Vanishing workforce diminishes growth

Put out an all-points bulletin: Millions of Americans have gone missing from the workforce.
By Jim Tankersley, Published: April 6

Every month that those would-be workers are gone raises the odds that they might never come back, dimming the prospects for future economic growth.

The vanishing trend is more than a decade old, but it accelerated during the Great Recession. Throughout 2012, economists held out hope that it had stopped. But then came Friday’s jobs report, and hopes were dashed.

The Labor Department reported that the U.S. labor force — everyone who has a job or is looking for one — shrank by 500,000 people in March. That brought the civilian labor force participation rate to 63.3 percent in March, its lowest level since May 1979. And it left the workforce several million members smaller than the Congressional Budget Office estimates that it should be, given the nation’s demographics.

Perplexingly, the driving force behind the decline does not appear to be baby boomers beginning to retire, an event economists have long predicted would shrink the size of the workforce. It’s people in the prime of their working years, ages 25 to 54, who began tumbling out of the job market in the early 2000s and have continued to disappear during the (supposed) recovery.

That’s obviously bad for those people, who aren’t earning money in any way that would legally require them to pay taxes. It’s also bad for the economy for a simple reason: The fewer workers, the less growth produced.

A smaller workforce reduces what economists call potential gross domestic product, or how much the economy can be expected to expand over the long term. The decade of declining U.S. workforce participation has taken a toll on that potential growth level, many forecasters say. For example, Michelle Meyer, a senior U.S. economist at Bank of America Merrill Lynch, said her real potential growth projections have fallen from 3.25 percent a year in the mid-2000s to 2.25 percent today — all because of the change in participation levels.

So, where did everybody go? And if hiring picks up, will they come back?

Economists have ideas but not all the answers.

“Prime-aged people are working less, and we don’t know why,” said Betsey Stevenson, a labor economist and associate professor at the University of Michigan. “I get concerned because there are a lot of people who have useful and productive skills that could really contribute to the economy, and we’re just failing to find ways to get them involved.”

The easiest explanation for vanishing prime-aged workers is the weak job market: The economy just isn’t creating enough new jobs to keep job-seekers engaged, so many of them are getting frustrated and abandoning their search for work.

In order to pull people back into the workforce, said Heidi Shierholz, a labor market economist at the liberal Economic Policy Institute, “it’s going to take seriously improving job opportunities, and that hasn’t happened yet.”

Some researchers are making headway in explaining where people go when they leave the workforce. The conservative Heritage Foundation did a study last year that found that most of the people who left between 2007 and 2011 ended up in one of two places: They went to school, or they went on disability (bullshit!). The researchers expect the students to eventually return, but not the workers on disability, said James Sherk, Heritage’s senior policy analyst in labor economics.

Still, some aspects of the vanishing trend remain a mystery. Economists are struggling to explain why a large number of prime-aged African American men aren’t working. After decades of entering the workforce in greater numbers, women reached a saturation point in the past decade, and their participation has declined since then. No one is sure why.

A paper presented at the Brookings Institution last year by Robert Moffitt, a Johns Hopkins University economist, found declining participation to be “disproportionately concentrated among the less educated and younger groups within the male and the female populations and, for women, especially among unmarried women without children.” But the overall decline for women, he wrote, is “more difficult to explain” than that of men.

The hope among many economists is that faster growth and stronger job creation will begin to pull people back into the workforce. In that sense, workforce dropouts would be like an idled army, ready to form up again when the cause demands it. That would be good news for the economy: “We don’t think all of these workers are permanently lost,” said Meyer, the Bank of America economist.

Other economists are not so sure. The fear is that the longer people are out of work, the more their skills will erode. Their social networks will atrophy. Gaps in their résumés will scare off potential employers. They would become essentially unemployable.

Evidence is scant that this scenario has set in. But Friday’s numbers reignited concerns. “The idea that labor force participation is structurally or institutionally impaired gains increasing credence with each passing jobs report,” JPMorgan economists wrote in a research note Friday.

The longer the trend goes, the better the odds that’s true.

Like the song says, "Those jobs are goin', boys, and they ain't comin' back..."

The Deficit Hawk Industry

In a weak economy, there are more important issues for us to spend money on than the deficit.--jef

 

Fear Mongering the Federal Debt

by DEAN BAKER

 

The gang for gutting Social Security and Medicare (aka “The Campaign to Fix the Debt”) are running in high gear. During the long election campaign they gathered dollars, corporate CEOs and washed up politicians for a full-fledged push in the final months of the year. They are hoping that the hype around the budget standoff (aka “fiscal cliff”) can be used for a grand bargain that eviscerates the country’s two most important social programs, Social Security and Medicare.

They made a point of keeping this plan out of election year politics because they know it is a huge loser with the electorate. People across the political and ideological spectrums strongly support these programs and are opposed to cuts. Politicians who advocated cuts would have been likely losers on Election Day. But now that the voters are out of the way, the Wall Street gang and the CEOs see their opportunity.

It is especially important that they act now, because one of the pillars of their deficit horror story could be collapsing. Due to a sharp slowing in the rise of health care costs over the last four years, the assumption that exploding health care costs would lead to unfathomable deficits may no longer be plausible even to people in high level policy positions.

As we all know, the large budget deficits of the last four years are entirely due to the economic downturn caused by the collapse of the housing bubble. The budget deficit was slightly over 1.0 percent of GDP in 2007 and the Congressional Budget Office (CBO) projections showed it remaining low for the near-term future. The origin of the large deficits of the last few years is not a debatable point among serious people, even though talk of “trillion dollar deficits, with a ‘t’” is very good for scaring the children.

However, the big stick for the deficit hawks was their story of huge deficits in the longer term. They attributed these to the rising cost of “entitlements,” which are known to the rest of us as Social Security, Medicare, and Medicaid.

While they like to push the notion that the aging of the population threatened to impose an unbearable burden on future generations, the reality is that most of the horror story of huge deficits was driven by projections of exploding private sector health care costs. Since Medicare and Medicaid mostly pay for private sector health care, an explosion in private sector health care costs would eventually make these programs unaffordable.

As some of us have long pointed out, there are serious grounds for questioning the plausibility of projections that the health care sector would rise to 30 or 40 percent of GDP over the rest of the century. Recently a paper from the Federal Reserve Board documented this argument in considerable detail.

Even more important than the professional argument over health care cost projections is the recent trend in health care costs. While the CBO projections assume that age-adjusted health care costs rise considerably more rapidly than per capita income, in the last four years they have been roughly keeping pace with per capita income.

In fact, in the last year nominal spending on health care services, the sector that comprises almost two-thirds of health care costs, rose by just 1.7 percent. This is far below the rate of nominal GDP growth over this period, which was more than 4.0 percent. While at least some of this slowing in health care costs is undoubtedly due to the downturn, it is hard to believe that it is not at least partially attributable to a slower underlying rate of health care cost growth.

CBO and other budget forecasters can ignore economic reality for a period of time (they ignored the housing bubble until after its collapse wrecked the economy), but if it continues, at some point they will have to incorporate the trend of slower health care cost growth into their projections. When this happens, the really scary long-term deficit numbers will disappear.

A projection that assumes that health care costs will only rise as a result of the aging of the population, and otherwise move in step with per capita income, will lop tens of trillions of dollars off the most commonly cited long-term deficit projections. It would cost some deficit hawks, like National Public Radio, more than $100 trillion of their long-term deficit story. This would be a real disaster for the deficit hawk industry.

This is why the Campaign to Fix the Debt and the rest of the deficit hawk industry will be operating at full speed at least until a budget deal is reached over the current impasse. If CBO adjusts its long-term health care cost projections downward then their whole rationale for gutting Social Security and Medicare will disappear. Now that is really a crisis.

The Real Agenda Behind Paul Ryan’s Deficit-Slashing Mania

Tax Cuts for Corporations and the Super-Rich; Budget Cuts for Medicare and Medicaid

by DEAN BAKER

If you want to see House Budget Committee Chairman Paul Ryan sanctimoniously excuse himself and his friends for missing the most predictable economic crisis in the history of the world, you now have the opportunity: In a YouTube video produced by his staff, Ryan tells viewers that the crisis called by the collapse of the housing bubble caught “us” by surprise.

Well, it didn’t actually catch us by surprise. Some of us had been warning about the potential damage caused by the collapse of the bubble since 2002. We repeatedly tried to warn of the dangers of the housing bubble in whatever forum we had.

It was easy to see that the housing market was hugely over-valued and that at some point it would collapse, just as the stock bubble had collapsed in 2000-2002. It was also easy to see that its collapse would have a devastating impact on the economy.
The bubble was driving the economy both directly by propelling a construction boom and indirectly through the impact of housing bubble wealth on consumption. When the bubble burst, there would be nothing to replace this bubble driven-demand. It would be necessary to run the sort of large government budget deficits that we have seen the last four years in order to sustain the economy and keep unemployment rate out of the double digits.

All of this was 100 percent predictable and predicted. However Representative Ryan wants to give himself the blanket “who could have known” amnesty because he and his Wall Street friends chose to ignore the people who were giving the warnings.

Ryan should apply a variation on the sanctimonious lines in his video to himself:

“Imagine being warned about an economic crisis that would throw more than 10 million people out or work and cause millions to lose their home and doing nothing. Imagine that our politicians in Congress and the White House chose to do nothing while there was still time because it would have been bad politics to upset the Wall Street banks who were making so much money. They instead chose to ignore the warnings. That is immoral.”

While some of us were putting in overtime and missing sleep to try to warn about the dangers of the housing bubble, Representative Ryan and his cronies were whining about a budget deficit that was almost non-existent. The budget deficits that the government was running in the years just before the collapse of the housing bubble were less than 2.0 percent of GDP. The debt-to-GDP ratio was actually falling. We could have run deficits of this magnitude forever.

After contributing through his negligence to the worst economic crisis since the Great Depression, Representative Ryan has the gall to imply that the people who don’t like his plan are immoral. While we don’t yet know the specifics of his new plan this year, we do know what he put on the table last year.

According to projections from the Congressional Budget Office, that plan would have raised the cost to the country of buying Medicare-equivalent insurance policies by $34 trillion over Medicare’s 75-year planning period. It also would have led to huge cuts in Medicaid, denying health care to children as well as other budget cuts that would have worsened the situation of low and moderate-income children.

And to offset these cuts Representative Ryan promised big tax breaks to corporations and the richest people in the country. His budget lowered the tax rate on both to just 25 percent.
If we can skip the sanctimony let’s just say what every budget wonk knows to be true. We don’t have a budget problem; we have a health care cost problem. If per person health care costs in the United States were in line with those in any other wealthy country we would be looking at huge budget surpluses, not deficits.

The answer lies not in cutting back and/or eliminating Medicaid and Medicare, but in fixing the health care system. That’s the simple truth and to try to contend otherwise is immoral, Representative Ryan.

CBO: Longest Period of High Unemployment Since Great Depression

Source: US News - February 17, 2012
After three years with (U3) unemployment topping 8 percent, the U.S. has seen the longest period of high unemployment since the Great Depression, the Congressional Budget Office noted in a report issued today.

And, despite some recent good news on the economic front, the CBO is still predicting that (U3) unemployment will remain above 8 percent until 2014. The report also notes that, including those who haven’t sought work in the past four weeks and those who are working part-time but seeking full-time employment, the (U6) unemployment rate would be 15 percent.


The CBO made its comments in a report examining the long-term effects of joblessness, and possible policy options to boost employment, including unemployment insurance reforms and job training programs. The report came at the request of  Michigan  Democratic Rep. Sander Levin, but Republicans quickly jumped on the chance to bash President Obama’s stimulus program, which is also reaching its three-year anniversary today.

Failure of the Super Committee Might Be the US's Best Hope for Economic Recovery

"Drawing blood” from the economy by cutting government expenditures at a time of high unemployment and underused resources will only ensure the patient’s death, not recovery. 

By Marshall Auerback, AlterNet
Posted on November 26, 2011

The bipartisan super committee has failed to meet the self-imposed November 23rd deadline to enact $1.2trillion of cuts over the next ten years. That failure, as Paul Krugman notes in the New York Times, is a good thing:

“Any deal reached now would almost surely end up worsening the economic slump. Slashing spending while the economy is depressed destroys jobs, and it’s probably even counterproductive in terms of deficit reduction, since it leads to lower revenue both now and in the future.”

If the super committee failed to come up with an alternative plan by Thanksgiving, and the cuts will hit defense and domestic programs equally. But those cuts won’t begin to go into effect until January 2013, two months after next fall’s election, which also means that the programmed fiscal restriction planned for next year won't come into effect. The likelihood of failure is provoking a negative reaction in both the markets and the mainstream press. But in spite of that, failure might be the difference between sluggish, moderate growth in the U.S. and double dip recession.

The travails of the euro zone are perpetual front page news right now, but let's try to put them aside for a moment and focus solely on the U.S. The latest U.S. economic data suggests that the economy has continued to muddle along at a positive rate of growth somewhat below its trend rate of growth. This has happened even though an unwind of the 2009 $860 billion stimulus package is now leading to moderate reductions in government spending.

October core retail sales were up +0.6%. The three-month annualized change now stands at +6.6%. This is consistent with personal consumption expenditure growth of perhaps +3.0%. The increase is consistent with the above trend U.S. economic growth.

Dallas Fed President Richard Fisher thinks such growth is sustainable. He expects U.S. economic output to grow +2.5% to +3.0% in this quarter and expects it to improve next year.

But not if the super committee goes big and enacts huge budget cuts. In that kind of scenario, economic growth in the U.S. next year will be held back (or worse) by programmed fiscal restriction as even greater amounts of income are withdrawn from the economy, especially if cuts are implemented in programs such as Social Security. Lower incomes means lower sales, and sales are what ultimately drive economic activity. 

Remember: businesses lay people off when their customers stop buying, for any reason. So the reason we lost 8 million jobs almost all at once back in 2008 wasn't because all of a sudden all those people decided they'd rather collect unemployment than work. The reason all those jobs were lost was because sales collapsed.

I am also skeptical of the validity of the recent strong trend in consumer spending because it appears to be a product of consumers drawing down on savings, which began to be rebuilt in the aftermath of the 2008 crash. Unfortunately, consumers no longer have the credit availability to do that. Nor do they have the incomes to sustain taking on ever increasing burdens of private debt, as was the case in the 1990s.

And let’s be clear: Despite the distortions floated by many politicians and pundits in the mainstream press, most of the growth of the government’s deficit can be attributed to the rotten economy–which destroyed jobs and thus tax revenue. As the U.S. private sector retrenched to rebuild its balance sheet, the government’s balance moved toward deficit. This had very little to do with “excessive” and “unsustainable” entitlement programs. The positive contribution of the U.S. fiscal stimulus (with supporting monetary policy) cannot be overstated, even though many notable mainstream economists (such as Robert Barro, or Greg Mankiw) claim it made the recession worse. Without the two-pronged attack – first of shoring up the financial system to ensure the banks could lend and second, the substantial increase in government net spending (which was both the product of discretionary fiscal decisions and what economists call "automatic stabilizers" like unemployment benefits) – the world economy would have collapsed into Depression. That is not to say that the fiscal interventions were sound and well designed. I generally think they were unsound in the sense that they did not support job creation as much as they should have. But that is a separate issue.

The outlook for 2012 then depends very much on fiscal policy. Right now according to the Congressional Budge Office (CBO), we are programmed for fiscal restriction of perhaps 2.5% of GDP or more in 2012. That could overcome the natural tendency of economies to grow, especially with real interest rates at negative levels. The question then arises, will we really go through an election year with so much fiscal restriction? The answer, of course, is in the hands of the politicians. As it now stands, the President wants a $447 billion dollar jobs plan. That is equal to almost 3% of GDP. He wants most of it to be financed with borrowings in 2012, with offsetting tax increases in future years. Passage of all of this jobs plan would turn programmed fiscal restriction into marginal fiscal stimulus.

The Republican position has been that, even if they go along with parts of this job stimulus plan like an extension of the payroll tax cut, they demand offsetting greater expenditure cuts.

In other words, even if they concede to some of Obama’s demands, they insist on maintaining the overall fiscal restriction that is now programmed because they say that demonstrating a commitment to “budget discipline” will enhance business confidence and allow the private sector to create more jobs.

So let’s assume that the GOP is right: imagine a new government being elected on the promise of cutting national debt and in its first budget outlines a very clear plan to seriously cut the national budget deficit, reduce taxes (but definitely not put them up), cut public employment and free up the regulative environment. And let's say that such a government also pronounced its “pro-business” credentials (self-styled).

In that situation, if the Republican view was correct, we would expect to observe within a few months (certainly within a year) of the new government a reduction in private uncertainty, which, if the concept has any operational application, should influence discretionary behavior such as spending and employment.

It would be reasonable to expect business confidence to rise, which should mean that private investment would accelerate as business owners anticipate a consumer revival. It would be reasonable to expect firms to be keen to get staff in place to meet the renewed expectations of increased orders. It would be reasonable to expect consumers to become more confident and this confidence to translate into their consumption expenditure.

So... how does one explain the UK, which continues to deteriorate in spite of making very clear its plans and implementation for budget cutting? And how does one explain Australia, which has also been working toward reducing government spending, even as its unemployment rate has begun to tip up again?

The economics of the super committee, indeed that of virtually all of the mainstream Washington policy establishment, is still predicated on the economic equivalent of Medieval blood-letting. Continuing to “draw blood” from the US economy via ongoing cuts in government expenditure at a time of high unemployment and underused resources will ensure the patient’s death, not recovery.

Most of the Unemployed No Longer Receive Unemployment Benefits

 (...to the glee of Republicans everywhere...--jef)

Saturday, November 5, 2011 by the Associated Press

by Christopher S. Rugaber 

 

 

WASHINGTON — The jobs crisis has left so many people out of work for so long that most of America's unemployed are no longer receiving unemployment benefits.
  
Early last year, 75 percent were receiving checks. The figure is now 48 percent — a shift that points to a growing crisis of long-term unemployment. Nearly one-third of America's 24 million unemployed have had no job for a year or more.

Congress is expected to decide by year's end whether to continue providing emergency unemployment benefits for up to 99 weeks in the hardest-hit states. If the emergency benefits expire, the proportion of the unemployed receiving aid would fall further.

The ranks of the poor would also rise. The Census Bureau says unemployment benefits kept 3.2 million people from slipping into poverty last year. It defines poverty as annual income below $22,314 for a family of four.

Yet for most of the unemployed, a vote in Congress to extend the benefits to 99 weeks is irrelevant. They've had no job for more than 99 weeks. They're no longer eligible for benefits.

Their options include food stamps or other social programs. Nearly 46 million people received food stamps in August, a record total. That figure could grow as more people lose unemployment benefits.

So could the government's disability rolls. Applications for the disability insurance program have jumped about 50 percent since 2007.

"There's going to be increased hardship," said Wayne Vroman, an economist at the Urban Institute.

The number of unemployed has been roughly stable this year. Yet the number receiving benefits has plunged 30 percent.

Government unemployment benefits weren't designed to sustain people for long stretches without work. They usually don't have to. In the recoveries from the previous three recessions, the longest average duration of unemployment was 21 weeks, in July 1983.

By contrast, in the wake of the Great Recession, the figure reached 41 weeks in September. That's the longest on records dating to 1948. The figure is now 39 weeks.

"It was a good safety net for a shorter recession," said Carl Van Horn, an economist at Rutgers University. It assumes "the economy will experience short interruptions and then go back to normal."

Weekly unemployment checks average about $300 nationwide. If the extended benefits aren't renewed, growth could slow by up to a half-percentage point next year, economists say.

The Congressional Budget Office has estimated that each $1 spent on unemployment benefits generates up to $1.90 in economic growth. The CBO has found that the program is the most effective government policy for increasing growth among 11 options it's analyzed.

Jon Polis lives in East Greenwich, R.I., one of the 20 states where 99 weeks of benefits are available. He used them all up after losing his job as a warehouse worker in 2008. His benefits paid for groceries, car maintenance and health insurance.

Now, Polis, 55, receives disability insurance payments, food stamps and lives in government-subsidized housing. He's been unable to find work because employers in his field want computer skills he doesn't have.

"Employers are crying that they can't find qualified help," he said. But the ones he interviewed with "weren't willing to train anybody."

From late 2007, when the recession began, to early 2010, the number of people receiving unemployment benefits rose more than four-fold, to 11.5 million.

But the economy has remained so weak that an analysis of long-term unemployment data suggests that about 4 million people have used up 99 weeks of checks and still can't find work.

Contributing to the smaller share of the unemployed who are receiving benefits: Some of them are college graduates or others seeking jobs for the first time. They aren't eligible. Only those who have lost a job through no fault of their own qualify.

The proportion of the unemployed receiving benefits usually falls below 50 percent during an economic recovery. Many have either quit jobs or are new to the job market and don't qualify.

Today, the proportion is falling for a very different reason: Jobs remain scarce. So more of the unemployed are exhausting their benefits.

Federal Reserve Chairman Ben Bernanke has noted that the long-term unemployed increasingly find it hard to find work as their skills and professional networks erode. In a speech last month, Bernanke called long-term unemployment a "national crisis" that should be a top priority for Congress.

Lawmakers will have to decide whether to continue the extended benefits by the end of this year. If the program ends, nearly 2.2 million people will be cut off by February.

Congress has extended the program nine times. But it might balk at the $45 billion cost. It will be the first time the Republican-led House will vote on the issue.

Thirty Years of Unleashed Greed

Thursday, October 27, 2011 by TruthDig.com

by Robert Scheer

 

It is class warfare. But it was begun not by the tear-gassed, rain-soaked protesters asserting their constitutionally guaranteed right of peaceful assembly but rather the financial overlords who control all of the major levers of power in what passes for our democracy. It is they who subverted the American ideal of a nation of stakeholders in control of their economic and political destiny.

Between 1979 and 2007, as the Congressional Budget Office reported this week, the average real income of the top 1 percent grew by an astounding 275 percent. And that is after payment of the taxes that the superrich and their Republican apologists find so onerous.

Those three decades of rampant upper-crust greed unleashed by the Reagan Revolution of the 1980s will be well marked by future historians recording the death of the American dream. In that decisive historical period the middle class began to evaporate and the nation’s income gap increased to alarming proportions. “As a result of that uneven growth,” the CBO explained, “the distribution of after-tax household income in the United States was substantially more unequal in 2007 than in 1979: The share of income accruing to higher-income households increased, whereas the share accruing to other households declined. ... The share of after-tax household income for the 1 percent of the population with the highest income more than doubled. ...”

That was before the 2008 meltdown that ushered in the massive increase in unemployment and housing foreclosures that further eroded the standard of living of the vast majority of Americans while the superrich rewarded themselves with immense bonuses. To stress the role of the financial industry in this march to greater income inequality as the Occupy Wall Street movement has done is not a matter of ideology or rhetoric, but, as the CBO report details, a matter of discernible fact.

The CBO noted that in comparing top earners, “The [income] share of financial professionals almost doubled from 1979 to 2005” and that “employees in the financial and legal professions made up a larger share of the highest earners than people in those other groups.”

No wonder, since it was the bankers and the lawyers serving them who managed to end the sensible government regulations that contained their greed. The undermining of those regulations began during the Reagan presidency, and so it is not surprising that, as the CBO reports, “the compensation differential between the financial sector and the rest of the economy appears inexplicably large from 1990 onward.” Citing a major study on the subject, the CBO added, “The authors believe that deregulation and corporate finance activities linked to initial public offerings and credit risks are the primary causes of the higher compensation differential.”

So much for the claim that excessive government regulation has discouraged business activity. The CBO report also denies the charge that taxes on the wealthy have placed an undue burden on the economy, documenting that federal revenue sources have become more regressive and that the tax burden on the wealthy has declined since 1979.

In the face of the evidence that class inequality had been rising sharply in the United States even before the banking-induced recession, it would seem that the Occupy Wall Street protests are a quite measured and even timid response to the crisis.

Actually, the rallying cry of that movement was originally enunciated not by the protesters in the streets, but by one of the nation’s most respected economists. Last April, Nobel Laureate Joseph Stiglitz wrote an article in Vanity Fair titled “Of the 1%, by the 1%, for the 1%” that should be required reading for those well-paid pundits who question the logic and motives of the Wall Street protesters. “Americans have been watching protests [abroad] against repressive regimes that concentrate massive wealth in the hands of an elite few,” Stiglitz wrote. “Yet, in our democracy, 1% of the people take nearly a quarter of the nation’s income—an inequality even the wealthy will come to regret.”

Maybe justice will prevail despite the suffering that the 1 percent has inflicted on the foreclosed and the jobless. But to date those who have seized 40 percent of the nation’s wealth still control the big guns in this war of classes.

New Inequality Data Likely to Boost "Occupy" Movement

Thursday, October 27, 2011 by Inter Press Service

by Jim Lobe

 

A major study on income equality by a non-partisan government agency is likely to boost the "Occupy Wall Street" movement, whose standing with the general public appears on the rise, according to a new poll.

The study, released here Tuesday by the Congressional Budget Office (CBO), found that the average after-tax real income of the top one percent of the nation's households grew by 275 percent between 1979 and 2007 - about seven times greater than the increase in income by the remaining 99 percent over the same period.

And the income of the poorest 20 percent of the nation's earners grew by a mere 18 percent during that period, according to the report, which had been requested by the senior Democratic and Republican members on the Senator Finance Committee several years ago. That was less than one percent per year.

The report – the latest in a series of private or non-profit studies that confirm a sharp rise in income and wealth inequality over the past generation – came as a new New York Times/CBS News poll showed stronger-than-expected popular support for the "Occupy" movement, which has spread to dozens of cities across the country.

The movement, which was launched in Wall Street's Zucotti Park Sep. 17, has sought to draw public attention to the growing concentration of wealth in the hands of a tiny minority of people compared to the increasingly difficult plight of the middle class, the poor, and the unemployed. The movement has also protested what it regards as the excessive influence of Wall Street banks and big corporations on government policies.

A 43-percent plurality of the 1,650 respondents queried by the poll said they agreed with the views expressed by the movement, compared to 27 percent who said they disagreed. Thirty percent –the same percentage who said they had heard little or nothing about the movement - said they had no opinion.

The poll found stark partisan differences on the question: 54 percent of Democrats said they agreed with the movement's views, while only 13 percent disagreed. Among Republicans, however, the numbers were virtually reversed: 19 percent agreed, while 57 percent disagreed.

Among self-identified independents - the 30 to 40 percent of the electorate who will likely decide next November's presidential election - 48 percent agreed with the movement's views, while only 20 percent disagreed.

Moreover, a strong plurality of 46 percent of all respondents agreed with the proposition that the "views of the people involved in the Occupy Wall Street movement generally reflect the views of most Americans." Thirty-four percent said they disagreed, while the rest said they had no opinion.

Those percentages marked a sharp boost in the movement's popular support and visibility from just two weeks ago when the mainstream U.S. media began to cover it. A Gallup poll conducted in mid-October found that only 22 percent said they "approved" of the movement's goals, while 15 percent said they disapproved, and 63 percent said they didn't know enough to judge.

They also suggest that the Occupy movement enjoys substantially greater popularity and acceptance than the so-called "Tea Party", a mainly right-wing, populist movement that played a key role in the Republican victories in the 2010 mid-term elections and has since driven demands for big cuts in government spending.

According to recent polls, only about 25 percent of respondents say they support the "Tea Party" and its policies.

"In just one month, the protesters have shifted the national dialogue from a relentless focus on the (government) deficit to a discussion of the real issues facing Main Street: the lack of jobs - and especially jobs with decent benefits - spiraling inequality, cash- strapped American families' debt-loads, and the pernicious influence of money in politics that led us to this point," wrote Joshua Holland, the editor of the progressive, California-based website Alternet, Wednesday.

The poll, which found historically low levels of public confidence in Congress and the federal government, also found strong support for a more equal distribution of "money and wealth" in the country. Two- thirds of respondents said the distribution should be "more even", while only 26 percent said that the current distribution of money and wealth was "fair".

And in an ominous sign for the Republican Party, nearly 70 percent of respondents said they think the policies of Republicans in Congress favour the "rich" over the middle class and the poor.

Since taking control of the House of Representatives in 2010, Republican lawmakers have effectively blocked all efforts to increase taxes on the corporations and wealthiest individuals, initiatives supported by about two-thirds of the public, according to the poll.

The CBO findings should bolster popular support for such efforts. While the after-tax income of the poorest 20 percent of U.S. households grew by an average of less than one percent per year, the next 60 percent – the broad middle class – did not fare much better. The average growth in its after-tax income over the 28 years came to only about 1.4 percent annually.

As a result, the wealthiest 20 percent of the population received substantially more of the total after-tax household income in 2007 – 53 percent – than all of the rest. In 1979, the same wealthiest 20 percent received 43 percent, according to the CBO.

In a second report released here Wednesday, the Economic Policy Institute (EPI), a think tank closely associated with the U.S. labour movement, found an even greater disparity in income between the very rich and the rest of the country.

According to its calculations, the incomes of the top 0.1 percent of households grew 390 percent between 1979 and 2007, while incomes of the bottom 90 percent grew by only five percent during the same period.

"The sense that most of us have been ignored by those in charge of economic policy is totally justified," said EPI economist and co- author of the report, Josh Bivens. "And I think it is what is driving the energy of the Occupy Wall Street campaign."

Some conservative analysts noted that the CBO report only covered the period through 2007 and did not take account of the impact of the 2008 "financial crisis".

Citing data from the pro-business Tax Foundation, Michael Tanner of the libertarian Cato Institute argued that the wealthiest were particularly hard hit by the fallout.

"(T)here has been a 39 percent decline in the number of American millionaires since 2007," he wrote on the right-wing National Review website Wednesday. "Among the so-called super rich, the decline has been even sharper. The number of Americans earning more than 10 million (dollars) per year has fallen by 55 percent. Perhaps someone should tell the folks in Zuccotti Park: Inequality is actually declining."

The Social Contract

Friday, September 23, 2011 by The New York Times

by Paul Krugman

 

 

This week President Obama said the obvious: that wealthy Americans, many of whom pay remarkably little in taxes, should bear part of the cost of reducing the long-run budget deficit. And Republicans like Representative Paul Ryan responded with shrieks of “class warfare.”

It was, of course, nothing of the sort. On the contrary, it’s people like Mr. Ryan, who want to exempt the very rich from bearing any of the burden of making our finances sustainable, who are waging class war.


As background, it helps to know what has been happening to incomes over the past three decades. Detailed estimates from the Congressional Budget Office — which only go up to 2005, but the basic picture surely hasn’t changed — show that between 1979 and 2005 the inflation-adjusted income of families in the middle of the income distribution rose 21 percent. That’s growth, but it’s slow, especially compared with the 100 percent rise in median income over a generation after World War II.

Meanwhile, over the same period, the income of the very rich, the top 100th of 1 percent of the income distribution, rose by 480 percent. No, that isn’t a misprint. In 2005 dollars, the average annual income of that group rose from $4.2 million to $24.3 million.

So do the wealthy look to you like the victims of class warfare?

To be fair, there is argument about the extent to which government policy was responsible for the spectacular disparity in income growth. What we know for sure, however, is that policy has consistently tilted to the advantage of the wealthy as opposed to the middle class.

Some of the most important aspects of that tilt involved such things as the sustained attack on organized labor and financial deregulation, which created huge fortunes even as it paved the way for economic disaster. For today, however, let’s focus just on taxes.

The budget office’s numbers show that the federal tax burden has fallen for all income classes, which itself runs counter to the rhetoric you hear from the usual suspects. But that burden has fallen much more, as a percentage of income, for the wealthy. Partly this reflects big cuts in top income tax rates, but, beyond that, there has been a major shift of taxation away from wealth and toward work: tax rates on corporate profits, capital gains and dividends have all fallen, while the payroll tax — the main tax paid by most workers — has gone up.

And one consequence of the shift of taxation away from wealth and toward work is the creation of many situations in which — just as Warren Buffett and Mr. Obama say — people with multimillion-dollar incomes, who typically derive much of that income from capital gains and other sources that face low taxes, end up paying a lower overall tax rate than middle-class workers. And we’re not talking about a few exceptional cases.

According to new estimates by the nonpartisan Tax Policy Center, one-fourth of those with incomes of more than $1 million a year pay income and payroll tax of 12.6 percent of their income or less, putting their tax burden below that of many in the middle class.

Now, I know how the right will respond to these facts: with misleading statistics and dubious moral claims.

On one side, we have the claim that the rising share of taxes paid by the rich shows that their burden is rising, not falling. To point out the obvious, the rich are paying more taxes because they’re much richer than they used to be. When middle-class incomes barely grow while the incomes of the wealthiest rise by a factor of six, how could the tax share of the rich not go up, even if their tax rate is falling?

On the other side, we have the claim that the rich have the right to keep their money — which misses the point that all of us live in and benefit from being part of a larger society.

Elizabeth Warren, the financial reformer who is now running for the United States Senate in Massachusetts, recently made some eloquent remarks to this effect that are, rightly, getting a lot of attention. “There is nobody in this country who got rich on his own. Nobody,” she declared, pointing out that the rich can only get rich thanks to the “social contract” that provides a decent, functioning society in which they can prosper.

Which brings us back to those cries of “class warfare.”

Republicans claim to be deeply worried by budget deficits. Indeed, Mr. Ryan has called the deficit an “existential threat” to America. Yet they are insisting that the wealthy — who presumably have as much of a stake as everyone else in the nation’s future — should not be called upon to play any role in warding off that existential threat.

Well, that amounts to a demand that a small number of very lucky people be exempted from the social contract that applies to everyone else. And that, in case you’re wondering, is what real class warfare looks like.

The Not-So-Super Committee

Those Automatic Defense Cuts Aren't Going to Happen

by WINSLOW T. WHEELER

 

Touted as the “Super Committee” by pundits, the Joint Deficit Reduction Committee-created by the August 2 Debt Deal between President Barack Obama and the congressional Republicans-has turned out to be not so super.  The real super committees of Congress, the appropriations committees, are reasserting their control, and they are doing it with the defense budget, keeping it quite flush with money and unraveling a second round of debt reduction. 

Painful as it is to remember, the August Debt Deal-which got the country past the crisis provoked by the Republican’s refusal to allow an increase in the debt ceiling-requires the so-called Super Committee to find at least $1.2 trillion in budget cuts over the next ten years.  If the 12 congressional Republicans and Democrats on the committee fail to agree on those cuts, automatic reductions are supposed to take place: including $492 billion in the defense budget and over $400 billion elsewhere, according to the Congressional Budget Office (at http://www.cbo.gov/doc.cfm?index=124140).  Either, the Super Committee will cut a deal, or the defense budget gets whacked. 

It is not going to happen that way.  

First, the Super Committee is bound to fail; it will reach no meaningful budget agreement. 

Second, when the committee fails, the defense cuts envisioned by the supposedly automatic trigger mechanism will not occur.  That will be for the simple reason that almost no one wants that to happen.  While they are quite mistaken about the consequences, almost everyone on Capitol Hill (and in the Pentagon) think that those defense reductions will be “devastating,” “disastrous,” “doomsday,” and any other Apocalyptic term you can think of.  In short, the Debt Deal took a hostage that no one wants to shoot.  

In the 31 years I worked on Capitol Hill, I came to know several others with as much, or more, experience as I in understanding how the place operates.  Not one of the Hill veterans I have heard from believes the Debt Deal and the Super Committee are headed for anything but failure.  The Deal and the Committee were designed only to kick the can down the road to get us past last summer’s crisis-with the inevitable result of provoking others. 

The meetings held thus far by the Super Committee have made obvious its inevitable breakdown.  Hearing this week with from the Director of the Congressional Budget Office, Douglas Elmendorf (who conducted himself with professionalism and grace), the congressional members demonstrated precisely why the vast majority of Americans hold them in contempt.    

The committee started out by insisting that it hear not from Elmendorf but from itself.  The national audience was dragged through more than an hour of supremely self-involved Republicans and Democrats explain how the other side caused everything and their own prescriptions were the only pill to take.  When Elmendorf tried to provide a framework for addressing the issues, they simply repeated themselves. 

Consisting mostly of second stringers on budget issues and leadership errand boys (and a female) from their party caucuses, that bunch will find a $1.2 trillion budget solution sometime after pigs fly and shrimps whistle.

Meanwhile, behind closed doors, the real budget action on Capitol Hill was occurring.  The Defense Subcommittee of the Senate Appropriations Committee met on Tuesday, in private, to decide on the 2012 Department of Defense Appropriations bill. It funds most, but not all, of the Pentagon’s budget.  The Subcommittee took cognizance of one of the provisions of the Debt Deal, but not any parts that had to do with the Supercommittee and the automatic cuts. 

In addition to the Super Committee and the trigger mechanism, the Debt Deal imposed-without any further palaver required-an initial phase of reductions on appropriations for the next ten years totaling over $900 billion.  While the precise budget obligation on the Pentagon in this first phase has not been entirely clear, most are now interpreting it to mean a $350 billion reduction.  In effect, that means that the Pentagon budget would be frozen at its current, fiscal year 2011 level-precisely the level set by the Appropriations Committee’s bill. 

It safely can be predicted this will be the level of Pentagon spending the entire Congress endorses for 20012, after theatrical grumbling by some Republicans about the bill’s spending being $26 billion less than Obama’s now meaningless budget request from last February.    

Even at the 2011 level, the bill is extremely generous.  The amount-about $529 billion after separate Military Construction and some other pieces are added-will be almost as much “base” spending that the Pentagon has seen in any single year for decades.  If you add the separate funding for the wars in Afghanistan and elsewhere ($118 billion), the amount is quite close to the Pentagon’s highest ever level since the end of World War Two-and it is well above previous secondary peaks attained in the Korean and Vietnamese Wars and Ronald Reagan’s fleeting zenith in 1985. 

That “frozen” 2011 level will be also more than twice the defense budgets of China, Russia, Iran, Syria, Cuba, and Somalia-combined.  It will be more than $80 billion more than we spent, on average, during the Cold War when we faced a threatening and heavily armed Soviet Union and a hostile, dogmatically communist China. 
 
While the new DOD appropriations bill was described by its architect, Senator Daniel Inouye (D-HI) as “not an easy allocation to meet” (committee press release is at http://appropriations.senate.gov/news.cfm?method=news.view&id=33ad4f56-b0fc-45f8-8c5b-162b5eab4791), it is actually a defense budget quite flush with money.

Moreover, the bill has several gimmicks to permit higher spending than is apparent.  It includes a clumsy ploy of moving $6.5 billion out of the capped part of the Pentagon budget that the Debt Deal limited and adding the money back into the separate (un-capped) funding for the war in Afghanistan.  (This, of course, permitted the “base” bill to contain $6.5 billion more than otherwise.)   Also, as the details trickle out next week, we will find the usual ruses, including cuts for “revised economic assumptions,” “unobligated balances” and other phony games to pretend the Committee is reducing money (rather than deferring it) and making good government decisions (rather than taking capricious cuts in military readiness while protecting procurement-and contractors). (For a previous discussion of some of these tricks, see http://www.cdi.org/friendlyversion/printversion.cfm?documentID=4673.) 

The bill is not a tough minded but moderate action to impose restraint on the Pentagon; it is an effort to protect Pentagon spending as much as possible.  With Robert Gates taking the lead and Leon Panetta bobble-heading in agreement, the Pentagon has resolved itself to that first phase of $350 billion in cuts over ten years.  They are not happy about it, but they will live with it in order to fend off further reductions.  The Senate Appropriations Committee leadership is in deep sympathy with that sentiment.  

Filled with bunkum to seem to be cutting at least moderately but actually rescuing unaffordable, underperforming flotsam like the F-35 Joint Strike Fighter, the bill from the Senate Appropriations Committee is a rear guard budget protection action.  

The gambit will be successful.  The defenders of big defense spending have been extremely vocal. The Chairman of the House Armed Services Committee, Congressman Buck McKeon (R-CA), is quoted almost every day about the cataclysm to occur if the defense budget is cut at all.  This kind of hysteria makes the assertions of Senator John Kyl (R-CO) almost seem to be the middle ground: he threatened to quit the Supercommittee if the DOD cuts go beyond the initial $350 billion. The response from Democrats and even Republicans who have previously favored more meaningful Pentagon cuts has sealed the deal: they have been completely silent. 

All that remains to be done is to let the Supercommittee proceed on its clear path to failure.  That will trigger the dreaded automatic cuts, but only nominally.  As designed, those cuts would not occur until 2013.  The big defense spender types will have all of 2012 to trash any opponents who dare to speak in favor of allowing them.  They will use their traditional slander that to be against bloat in the defense budget is to be “anti-defense.”  It has always worked in the past, especially with Democrats who want to posture themselves as moderate, such as candidate Obama. 

The Debt Deal will be rewritten; the defense budget will be “saved,” and the next budget crisis will be made both inevitable and worse. We have a lot more dysfunction in Congress and the White House yet to observe.

A National Debt Of $14 Trillion? Try $211 Trillion

All Things Considered
by NPR Staff - August 6, 2011

Listen to the Story

When Standard & Poor's reduced the nation's credit rating from AAA to AA-plus, the United States suffered the first downgrade to its credit rating ever. S&P took this action despite the plan Congress passed this past week to raise the debt limit.

The downgrade, S&P said, "reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics."

It's those medium- and long-term debt problems that also worry economics professor Laurence J. Kotlikoff, who served as a senior economist on President Reagan's Council of Economic Advisers. He says the national debt, which the U.S. Treasury has accounted at about $14 trillion, is just the tip of the iceberg.

"We have all these unofficial debts that are massive compared to the official debt," Kotlikoff tells David Greene, guest host of weekends on All Things Considered. "We're focused just on the official debt, so we're trying to balance the wrong books."

Kotlikoff explains that America's "unofficial" payment obligations — like Social Security, Medicare and Medicaid benefits — jack up the debt figure substantially.
Laurence J. Kotlikoff served as a senior economist on President Ronald Reagan's Council of Economic Advisers and is a professor of economics at Boston University.
Courtesy of Boston University

Laurence J. Kotlikoff served as a senior economist on President Ronald Reagan's Council of Economic Advisers and is a professor of economics at Boston University.

"If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That's the fiscal gap," he says. "That's our true indebtedness."

We don't hear more about this enormous number, Kotlikoff says, because politicians have chosen their language carefully to keep most of the problem off the books.

"Why are these guys thinking about balancing the budget?" he says. "They should try and think about our long-term fiscal problems."

According to Kotlikoff, one of the biggest fiscal problems Congress should focus on is America's obligation to make Social Security payments to future generations of the elderly.

"We've got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000 — you're talking about more than $3 trillion a year just to give to a portion of the population," he says. "That's an enormous bill that's overhanging our heads, and Congress isn't focused on it."

"We've consistently done too little too late, looked too short-term, said the future would take care of itself, we'll deal with that tomorrow," he says. "Well, guess what? You can't keep putting off these problems."

To eliminate the fiscal gap, Kotlikoff says, the U.S. would have to have tax increases and spending reductions far beyond what's being negotiated right now in Washington.

"What you have to do is either immediately and permanently raise taxes by about two-thirds, or immediately and permanently cut every dollar of spending by 40 percent forever. The [Congressional Budget Office's] numbers say we have an absolutely enormous problem facing us."

We Must Destroy the Government in Order to Save It

Sunday, July 31, 2011 by CommonDreams.org
by Robert Freeman

A certain, macabre phrase came to personify the Vietnam War: “We had to destroy the village in order to save it.” The colonel who uttered it was doubtless oblivious to both the psychotic irony and the larger surreal symbolism that the phrase represented. Savage destruction was perfectly consonant with ideologically-intended salvation, just so long as both were issued by the same sanctimonious American official. Indeed, in some perverse medieval rendering of modern imperial justice, salvation could only be achieved through destruction.

The phrase might just as well be a rallying cry for the Tea Party Republicans and their holy jihad against government and the cooperative society that government represents: they must destroy it in order to save it. For that is unquestionably what the debt ceiling debacle is really about.

Let’s dispense once and for all with the fiction that the debt ceiling debate is anything but a contrivance to destroy government and the shared aspirations to civility that government represents.

The debt ceiling has been raised over 70 times and the sky hasn’t fallen. More to the point, and of signal importance, is that those people who actually put their money where their mouth is (as opposed to politicians, who put other peoples’ money where their mouth is), are only too happy to buy and hold U.S. federal treasury debt for a return of — wait for it — 3%.

That is the rate going into this charade for 10-year U.S. treasury bonds and it doesn’t even include the erosive effects of inflation. With inflation factored in, smart investors around the world are actually willing to take a negative rate of return — to get back less than they put in — in order to trust their money to the custody of the U.S. government. That’s how much of a “crisis” there actually is surrounding the debt ceiling

Equally important, the vast majority of the current deficit problem is actually very short-term in nature: a cyclical artifact of the Great Recession or of the residual policies of the prior Bush administration. The non-partisan Congressional Budget Office reports that some 90% of the deficit owes to a) the Bush tax cuts; b) Bush’s two (now Obama’s five) unfunded wars; c) Bush’s unfunded $600 billion give-away to the pharmaceutical industry; and d) the greatest economic collapse since the Great Depression.

Without those forces, there is effectively no deficit problem at all. And the small problem that is left is entirely attributable to the out-of-control expenses of the free-market American health care system that costs twice as much as any other industrial nation’s system while delivering markedly inferior outcomes.

This is the truth. There is no U.S. debt crisis. Which isn’t to say that there isn’t a U.S. debt ceiling crisis. But the one has as much to do with the other as do chalk and cheese.

So, if there’s no real crisis, what’s the deal?

The deal is that the elites in the country, those who buy politicians the way you and I do groceries (and that includes Obama and the vast majority of Democratic party officials) have decided that too much of the nation’s wealth is going to the poor, working, and middle classes and that those peoples’ shares must be cut so that the money can be given to the very wealthiest people on the planet.

That is what Obama means when he says that “everything is on the table, including Social Security and Medicare.” The most successful social programs of the last 100 years, those supporting tens of millions of people, those that pay for themselves with their own dedicated payroll taxes, will have to be cut back so that a few thousand billionaires can afford another jet, another mansion, another island, another politician.

This is after the last 30 years (beginning with Reagan) when the share of national income going to the top 1% skyrocketed from 8% of national income to over 20%. This is when 80% of the entire economy’s growth over the last decade went to the top 1%. This is when the richest 1% of the population are paying the lowest rate of taxes in the past 50 years and when inequality in the country has reached the highest level since statistics started being collected, in 1917.

This is after we just finished transferring $11 trillion to the same ultra-rich through the banking bailout so that they wouldn’t have to suffer any losses on their sociopathically greedy bets that went bad and wrecked the economy. This is after the share of home equity wealth actually owned by American homeowners reached its lowest level, 45%, since the Great Depression. And this is at a time when 77 million Baby Boomers are entering retirement having just lost 1/3 of their life savings.

The rich need more. So everybody else had just better suck it in and resign themselves to less.

What is going on is a highly choreographed campaign to “manufacture consent” for the destruction of Social Security and Medicare so that that money can be liberated to give to the wealthy. It is exactly analogous to the campaign that preceded the Iraq War when the media invented “Weapons of Mass Destruction” and fictions about Saddam Hussein’s involvement in 9/11 to stampede the populace into an illegal colonial invasion to steal Iraq’s oil.

It is entirely made up, entirely orchestrated, with all the “players” singing from the same song book, and all getting greased from the crumbs that fall from the table of the super-rich. And it’s working, flawlessly.

The six-and-seven-figure stenographers on TV who pass themselves off as “journalists” intone nightly about the gravity of the situation, the need for “shared sacrifice,” and the impending calamity lest we shunt the money upwards even faster. So do it we must. After all, it was on TV.

The tragedy is Obama’s weaseling complicity in the pathetic affair. We have run out of epithets to condemn his sycophantic betrayal of the American people before his own imperial masters. Equally tragic is the destruction of democracy conveyed in the whole sordid matter, for vast majorities of the people want social programs protected and taxes raised on wealthy individuals and corporations that evade taxes.

Alas, it is not to be. It will be the weak who will be shorn, as it always seems to be.

And to be honest, we have to lay a sizable portion of blame on the American people themselves who have abjured their responsibility to their own interests and their country in favor of more titillation on the Internet, another season of Desperate Housewives re-runs, the next episode of American Idol. Diddling themselves with their own puerile indulgences, they have no time for calls to their Congressmen, letters to their editors, feet on the street in protest, or any, ANY, expression of mass outrage.

The astounding thing is how easy the whole thing has been, how readily the people capitulated to their own destruction in exchange for a little faux “stick-it-to-the-man” righteousness ladled out in the name of Tea Party indignation.

Come to think of it, perhaps the Tea Partiers are the real prophets in this whole Revelation after all, impelled by a fatalistic impulse in which greed is at once its own justification, its own means, its own method, and its own reward: destroy the government we must, for destroy it we will, because destroy it we can.

The Weird Battle Over the Debt Ceiling

The Price of the Housing Bubble
By DEAN BAKER

Policy debates in Washington are moving ever further from reality as a small elite is moving to strip benefits that the vast majority need and support. The battle over raising the debt ceiling is playing a central role in this effort.

The United States is currently running extraordinarily large budget deficits. The size of the annual deficit peaked at 10 percent of GDP in 2009, but it is still running at close to 9.0 percent of GDP in 2011. The reason for the large deficits is almost entirely the downturn caused by the collapse of the housing bubble. This can be easily seen by looking at the projections for these years from the beginning of 2008, before government agencies recognized the housing bubble and understood the impact that its collapse would have on the economy.

At the beginning of 2008 the Congressional Budget Office (CBO), the country's most respected official forecasting agency, projected that the budget deficit in 2009 would be just 1.4 percent of GDP. The reason that the deficit exploded from 1.4 percent of GDP to 10.0 percent had nothing to do with wild new spending programs or excessive tax cuts. This enormous increase in the size of the deficit was entirely the result of the fallout from the housing bubble.

Remarkably, both Republicans in Congress and President Obama have sought to conceal this simple reality. The Republicans like to tell a story of out-of-control government spending. This is supposed to be a long-standing problem (in spite of the fact that Republicans have mostly controlled the government for the last two decades) that requires a major overhaul of the budget and the budgetary process. They are now pushing, as they have in the past, for a constitutional amendment requiring a balanced budget.

It might be expected that President Obama would be anxious to correct the misconception about the budget, but this would not fit his agenda either. President Obama is relying on substantial campaign contributions from the business community to finance his re-election campaign. Many business people are anxious to see the major government social programs (Social Security, Medicare, and Medicaid) rolled back. They see the crisis created around the raising of the debt ceiling as a unique opportunity to accomplish this goal.

In order to advance their agenda, President Obama also has an interest in promoting the idea of the deficit as being a chronic problem. Plus, it gives him an opportunity to blame the deficit on the fiscal choices of his predecessor, President Bush. Therefore, in his address to the country on July 25, he told the public that as a result of President Bush's tax cuts, his wars, and his Medicare prescription drug benefit, the deficit was on a track to be more than $1 trillion in 2009.

This is more than five times as large as the actual figure projected by CBO. However, President Obama's distortion preserved the idea of the deficit as a chronic problem, while also getting in an attack on the Republicans. It also allows him to avoid talking about the housing bubble. This is a topic that he seems anxious to avoid, since many large contributors to his re-election and to the Democratic Party profited enormously from the bubble.

The claim that the deficit is a chronic problem and not primarily the result of a severe cyclical downturn also opens the door for cuts to the country's major social welfare programs. These cuts are hugely unpopular. All three major programs enjoy overwhelming support among people in all demographic groups, including conservative Republicans. There is no way that an ambitious politician would ever suggest major cuts to these programs apart from a crisis.

In this respect, the crisis over the debt ceiling is the answer to the prayers of many people in the business community. They desperately want to roll back the size of the country's welfare state, but they know that there is almost no political support for this position. The crisis over the debt ceiling gives them an opportunity to impose cutbacks in the welfare state by getting the leadership of both political parties to sign on to the deal, leaving the opponents of cuts with no plausible political options.

To advance this agenda they will do everything in their power to advance the perception of crisis. This includes having the bond-rating agencies threaten to downgrade U.S. debt if there is not an agreement on major cuts to the welfare state.

In principle, the bond-rating agencies are only supposed to assess the likelihood that debt will be repaid. However, they showed an extraordinary willingness to allow profit to affect their ratings when they gave investment grade ratings to hundreds of billions of dollars of mortgage-backed securities during the housing bubble. Given their track record, there is every reason in the world to assume that the bond-rating agencies would use downgrades or the threat of downgrades for political purposes.

 

This means that the battle over the debt ceiling is an elaborate charade that is threatening the country's most important social welfare programs. There is no real issue of the country's creditworthiness of its ability to finance its debt and deficits any time in the foreseeable future. Rather, this is about the business community in general, and the finance sector in particular, taking advantage of a crisis that they themselves created to scale back the country's social welfare system. They may well succeed.

If Congress Does Nothing, The Deficit Will Disappear

CHART OF THE DAY
Brian Beutler | June 24, 2011 | TPM

On Wednesday, the Congressional Budget Office released its updated long-term budget forecast, which looked surprisingly like the previous version of its long-term budget forecast.

It showed, as one might expect, that if the Bush tax-cuts remain in effect and Medicare and Medicaid spending isn't constrained in some way, the country will topple into a genuine fiscal crisis -- not the fake one the Congress is pretending the country's in right now.

Republicans, of course, seized on that particular projection, and claimed (a bit ridiculously) that it proved the government must adopt their precise policy views: major spending cuts, particularly to entitlement programs.

While all this -- from the findings to the politicization of them -- is perfectly expected, the forecast also presents another opportunity to remind people that the medium-term budget outlook is perfectly fine if Congress adheres to the law as it's currently written. That means no repealing the health care law, for one, but more significantly it means allowing the Bush tax cuts to expire, and (unfathomably) allowing Medicare reimbursement rates for doctors to fall to the levels prescribed by the formula Congress wrote almost 15 years ago. In other words, no more "doc fixes."

Helpfully, CBO juxtaposed these two alternative futures in a pair of graphs and, just as last time, it projects that deficits will disappear entirely by the end of President Obama's second term (if he gets a second term) if Congress were to just sit on its hands and do nothing.

Take a look.

(So, Rep. Ryan? Sit the fuck down and shut the fuck up! None of your life destroying Draconian budgert cuts are needed.--jef)

Careening Toward a Third Depression

Save the Economy, Hike the Deficit! By MIKE WHITNEY

How do you light a fire under Congress? How do you get these guys to do what they're paid to do?

We're 5 years into this slump, millions of people have lost their homes and jobs, 44 million people are on food stamps, the economy is in the tank, and congress won't lift a finger to help. What's that all about? You'd think that the revision in GDP and the uptick in unemployment claims would set off alarms on Capitol Hill. But it hasn't. They just shrug it off and move on. What do they care? They get their fat paycheck one way or another, so what difference does it make to them? Besides, if they play their cards right, they'll nab a 6-figure lobbying job as soon as they retire and spend the rest of their lives working on their chip-shot and swilling single-malt at the club with their moneybags friends. Doesn't that piss you off?

Congress just doesn't seem to "get it". They don't understand what people are going through; how maxed out they are. We're in the middle of a Depression and all they want to do is score points playing political circlejerk by stonewalling the debt ceiling or jacking-around with Medicare. Meanwhile, unemployment is on the rise (Initial claims rose to 424,000 on Thursday), GDP is falling (1Q GDP revised to 1.8%), durable goods are down 3.6 percent in April, the market is topping out, business investment is flat, Europe's on the ropes, Japan is in a historic slump, China is overheating, the output gap is as wide as it was 6 quarters ago, bank balance sheets are bleeding red from falling home prices and non-performing loans, and the housing market is crashing.

Did I miss something?

Oh yeah, and the Fed's goofy QE2 program is winding down, which means that the last drop of monetary stimulus will be wrung-out by the end of June. That ought to be good for stocks.

So, excuse me for asking, Mr. Bigshot Congressman, but would you mind lending a hand? A little stimulus would be nice. You know, just enough so we can get a job and feed the kids. And if you're worried about the deficits; don't be. They're not a problem. That's just more GOP scaremongering. Here's how economics professor Bradford DeLong sums it up:

"The biggest problem generated by this right now is that Washington DC's focus on the Dingbat Kabuki theater of the long-run fiscal stability of America is keeping it from taking any effective steps to use government to boost employment and output now. And things aren't helped by the fact that the way the rescue of the banking system was carried out convinced a lot of people that stimulus policies exist to enrich the top 1% of Americans at the expense of everybody else.

This means that our hopes for economic recovery right now rest not on any government boost to aggregate demand--whether through fiscal, monetary, or banking policy--but rather on the natural equilibrium-restoring full-employment achieving market forces of the economy, especially in the labor market.

And so we are in trouble: right now there are no signs that the economy is crawling up back to anything like full employment on its own. ... The economy will grow, but we won't close the gap between actual and potential output. We will not for a long time to come get back to the 62 to 64% of the adult population having jobs that we thought was normal back in the decades of the 2000.

And that is the depressing overall macroeconomic picture. I wish I could paint a better one....("DeLong: The Economic Outlook as of May 2011", Economist's View)

Deficits aren't the problem, they're the solution. The government needs to increase spending to make up for the loss of activity in the private sector, otherwise, we're back in the soup. But, here's the good part; the government can borrow at rates that are lower than ever. Just look at the bond market. The 10-year is stuck at 3.12. That means that money is cheap because no one is borrowing, because, well, because the economy is dead-in-the-water. It's like Treasuries are yelling, "Wake up, you idiots, we're in a Depression!"

Besides, deficit spending isn't always a bad thing anyway. Just ask a guy who's been out of work for 99 weeks how much he cares about deficits. Not much, I'll bet. All he cares about is getting a job and paying the bills. Here's a clip from economist Mark Thoma who explains how deficits can actually rev up the economy:

"When the economy goes into recession, deficit spending through tax cuts or the purchase of goods and services by the government can stop the downward spiral and help to turn the economy back around. Thus, deficits can help us to stabilize the economy. In addition, as the economy improves due to the deficit spending the outlook for businesses also improves, and this can lead to increased investment, an effect known as crowding in. Deficits also allow us to purchase infrastructure and spread the bills across time similar to the way households finance the purchase of a car or house, or the way local governments finance schools with bond issues." (Government Deficits: The Good, the Bad, and the Ugly, Mark Thoma, CBS Moneywatch)

Deficits are just a way of investing in the future, like student loans. You don't hear anyone crybabying about paying for college, do you? No, because it improves their chances for making more money in the future. Sometimes you have to take on a little debt to create better opportunities for yourself. That's just the way it is. It's the same with the economy, the deficits are a bridge to the next credit expansion. But once things are up-and-running and revenues increase, then the government can throttle-back on spending and balance the budget. That's how we've always done it in the past, until we started listening to the Voodoo crackpots, that is. Besides, if we don't increase the deficits now and put people back to work fast, we're going to be stuck in this "underperforming" funk for a very long time. So, we're just shooting ourselves in the foot.

How did we get to where we are today? 

Well, when the financial system crashed, the economy plunged and then reset at a lower level of output. So--while we're no longer in freefall--we're still no where near where we should be. And, guess what, we can't get back to trend when 9% of the workforce (16.5% underemployed) is on the sidelines. We have to put people back to work and get them spending. That's the only way to boost demand and kickstart the economy. Of course, big business doesn't mind the current policy, because more of the profits from productivity go to them during a sluggish recovery. So, they're just fine with the way things are right now. They also like the fact that high unemployment puts more pressure on wages. CEO's love that part.

So, how dire is the situation right now?

Well, consider this: QE2 ends on June 30, right? But according to economist David Rosenberg, there's a "89% correlation between the Fed's balance sheet and the movements in the S&P 500 over the past two years." So when the Fed stops purchasing US Treasuries, then stocks will retreat.

Add that to the fact that the states are cutting costs and laying off state workers at record pace to balance their budgets. That just increases deflationary pressures. When money is drained from the system, activity slows, demand weakens, revenues shrink, deficits bulge, and more people are laid off. It's a vicious circle.

Here's how Paul Krugman breaks it down on his blog this week:

"Last year I warned that we seemed to be heading into the "Third Depression" — by which I meant a prolonged period of economic weakness:

' Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.'.....

And nobody in power cares! (Third Depression Watch, Paul Krugman, New York Times)

And that's what makes this political burlesque on Capitoll Hill so excruciating to watch, because it's such a waste. Peoples lives are being ruined for nothing, just because Congress doesn't have the courage to do the right thing. Do you think they'd hesitate if they had to pony-up for another multi-billion dollar weapons system, or another bailout for Wall Street, or more tax cuts for their tycoon friends? Of course not. The only time congress worries about red ink is when it might help working people. Then they throw a major hissyfit, waving their hands overhead and babbling hysterically about the free market. Give me a break. The world's not going to end. The truth is, the rest of the world WANTS us to borrow more because they want to maintain strong demand for their exports and keep their workers busy. That's why they're willing to lend us money so cheap.

So, why don't we oblige them? Why don't we borrow enough money to whittle down unemployment to 4 or 5% and get back on track? After all, we know that fiscal stimulus works, because the non-partisan Congressional Budget Office (CBO) released another report on Wednesday saying that Obama's American Recovery and Reinvestment Act (ARRA) was a booming success.

Here's a clip from the report:

"The economic stimulus package passed by Congress in 2009 raised gross domestic product, created jobs and helped lower the country's unemployment rate this year..... the Congressional Budget Office said Wednesday.

The Obama administration and Congressional Democrats said the American Recovery and Reinvestment Act, passed while the U.S. struggled to emerge from a severe recession, would save or create 3.5 million jobs while cutting taxes, investing in roads, bridges and other infrastructure, extending unemployment benefits and expanding aid to states....

The CBO report out Wednesday said the plan increased the number of people employed by between 1.2 million and 3.3 million, and lowered the unemployment rate by between 0.6 and 1.8 percentage points in the first quarter of 2011.

The stimulus package also raised gross domestic product, the broadest measure of economic output, by between 1.1% and 3.1% in the same period...." ("CBO Says Stimulus Boosted Growth, Will Add More to Deficit", Wall Street Journal)

Okay, so ARRA boosted growth by roughly 2% and added about 2 million new jobs to the workforce just like the administration predicted. So, that settles it, right? We now have solid proof that the program worked, so what are we waiting for? Congress needs to push through a second round of stimulus, put people back to work and get the economy firing on all 6 cylinders. No more foot dragging.

‘Historic’ budget cuts bill actually increased 2011 spending by $3 billion

(Remember, it is quite common for your govt to say that something does the exact opposite of what it really does: a budget  cuts bill that increases spending, tax cuts for the rich that increase the debt burden on the poor, wars for peace, etc. --jef)

+++++++

By Sahil Kapur - May 20th, 2011 - RAW Story

WASHINGTON – The fiscal 2011 funding bill roundly hailed for its "historic" spending cuts actually raised government spending by more than $3 billion, according to a new report.

The nonpartisan Congressional Budget Office concluded Monday evening, "Total discretionary outlays in 2011 will be $3.2 billion higher as a result of the legislation, CBO estimates—an increase of $7.5 billion for defense programs, partially offset by a net reduction of $4.4 billion in other spending."

In other words, the bill's increase in defense spending this year outweighed the cuts to discretionary programs -- something the CBO warned may potentially be the case. Now it's the official projection.

The finding is particularly embarrassing because President Barack Obama and leaders of both parties portrayed the measure as a monumental accomplishment in the realm of spending cuts, which they all agreed were vital to America's future.

"We have agreed to an historic amount of cuts for the remainder of this fiscal year," said House Speaker John Boehner (R-OH) and Senate Majority Leader Harry Reid (D-NV) five weeks ago, promising that the measure would cut $39 billion from 2011 spending.

There was some good news in the CBO report for champions of spending cuts: the legislation is projected to lower the deficit by $122 billion between 2012 and 2021, with a reduction of $183 billion in spending authority during that period.

"[O]ne thing is clear: congressional Republicans were able to save American taxpayers hundreds of billions of dollars in the long term," said Brendan Buck, a spokesman for Boehner.