberal economic philosophy and policy, saw declining rates of growth: 3.0 percent in the 70’s and 80’s, 3.2 percent in the 1990’s, and just 1.8 percent in the 2000’s.

Alongside the belief that free markets are self-correcting are the economic realities that income from jobs and the production of goods fell since the middle of 1970.

As corporate profit rises, the income from jobs and production falls, as does union participation. While overall private sector union membership peaked in the 1950’s, today the only union growth that can be discerned is in the public sector.

Today, economists witness transformation in terms of “who is winning,” Dr. Isenberg said. A social structure of accumulation is ascendant. The finance sector of the economy is on the upswing; the non-finance sectors experiencing a severe downturn.

Inflation and slow growth at the beginning of the 1970’s paved the way for Keynesian economics to give way to the neoclassic, neoliberal Milton Freedman economic paradigm, best exemplified by its most vocal spokesman, Ronald Reagan.

The new wisdom believes that markets make the best decisions, government is a hindrance (except insofar as a legal structure and defense of the country are concerned), the market is self-correcting and the market should rule.

Reagan’s financial deregulation evolved into the 1999 reintegration of commercial and investment banks, gutted Glass-Steagall, redistributed where profits arise, and culminated in the 2009 financial meltdown. The transformations were a direct result of deregulation and a clear illustration of ideology becoming legislation.

After discussing the dearth of regulators and the evisceration of the Dodd-Frank bill, Dr. Isenberg questioned from where the money for any kind of growth will come and wondered what other dimensions must be examined.

This article was contributed to Loma Linda Patch.