Republicans Discover Evidence of Jobs Crisis

By Ezra Klein Feb 6, 2014
Bloomberg


The U.S. has been in a jobs emergency since at least 2008. The cause of the crisis -- too little demand -- isn’t mysterious, and neither are the solutions. We could invest in infrastructure to create construction jobs. We could give tax breaks to employers who hire new workers. We could restore the payroll tax cut to workers so they have more money to spend. We could help state and local governments hire back some of the employees they laid off during the recession. Macroeconomic Advisers, an economic consulting firm, found that the American Jobs Act, which contained many of these policies, would have created 2 million jobs.

But in recent years, these policies have been either blocked or canceled by congressional Republicans. They fought Democrats to scuttle the American Jobs Act and allow the payroll tax break and long-term unemployment benefits to expire. Creating jobs, they argued, was neither feasible nor affordable.

That’s the proper context in which to view this week’s hysteria about Obamacare. The nonpartisan Congressional Budget Office just released updated estimates for the health law. It found that the disastrous rollout last fall put Obamacare behind schedule -- on track to insure 2 million fewer people than projected by the end of 2014. On the other hand, it also found that insurance premiums were about 15 percent lower than projected, and that the law would cost less than previously estimated. It found that the risk corridors designed to safeguard insurance companies from the effects of acquiring too many high-risk customers -- which Republicans have been calling an “insurer bailout” -- will actually yield $8 billion in net payments from insurers to the federal government.

The finding that made the news, however, concerned the Affordable Care Act’s long-term effect on labor supply. In past reports, the CBO has estimated that the law will, on net, lead some people to drop out of the labor market or cut back on their hours because their health insurance is no longer tied to their job. Imagine a 62-year-old who would like to shift to part-time work but can’t because he can’t afford -- or, due to pre-existing conditions, wouldn’t even be sold -- insurance on the individual market. Now, because Obamacare has made that insurance affordable and available, he can -- and will. As a result, his work hours will be (voluntarily) reduced.

Previously, the CBO had estimated this would reduce total hours worked by about 0.5 percent. Now, it estimates the effect at 1.5 percent to 2 percent of hours worked -- a reduction in hours equivalent to more than 2 million full-time jobs.

The CBO was very clear about what this means: “The estimated reduction stems almost entirely from a net decline in the amount of labor workers choose to supply, rather than from a net drop in business’ demand for labor, so it will appear almost entirely as a reduction in labor force participation and in hours worked relative to what would have occurred otherwise rather than as an increase in unemployment.”

The CBO’s clarity didn’t forestall a festival of motivated misreadings. The conservative Washington Times, for instance, featured this headline: “Obamacare will push 2 million workers out of labor market.” That has the distinction of being not only untrue but also the very opposite of the truth. Workers are choosing to cut back hours -- not being pushed to do so.

Whether this is good or bad depends on your views about human flourishing. Lower labor-force participation is bad for economic growth. On the other hand, the point of life is not for everyone to work every possible hour until they die. Workers should be able to choose to leave their jobs or cut their hours without worrying that their families won’t survive a medical emergency. In addition, as the Urban Institute’s Donald Marron tweeted, “employers will be competing harder for workers,” which will push wages to rise for everyone remaining in the workforce.

In context, the freakout over the CBO estimate is perverse. Is it really the Republican position that we should do nothing - - in fact, cut aid -- for the millions of long-term unemployed, but express shock and terror that employed people will, in a few years, cut back their hours or leave the labor force by choice? Shouldn’t we be more concerned about people desperate to join the workforce, who can’t, than about people voluntarily leaving the workforce, who can?

Some Republicans will say, of course, that they don’t oppose helping the jobless. They just oppose increasing the deficit or increasing taxes to do so. But repealing Obamacare raises the deficit, too! So rather than increasing the deficit to help people who want jobs get them, we would be increasing the deficit to make sure people who want to leave their jobs can’t. That’s insane.

Policies don’t exist in vacuums. By untying the link between employment and health care, the Affordable Care Act reduces the incentive to work. But there are ways to increase incentives to work without making people dependent on their jobs for health insurance. We can help people without taking away their health care.

So here’s a simple proposal. Repeal of the Affordable Care Act would cost hundreds of billions of dollars over the next few decades because of the law’s spending cuts and new revenue. So instead of repeal, how about if Congress devotes that same amount of money to policies to increase employment now. Republicans could even dictate that all the money flow to targeted tax cuts.

If they are worried about employment rather than scoring points against Obamacare, this should be an easy compromise to strike. Anyone think it will be?

Economic Future Is Dark as Fake Economic Recovery Consists Only of Low-Paying Jobs

(Many of you out there think we're just going through a rough patch but that things will eventually go back to the way they used to be. Dream on. The way things were is a bygone era. Those days are gone and they aren't coming back. Things are going to get a whole lot worse before ever getting better, and they won't get better until many things have changed. And those wealthy controllers of the economy won't go down without a fight, either. Zbigniew Brzezinski, the Democrat's "snake in the grass" (whose Republican counterpart is Henry Kissinger), was recently quoted saying "in earlier times, it was easier to control one million people than to physically kill one million people; today, it is infinitely easier to kill one million people than to control one million people." If that isn't a rather ominous warning to those of us protesting against the corruption of the wealthy, then nothing is. 

Life is not going to go back the way it was, it's going to get a whole lot worse for everyone who isn't a billionaire (even millionaires will suffer). You might have a lot of money now, but you might as well spend all of it before it gets taken away from you. Your heirs won't see a dime of your fortune, no matter how much you leave to them. It's OK to be afraid, in fact, it's quite natural.--jef)

The current "recovery" is actually a deepening deficit of good jobs.

By Annette Bernhardt, AlterNet
Posted on November 6, 2011

Major newspapers last week reported a trend that won’t come as a surprise to working Americans:  incomes are falling.  In fact, median household income, adjusted for inflation, has fallen faster since the recession "ended" (and the "depression" began--jef) than during the recession itself.  Analysts point to high unemployment and weak economic growth as the culprits, but that is only part of the story.

Just as the country struggles to confront a seemingly insurmountable jobs deficit, America’s chronic low-wage problem is reasserting itself with a vengeance.  Here are three ways to understand just how severe the problem is.

First, the current recovery is actually deepening our deficit of good jobs. During the Great Recession, the jobs we lost were concentrated in mid-wage occupations like paralegals, health technicians, administrative assistants and bus drivers, making $15 to $20 an hour.  But so far in this weak recovery, employment growth has almost completely come from low-wage occupations like retail workers, office and stock clerks, restaurant staff and child care aids – most making $8 to $10 an hour.  There has been barely minimal growth in mid-wage occupations, and net losses in those that pay higher.

In part, this unbalanced growth is a byproduct of the Great Recession.  The financial crash and bursting of the housing bubble caused big job losses in construction, finance, insurance and real estate, and these better-paying industries are having a harder time coming back than low-wage industries such as retail trade, restaurants, temp agencies, and nursing homes.

But there are also other factors at work, such as the long-standing decline in manufacturing and outmoded telecommunications industries (again, better-paying sectors).  The slashing of state and local public jobs has also continued unabated during the recovery, dragging down middle-class employment.

Second, the paychecks of workers in low-wage occupations are shrinking.  While real wages for the average American worker have been essentially flat (adjusted for inflation) since the start of the recession, wages for Americans in low-wage occupations have actually declined by 2.3 percent. That’s a troubling pattern for jobs that are also growing the fastest.

Finally, job quality was already a problem in the U.S. labor market even before the Great Recession began.  From 2001 through 2008, low-wage and high-wage occupations grew significantly more than mid-wage occupations.  In fact, mid-wage occupations constituted only 6 percent of net job gains during this period, continuing the increase in economic inequality in America that dates all the way back to the late 1970s. 

The U.S. has struggled to respond to these trends.  The failure to pass a strong enough stimulus package in 2008, the endless fights to continue unemployment benefits, the debt ceiling debacle that  imposed fiscal austerity when government should be investing in the economy – this dysfunction in our politics has done significant harm.  Even House Majority Leader Eric Cantor acknowledges that there is too much income disparity in the United States (He does have to get re-elected and say the "right" things for his campaign in a district that is suffering like the rest of the country, after all...--jef). Yet the recent unveiling of President Obama’s American Jobs Act gave us only a brief glimpse of sensible policy debate before it, too, disappeared into the same vortex of take-no-prisoners politics.

In this context, the problem of low-wage work and declining wages doesn’t even register on the radar screen.  

Putting aside the abysmal political context for a moment, it is clear that the U.S. needs to work on dual fronts and tackle both job creation and job quality.  There are plenty of ideas out there:

• rebuilding and modernizing America’s infrastructure, 
• incubating green jobs sectors, 
• creating universal pre-K, 
• sending more fiscal relief to the states to avoid lay-offs, and more.  

We can also strengthen the wage floor by raising the minimum wage and putting more resources towards fighting wage theft, an endemic problem in low-wage service industries.

All are win-win solutions, but the politics at the federal level aren’t even close to being there.
There are rays of hope, however, in our states and cities.  The bipartisan U.S. Conference of Mayors is calling for quick investment in infrastructure, small business, manufacturing, trade and tourism to create jobs. Renewed activism, like the Wisconsin and Occupy Wall Street protests, is advancing calls for job creation, living wages and a strong safety net for the unemployed.  The immigrant community has become a powerful voice for workers’ rights, increasingly winning anti-wage theft campaigns.  And diverse coalitions have successfully fought back attempts to weaken state minimum wage laws, as they launch campaigns to raise the minimum wage in more than half a dozen states.

The question, of course, is will it be enough – enough to pierce the bubble of insanity that is holding American politics hostage and put jobs and wages squarely on the front burner of domestic policy.  The answer to this question has enormously high stakes, not just for avoiding a second recession, but for the long-term project of building a competitive, sustainable, and just America.

Republican Jobs Plan: An Economy for the 1%

Go back, the Republicans are saying. Reprise unfettered, irresponsible Wall Street, the Republicans demand.

By Leo Gerard, AlterNet
Posted on October 24, 2011

Republicans jammed together a mess of old, failed and vague schemes and called it a jobs bill. Sen. John McCain conceded the reason for the rehash: “Part of it is in response to the president saying we don’t have a proposal.”

They still don’t. This despite the fact that they promised voters during their campaign to take control of the U.S. House one year ago that they’d create jobs. That they’d focus on jobs. That nothing was more important to them than jobs.

Now, what they’ve offered instead of actual jobs is a polyglot of GOP talking points. It’s certainly no vision to move the country forward. It’s a plot to set the country back – to repeal the health care law that will soon help provide coverage for the nearly 50 million Americans without insurance, to rescind the Wall Street reform law designed to prevent another financial sector-caused meltdown, and to thwart regulations, like those that stopped distribution of listeria-infected cantaloupe that killed 25.

GOP Sen. Rob Portman of Ohio called the Republican polyglot a “pro-growth proposal to create the environment for jobs.” It is, in fact, a pro-business proposal to permit corporations to destroy the environment for humans.

It is another GOP ploy to appease, accommodate and absolve corporations. It is another GOP ruse to firmly establish in America an economy designed for, dedicated to and directed by corporations rather than a just economy controlled by and beneficial to the 99 percent.

Republicans offered up their “Jobs Through Growth Act” mishmash after the GOP minority in the Senate wielded the filibuster again to block a vote on President Obama’s $447 billion American Jobs Act, a measure that even Republican economists determined would create 1.9 million jobs and reduce the nation’s aching 9.1 percent unemployment by as much as 1 percent.

The Republican measure, by contrast, could hurt the economy, according to Gus Faucher, director of macroeconomics at Moody’s Analytics, an independent firm whose chief economist advised the McCain presidential campaign. Here is what Faucher said:

“Should we look at regulations and make sure they make sense from a cost benefit standpoint? Certainly. Should we reduce the budget deficit over the long run? Certainly. But in the short term, demand is weak, businesses aren’t hiring, and consumers aren’t spending. That’s the cause of the current weakness, and Republican Senate proposals aren’t going to address that in the short term. In fact, they could be harmful in the short run if the focus is on cutting spending.”

Of all the Republican proposals, the most insidious, the most dangerous, the absolutely most outrageous is their demand to roll back Wall Street reform, to repeal the Dodd-Frank Act that was passed in an attempt to prevent recurrence of the 2008 financial collapse that destroyed the U.S. economy and caused the highest levels of foreclosures, unemployment and misery among the 99 percent since the Great Depression.

Go back, the Republicans are saying. Go back to 2007 when Wall Street financiers sold worthless mortgage-backed securities to unsuspecting investors, contending with a straight face that these were assets. Go back to 2008 when these firms made hundreds of millions betting those securities would fail. Go back to 2009 when the banksters, bailed out by taxpayers, awarded billions in bonuses to the executives who’d gotten the firms and the U.S. economy into so much trouble. Go back to early 2010, the Republicans are saying, before Obama signed the Dodd-Frank reform act, and allow Wall Street to do it all over again. Reprise unfettered, irresponsible Wall Street, the Republicans demand.

For Republicans, it’s all about enforcing freedom for the few – allowing corporations and millionaires to do whatever they want. No matter what that means to the freedoms of the 99 percent. The GOP demand for repeal of health care reform is another example of that. Already, this law has expanded health coverage for a million young adults because it allows them to remain on their parents’ plan until age 26. It has also helped 1.2 million senior citizens afford their prescription drugs by beginning to close the “donut hole” during which they must pay.

Still, Republicans want to get rid of that law. They want to regress to those free-for-all days when health insurance corporations could make unlimited profits from illness, deny coverage to those with chronic illnesses and terminate coverage when policy holders got sick. They want those young adults dropped. They want senior citizens to pay more for their prescriptions again. For Republicans, it’s all about enforcing freedom for the few – allowing health insurance corporations to do whatever they want. No matter what that means to the freedoms of the 99 percent.

The Republican rebuke of any attempt to control the 1 percent is highlighted in their “jobs bill” by its call for a regulation moratorium. No new rules! The country is in the midst of the deadliest outbreak of foodborne illness in 25 years. Twenty-five people are dead. A total of 125 people in 26 states have been sickened by listeria-poisoned cantaloupe from Jensen Farms in Holly, Colo. One sickened woman suffered a miscarriage. The U.S. Food and Drug Administration (FDA) says more illnesses and deaths may occur over the next several weeks.

If the Republicans got their way, the FDA would be unable to write new regulations to prevent another such incident. It’s fine with the GOP that Jensen had hired its own inspector, a firm that certified the Jensen packing plant fine and dandy just before listeria-tainted cantaloupes killed 25 and just before the FDA found numerous, obvious violations.
That’s because the Republican precept is: an economy just for the 1 percent.

The Miseducation of the President

Ron Suskind describes a leader pulled off course by his staff. But we still don't know where Obama wants to take us.
September 21, 2011  |   This story was originally published at Salon. 

By Joan Walsh, Salon


 President Obama has a feisty new tone this week, offering up a deficit plan with taxes on the rich and no increase in the Medicare eligibility age (a reported feature of his failed "grand bargain" with the GOP last month). And when Republicans (and silly Dems) called his proposals "class warfare," he shot back: "This is not class warfare. It’s math."

Maybe Obama read Ron Suskind's controversial book over the weekend, and decided it was time to take control of his presidency and put it on the side of struggling Americans, rather than on the side of super-wealthy Wall Street titans who destroyed the economy, where it's been since Inauguration Day.

It's unlikely the president is finding lessons in Confidence Men: Wall Street, Washington and the Education of a President; the White House is pushing back, hard, on Suskind's revelations. The coverage has mostly hyped "shocking" anecdotes about an inexperienced president poorly served by scheming aides and Cabinet members who fought among themselves and frequently ignored the president's own wishes. But the question at the heart of Suskind's book is much more interesting: Who is Barack Obama, and what exactly did he want to do with his presidency?

Was he a bold visionary with big plans, who was hampered by disloyal aides and his own lack of leadership experience? Or did the many examples of underlings "slow-walking" or "relitigating" or simply ignoring the president's alleged decisions, without paying any penalty for their insubordination, reflect Obama's own lack of clarity about and commitment to his priorities and choices?

At the end of the book, the reader has to make a leap of faith -- of confidence, in fact -- about the answer to those questions. Suskind provides evidence for both views.

Bold visionary Obama periodically sides with staffers pushing big moves to break up what Suskind memorably describes as "the debt machine": the financial sector contraption that seized the American economy, almost destroyed it in 2008 and yet, tragically, still runs it in 2011. The book's good guys -- former Fed chair Paul Volcker, consumer protection visionary Elizabeth Warren, Commodity Futures Trading head Gary Gensler, Council of Economic Advisors chair Christina Romer, adviser Austan Goolsbee and the FDIC's Sheila Bair -- turn up regularly with good progressive ideas to beat back financial sector treachery that catch Obama's attention and win his backing ... for a while.

But in the end, whether it's "Volcker's Rule" keeping banks out of speculative, proprietary trading; Gensler's effort to force the trading of poorly understood derivatives on "exchanges" where their shady contents could be better examined; or Bair's push for a contingency plan to force the toxic behemoth Citibank into bankruptcy; the tough reforms never materialized. They were watered down to insignificance, or as in the case of the Citi breakup, abandoned completely.

The book's most controversial revelation, strenuously denied by the White House, is that Treasury Secretary Timothy Geithner either "slow-walked" or absolutely ignored the president's directive to come up with a plan to break up the spectacularly failing Citibank. It's become a big story, because it serves a couple of narratives: It provides Obama admirers with evidence that the president had progressive priorities and values, but his underlings thwarted them. It provides his critics (on left and right) with more fodder for the view that the president is in over his head, unready for the job we gave him.

The fact is, the material Suskind presents is inconclusive. By the president's own admission, the "instructions" to draw up a contingency plan to dismantle Citi were vague enough that his different advisors could legitimately disagree about his real intent.

When Suskind asks Obama if he was "agitated" by Geithner's failure to develop a plan for Citi, his answer is classic no-drama Obama, Zen Man:

"Agitated may be too strong a word. During this period what we are increasingly recognizing is that there are no good options."

He goes on:

"What's true is that I was often pushing hard, and the speed with which the bureaucracy could exercise my decision was slower than I wanted. But I don't think, it's not clear to me -- and I'll have to reflect on this at some point -- it's not clear to me that that was necessarily because of a management problem, as it was that this is really hard stuff."

Frankly, given Obama's answer, I'll give that one to Geithner. There's no hard evidence he ignored a firm directive from his boss -- and if he did, it obviously wasn't a big deal, because Geithner is one of the few people from the president's original economic team still employed at the White House. If the president wanted a tougher approach with Citibank, or with any other malefactor of great wealth, he'd have forced his subordinates to develop one, and fired them if they didn't.

- - - - - - - - - -

Whatever happened with Citibank, it's clear that at every turn, Obama made choices that protected the Wall Street status quo, and Geithner was behind every single decision. Although during the campaign Obama seemed to be closer to a group of economists Suskind labels Team A -- voices for strong action like Volcker, former Clinton Labor Secretary Robert Reich, and Clinton advisor Laura Tyson -- when it came time to staff his economic shop, he chose from Team B, most of whom had clustered around the infamous Robert Rubin, who moved from the Clinton White House to Citibank. He picked Geithner and Larry Summers precisely for their caution when it came to dramatic action regarding the banks. Obama seemed reassured by Geithner's tiresome reliance on the Hippocratic Oath, "First, do no harm."

On the Volcker team, "harming" the debt machine that destroyed the economy was precisely the point. Suskind does a magnificent job explaining the way an economy centered on debt has decimated the middle class and made the top 1 percent of Americans impossibly wealthy. The entire machinery of government, under Democrats and Republicans, has been rigged to privilege the financial sector over any other business sector for the last 30 years. Household debt, which had run between 30 and 50 percent of GDP for decades, doubled in the 2000s, to almost 100 percent of GDP. Family savings rates became "negative," meaning people used credit to spend more than they earned.

Essentially, the economy now runs on the financial sector's genius in finding ways to profit by lending Americans the money they haven't received from their employers in wage increases since the 1970s.

A Wall Street lobbyist says as much to Suskind during the debate over financial regulatory reform: "Maybe we did this to ourselves, sure, but we're just responding to the way things are. We've gone 'long' on developing markets around the world, and gone 'short' on America, where the whole game is using debt to give people what they haven't been able to earn, and may never earn."

Geithner worked hard to protect the debt machine and its masters. He opposed limits on executive compensation at firms receiving TARP funds, insisted on paying AIG's debts at 100 percent (instead of a smaller sum like creditors would have had to accept in a bankruptcy proceeding), squashed a tax based on bank size (to discourage "too big to fail" titans). One prominent banker tells Suskind his colleagues expected much harsher treatment from the Obama administration in the administration of TARP and other decisions. "For Washington to not demand anything when it saved us, even stuff that we know is for our long-term good, was one of the stupidest moves in modern times ... I feel like I should go over and hug Tim. It's a shame we can't pay him, 'cause that's a guy who really earned a big-time bonus."

Suskind also spends time on the stimulus debate, where proponents of big moves likewise lost. Romer argued forcefully the stimulus should be at least $1.2 trillion, but Peter Orszag told Suskind they couldn't do anything over a trillion, out of "a concern we would look wacko lefty." Better to let the economy decline than look "wacko lefty," I guess. Larry Summers didn't even present Romer's $1.2 trillion suggestion to Obama, but she pushed for it herself in a meeting, and Obama chose to go with the pragmatists.

Some of the book's most unsettling revelations have to do with White House sexism, or maybe it's best described as "guyism," as in Obama just misses the way his guy culture leaves out women, however inadvertently. Most of the juicy stories have already been dissected -- and denied, not convincingly, by some of the women involved: Anita Dunn saying the White House would "fit all of the classic legal requirements for a genuinely hostile workplace to women”; Christina Romer complaining she was overlooked and undermined so often by Larry Summers she "felt like a piece of meat"; a "women's dinner" convened by Valerie Jarrett to allow the president to hear the complaints of his top female staff directly. (It's a little awkward to learn that Obama greeted Christina Romer, the first time they met, by declaring that monetary policy had "shot its wad.")

Most of this stuff has been known since the New York Times' Mark Leibovich revealed that the president's fondness for bonding on the basketball court and golf course was leaving female staffers on the sidelines. But Suskind offers one telling anecdote about Obama's approach to gender that's been overlooked in coverage to date. Early in the book, during a campaign strategy session on candidate Obama's economic program, he and his advisors discuss the continuing erosion of jobs and wages for low to moderately skilled male workers. The big job opportunities, one researcher explains, will be in the exploding realm of healthcare -- positions for nurses, hospital orderlies and in-home assistants to frail seniors will boom.

Obama jumps in: "Look, these are guys," he says. "A lot of them see health care, being nurse's aides, as women's work. They need to do something that fits with how they define themselves as men." Quickly the conversation turned to infrastructure: fixing the nation's crumbling roads, bridges, schools and public buildings. Men like to build, the group concludes, and infrastructure offers a campaign promise that promotes employment, improves our public roads and buildings, and makes working-class men feel better about themselves. It's a threefer, the kind of big idea Obama likes. He leaves the meeting energized. "Good meeting," he tells the guys. "Real good.

Of course, there was no big infrastructure campaign, although Obama has made a pitch for an infrastructure bank in the last year, when he'd already lost control of the economic and political narrative. I could shrug off Obama's "guyism" in that conversation about "women's work," if only he'd had the courage to follow through and push a program that would create jobs, fix what needs fixing and shore up male employment. Instead, we have unconscionably high unemployment, plus a window into the president's retro view of "men's" and "women's work."

That meeting is important for another reason. Princeton economist Alan Krueger gave a seminar on all the trends taking down the economy. He presented a graphic slide: "Growing Together (1947-1973) vs. Growing Apart (1973-2005)." I've seen the slide: It starkly depicts the American dream years, when real family income grew 3 percent a year and the big increases went to those at the bottom. After 1973, we move into the American bust years. Growth for most people slowed or declined -- except for the top 5 percent. Candidate Obama professed to understand and want to tackle that crisis head-on, with tax hikes for the wealthy, tough new reforms for Wall Street, an infrastructure crusade for unemployed and underemployed men (and, I trust, women), but he didn't do any of that. He didn't even push for it very hard.

Maybe more vexing, candidate Obama had smart early advisors who saw what was coming on Wall Street and warned him: about the derivatives disasters; the "repo books" where companies borrowed and loaned one another cash without examining the shoddy collateral put up to secure loans, which increasingly companies couldn't pay back; about the extent to which big firms like Goldman Sachs made money betting against their clients and the entire economy. You can argue that Obama became president because he spoke knowledgeably and reassuringly about the Lehman Brothers bankruptcy apocalypse in September 2008, while John McCain was still insisting "the fundamentals of our economy are strong." With his head start, Obama should have been wiser about how to get on top of the Wall Street disaster, and his early speeches were. It's also possible the intimacy that led his Wall Street friends to give him a heads up on the coming crisis also prevented him from breaking up their racket.

- - - - - - - - - -

Suskind frequently stops mid-narrative to grapple with the central question of his book: Was the problem mainly with Obama's staff, which can be corrected by a staff shakeup, and with the president's early inexperienced leadership, which can be ameliorated by experience? Or is there something missing in Obama himself, in his vision and values, that led to the lack of bold action to solve the nation's biggest problems? He points to a defining moment in Obama's candidacy, when he's making his final decision about whether to run for president with his closest advisors, and Michelle says:

"You need to ask yourself why you want to do this. What are you hoping to uniquely accomplish, Barack?"

Obama answers:

"The world will see us differently. Millions of kids across this country will see themselves differently."

Clearly, that was a worthy goal; electing our first black president would change -- did change -- America. But his answer didn't reveal what he would accomplish after he was elected president. Obama's appeal and his motivation were wrapped up in his story; but his story isn't a platform, an ideology or a set of policy prescriptions.

If we take Obama's answer a step beyond where Suskind leaves it, if we examine Obama's story, and look at the "American exceptionalism" that made his presidency possible, I think it also explains his worldview, and his priorities: Obama believes he is the creation of a fundamentally sound American meritocracy, which is often but not always distorted by race; where a kid whose father came from Kenya and whose mother came from Kansas, mostly raised by his grandparents in Hawaii, could get the opportunity, despite his race and his funny name, to rise and just keep rising -- Punahou Prep, Columbia University, Harvard Law School. Is this a great country, or what? It helps explain how an administration made up of Ivy League standouts, "the best and the brightest," to use David Halberstam's chilling phrase about JFK's team, updated for the 21st century, could wind up in an economic quagmire to rival the one Kennedy's men created in Vietnam.

On the question of whether the problem is with Obama's political values and priorities, or just his lack of leadership experience, Suskind doesn't seem sure himself. He closes the book with a picture of a president who's been "educated" on the ways of the White House, a picture that reassures Suskind a little. Obama cleans house after the midterm debacle, getting rid of most of his top staff, and he executes a big deal with Mitch McConnell and John Boehner to extend the Bush tax cuts, in exchange for extending unemployment insurance and a payroll tax cut, which would provide a stimulus of almost $500 billion over the next year. Suskind questions the content of the deal, but there's no doubt he sees a glimmer of hope for the young president in his bold deal-making: Finally, he wasn't paralyzed by the indecision of his staff or the carping of congressional Democrats. Indeed, Obama's approval ratings rise, briefly.

Obama explains his rationale to Suskind this way:

"What I think I was able to recognize was that, at this juncture, the country will feel better about itself and that will have important ramifications. If they see Democrats and Republicans agreeing on anything ... Because right now they are just exhausted with the partisan wars that are taking place."

Of course, that's the kind of values-neutral, content-free maneuver the president specializes in, and it doesn't offer a vision for how the country can and must change, to get out from under the debt machine and to begin to create an economy that works for everyone. It's the very attitude that led to the worst paralysis of his presidency, the debt-ceiling debacle, when Republicans held the economy hostage and Obama indulged them, for a while, hoping to reach a grand bargain that would again, he sadly believed, make the country "feel better about itself," because Washington worked, and Republicans and Democrats agreed. Even if they agreed on moves that would damage the country.

But it's possible, since the book was completed, that Obama himself learned from that disaster: The country won't feel better about itself if the president surrenders and makes bad deals; it will feel better when conditions are better, and that's going to require Obama to stand up and fight. He may finally have learned, as he's watched his approval rating decline in the nine grim months since the tax-cut deal, that the country wants results. It wants its leader to lead. That's the Obama we've had a glimpse of in the last week, as Suskind's book laid out his early mistakes. Let's hope this guy sticks around.

Jobs Act's Pre-Emptive Concessions Show More Pressure Needed Within and Outside Washington

by: Amy Dean, Truthout | News Analysis

 Thursday 22 September 2011


President Obama's speech about jobs last week was a step forward. But we need to do better. We need to do better on policy, and better on politics.

Here's what that means:

On policy, Obama's jobs proposal is a lot like his administration's health care reform.

If passed, the act would provide some measure of relief for Americans who desperately need it. The fact that it extends unemployment insurance and could create as many as 1.9 million jobs in 2012, according to Mark Zandi at Moody's Analytics, is something that we should not take lightly, even if we think that the plan does not go far enough. The president was right when he noted that too many people "are living week to week, paycheck to paycheck, even day to day.

They need help and they need it now." Just as the health care bill was certainly imperfect, but nevertheless allowed tens of thousands who were previously excluded to gain health care coverage, the administration's jobs act does offer some short-term relief.

Unfortunately, its gains will hardly be enough to offset the damage done to the pubic sector in recent years. With hiring in the private sector barely limping forward, the government is an absolutely critical employer. Yet, the administration has been complicit in accepting a framework of austerity and agreeing to cut back essential public services. Doing better on jobs will require a robust defense of government and President Obama has yet to provide this.

In terms of the private sector, we must recognize that providing tax incentives for businesses will not be enough. We've known for decades that creating favorable terms for business to invest does not translate into job creation in the absence of policy mechanisms that require it. Unless we explicitly mandate that businesses produce new jobs - and good jobs - as a condition of receiving public support, the record shows that they will not create the employment we need. This is not the time to hand out public money with no accountability. Tax breaks and other incentives should be tied to measurable job creation, because without real accountability, the relief offered by the job act will be all too fleeting.

Even more than policy, we need to do better in terms of politics. And this is where the Obama administration's proposal really fails.

It fails because it does not contain enough of substance to excite the Democratic base, yet it will still be ardently opposed by the Republicans. Given the extraordinarily obstructionist track record of the conservatives in Congress, we can expect them to fight anything that Democrats put on the table. Therefore, overtures designed to bring them in are pointless.

Putting forward a bold, progressive program at least allows us to set the framework for debate. It forces them to debate on our terms and makes them have to explain to the American people why they are opposing policies that would be substantive solutions to our economic problems. In contrast, proposals filled with pre-emptive concessions do little to reframe the debate and they do nothing to compel the electoral coalition that put Obama in office to feel energized and invested in supporting the White House jobs drive.

Moving forward, however, not everything is up to the White House. Progressives are right to be dissatisfied, yet we, too, must do better on politics. We have to be prepared to build a movement - not just have an internal debate in Washington about what's good or bad about the president's actions. This means relearning how to do the inside-outside dance with an elected leader. Electing better insiders, while also turning up the heat from the outside, requires doing more than lambasting the president for his failures. We must create the political space and the political will among lawmakers to push better solutions.

The need for us to create outside pressure is not unique to Obama and it is not a function of our judgment about his moral compass or political aptitude. It is always a crucial part of the equation for creating political change in America. Unless politicians feel legitimate pressure to do otherwise, they will always engage in a lowest-common-denominator game of legislative policy making, with self-preservation as its center of gravity. Our job is to compel them to pursue solutions more ambitious than they would be inclined to take up otherwise.

As we work to advance real job-creation measures, we must make the stakes of this debate clear. The Democrats have yet to hold the Republicans accountable for what they are really doing: If they are not putting forward policies which allow those who work hard and play by the rules to be rewarded, conservatives are tearing at the civic fabric of our nation. They are destroying any sense of enfranchisement that Americans have in this country.

Progressives Unveil Their Plan To Save The Middle Class

 

The Congressional Progressive Caucus has unveiled their framework for jobs, which augments and expands upon the President's American Jobs Act. 


The CPC's Rebuild The American Dream Framework has six parts to it. Specific policy proposals will be forthcoming, but here is the high level overview:

• Make it in America Again - focus on bolstering U.S. manufacturing
• Rebuild America - focus on infrastructure as a larger part of the jobs policy than the White House proposal
• Lead the Green Industrial Revolution - blending the first two elements into a focus on green industries and products
• Jobs for the Next Generation - Job training and education for young people
• Not Just Jobs – Good Jobs - Reinforcing Americans' right and access to collective bargaining, promoting jobs that provide wages, benefits and security that will preserve the middle class
• Fair Taxes – Shared Sacrifice - Pay for the program by taxing the wealthy in this country

At a time when poverty in this country has risen to one in six Americans, where joblessness among young people is at its highest level since the Great Depression, and jobs are the single biggest issue on the table, this framework is most welcome. It's the product of discussions caucus members had during the summer as they toured the country and spoke to people about what most concerned them.

While there are no specifics yet, there are some cues to be taken from progressives' budget proposal released earlier this year, which proposed a 45 percent tax rate on the wealthiest earners in this country, ending the wars, and preserving the social safety net for generations to come.

It's important to recognize that progressives are not trying to compete with the American Jobs Act, but instead have offered proposals which dovetail and augment his. I interpret that message as one of support not just for his plan, but for a larger vision of what can be done with the support of the American people.

Why the Unemployment Crisis Is Even Worse Than You Think

Here are 11 unemployment facts that mass media underreport or ignore completely. 

By Michael Thornton, AlterNet
Posted on September 14, 2011

President Obama recently addressed the nation during a joint session of Congress and the main theme of that address was the need to create jobs, lots of jobs, millions of jobs. The Great Recession has cost US workers millions of jobs and those jobs have not come back as quickly as they disappeared and in many cases those jobs will never return. According to the Economic Policy Institute, “In total, there are 6.9 million fewer jobs today than there were in December 2007.”

That is only a small part of the jobs-hole story, a story that is often ignored, overlooked and oversimplified by mass media.

The media has failed to present the unemployment problem, with all its associated economically devastating consequences, in the manner it deserves. It’s possible that unemployment facts and figures don’t translate well for advertisers, or they are too cumbersome to present in a two-minute segment. Whatever the reason, the mass media seem to avoid unemployment details as they would avoid describing and filming fresh road kill during a dinnertime newscast. While some excellent blogs clearly explain unemployment data, such as Mish’s Economic Trend Analysis, Calculated Risk and Economic Populist, mass media sites are absent.

The (U-3) unemployment rate remained at 9.1% (U-6 is 16.2%) for August. Unemployment to the mass media generally centers on that single point within the Bureau of Labor Statistics (BLS) monthly employment report. There is passing mention of discouraged workers and the underemployed, but the true scale of the jobs crisis is given scant attention considering the magnitude of the problem.

What follows are 11 unemployment details that mass media underreports or ignores completely. This list will not be recalled fondly as a top-10 list of best quarterbacks or favorite vacation retreats would, but it’s where the REAL unemployment crisis is exposed.

1. The jobs deficit: That is the total number of jobs lost PLUS jobs that should have been created since the recession began in December 2007; as mentioned above, there are 6.9 million fewer jobs today than at the start of the Great Recession, but that tells only half the tale of the jobs deficit. There is also the matter of creating jobs to keep up with the increase in workforce population. Those new workers include high school and college graduates, and immigrants. The number of jobs that need to be created each month to accommodate new entrants into the workforce ranges from 120,000 - 150,000. Adding together the jobs lost since the recession and the new jobs needed for population growth, the total jobs deficit is estimated to be 11.3 million. A few tax breaks, some targeted workforce retraining and some regulatory relief for businesses are not going to be the forces behind the creation of more than 11 million jobs. A massive effort is required to fill that gaping jobs hole.

2. Filling the jobs deficit: According to EPI: “To fill that gap in three years – by mid-2014—while still keeping up with the growth in the working-age population—would require adding around 400,000 jobs every single month. To fill the gap in five years—by mid-2016—would mean adding 280,000 jobs each month. By comparison, over the last three months, the economy added just 35,000 jobs, on average.”

It’s striking that the economy has created only 105,000 jobs during the past three months. When considering only the new entrants to the workforce, such as recent college graduates, that three-month span produced a shortage of 270,000 or more jobs.  

3. The Birth/Death Model: This is not births and deaths of people, but of businesses. The BLS estimates how many jobs were created or lost by business formations or closings.  In August, the BLS estimated that 87,000 jobs were created by new businesses.

This is an often discussed employment barometer at many economy centered blogs, but mass media pays it meager attention. Why is that so? It’s a complicated model that can make the head spin of even the most astute employment expert. But there appears to be agreement that the model has a tendency to misread the economic cycle, as Calculated Risk points out, “A few years ago several people -- myself included -- pointed out that the birth/death model would miss turning points in employment. I thought the model would overstate the number of jobs added as the economy slid into recession (and understate the number of jobs lost monthly during a recession). Sure enough that is what the annual benchmark revision showed during the employment recession.”  

To illustrate just how wide this model can be off the jobs mark, Bloomberg shows that 824,000 jobs “disappeared” after a birth/death model adjustment in February 2010.  That adjustment is important because if it was known that job creation was weaker by 824,000 jobs during 2009, additional job creation efforts could have been considered. At present job creation is stagnant and we won’t know what role the birth/death model has on today’s job numbers until 2012. But if history is any guide, job creation may again be overstated.  

4. JOLTS (Job Openings Labor Turnover Survey): This monthly BLS report gives an indication of the number of available jobs. On the occasion that it is mentioned by the media, it offers only a sliver of the issue, such as the number of unemployed per job opening, which stands currently at 4.3.

From the BLS, “The number of job openings in July was 3.2 million, little changed from June.  Although the number of job openings remained below the 4.4 million openings when the recession began in December 2007, the level in July was 1.1 million openings higher than in July 2009 (the most recent trough). “  

What is missing from that JOLTS report? Plenty. First, the 4.3 unemployed per job opening is limited to the 14 million U3 unemployed (the 9.1%). But those aren’t the only unemployed wanting a full-time job. There are the 2.6 million marginally attached workers, 8.8 million underemployed (those who want full-time work, but are working part-time). I’m not going to include the 3.9 million non-unemployed unemployed (explained later).  When those 11.4 million workers are included with the 14 million U3 unemployed, there are 25.4 million unemployed workers and 3.2 million available jobs, or 8 unemployed or underemployed workers per 1 job opening.  

The second issue with JOLTS is that it doesn’t distinguish whether the available jobs are full-time or part-time. According to a BLS representative “Part-time jobs are included in our job openings counts; however, we do not distinguish between full and part-time positions. We only ask if the position exists, not which type of position it is.”  

It’s important to know how many job openings are part-time, since part-time jobs usually pay less and offer fewer, if any, benefits. Extrapolating from the BLS “Employed persons by class of worker and part-time status” data, there are 139,627,000 employed workers, of which 27,034,000 are part-timers. More than 19% of all workers work part-time. If nearly 20% of all available job openings are part-time, there are only 2.56 million full-time jobs for 25.4 million unemployed and underemployed who want full-time work, or 10 workers for each available full-time position; more than double the 4.3 workers per job opening touted by most media outlets.  

5. The participation rate: Is, according to the BLS, “The labor force as a percent of the civilian noninstitutional population.” Or, more simply, the percentage of the working-age population that is working or is actively looking for a job. The participation rate rose 0.1 percent in August to 64%, which is slightly above the 27-year low recorded in July of 63.9%.

If more jobs were available would there be more participation? More than likely that would be the case. The mass media very seldom mentions this point, but the participation rate shows the potential number of people waiting on the sidelines for the job market to improve before they jump back in.  

A couple of striking graphs of the historical participation rate can be seen at ZeroHedge  and BLS.  

6. Marginally attached workers:  From the BLS, “These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.” I know, it’s not an easily digested description, but it’s a population of unemployed that want to work, but for various reasons have not looked for work recently.  Currently 2.6 million workers are considered marginally attached. If they are included in the unemployment rate, that rate increases from 9.1% to 10.6%.

7. The underemployed: Who are the underemployed? “The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers). These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job,” states the BLS.

The August employment report indicated that underemployment increased from July by 400,000 to 8.8 million. Part-time jobs range in hours from one to 34, any job of more than 34 hours is considered full-time work. That might not be the case in the real world where a full-time job is considered 40 hours, but that is the case according to the BLS.  

While some believe that part-time jobs eventually translate into full-time jobs, that hasn’t been the case during this recession, as the linked graph from Calculated Risk illustrates. From 2000 to 2008, the number of underemployed ranged between 3 and 4 million. There are currently 4 million more unemployed than at the start of the recession. Businesses would need to see a dramatic uptick in business to place 4 million more part-timers into full-time slots.  

The “real” unemployment rate increases to 16.2% when the underemployed and marginally attached workers are considered.  

8. The not-unemployed unemployed: Yes, there is a point at which the BLS stops considering an unemployed person unemployed. That point is reached when an unemployed person has not look for a job in the previous 12 months. When asked, the BLS replied, “The 3.9 million individuals not in the labor force that you are referring to responded that they wanted a job, but had not looked for a job in the last 12 months. They are not considered unemployed because they had not actively searched for work in the four weeks preceding the survey.” I recall no mention of these 3.9 million from any mass media outlet.

This 3.9 million are the most discouraged of discouraged workers, but if the jobs market was improving, these millions would start to become part of the unemployed once more. If these 3.9 million were added to the “real” unemployment rate (U6) the rate would increase from 16.2% to 19%. (Which is higher than all but 2 years of the Great Depression's high unemployment rates--jef)

Nearly one in five American workers is either unemployed or underemployed. Why isn’t that disturbing fact in the media spotlight every day?  

9. The long-term unemployed: These 6.0 million are the jobless who have been looking for work for 6 months or more (this does not include the not-unemployed unemployed). Long-term unemployment receives occasional mass media recognition, but it scratches only the surface. There are subsets of the long-term unemployed that show the depth of the problem more clearly. The 6.0 million long-term unemployed represent 43.1 percent of all unemployed. Of that 6 million, 4.458 million have been jobless for 52 or more weeks and within that group 2.040 million, a record high, have been unemployed for 99 weeks or more (not to be confused with the “99ers” explained below). Even more startling than those numbers is the lack of response by lawmakers. 

10. 99ers: These long-term unemployed have exhausted all unemployment benefits (not all unemployed collect unemployment benefits). The name “99ers” comes from the fact that some collected benefits for up to 99 weeks. It’s a misnomer in the sense that only about 25 states are eligible for the 99 week maximum; many unemployed exhausted benefits in as little as 60 weeks.

Official statistics are not kept for this unemployed population. When Mish Shedlock of Global Economics Trend Analysis was asked about the 99ers population, he contacted Tim Wallace. Wallace has been digging into long-term unemployment data to try and weed out the number of unemployed who have exhausted all unemployment benefits. His most recent efforts show that, “we can safely assume that 3,058,152 people have exhausted all benefits -- they are no longer covered on either sets of (unemployment) rolls.” But it doesn’t end there, using some additional Department of Labor data Wallace pries out another 2.0 million 99ers, for a combined 5.1 million.  

Other 99ers estimates range from 1.5 to 5.0 million, but as the linked graph at Here come the '99ers at Calculated Risk illustrates; the number of unemployed that are exhausting unemployment benefits is rapidly increasing.  

While there may be disagreement about the total population of 99ers, Wallace concludes, “There is absolutely NO EXCUSE for this to not be a readily accessible piece of data daily. After all, Walmart can tell you how many strawberry Pop Tarts they sold yesterday.” There is also no excuse for the mass media ignoring this vast unemployed population and not taking agencies to task for not reporting accurate 99ers data.

Millions of additional unemployed will become 99ers immediately unless extended unemployment benefits are renewed in December. A worker laid off today will be eligible for only 26 weeks of state benefits unless an extension is approved by a much divided Congress.  

How can an economy function when so many are out of work and have exhausted unemployment benefits?

(To view Wallace’s report, go to, How Many Unemployed Have Exhausted All Benefits?)

11. How many unemployed collect unemployment benefits? It may seem reasonable to assume that all 14 million unemployed collect unemployment insurance benefits, but that is not the case. In September 7.17 million unemployed collected benefits, which is only 51%  of all unemployed (U3, the 9.1%).

Surprisingly, on average just one third of all unemployed are eligible for unemployment benefits at the state level (2011 data). As an example, temporary staff, self-employed and recent high school and college graduates may be out of work, but not eligible for benefits. Eligibility rates range from 57 percent in AK and PA to TX at 21 percent. Each state can set its own guidelines regarding eligibility requirements. When someone tells you they are unemployed, it’s more than likely they are not collecting unemployment benefits.  

Many pundits and some GOP lawmakers excoriate all unemployed for being lazy and enjoying life on the dole. Sen. Jim DeMint (R-SC)recently said, "People are gaming the system and refusing to take jobs because they get unemployment benefits and food stamps." That naïve and cruel assessment disparages all unemployed, but it’s particularly insulting to the majority of unemployed who aren’t eligible to collect or have exhausted unemployment benefits. If Sen. DeMint and his ilk want to see where the system is being gamed, he may want to look at Wall Street instead of Main Street.

What message can be taken from this list of realistic and discomforting unemployment figures? The bottom line is that unemployment is much worse than the 9.1 percent unemployment figure pushed by the media and many lawmakers; in fact it’s considerably worse.

Mass media’s inability to communicate the depth of the jobs crisis is one reason the response to it has been primarily weak and ineffectual. If the media mutes the crisis, lawmakers and corporations will continue to act slowly and impotently, forcing millions of American families to suffer needlessly.

Unemployment and jobs creation are national emergencies demanding focused attention with a wide-ranging and rapid response. This American jobs disaster will not vanish if neglected, but what will vanish are the hopes, dreams and financial well-being of millions of hard-working Americans.

++++++++ 

THE ECONOMY NEEDS 11.2 MILLION JOBS TO REGAIN ITS PRE-RECESSION LEVEL OF UNEMPLOYMENT.

• In August 2011, the economy added zero (0) jobs. 

• 17,000 private-sector jobs were created in August 2011; 17,000 public-sector jobs were lost that month. 

• In August 2011, 366,000 workers entered the labor force. 

• In August 2011, there were 2.5 million workers who wanted a job, were available to work, but had given up actively seeking work and so were not counted as offi cially unemployed. 

• In total, there are 6.9 million fewer jobs today than there were in December 2007. 

• In June 2011, there was only one job opening for every 4.5 unemployed workers in the economy.

THE UNEMPLOYMENT RATE IN AUGUST 2011 WAS 9.1%.

• There were 14.0 million unemployed workers in August 2011, 6.3 million more than in December 2007. 

• 42.9% of these unemployed persons have been without a job for more than 6 months. 

• Males had an unemployment rate of 9.6%, females 8.5%. 

• Whites had an unemployment rate of 8.0%, blacks 16.7%, and Hispanics 11.3%. 

• The underemployment rate (i.e., those who are unemployed, marginally attached, or working part time involuntarily) was 16.2% in August 2011. 

• There were 25.3 million workers who were either unemployed or underemployed in August 2011. 

• In July 2011, seasonally adjusted underemployment was 25.3% for blacks, 13.2% for whites, and 22.0% for Hispanics.*

IN AUGUST 2011, THERE WERE 11 STATES WITH DOUBLE-DIGIT UNEMPLOYMENT RATES.

• The state with the highest unemployment rate was Nevada, at 12.9%; the state with the lowest unemployment rate was North Dakota, at 3.3%. 

• In August 2011, there were 15,000 jobs lost in state and local government; over the last two years, a total of 537,000 state and local jobs have been lost.

THE UNEMPLOYMENT RATE FOR ALL 16-24 YEAR OLDS WAS 17.7% IN AUGUST 2011.

• The unemployment rate for those 16-24 year olds with a high school diploma (but not currently enrolled in school) was 21.2% in August. 

• The unemployment rate for those 16-24 year olds with a bachelor’s degree (but not currently enrolled in school) was 11.2% in August. 

• The unemployment rate for all 16-19 year olds was 25.4% in August; for 16-19 year old blacks it was 46.5%, and for Hispanics it was 37.4%.

SO FAR IN 2011, ANNUALIZED INFLATION-ADJUSTED WAGE GROWTH IN THE PRIVATE SECTOR HAS BEEN -1.6%.

• Annualized inflation-adjusted growth from 2000 to 2010 for people with a high school diploma was only 0.1%. 

• Annualized infl ation-adjusted wage growth from 2000 to 2010 for people with a bachelor’s degree was 0.3%. 

• Annualized productivity growth from 2000 to 2010 in the nonfarm business sector was 2.5%.

IN THE SECOND QUARTER OF 2011, THE ANNUALIZED, INFLATION-ADJUSTED GROWTH RATE OF GROSS DOMESTIC PRODUCT WAS 1.0%.

• The average infl ation-adjusted rate of GDP growth for the fi rst two quarters of 2011 was 0.7%. 

• Consumer spending grew at a 0.4% rate in the second quarter of 2011. 

• The economy, measured in terms of infl ation-adjusted GDP, is currently 0.5% smaller than it was before the recession began in the fourth quarter of 2007.

* This seasonally adjusted underemployment data is calculated by EPI; the most recent data available is from June.

About That Payroll Tax Cut...

Talk about a Ponzi Scheme!

by GWENDOLYN MINK

 

 

Is President Obama trying to kill Social Security without explicitly saying so?

He put Social Security “on the table” for consideration by his Deficit Commission — even though Social Security has not contributed to creating or sustaining the deficit/debt in the first place.  He kept Social Security on the table when he made a deal to delegate deficit reduction authority over entitlements to an undemocratic Super Committee.  Now, in a speech reportedly about jobs, he proposed to extend and increase the ill-considered FICA tax cut he embraced last December — a tax cut that directly undermines the financial integrity of Social Security.

According to the White House Fact Sheet on “The American Jobs Act”  the FICA tax holiday for workers will be increased to a 50% reduction, lowering it to 3.1%.  Under the 2010 tax deal, the payroll tax for workers was reduced from 6.2% to 4.2%.  Inaddition to expanding the tax cut for workers, the President proposes to extend the FICA tax holiday to employers by cutting in half the employer’s share of the payroll tax through the first $5 million in payroll.

Big questions about the wisdom, efficacy, and implications of a tax-based jobs strategy need to be debated.  Even bigger questions about the consequences of the payroll tax holiday in particular need to be answered.  These questions are not just about the relationship between payroll tax cuts and job growth.  They are about the future of Social Security.

The FICA/payroll tax goes into the Social Security Trust Fund.  This is a dedicated fund currently worth $2.6 trillion, which has been built up over time through employee and employer contributions, along with accrued interest.  Current and future Social Security beneficiaries receive benefits from this fund.  No general revenues are involved, except for administrative and clerical costs.

Under the payroll tax cut initiated in the 2010 lame duck tax deal, the revenue loss to the Trust Fund from the payroll tax holiday is made up through compensatory payments into the Trust Fund from general revenues. The President proposes to continue this scheme — deepening a relationship between Social Security and general revenues (read deficit) that did not exist until the December 2010 tax deal.  This will make Social Security increasingly vulnerable to demands for “reform.”

In the worst case, Congress could choose to enact the payroll tax cut without actually appropriating revenue compensation for the Trust Fund.  This would mean that the payroll tax cut directly depletes the Trust Fund, creating financial/actuarial problems far sooner than the currently anticipated shortfall date of 2036.

But even if the Trust Fund receives full revenue compensation — for both employer and employee contributions — Social Security will be jeopardized.  That’s because the resources in the Trust Fund will be increasingly comingled with general revenue funds — and, hence, increasingly connected to the deficit.

If the government can’t  pay back Social Security money it has borrowed to pay for other things (through IOUs, bonds, etc), it certainly won’t be shy about cutting Social Security to pay itself back for funds it shared with Social Security to offset revenue losses from the payroll tax holiday.

Also worth worrying about here is contagious political cowardice about “raising taxes.”  The payroll tax holiday is framed as just that — a holiday, ie, a short-lived break. But as we know from other tax cuts with built-in expiration dates, the planned end of a tax cut quickly becomes a “tax increase” in popular parlance.  There hasn’t been much resolve to allow the years-long tax holiday for the rich to end.  When the time comes, will there be greater resolve to allow an end to the 2-year tax holiday for workers and 1-year tax holiday for employers?  Even when billed as a “middle class tax increase” and a “job-killing tax on business”?

Once the payroll tax basis of Social Security financing has been corrupted the future of Social Security will no longer be in doubt.  It won’t have one.