A Generation of CEOs Who Don't Know How to Raise Wages

Monday 24 October 2011

by: Dean Baker, Truthout | Op-Ed 

Those who follow the rants from our business leaders and their allies in politics and the media have been struck by a disquieting cry in recent months. We have been repeatedly told that, even though we have more than 25 million people unemployed or underemployed, businesses are unable to find qualified workers. 

For example, last week New York Times columnist Thomas Friedman took us to Illinois, where Doug Oberhelman, the CEO of Caterpillar, one of the largest companies in the country, complained that he could not find qualified hourly workers for his manufacturing facilities. Oberhelman went on to complain that he also could not find engineering service technicians, or and even welders.

 

Friedman also recounted a conversation with Chicago's new mayor, former Obama chief of staff Rahm Emanuel. According to Friedman, Emanuel complained about "staring right into the whites of the eyes of the skills shortage." Friedman recounts a story from Emanuel about two young CEOs in the health care software business who claimed that they have 50 job openings today, but can't find the people.

There are many other accounts like the ones in Friedman's column, of businesses who find their growth prospects stunted by their inability to hire good workers. Two parts to this story should bother people.

First, in spite of all the complaints in the media about businesses not being able to find good workers, this problem doesn't seem to show up in the data. According to the Bureau of Labor Statistics (BLS), the overall ratio of job openings to existing jobs is just 2.3 percent. This is down by almost a third from its pre-recession level.

Mr. Oberhelman's experience at Caterpillar doesn't seem to be common among his peers; the job opening rate in manufacturing is just 2 percent. Even in professional and business services, the category that would likely include the workers that the software execs wanted, the job opening rate is just 3.5 percent, down by more than 25 percent from pre-recession levels.

As a group, employers also don't seem to see inadequate worker skills as a problem when asked in surveys.  The National Federation of Independent Businesses has been asking its members about the biggest problems they face for more than a quarter century. In the most recent survey, only 6 percent listed labor quality as one of their top problems. This is up from the 3 percent at the trough of the downturn, but down sharply from the 24 percent peak reached more than a decade ago.

While the experience of CEOs cited by Friedman might appear to be atypical since it is not reflected in the data, there is another aspect to the problem that is even more disconcerting.

These CEOs apparently do not know how a business is supposed to respond to the inability to find qualified workers.

According to standard economics, when businesses can't fill job openings, they are supposed to offer higher wages. If these businesses offered higher wages, then they could lure away workers from their competitors. They may also be able to attract workers from other states, or even other countries. Certainly there are workers somewhere in the world who have the skills that are needed to work at Caterpillar or at software firms run by Mr. Emanuel's friends. If these CEOs raised wages high enough, then these workers would be willing to work for their companies.

However, for some reason, they have not chosen to raise wages to the market clearing level, and, therefore, can't get the workers they want. Apparently, these CEOs do not know how to raise wages.

This inability to raise to wages is also reflected in the data. There is no major occupation group that has seen substantial increases in real wages over the last decade. Even college graduates as a group (excluding those with a postgraduate degree) have not seen an increase in real wages over the last decade. This indicates either that there is no problem of skills shortages, or that companies are increasingly being run by CEOs who do not know how to increase wages.

Since it would be rude to imply that CEOs are not being honest when they complain about the lack of skilled workers, we should assume that they don't know how to raise wages. This is a problem that could be easily remedied. The government could offer short courses to CEOs and other top executives that would teach them how to raise wages and why this would be beneficial to their firms.

These raise-waging instruction sessions should not be very expensive; even the thickest CEO could probably learn how to raise workers' wages in a day or two. Most state and local governments could afford the cost, which should be easily repaid in stronger growth when employers learn how to address their skills shortage.

Companies should not have to forego expansion and workers should not have to be unemployed just because CEOs don't how to raise wages. The skills shortage problem can be fixed.

A Short History of Bubblenomics

Who Wins and Who Loses

By MIKE WHITNEY
 

Assets bubbles require massive amounts of leverage. But too much leverage can destabilize the system, so it needs to be regulated. But Wall Street doesn't like restrictions on leverage because it can make more money by borrowing like crazy, inflating a ginormous bubble, skimming off the profits, and cashing in before the crash. So, the Fed ignores Wall Street's "gearing" operations and pretends not to see what's going on. It becomes a bubble "enabler" by lowering interest rates, easing credit and waving-off tighter regulations. It's all part of the game. The Fed works to help its core constituents while everyone else is put at risk. 

But there's another reason for bubbles, too. Stagnation is a chronic problem in mature capitalist economies. As businesses become more efficient in their various widget-making operations, demand for their products drops off making it harder for owners to find profitable outlets for investment. And when investment starts to flag, then grip of economic inertia begins to tighten. As author Robert Skidelsky says, "investment fills the gap between production and consumption", so when investment hits a speed-bump, spending starts to wither and the economy slows to a crawl. 

The Fed's remedy: Zero rates, easy money and more bubbles; Professor Bernanke's one-size-fits-all, magic elixir for sclerotic economies. In other words, the emerging stock and commodities bubbles are not a sign that the Fed is flubbing the policy. Bubbles are the policy, and have been for a very long time. Bernanke is no fool. He knows that each business cycle is weaker than the last, creating fewer jobs, more slack in the economy, and more anemic growth. His job is to endlessly tweak the process in order to maintain profitability for the people at the top of the economic foodchain, his real bosses.

Here's a clip from an interview with history professor Robert Brenner who sums it up perfectly:

Robert Brenner:

"... Economic forecasters have underestimated how bad the current crisis is because they have over-estimated the strength of the real economy and failed to take into account the extent of its dependence upon a buildup of debt that relied on asset price bubbles. In the U.S., during the recent business cycle of the years 2001-2007, GDP growth was by far the slowest of the postwar epoch. There was no increase in private sector employment. The increase in plants and equipment was about a third of the previous, a postwar low. Real wages were basically flat. There was no increase in median family income for the first time since World War II. Economic growth was driven entirely by personal consumption and residential investment, made possible by easy credit and rising house prices. Economic performance was weak, even despite the enormous stimulus from the housing bubble and the Bush administration's huge federal deficits. Housing by itself accounted for almost one-third of the growth of GDP and close to half of the increase in employment in the years 2001-2005. It was, therefore, to be expected that when the housing bubble burst, consumption and residential investment would fall, and the economy would plunge." ("Overproduction not Financial Collapse is the Heart of the Crisis", Robert P. Brenner speaks with Jeong Seong-jin, Asia Pacific Journal)

Sound familiar? Flat wages, weak demand, slow growth and more and more debt? All signs of an aging, hobbled system that's slipping inexorably into stagnation. This is why the Fed adopted its present policy of bubblemaking, because the only way to avoid stagnation is by increasing the debt-load. Authors John Bellamy Foster and Fred Magdoff traced the origins of the policy back to the 1970s. They revealed what their findings in an article in The Monthly Review titled "Financial Implosion and Stagnation". Here's an excerpt:

"It was the reality of economic stagnation beginning in the 1970s, as heterodox economists Riccardo Bellofiore and Joseph Halevi have recently emphasized, that led to the emergence of "the new financialized capitalist regime," a kind of "paradoxical financial Keynesianism" whereby demand in the economy was stimulated primarily "thanks to asset-bubbles." Moreover, it was the leading role of the United States in generating such bubbles—despite (and also because of) the weakening of capital accumulation proper—together with the dollar's reserve currency status, that made U.S. monopoly-finance capital the "catalyst of world effective demand," beginning in the 1980s. But such a financialized growth pattern was unable to produce rapid economic advance for any length of time, and was unsustainable, leading to bigger bubbles that periodically burst, bringing stagnation more and more to the surface.

A key element in explaining this whole dynamic is to be found in the falling ratio of wages and salaries as a percentage of national income in the United States. Stagnation in the 1970s led capital to launch an accelerated class war against workers to raise profits by pushing labor costs down. The result was decades of increasing inequality." ("Financial Implosion and Stagnation", John Bellamy Foster and Fred Magdoff, Monthly Review)

Foster and Magdoff do a fine job of explaining how the system has been rejiggered to overcome stagnation. Financial assets provide a place where surplus capital can go and grow via paper profits. But this type of investment does not add to productive capacity or real wealth; it merely enlarges the amount of money capital while creating the means for transferring wealth from one class to another. And that's the point. Every burst bubble thrusts middle class households further and further into the red, while bank moguls and Wall Street tycoons get even richer. It is all by design, nothing is left to chance.

It might surprise you to know that the Fed has become so skilled at bubble-making, that the condition of the underlying economy doesn't really matter any more. By fixing interest rates below the rate of inflation and attaching a liquidity-tailpipe to the stock market (QE2), the Fed has been able engineer a boom in equities, while the so-called "real" economy languishes in a near-Depression. In fact, consumer credit is actually shrinking (excluding student loans) while margin debt (the amount that speculators borrow to buy stocks) continues to soar. This is an astonishing development. The Fed has created a bifurcated market where bankers and hedge fund managers are able to rake in billions off their gaming operations while 300 million working Americans remain mired in debt. 

But there are a few drawbacks to the Fed's policy. After all, one can only hollow out the economy for so long before the society begins to unravel. But, unfortunately, widening inequality and destitution don't show up in GDP, which continues to balloon even while working people slip further into debt. What's missing in the GDP-readings is the fact that we are getting poorer as a nation and weaker as an economic force in the world. Here's how Rob Arnott of Research Affiliates summed it up in an article in Fortune magazine:

"We are, in a word, considerably poorer than we imagine – something politicians of all stripes should, but probably won't, consider as they grapple with our massive deficit. GDP that stems from new debt — mainly deficit spending — is phony: it is debt-financed consumption, not prosperity," Arnott writes. "Net of deficit spending, our prosperity is nearly unchanged from 1998, 13 years ago."...

"Instead of the financial world being the lubricant for business, they are out there manufacturing products with no utility whatsoever except for generating fees," he said. "Somebody's got to do something about Wall Street. It is destroying the country." ("Lost decade? We've already had one, Fortune)

The growth we see in rising GDP is mainly "attributable to debt-financed spending, rather than real wealth creation." Indeed, Bernanke is merely leveraging his way out of a Depression. But the calamitous downstream effects of the policy are obvious; the middle class is being decimated, the dollar is getting hammered, and the productive sectors of the economy are being cannibalized. These are the failures of bubblemaking, a theory whose sole purpose is to further enrich a tiny segment of the population that's already as rich as Croesus. 

But the Fed is not the worst offender in this regard. The real problem is the banks.

The Fed can induce spending by lowering interest rates, easing credit or buying bonds, but the banks do the heavy lifting. That's where the zillions in leverage are created via off-balance sheets operations, repo transactions and derivatives contracts. These asset-pumping operations remain largely concealed from the public, so no one really knows what's going on. That's why the connection between money supply and financial asset prices is so tenuous and misleading, because the banks create money that doesn't appear in the data. That's what off-balance sheets operations are all about. They generate unknown amounts of credit which stimulates activity, but remains invisible. The printing presses have essentially been handed over to private industry. Here's how it all works according to Independent Strategy's David Roche

"The reason for the exponential growth in credit, but not in broad money, was simply that banks didn't keep their loans on their books any more – and only loans on bank balance sheets get counted as money. Now, as soon as banks made a loan, they "securitized" it and moved it off their balance sheet.

There were two ways of doing this. One was to sell the securitized loan as a bond. The other was "synthetic" securitization: for example, using derivatives to get rid of the default risk (with credit default swaps) and lock in the interest rate due on the loan (with interest-rate swaps). Both forms of securitization meant that the lending bank was free to make new loans without using up any of its lending capacity once its existing loans had been "securitized."

So, to redefine liquidity under what I call New Monetarism, one must add, to the traditional definition of broad money, all the credit being created and moved off banks' balance sheets and onto the balance sheets of nonbank financial intermediaries. This new form of liquidity changed the very nature of the credit beast. What now determined credit growth was risk appetite: the readiness of companies and individuals to run their businesses with higher levels of debt." ("The Global Money Machine", David Roche, Wall Street Journal)

The Fed is not the main culprit in this new paradigm where banks and shadow banks stealthily add to the money supply without any oversight. The problem is the lack of regulation. There needs to be strictly enforced guidelines on the amount of leverage a bank can use and--more importantly--any financial institution that acts like a bank must be regulated like a bank. (Dodd-Frank reforms don't fix this problem.)

The present system is doomed because it depends on the willingness of bankers to behave ethically when all the incentives are pulling them in the opposite direction. The rewards for gouging the public are just too great to resist. All one has to do is lend tons of money to people who can't repay the debt, sell those same loans to investors looking for higher yield, skim-off the profits in stock options and bonuses, and find a safe place when the bubble bursts. Wash, rinse, repeat.

The IMF released a report last week that confirms this basic theory. The report aptly titled "A Fistful of Dollars" shows how the worst offenders deployed their lobbyists to ease regulations in order to legalize the type of sleight-of-hand that triggered the crash. Here's an excerpt:

"We find that lobbying was associated with more risk-taking during 2000-07 and with worse outcomes in 2008. In particular, lenders lobbying more intensively on issues related to mortgage lending and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing originations of mortgages. Moreover, delinquency rates in 2008 were higher in areas where lobbying lenders' mortgage lending grew faster. These lenders also experienced negative abnormal stock returns during the rescue of Bear Stearns and the collapse of Lehman Brothers, but positive abnormal returns when the bailout was announced. Finally, we find a higher bailout probability for lobbying lenders. These findings suggest that lending by politically active lenders played a role in accumulation of risks and thus contributed to the financial crisis......

CONCLUSION

.....We carefully construct a database at the lender level combining information on loan characteristics and lobbying expenditures on laws and regulations related to mortgage lending and securitization. We show that lenders that lobby more intensively on these specific issues engaged in riskier lending practices ex ante, suffered from worse outcomes ex post, and benefited more from the bailout program."

("A Fistful of Dollars: Lobbying and the Financial Crisis", Deniz Igan, Prachi Mishra, and Thierry Tressel, Research Department, IMF

There it is in black and white. The bankers gamed the system and raked in trillions, all according to plan. Not surprisingly, they used their political clout to create a safety net for themselves (TARP) when the bubble burst, while everyone else watched as their retirement savings and home equity went up in smoke. 

There's no disputing that massive leverage played a critical role in the crash of '08. Nor is there any doubt that hawking mortgage-backed securities (MBS) and other garbage assets (CDOs, ABS) to credulous investors was the main vehicle for executing the heist. So, why hasn't the Fed acknowledged its mistakes and stepped up its supervision of the banks? Is Bernanke so "captured" by Wall Street that he'd rather see another meltdown than take steps to reign in leverage? That seems to be the case.

 

Here's how Bernanke responded to Keith Ellison, when the congressman explicitly warned Bernanke of "excessive leverage" that had reached "stratospheric levels" putting the entire system in danger.

Bernanke: "The Board's authority and flexibility in establishing capital requirements, including leverage requirements, have been key to the Board's ability to require additional capital where needed based on a banking organization's risk profile...

We note that in other contexts, statutorily prescribed minimum leverage ratios have not necessarily served prudential regulators of financial institutions well." ("Excessive Leverage Helped Cause the Great Depression and the Current Crisis ... And Government Responds by Encouraging MORE Leverage", Washington's blog)

"Minimum leverage ratios" will not make the system safer and more stable?!? You gotta be kidding me?

This is Bernanke's way of saying that he understands the risks, but plans to do nothing.

But, why?

Because Bernanke's job is to assure that Wall Street's massive looting operation continues apace. That's Job#1. And, while "systemic instability" may be a concern, it's largely irrelevant. Maintaining profitability for uber-rich speculators takes precedent over everything else. That's the way Bubblenomics is designed to work.

Rocky Times Ahead: Are You Ready?

This isn't a future you can, or should, face alone. How to make sure you don't have to.

Friday, January 21, 2011 by YES! Magazine

by Sarah Byrnes and Chuck Collins

 

"I don't believe the economy is getting better," says Billy R., a member of a mutual aid group in Oregon that he jokingly calls "my reality support group." "All around me I'm surrounded by media and advertising urging me to keep borrowing, buying, and sleepwalking. I love meeting with others who are staring down the potential risks and challenges of the future."

Maybe more of us could use a reality support group.

Even with the announcement that the bogus official unemployment rate fell to 9.4 percent, millions of people remain in dismal economic straits. The pace of home foreclosures has barely slowed and millions remain out of work. Even upbeat scenarios still assume protracted unemployment and economic stagnation for much of the decade ahead. The unspoken scenario is that things could get worse.

Can forming a small group like this really make a difference, when the problems we face seem so overwhelming? History tells us they can.

So here's the point: you must not face the future alone. Find your own "reality support group" (we'll tell you how below). This year, make a resolution to deepen your relationships with people around you with whom you can face what's coming down the pike.

Sometime during the next couple of years, there will likely be a fundamental shift. It might be another economic meltdown along the lines of 2008, or a shock to the economy thanks to a rapid spike in energy costs. It could be a series of extreme weather events that result in flooding, drought, or unprecedented heat waves. Think Hurricane Katrina on a larger scale. These changes could lead to food and water shortages-and test our personal and community preparedness in ways that we have not experienced in our lifetimes.

You should know that we, the authors of this piece, are not apocalyptic, bunker-building, pessimistic people. We're both parents, gardeners, and active in our neighborhoods. We like a good football party-though we root for different teams (Patriots v. Steelers).

We believe our society has almost everything we need to build stronger communities, reduce inequality, live in harmony with the earth, and make a graceful transition to a new sustainable economy. But we won't get there ignoring the data, and we won't get there disconnected from one another.

We're not talking about yet another issue campaign. We certainly need to remain engaged in the good fights around economic justice, peace, democracy, the environment. But there is something huge missing right now in our approach to social change. Our social movements are weak and, with some inspiring exceptions, not changing the political dynamics. The "Net Roots"-online organizing and social media-are creative ways to aggregate money and power in specific situations, but online activism is not a substitute for a movement based on durable and trusting face-to-face relationships. In some religious and labor traditions, this is called solidarity.

Fearful, Alone, & Ashamed

Presently in the United States we are witnessing the emergence of politics based on fear and the erosion of status. Millions of people saw their livelihoods and dreams collapse in the aftermath of the economic meltdown. People lost their homes, jobs, savings, and sense of a positive future. They've had to adjust their expectations-for example, facing the reality that they may never be able to retire or improve their standard of living.

Some people respond to these circumstances by blaming themselves and feeling ashamed about their difficulties. Many are hunkering down, feeling depressed and withdrawn. In the U.S., we tend to think everything is about the individual-even blaming ourselves for things that are largely beyond our control.

Others of us respond by scapegoating others, often those more disadvantaged. These responses often come from a place of fear, isolation, and shame.

There is good reason to be angry and focus on powerful financial and political actors who are responsible. But, as in the grieving process, we must move from anger to a place where we can boldly face today's difficult realities and also initiate pro-active responses. We can start by learning to accept and live within new limits set by economic and ecological reality. Many people are already deliberately moving away from the old economy, and they're finding new types of security and abundance. Perhaps unsurprisingly, they often feel much richer than they did in lives defined by the "work-watch-spend" cycle.

Rebecca Solnit, in her remarkable book A Paradise Built In Hell, reminds us to look for the "shadow governments of kindness," the deep reservoirs of resilience and compassion that emerge during disasters and troubled times. All over the planet, people are defying the stereotypes of the self-centered "economic man" and instead caring for one another, building alternative economies, and deepening solidarity.

A Movement to Build Economic Security

The good news is people are already coming together in small groups to form and strengthen relationships. Some are called "common security clubs," while others go by names like "mutual aid groups," "resilience circles," and "unemployed support groups."

Call it what you want, but the purpose is the same: getting together regularly-8 to 15 adults-to face ecological and economic change. Small group organizing is part of the missing architecture in our social movements ... which may be why it's catching on so quickly.

Such groups are designed to strengthen our personal and community resilience. They typically have three purposes: to learn together, support one another through mutual aid, and engage in social action.

Learn together. It's hard enough for each of us alone to keep up with news about the ways our changing economy and ecology are impacting our lives. But it's particularly challenging to face unsettling realities in isolation. In order to move forward, we need a community to help us learn and figure out how to deal with our fear, anger, loss, and feelings of betrayal.

Group members watch videos, read articles, talk to each other, and organize forums. Since the "experts" mostly got things wrong two years ago, participants are investigating things for themselves. What's really happening in the economy? What caused the economic meltdown? What's changed? What are the ecological risk points? How will the decline of cheap, easy-to-get oil affect the future economy? What will a transition to a new economy look like?

Mutual Aid. Our mutual aid muscles are out of shape. We need to find ways to increase our real economic security and web of support through shared resources, skills, experience, and capacities. Some folks do this through extended families, religious congregations, and ethnic and fraternal associations. But millions of people are disconnected from extended family and the immigrant and civic associations that helped earlier generations survive. And many religious congregations have gotten out of the practice of being centers of mutual aid.

Common security clubs often gather around potlucks, sharing food and recipes for healthy, low-cost meals. They support one another to get out of debt, brainstorm about employment options, share tips on saving money. They form bartering circles to swap skills, tools, and time. They talk about the challenges of parents moving in with children, children moving in with parents-and adjusting to new norms and limits as a result of the changing economy and future.

Social Action. Many of us want to make meaningful change at the local and national level. We want to find ways to constructively channel our anger and fear to resist further Wall Street destruction of our local economies. We want to act together in ways that go beyond online petitions or phone calls to our member of Congress. Think "affinity group" or "social action group"-a place to deepen our effectiveness as a small unit, but be part of larger movements.

Common security clubs in particular have worked for national policy changes, from universal health care and Wall Street financial reform to the extension of unemployment benefits. Many clubs, animated by the "break up with your bank" and "move your money" efforts, relocated personal, congregational, and other funds out of Wall Street, and into community banks and credit unions.

Other clubs have connected with community-wide "transition" efforts, inspired by the Transition Town movement sweeping England and now moving U.S. communities into action. Transition neighborhoods and towns proactively prepare themselves for climate change, economic hardship, and the decline in easy-to-get oil and cheap energy-with its huge implications for transportation, food security, building design, and our standard of living. Within the broader initiatives, small personal groups like common security clubs provide a place where people can meet to practice mutual aid and reciprocity. Both transition towns and common security clubs are integral components of building needed personal and community resilience.

A Few Stories

Encouraging stories are emerging from common security clubs and other mutual aid groups.

A group of unemployed workers in Maine created a resource sharing exchange. They met regularly at the library and laughed so much the librarian didn't believe they were economically struggling.

A group in Greenfield, Massachusetts calls themselves "the neighbors" and meets monthly to check in, sing together, and practice mutual aid. On another night they meet for a monthly game night-what one member called "fun and affordable entertainment."

In Fort Wayne, Indiana, a network of Unemployed and Anxiously Employed Workers meets weekly and has formed committees to help educate one another about computer use, unemployment insurance, stress management in tough times, and green job opportunities. "Part of our work is to help face the unemployment bureaucracy so people get their benefits," said Tom Lewandowski, a founder of the group. They invite people leaving unemployment offices to join the group. Members volunteer at libraries on Sunday afternoons to help unemployed workers file claims online.

Small Groups in Social Movements

Can forming a small group like this really make a difference, when the problems we face seem so overwhelming? History tells us they can. At many crucial moments in our past, small groups have played an essential role in incubating the seeds of great change.

During the Great Depression of the 1930s, more than 27,000 "Share Our Wealth" clubs formed to discuss the causes of the Depression and advocate for a radical program of wealth redistribution.

Also in the 1930s, seniors organized "Townsend Clubs" to advocate for old age pensions-a formidable social movement that added to the pressure to establish Social Security. By 1936, more than 8,000 Townsend Clubs had been formed with over 2 million members. In ten states-including Oregon, Colorado, California, Florida, South Dakota-there were more than 50 clubs per congressional district.

In the civil rights movement of the 1950s and 1960s, people formed nonviolent direct action groups to engage in sit-ins and keep up morale. Activists rooted in faith-based congregations and tight-knit communities were able to take greater risks knowing that if they should be jailed (or worse), there were others to care for their children and elders.

The women's movement was built upon small consciousness-raising groups, which enabled millions of women to reflect on their identity. "The personal is political" was experienced in thousands of face-to-face gatherings, ultimately shifting gender attitudes throughout the society. The anti-nuclear movement in the late 1970s formed "affinity groups" as part of direct action efforts to prevent power plants from being built.

In the labor movement, the success of organizing female clerical workers into trade unions depended upon an organizing approach that included small support groups. Large mega-churches have grown upon a foundation of "small group ministry" in which members connect through smaller, face-to-face groups. A growing number of organizers today are examining the "power of networks" in social movements.

Given the challenges we're collectively facing in the present, where are such movements today? It appears that without a lived experience of "solidarity" in our personal lives, it can be difficult to respond to an abstract call for the common good. It may be that small group organizing is central to our hopes for broad-based change.

Potential Shock Points

There is good reason to believe that the next 10 years are going to be very different than the 10 years prior to the 2008 economic meltdown. Persistent unemployment means that millions of people may live out the decade in an economic depression.

Moreover, the underlying economic structures that brought on the collapse have not been addressed. We remain at risk for more financial nosedives. As a result, new Wall Street economic bubbles and busts may emerge. The "danger" light on the dashboard is still flashing...

In fact, the future could bring any number of "shock points": another economic meltdown along the lines of 2008; a further increase in unemployment, even to 20 percent; more extreme weather events (hurricanes, floods, droughts, heat waves); new spikes in the cost of energy; rapid deflation as the value of money falls; a dramatic increase in the cost of food; and/or shortages of fresh water.

Because of the extreme inequalities of income and wealth that have opened up over the last generation, the brunt of these changes is falling, and will continue to fall, most intensely on lower and middle income and disadvantaged folks. But these changes will touch everyone in various ways, even those who believe they have built a wall of economic security around their families.

These are some of the reasons people need to face the future together and strengthen the social fabric of our communities. This is not a future you can, or should, face alone.

The Transition to the New Economy

Eight million jobs in the old economy are not coming back. But new jobs, enterprises, and livelihoods are emerging. We are seeing vibrant new kinds of enterprises in the local food sector, green building, and alternative transportation, as well as locally rooted cooperatives and producers. These are the pieces of a new economy that is emerging piecemeal around the country-an economy based upon entirely different models of economic growth and indicators of community health, and also new conceptions of wealth, community, and governance.

This new economy includes financial institutions invested in the real economy, like community banks and credit unions walled off from the Wall Street speculation that adds no real value to our economy. It includes respect for "all that we share"-our commons of public and private institutions such as libraries, schools, or agricultural knowledge. It is based on sound management and protection of the gifts of nature including water systems, seed banks, and land conservancies.

In the current political moment, leadership for large-scale transition to this new economy will not come from Washington, D.C., but from movements around green jobs, local manufacturing, alternative transportation, regional food, and more. This is a moment for each of us to reflect on our own power and agency. We each have a role to play, but perhaps we aren't sure what it is yet. This is where your small group is important. Small groups help disconnected individuals find their roles, turning them into community players who contribute to the movements toward the new economy.

If we are prepared for a transition, we will be in much better shape than if we simply hope life will somehow return to normal. If we have our "core group," we can face changes with less fear and more sense of our personal agency. Together, we will be able to work toward an economy that works for everyone.

How to Start a
Common Security Club


Calling All Organizers! Does this idea of a small support group appeal to you? Is it a missing part of your organizing work? Would it benefit your community, or your own life? Check out the resources provided by the Common Security Club network to help you organize a group.

Calling All Facilitators! Are you good at getting people together and holding a respectful space? If you’ve ever successfully facilitated a small group, you can facilitate a Common Security Club. You don’t need to be an expert on these matters, just good with people. There is a network that provides a free downloadable Facilitator Guide chock full of ideas for discussion, learning, sharing, mutual aid, and social action. The network provides facilitation tips, conference calls, and ongoing support.

Visit www.commonsecurityclub.org to learn more.

Recovery Recedes, Convulsion Looms

(If your life hasn't gotten more difficult, don't worry, it's coming. No one escapes because the recovery is bogus.--jef)

***

The Triumph of Austerity
By WALDEN BELLO

The dominant mood in liberal economic circles as 2010 drew to a close, in contrast to the cautiously optimistic forecasts about a sustained recovery at the end of 2009, was gloom, if not doom. Fiscal hawks have gained the upper hand in the policy struggle in the United States and Europe, to the alarm of spending advocates like Nobel laureate Paul Krugman and Financial Times columnist Martin Wolf who see budgetary tightening as a surefire prescription for killing the hesitant recovery in the major economies.

But even as the United States and Europe appear to be headed for deeper crisis in the short term and stagnation in the long term, East Asia and other developing areas show signs of decoupling from the western economies. This trend began in early 2009 on the strength of the massive Chinese stimulus program, which not only restored China to double-digit growth but swung several neighboring economies from Singapore to South Korea from recession to recovery. By 2010, Asia's industrial production had caught up with its historical trend, "almost as if the Great Recession never happened," as the Economist put it.

The United States, Europe, and Asia seem to be going their separate ways. Or are they?

In the major economies, outrage with the excesses of the financial institutions that precipitated the economic crisis has given way to concern about the massive deficits that governments incurred to stabilize the financial system, arrest the collapse of the real economy, and stave off unemployment. In the United States, the deficit stands at over nine percent of gross domestic product. This is hardly a runaway deficit, but the American right bellomanaged the feat of making the fear of the deficit and federal debt a greater force in the mind of the public than the fear of deepening stagnation and rising unemployment. In Britain and the United States, fiscal conservatives gained a clear electoral mandate in 2010 while in continental Europe, a more assertive Germany put the rest of the Eurozone on notice that it would no longer subsidize the deficits of the monetary union's weaker southern-tier economies such as Greece, Ireland, Spain, and Portugal.

In the United States, the logic of reason gave way to the logic of ideology. The Democrats' impeccable rationale that stimulus spending was necessary to save and create jobs was no match for the Republicans' heated message that more stimulus spending added to President Obama's $787 billion 2009 package would be one more step towards "socialism" and the "loss of individual freedom." In Europe, Keynesians argued that fiscal loosening would not only help the troubled economies of southern Europe and Ireland but also the powerful German economic machine itself since these economies absorbed German exports.

As in the United States, solid rationale lost out to provocative image, in this case, the media-disseminated portrayal of thrifty Germans subsidizing hedonistic Mediterraneans and spendthrift Irishmen. Germany has grudgingly approved bailout packages for Greece and Ireland, but only on condition that the Greeks and Irish are subjected to savage austerity programs that have been described by no less than two former high-ranking German ministers Frank-Walter Steinmeier and Peer Steinbrueck, writing in the Financial Times, as having a degree of social pain "unheard of in modern history."

Decoupling Revived

The triumph of austerity in the U.S. and Europe will surely eliminate these two areas as engines of recovery for the global economy. But is Asia indeed on a different track, one that would make it bear, like Atlas, the burden of global growth?

The idea that Asia's economic future had been decoupled from that of the center economies is not new. It was fashionable before the financial crisis dragged down the U.S. economy in 2007-2008. But it was shown to be a mirage as the recession in the United States, on which China and the other East Asian economies were dependent to absorb their exports, triggered a sudden and sharp downturn in Asia from late 2008 to mid-2009. This period produced television images of millions of Chinese migrant workers, laid off in coastal economic zones, heading back to the countryside.

To counter the contraction, a panicked China launched what Charles Dumas , author of Globalization Fractures, characterized as a "violent domestic stimulus" of 4 trillion yuan ($580 blllion). This came to about 13 percent of gross domestic product in 2008 and constituted "probably the largest such program in history, even including wars." The stimulus not only pulled China back to double-digit growth, it also pushed the East Asian economies that had become dependent on it to a steep recovery even as Europe and the United States stagnated. This remarkable reversal led to the renaissance of the decoupling idea.

The ruling Communist Party of China has reinforced this notion by claiming a fundamental policy shift to prioritizing domestic consumption over export-led growth. But this contention is more rhetorical than real. In fact, export-led growth remains the strategic thrust, thus China's continuing refusal to let the yuan appreciate in order to keep its exports competitive. China, as Dumas notes, is "in the process of shifting massively from the beneficial stimulation of domestic demand to something closely resembling business as usual, circa 2005-07: export-led growth with a bit of overheating."

Not only Western analysts like Dumas have pointed to this return to export-led growth. Yu Yongding, an influential technocrat who served on the monetary committee of China's central bank, confirms that it is indeed back to business as usual: "With China's trade-to-GDP ratio and exports-to-GDP ratio already respectively exceeding 60 percent and 30 percent, the economy cannot continue to depend on external demand to sustain growth. Unfortunately, with a large export sector that employs scores of millions of workers, this dependence has become structural. That means reducing China's trade dependency and trade surplus is much more than a matter of adjusting macroeconomic policy."

The retreat back to export-led growth, rather than merely a case of structural dependency, reflects a set of interests from the reform period that, as Yu puts it, "have morphed into vested interests, which are fighting hard to protect what they have." The export lobby, which brings together private entrepreneurs, state enterprise managers, foreign investors, and government technocrats, is the strongest lobby in Beijing. If the justification for stimulus spending has been trumped by ideology in the United States, in China the equally impeccable rationale for domestic-market-centered growth has been trounced by material interests.

Global Deflation

So decoupling is not a likely trend since China's leaders have chosen to stake the future of the Chinese economy on U.S. and, to some extent, European demand. But the context has changed ever since the rupture in the pre-crisis "partnership" between the American consumer and the Chinese producer. Not only are Americans deep in debt but the budgetary crunch pushed by the fiscal hawks will squeeze their incomes even further.

Indeed, what analysts like Dumas refer to as China's "reversion to type" as an export-oriented economy will clash with the efforts of the United States and Europe to speed recovery by adopting China's own formula: pushing exports while raising barriers to the inflow of imports. The likely result of the competitive promotion of this volatile mix of export push and domestic protection by all three leading sectors of the global economy at a time of stagnant world trade will not be global expansion but global deflation.

As Jeffrey Garten, former U.S. undersecretary of commerce under Bill Clinton, has written:

"While so much attention has focused on consumer and industrial demand in the US and China, the deflationary policies enveloping the EU, the world's largest economic unit, could badly undermine global economic growth…The difficulties could cause Europe to redouble its focus on exports at the same time that the US, Asia, and Latin America are also betting their economies on selling more abroad, thereby exacerbating already-high currency tensions. It could lead to a resurgence of state-sponsored industrial policies, already growing around the world. And together, these factors could ignite the virulent protectionism that everyone fears."

What is in store for us in 2011 and beyond, Garten warns, is "exceptional turbulence as the waning days of the global economic order we have known plays [sic] out chaotically, possibly destructively." He projects a pessimism that is increasingly capturing sections of a global elite that once heralded globalization but now sees it disintegrating before its eyes. This resigned fin-de-siècle mood is not a western monopoly. Yu Yongding also claims that China's "growth pattern has now almost exhausted its potential." The economy that most successfully rode the globalization wave, China "has reached a crucial juncture: without painful structural adjustments, the momentum of its economic growth could suddenly be lost. China's rapid growth has been achieved at an extremely high cost. Only future generations will know the true price."

In contrast to the apprehension of establishment figures like Garten and Yu, many progressives see turbulence and conflict as necessary accompaniments of the birth of a new order. Workers have indeed been on the move in China, where strikes in selected foreign companies in 2010 resulted in significant wage gains . Protesters are indeed out in the streets in Ireland, Greece, France, and Britain.

Unlike in China, however, they are marching to preserve what rights they have left. And neither in China nor the West nor elsewhere is this resistance accompanied by an alternative vision to the global capitalist order. A more far-reaching discussion of alternative economic arrangements should be ongoing as the global economic crisis enters its fourth year. But the debate continues to be trapped between the sterile spend-and-stimulate versus cut-the-deficit positions. The shape of things to come is simply not visible in the embers of the old. At least, not yet.

The Political Consequences of Stagnation

Can You Say, Fascism?
Thursday, September 2, 2010 by Foreign Policy in Focus (FPIF)
by Walden Bello

My apologies to T. S. Eliot, but September, not April, is the cruelest month. Before 9/11/2001, there was 9/11/1973, when Gen. Pinochet toppled the Allende government in Chile and ushered in a 17-year reign of terror. More recently, on 9/15/2008, Lehman Brothers went bust and torpedoed the global economy, turning what had been a Wall Street crisis into a near-death experience for the global financial system.

Two years later, the global economy remains very fragile. The signs of recovery that desperate policymakers claimed to have detected late in 2009 and early this year have proven to be mirages. In Europe, four million people are unemployed and the austerity programs imposed on highly indebted countries such as Greece, Spain, Italy, and Ireland will add hundreds of thousands more to the dole. Germany is an exception to the dismal rule.

Although technically the United States isn't in recession, recovery is a distant prospect in the world's biggest economy, which contracted by 2.9 percent in 2009. This is the message of the anemic second-quarter GDP growth rate of 1.6 percent and a real unemployment above the 9.6 percent official rate if one factors in those who have given up looking for work. Firms continue to refrain from investing, banks continue not to lend, and consumers continue to refuse to spend. And the absence of a new stimulus program, as the impact of the $787 billion Washington injected into the economy in 2009 peters out, virtually ensures that the much-feared double-dip recession will become a reality.

That the American consumer does not spend has implications not only for the U.S. economy, but for the global economy. The debt-fuelled spending of Americans was the motor of the pre-crisis globalized economy, and nobody else has stepped in to replace them since the crisis began. Consumer spending in China, fuelled by a government stimulus of $585 billion, has temporarily reversed contractionary trends in that country and East Asia. It has also had some impact in Africa and Latin America. But it has not been strong enough to pull the United States and Europe from stagnation. Moreover, in the absence of a new stimulus package in China, a relapse into low growth, stagnation, or recession is very real in East Asia.
To Cut or to Stimulate

Meanwhile, the debate in western policy circles has divided into two camps. One group sees the threat of government default as a bigger problem than stagnation and refuses to countenance any more stimulus spending. The other thinks stagnation is the greater threat and demands more stimulus to counter it. At the G20 meeting in Toronto in June, the two sides collided. Germany's Angela Merkel advocated tightening, pointing to the threat of a default by Germany's debt-laden satellite economies in southern Europe, particularly Greece. President Obama, on the other hand, facing an intractably high unemployment rate, wanted to continue expansionary policies, though he lacked the political clout to sustain them.

To the pro-spending people, the anti-deficit people don't have much of an argument. At a time when deflation is the big threat, fear of government spending stoking inflation is misplaced. The idea of burdening future generations with debt is odd since the best way to benefit tomorrow's citizens is to ensure that they inherit healthy, growing economies. Deficit spending now is the means to achieve this growth. Moreover, government default is not a real threat for countries that borrow in currencies they control, like the United States, since, as a last option, they can repay their debts simply by having their central bank print more money.

Perhaps the most vocal pro-stimulus advocate is Paul Krugman, the Nobel laureate, who has become the bête noire of many on the right. For Krugman, the problem was that the original stimulus was not big enough. Yet how big is the extra stimulus needed, and what other anti-stagnation measures can the government take? On these questions Krugman betrays some unease, perhaps realizing that traditional Keynesianism has its limits: "Nobody can be sure how well these measures would work, but it's better to try something that might not work than to make excuses while workers suffer." The stark alternative to more aggressive deficit spending is "permanent stagnation and high unemployment," says Krugman.

Krugman may have reason on his side, but reason has taken a backseat to ideology, interests, and politics. Despite high rates of unemployment, the anti-big government, anti-deficit forces have the initiative in three key Western countries: in Britain, where the Conservatives won on a platform of reducing government; in Germany, where the image of spendthrift Greeks and Spaniards financed with loans from hardworking Germans became the powerful horse Merkel's party rode to maintain power; and in the United States.
The Obama Debacle

The anti-deficit perspective has gained ascendancy in the United States despite high unemployment for a number of reasons for this. First of all, the anti-deficit stand appeals to the anti-big government sentiments of the American middle class. Second, Wall Street has opportunistically embraced anti-deficit policies to derail Washington's efforts to regulate it. Big government is the problem, it screams, not the big banks. Third and not to be underestimated is the reemergence of the ideological influence of doctrinaire neoliberals, including those who, as Martin Wolf puts it, "believe a deep slump would purge past excesses, and so lead to healthier economies and societies." Fourth, the anti-spending economics has a mass base, the tea party movement. In contrast, the stimulus position is advocated by progressive intellectuals without a base or whose potential base has become disillusioned with Obama.

Still, the triumph of the hawks was not foreordained. According to Anatole Kaletsky, the economic commentator of the Times of London and someone not exactly sympathetic to the progressive point of view, the ascendancy of the anti-deficit forces stems from a major tactical mistake on the part of Obama coupled with the progressives' failure to offer a convincing narrative for the crisis. The blunder was Obama's taking responsibility for the crisis in a gesture of bipartisanship, in contrast to Ronald Reagan and Margaret Thatcher, who "refused to take any blame for the economic hardships." Reagan and Thatcher devoted "the early years of their government to convincing voters that economic disaster was entirely the responsibility of previous left-wing governments, militant unions, and liberal progressive elites."

But even more problematic, says Kaletsky, was the Obama narrative, which was a contradictory one that put the blame on greedy bankers while maintaining that the banks were too big to fail. "With banks recovering from the crisis more profitably and quickly than voters had been led to expect," he argues in his book Capitalism 4.0, "politicians of all parties have been branded by public sentiment as stooges of the very bankers they tried to blame." Indeed, the Democrats' finance reform package that recently passed in Congress can only reinforce this public perception of their being coopted or intimidated by the very people they denounce. It lacks provisions with teeth : a Glass-Steagall type of provision preventing commercial banks from doubling as investment banks; the banning of trading in derivatives, which Warren Buffett called "weapons of mass destruction;" a global financial transactions tax or Tobin Tax; and a strong lid on executive pay, bonuses, and stock options.

For Kaletsky, Obama should have portrayed the economic crisis as one created "by the polarized and oversimplified philosophy of market fundamentalism, not by bankers' and regulators' personality flaws. By offering such a systemic account of the crisis, politicians could capture the public imagination with a post-crisis narrative than the lynching of greedy bankers - and ultimately more dramatic." But with aides like Treasury Secretary Tim Geithner and National Economic Council Director Larry Summers, neither of whom had broken completely with neoliberalism, such a systemic account was simply not in the cards.
Toward a Progressive Strategy

The right wing has the momentum now and will probably win big in the U.S. elections in November. They will tie Obama and the Democrats so firmly to the crisis that people will forget it exploded during the reign of market fundamentalist George Bush. But with their primeval market economics, the fiscal hawks and tea partiers are unlikely to provide an alternative to what they have caricatured as Obama's "socialism." Allowing the economy to implode in order to be ideologically correct will invite an even greater repudiation from an economically insecure population.

But progressives should not take comfort from the dead end offered by tea party economics. They should try to understand what has led to the failure of Obama's pallid Keynesianism. Beyond the tactical mistake of taking responsibility for the crisis and the failure to advance an aggressive anti-neoliberal narrative to explain it, the central problem that has plagued Obama and his team is their failure to offer an inspiring alternative to neoliberalism.

The technical elements of a progressive solution to the crisis have been thrashed out by Keynesian and other progressive economists: a much bigger stimulus, tighter regulation of the banks, loose monetary policies, higher taxes on the rich, rebuilding the national infrastructure, an industrial policy promoting green industries, controls on speculative capital flows, controls on outward bound foreign investment, a global currency, and a new global central bank.

The Obama administration has tried to enact some of these measures. But owing to its eagerness for bipartisanship, the ties of some of its prominent people to the economic elites, and the failure of key technocrats like Summers and Geithner to break with the neoliberal paradigm, it failed to present them as elements of a broader program of social reform aimed at democratizing control and management of the economy.

For progressives, the lesson to be derived from the stalling of Obamanomics is that technocratic management is not enough. Keynesian moves must be part of a broader vision and program. This strategy must have three key thrusts: democratic decision-making at all levels of the economy, from the enterprise to macroeconomic planning; second, greater equality in the distribution of wealth and income to make up for lower growth rates dictated by economic and environmental constraints; and third, a more cooperative, as opposed to competitive ethic, in production, distribution, and consumption.

Moreover, such a program cannot simply be dished out from above by a technocratic elite, as has been the fashion in this administration, one of whose greatest mistakes was to allow the mass movement that brought it to power to wither away. The people must be enlisted in the construction of the new economy, and here progressives have a lot to learn from the Tea Party movement that they must inevitably compete against in a life-and-death struggle for grassroots America.
Nature Abhors a Vacuum

Krugman predicts that the likely electoral results in November "will paralyze policy for years to come." But nature abhors a vacuum, and the common failure of both market fundamentalists and technocratic Keynesians so far to address the fears of the unemployed, the about-to-be unemployed, and the vast numbers of economically insecure people will most likely produce social forces that would tackle their fears and problems head-on.

A failure of the left to innovatively fill this space will inevitably spawn a reinvigorated right with fewer apprehensions about state intervention, one that could combine technocratic Keynesian initiatives with a populist but reactionary social and cultural program.There is a term for such a regime: fascist. As Roger Bootle, author of The Trouble with Markets, reminds us, millions of Germans were disillusioned with the free market and capitalism during the Great Depression. But with the failure of the left to provide a viable alternative, they became vulnerable to the rhetoric of a party that, once it came to power, combined Keynesian pump-priming measures that brought unemployment down to 3 percent with a devastating counterrevolutionary social and cultural program.

Fascism in the United States? It's not as far-fetched as you might think.