Financial Crisis

The Great Recession of 2008-09 has put enormous strain on the social contracts of Western economies. This paper provides an American perspective on how well the social welfare systems of the United States and the European Union countries have performed in cushioning their populations against the economic dislocations associated with the Great Recession and how effective U.S. and European policy has been in softening the severity of the recession and in creating the conditions for future socio-economic progress.

The Great Recession has battered pensions and home values, leaving millions of Americans facing an uncertain retirement. "But attributing this grim situation solely to the recession would be misleading," writes Lauren Damme.

The great German physicist Max Planck remarked that “science advances one funeral at a time.” The situation is worse in economics, which is subject to regress, as happened when the valuable but imperfect insights of Keynesianism were supplanted by the ideological blinkers of neo-liberalism.

Inspiration can come from the most surprising places.

Take Portugal, for instance. (Granted, there are major differences between the U.S. and Portuguese economic and fiscal situations.)

Over the past month, we've watched from distant shores as Greece has plunged into a debt crisis. Mounting pressure from global financial markets forced Greece to begin a drastic austerity program.

With a fiscal deficit of 8.1 percent of GDP and government debt of 115 percent of GDP expected this year, Greece has promised to turn itself around by 2013.

To read working papers from the Bernard Schwartz Center for Economic Policy Analysis, please click here.

The financial reform debate continues to unfold in the Senate. As Justin mentioned, you can follow the daily developments before the final votes occurs as reported ably by Tim Fernholz and Brian Beutler.

While Majority Leader Reid wants to move things along, a vote scheduled for this afternoon to end the debate has been pushed back. This will allow more time for a number of outstanding issues to be addressed and allow Senators to get votes on their proposed amendments. These include the Merkley-Levin amendment which would impose a version of the Volcker rule to restrict proprietary trading by firms also operating as banks, the Cantwell-McCain amendment to bring back Glass-Steagall rules to segregate consumer and investment banking services, and the Dorgan amendment to restrict credit default swaps for purely speculative purposes. And there are more. In other words, there are still many policy issues to consider and political hurdles to surmount before this bill becomes a law.

But, for what it's worth, I believe it will become a law.

What a difference a global economic collapse makes. Only a decade ago in the 1990s, many opinion leaders proclaimed the triumph of the American model of capitalism. The end of the Cold War replaced the battle of capitalism and communism with a battle of capitalism against capitalism.

There are three main sources of retirement security upon which Americans depend: pensions, non-financial assets (usually homes), and Social Security. Pensions are the least broadly distributed asset: only 34.2 percent of Americans 65 and over earn pension income, while 54 percent have income from assets and over 85 percent receive Social Security payments.[1]