Which Way Do We Go? ‘Obama Recession’ or Full Employment?

by Dr. MARGARET FLOWERS AND KEVIN ZEESE


There are lots of interesting economic stories in the last week, but we want to focus your attention on two topics. One shows the only path out of the economic collapse. The other shows the direction that will most assuredly take us into deeper collapse. So far, the bi-partisans in Washington, DC are on the path to an ‘Obama Recession.’

First, the wrong path: austerity. Great Britain has shown the world what austerity will bring – deeper recession. Britain may be going into its third economic collapse in four years with a 0.3% decline in its GDP in the last quarter and its worst year for manufacturing on record. David Cameron was elected on the promise of austerity and he delivered. The result is Britain has the worst economy on record dating back to 1830. That’s right, since the before the reign of Queen Victoria!

Our policy makers could learn the same thing from U.S. history. When FDR came to power, he put in place stimulus programs that directly created jobs. He built a lot of infrastructure that is still with us today employing people in useful work as government employees. In 1936, FDR and Congress thought they had gotten the economy going and started worrying about deficit spending. They decided to cut the funding of the New Deal to decrease the deficit. The result: the Roosevelt Recession of 1937 and 1938. Roosevelt realized his error and started stimulating the economy again and quickly the recession ended and growth returned. Even before the attack on Pearl Harbor the U.S. economy was on the mend.

Lesson to President Obama: Pursue the path of cutting the deficit with cuts to human needs and you are risking an “Obama Recession.” You will have squandered an immense opportunity to get the country on track.

Second, what is the solution to end the economic collapse?  There is one thing that has paralleled deficit spending for decades.  When deficit spending goes up, this is always is going up; and when deficit spending goes down, this has reversed.  As the chart below shows that one thing is unemployment.  If unemployment is high, deficit as a percent of GDP is high. If we reduce unemployment, the deficit shrinks.

Chart from the St. Louis Federal Reserve shows the deficit as a percentage of GDP (red line) vs. the unemployment rate (blue line); for 60 years the pattern has held. When unemployment drops, the deficit as a percentage of GDP drops. When unemployment rises, the deficit rises.

Jobs.  Job creation is the one solution that has not been tried by government. Jobs are the solution to so many economic problems. The deficit, which the bi-partisans in Washington are fixated on, is directly related and the only path to reducing the deficit is moving toward full employment.  Full employment solves so many other problems: poverty and hunger, eviction and foreclosure, personal debt, retirement savings – all are ameliorated by full employment. But, when was the last time you heard any elected official utter the phrase “full employment”?

Other News
There is a lot of news for you to review in our news section which is updated daily: how Geithner left the banking system more concentrated with already too big to fail banks growing bigger and how the solution is public banks or turning banks into utilities; Obama’s appointment to the SEC brings Morgan Stanley’s lawyer through the DC revolving door; reports from Davos show complacency and denial; the continued, precipitous decline of unions while non-union workers organize; the energy mess of tar sands, fracking and worse signs for climate change while billionaires continue to mislead on climate; how single payer is becoming more essential than ever; details on how tax havens operate and how a resignation of a top DOJ official shows there never was any serious effort to investigate or prosecute bankers who collapsed the economy.

Finally, don’t miss two other articles we’ve written: Margaret Flowers wrote in Al Jazeera how top CEOs are planning to loot the economy; and Margaret and Kevin Zeese wrote a must read hidden history of cooperatives and community work and how they relate to social change for Truthout. This history provides lots of clues as to how we can be more effective today.

America R.I.P.

October 16, 2012 | Paul Craig Roberts

 

During the second half of the 20th century the United States was an opportunity society. The ladders of upward mobility were plentiful, and the middle class expanded. Incomes rose, and ordinary people were able to achieve old-age security.

In the 21st century the opportunity society has disappeared. Middle class jobs are scarce. Indeed, jobs of any kind are scarce. To stay even with population growth from 2002 through 2011, the economy needed about 14 million new jobs. However, at the end of 2011 there were only 1 million more jobs than in 2002. http://www.bls.gov/webapps/legacy/cesbtab1.htm 
 
Only 426,000 of these jobs are in the private sector. The bulk of the net new jobs consist of waitresses and bartenders and health care and social assistance. According to the Bureau of Labor Statistics, over the 9 years, employment for waitresses and bartenders increased by 1,188,000. Employment in health care and social assistance increased 3,087,000. These two categories accounted for 1,000% of the net private sector job growth.

As for manufacturing jobs, they not only did not grow with the population but declined absolutely. During these nine years, 3.5 million middle class manufacturing jobs were lost. 

Over the entire nine years, only 48,000 new jobs were created for architects and engineers.

In the 21st century the US economy has been able to create only a few new jobs and these are in lowly paid domestic services that cannot be offshored, such as waitresses and bartenders. 

The lack of jobs, especially high value-added, high productivity jobs, is the reason real median household income has declined and the distribution of income has worsened. Without rising real household income, there cannot be a consumer economy. 

In the early years of the 21st century, the Federal Reserve substituted a rise in consumer debt to drive the economy in place of the missing rise in consumer incomes. Low interest rates drove up housing prices, and people refinanced their mortgages and spent the equity. The Federal Reserve kept the economy alive by loading up consumers with debt that housing prices and consumer incomes would soon be unable to support.

When debt and real estate prices reached unsustainable levels, the bubble popped, and the ongoing financial crisis was upon us.

The cause of all of the problems is the offshoring of Americans’ jobs. When jobs are moved offshore, consumers’ careers and incomes, and the GDP and payroll and income tax base associated with those jobs, go with them. When the goods and services produced for American markets by offshored labor are brought into the US to be sold, the trade deficit rises, and downward pressure is put on the dollar, pushing up domestic inflation. (On October 12, statistician John Williams (shadowstats.com) reported that “third-quarter wholesale inflation jumped to an annualized 6.2%.”)

Jobs offshoring is driven by Wall Street, “shareholder advocates,” the threat of takeovers, and by large retailers, such as Walmart. By cutting labor costs, profits go up.It is that simple. However, as a result of sending American jobs to cheap labor countries, US consumer incomes go down. The end result is to destroy the domestic consumer market. What would have been US consumer income growth becomes instead profit growth for US corporations.

Keynesian economists use in their textbooks the example of how the aggregate effect of individual saving could be the opposite of the effect intended by the individuals. Whereas each saver seeks to improve his position by building wealth, in the aggregate saving could exceed investment, resulting in a decline in aggregate demand and a fall in income for all. Offshoring has the same logic. Each corporation can expect to gain more profits from moving US jobs offshore, but the aggregate effect is a fall in American consumer incomes and a reduction in the American consumer market.

I have told this story many times. But policymakers, the media, and economists seem unable to connect the dots.

Jobs offshoring has substantial implications for Social Security and Medicare. The US has the least adequate social safety net of any developed country. The two major components of the US social safety net are Social Security and Medicare for the elderly. Social Security and Medicare are financed by a payroll tax. The combined tax is 15.3% of payrolls. For the past quarter of a century the Social Security portion of the payroll tax has built up a surplus of over $2 trillion. Recently, the Medicare portion began running in the red.

Right-wing Republicans, free market ideologues, and the left-wing have all indoctrinated themselves with incorrect beliefs about Social Security and Medicare. The right-wing claims that a safety net financed with 15.3% of payrolls is a “Ponzi scheme” and an “unfunded liability.” If that is the case, then so are veterans benefits, military pensions, and federal pensions, all of which are financed by the income tax, the basis for the payroll tax. 

The left-wing claims that the rich do not pay high enough payroll taxes, because the income subject to Social Security payroll tax is capped at about $110,000. But the benefits are also capped. Social Security is not supposed to be an income redistribution scheme from rich to poor, and it is not supposed to be a pension system for the rich. The pension paid is supposed to correlate with the pre-retirement income level of the retiree. Those who had higher wages or salaries and consequently paid more in payroll taxes receive a larger Social Security check than those who had lower wages and salaries and paid less payroll taxes, although there is favoritism toward the lower income earners who receive proportionally more in respect to their payroll taxes than higher income earners.

There is no cap on income subject to the Medicare portion of the payroll tax. Moreover, Medicare charges a Medicare Part B premium that is deducted from the Social Security monthly check. In addition, there is a further Part B premium based on retirement age income. For example, someone working beyond retirement age and making $250,000 per year pays about $3,800 in Medicare Part B premium in addition to the Medicare portion of the payroll tax of about $7,500. The annual premium he pays for his “free” Medicare for which he has paid all his working life with a payroll tax is about $11,300.

Moreover, Medicare by itself is insufficient coverage. To actually have medical coverage, those covered by Medicare have to purchase a supplementary private policy to cover the large gaps in Medicare. Depending on the range of coverage, a supplementary policy costs approximately $100 to $300 per month. 

As the person making $250,000 per year is likely to go for the most coverage, he will be paying about $14,900 (excluding deductions and co-payments) per year for his “free” Medicare. This is despite having paid the Medicare payroll tax each year of his working life. A person who made $250,000 in taxable income per year for 30 years would have paid $217,500 into Medicare at the current Medicare payroll tax rate.

The right-wing’s notion that Social Security and Medicare are handouts, part of the welfare state’s bread and circuses, and the left-wing’s idea that the rich get a free ride are equally untrue.

(Note: $250,000 is the politicians’ dividing line between the rich and the rest of us. For a person making $50,000 a year, an income five times larger can seem rich. However, a $250,000 annual income leaves a family or person far distant from the lifestyle of the rich. Upper middle class incomes are generally associated with high-tax, high-cost urban areas in states with high income taxes. After federal income and payroll taxes, state income and sales taxes, and property taxes, what appears to many as a large income disappears. In New York City, the federal income tax will take about 25% of the $250,000, New York state will take about 9%, and New York City will take about 3.65%. The combined city and state sales tax is 8.875%. The property tax is high. The conclusion is that in New York City a $250,000 income is reduced to $125,000 or thereabouts. Those who claim “the rich don’t pay taxes” are not talking about $250,000 incomes.)

Social Security and Medicare have served the country well. They protect the individual from his own mistakes, from crooked and incompetent money managers, and from financial crises, and they protect society from the moral dilemma of confronting large numbers of fellow citizens who through fault or no fault of their own cannot provide for their livelihood and medical care. After the financial scandals and crisis of the past five years, it is a stretch to believe that any but the astute can manage their personal wealth, whether small or large, in today’s situation of unregulated financial markets, zero interest rates, currency uncertainty, and highly complex investment instruments with computers programmed with mathematical models dominating equity trades.

The argument that conceptually a person could do better by investing his payroll taxes in the stock market is a poor basis for old age security policy. The person can do better as long as he or she doesn’t fall into the hands of a Bernie Madoff or a Goldman Sachs, doesn’t receive zero interest on his bonds because the Federal Reserve has to bail out the “too big to fail banks,” doesn’t experience a decline in currency value due to monetization of enormous federal deficits, and doesn’t experience a bear market as he approaches retirement.

The right-wing ideologues who try to scare old age security out of existence go on and on about rising medical costs, about an aging population living longer, declining birthrates and a worsening ratio of workers to retirees, about people learning to rely on handouts rather than their own means, and about Washington’s rising unfunded liabilities.

Scare projections are designed to scare, and most are untenable. For example, longevity was a product of rising incomes, good diet, and antibiotics. Today only the upper crust have rising incomes. Antibiotics are wearing out from abuse and rising immunity of bacteria. Diet is compromised in ways still poorly understood as a result of GMOs, pesticides, herbicides, pumping chicken, pork, and beef full of antibiotics and hormones and feeding the animals GMO grains and also possibly infected animal byproducts, and pumping our water full of fluoride. A variety of destructive activities and behaviors are causing ecological damage. Longevity might have been a short-term benefit of irreproducible conditions considering the mounting ecological damage and the rise of superbugs, stress, and tainted food and water production.

The projection of an aging population might also be wrong. Clearly, the post-World War II baby boomers are aging, but do the projections take into account the legislated 1965 immigration increases plus the illegal influx from Mexico and points south of young people with high birth rates? How can it be that a country with allegedly 30 million illegal immigrants, whose children born in the US are citizens, has a declining birth rate? How do we know that the illegal population will not continue to increase?

There are so many Spanish speaking people in the US today that if a person calls any of his utility companies, whether telephone, Internet, water, electricity, TV, or any of his credit card companies, or his bank, he has to select English or Spanish. Obviously, as
anti-immigration sites make clear, the US population is changing in its national origin, and there appears to be no sign of an aging Hispanic population. How many old Spanish speaking people do you see in the US compared to the young?

When confronted with this apparent fact, the response is: “why will the Hispanics pay for the aging white population?” The answer is: because they are in the same payroll tax system and the taxes will be withheld from their wages and salaries just as they are from everyone else’s.
It is possible that if Hispanics in the US have suffered years of hostility, accusations, and hatred from “the ice people,” once Hispanics are sufficiently numerous to control the legislature, assuming one still exists, or to take over the executive branch, the only seat of power, they may in retribution cut off the aging whites. But if so, the whites will have brought it on themselves.

Whatever the scare projections that are mustered to undermine the public provision of old age security, the real financial danger is never mentioned. The only significant financial danger to Social Security and Medicare is the offshoring of American jobs and GDP. A country without a job base is without a payroll tax base. If the only jobs that the 21st century “world’s only superpower” economy can create are for waitresses, bartenders, and health care and social assistance (hospital orderlies and practical nurses), payroll tax revenues will be less than if the US still had 20 million workers and rising in well-paid manufacturing jobs instead of 11 million.
Regardless of Medicare’s financing, the death knell for the elderly was the legality of abortion. If the yet to be born are an insufferable burden, imagine the cost of the elderly. As far as the state is concerned, once you stop producing income and payroll tax revenues for the state, it is time for you to die. Washington would rather enact euthanasia than to pay back the $2+ trillion in the Social Security trust fund that Washington spent, leaving only non-marketable IOUs in the account.

Readers might think that Americans would never stand for death by injection for the elderly once the qualified age is reached. But why would they not? They have accepted millions of aborted babies, and Americans, including the elderly, have stood for Washington’s murder, maiming and displacement of millions of Muslim men, women, and children in 7 countries over the past 11 years and are yet to show any signs of remorse for their complicity in mass murder. Next month tens of millions of Americans will vote for Mitt Romney who believes Obama isn’t killing Muslims fast enough.

Prior to the advent of the new “health care” system, Medicare and or hospitals are already shifting costs to Medicare patients. To avoid penalties and fraud allegations for “medically unnecessary hospitalizations,” rather than formally admit Medicare patients as inpatients, hospital administrators classify them as outpatients “under observation.”

According to a Brown University analysis of Medicare records in 2007, 2008, and 2009, the ratio of Medicare observation patients to those admitted as inpatients rose by 34 percent.

Being classified an outpatient under observation eliminates medicare coverages, especially for post-operative or post-accident rehabilitation care, leaving Medicare patients with bills in the tens of thousands of dollars (AARP Bulletin, October 2012).

Other costs are being shifted to doctors and to hospitals. Medicare pays fixed prices for each covered procedure or test, and these prices can be as low as half of the billed prices. During a period when costs incurred by providers of health care have been rising, Medicare has been cutting the amounts it pays providers.

As the payroll tax is commingled with general tax revenues, Social Security and Medicare payroll tax collections can be diverted to other purposes and, thus, are always subject to competing budgetary demands, such as the previous 11 years of gratuitous wars and the bailouts of “banks too big to fail,” or to deficit reduction demands as the government consistently overspends all revenue sources.

A national health service is the only way to control health costs and provide the population with health care coverage. A national health system takes the many levels of profits out of the system and also reams of compliance and liability costs. A national health system can coexist with a private system for those who can afford it or whose employers are sufficiently profitable to provide it.

As Jarad Diamond reveals in his book, Collapse: How Societies Choose to Fail or Succeed, societies fail, if not because of their moral bankruptcy, then because their rulers are only capable of short-term thinking. The future is beyond their interest. The US offshored its economy, because it worked short-term for corporate executives (rewarded with multi-million dollar performance bonuses), Wall Street (rewarded with profits), shareholders (rewarded with capital gains), and politicians (rewarded with corporate and Wall Street campaign contributions).

Incompetent free market economists confused jobs offshoring with free trade. They said the country would and was benefiting by giving its manufacturing, industrial, and tradable professional service jobs to China and India, that the US was ridding itself of “dirty fingernail jobs” and would soon be flush with highly paid high-tech jobs and highly paid financial service jobs.

None of these promises or predictions were true. Nowhere in the government’s jobs statistics are there any of these promised replacement jobs. The economists who provided cover for the destruction of the US economy were rewarded by the corporations with speaking fees, grants for their university departments, and newspaper columns paid for by corporate advertisers. Those few who told the truth were expelled from the corporate media that Bill and Hilary Clinton allowed to be monopolized (for campaign contributions, of course).

The future of old age security in the United States has been lost, because the job base has been given away to foreigners in order to maximize incomes in the short-run for the few decision-makers. 

The misrepresentation of jobs offshoring as free trade has destroyed the prospects of cities, counties, and states along with those of unions and millions of Americans who once had a secure future. It has destroyed the prospects of class after class of university graduates burdened with student loans who expected to step into the jobs that have been offshored or filled by H-1B visa holders from abroad.

The American work force has been forsaken by the corporations and by Washington, and this means that Social Security and Medicare have also been forsaken. 

As I predicted in the early years of this new century, “the United States will be a third world country in 20 years.” We might get there even sooner as Washington exhausts what little is left of American wealth in gratuitous wars in service to Israel and the US Military/Security Complex, in unaffordable military buildups in futile hopes of establishing hegemony over China and Russia, and in negative interest rates from the Federal Reserve’s effort to drive up the book value of debt instruments on the balance sheets of financial institutions.

In 1817 Percy Bysshe Shelly forecast America’s future:

“I met a traveler from an antique land
Who said: “Two vast and trunkless legs of stone
Stand in the desert. Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip and sneer of cold command,
Tell that its sculptor well those passions read,
Which yet survive, stampt on these lifeless things,
The hand that mockt them and the heart that fed:
On the pedestal these words appear:
‘My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!’
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.” 

Writing in the October 15 online CounterPunch, John V. Walsh, relying on charts prepared by economics professor Mark J. Perry at the University of Michigan and blogger John Hunter, concludes that it is a myth that US manufacturing is in decline.

Walsh says that the loss of US manufacturing jobs is due to automation, not to offshoring. Think about this for a moment. Perry’s graph on which Walsh relies shows the sharp drop in US manufacturing employment to be a 21st century experience. However, automation has been around for a long time. The notion that its effect on employment only showed up recently needs an explanation that is not provided. The steep drop in US manufacturing employment that began in 2000 does correspond with the date at which jobs offshoring began to bite hard.

Why does automation not also affect Chinese manufacturing, especially as most of the Chinese manufacturing technology came from the US as US corporations offshored their production for the US market? If Chinese manufacturing is not up to date with automation, like the US is assumed to be, how do the Chinese, even with cheap labor, undersell US automated factories? How did Chinese manufacturing employment increase in a mere four years by an amount equal to the total manufacturing employment in the US?

The US Bureau of Economic Analysis shows only 11.2 million full time US manufacturing jobs in 2010. The US Bureau of Labor Statistics shows 11.7 million US manufacturing jobs in 2011, down from 15.3 million in 2002.

In contrast, China, an industrial and manufacturing backwater for most of my life, had 112 million manufacturing jobs in 2006. In a mere four years (2002-2006), the increase in China’s manufacturing employment was as large as today’s total employment in US manufacturing. As long ago as 2006, China’s manufacturing employment was about 10 times the current US manufacturing employment. The Chinese population is about 4 times larger than the US population, but China’s manufacturing population is proportionately greater–10 times larger. Indeed, Chinese manufacturing employees almost equal the total number of employees in all occupations in the US (Manufacturing and Technology News, December 15, 2009).

Obviously, something is wrong with Walsh’s article or the graphs on which he relied.

America’s manufacturing prowess cannot be found in the statistical data. The US is primarily an exporter of Agricultural commodities. The US imports almost twice the amount of manufactured goods as it exports. Indeed, according to the US Census Bureau Statistical Abstract of the US http://www.census.gov/compendia/statab/2012/tables/12s1308.pdf US imports of manufactured goods are 5.5 times larger than US imports of crude oil and 4 times larger than all imports of mineral fuel. Yet, we hear about energy dependency, not manufacturing dependency.

As of 2010 the “superpower” US economy still had a trade surplus in airplanes and airplane parts and a small $6 billion surplus in scientific instruments, but that is about all.

In ADP equipment and office machinery, the US exported $22.2 billion in 2010 (latest information at time of writing), down from $44.6 billion in 2000. US imports in 2010 of ADP equipment and office machinery were $113.5 billion, or 5.1 times exports.

The US cannot even make its own clothes and shoes. In 2010 footwear imports are 28.7 times exports. Clothing imports are 24.6 times exports.

Electrical machinery exports were $77 billion; imports were $120 billion.

Exports of power generating machinery were $33 billion; imports were $42 billion.

Exports of television, VCRs were $21.5 billion; imports were $137 billion.

US exports of vehicles was $88 billion; imports were $179 billion.

US news reports of thousands upon thousands of discharged US workers never cite their replacement by automation. The news story is always that the plant is being closed and the jobs moved abroad. Any review of America’s former manufacturing centers verifies this.

Boarded up plants and cities and towns in decline are the remains of America’s formerly world dominant manufacturing economy.

The loss of the US post-war trade surplus in manufacturing has left the US with a huge trade deficit. The charts on which Walsh relied left him unaware of the fact that China has a large trade surplus with the US, and the US has a large trade deficit not only with China but with the world.

The fact that the US has to import not only manufactured goods, but also high-technology products from China, an inconceivable outcome during the second half of the 20th century, is powerful testimony to the decline of the US as a manufacturing powerhouse.

It took some doing to obscure the facts and to present the US as a rival to China in manufacturing prowess. How did it happen?

The fault might lie in the way statistical information is collected and presented. Apple, for example, is a US corporation. It reports its worldwide earnings to the IRS. Its manufacturing is counted as US manufacturing as it is a US corporation. However, Apple doesn’t produce a single computer in the US. They are produced in China. The employment that Apple reports is in China. The Chinese are employed by an American company, but they are not Americans. The Chinese incomes that Apple provides do not support the American consumer market or provide the tax base for cities and states. The Chinese incomes do not provide ladders of upward mobility or careers for Americans.

The wages Apple pays are in China. The consumer incomes and GDP that it generates are in China. When Apple’s computers come back to America to be sold they come in as imports. But Apple’s manufacturing and employment are reported as the output and employment of an American company.

When statistics and the methods by which they are compiled were put into effect, countries did not offshore their production for their domestic markets. Foreign investments were made for selling abroad, not for selling in the home market. With the advent of offshoring, counting the employment and output of US firms that are producing abroad for their domestic market as an indication of the strength of US manufacturing is very misleading. Apple, for example, has done more to boost China’s GDP than to boost America’s GDP. This is true of every US corporation that offshores its production for US consumers.

In recent years the percentage of the work forces of large US corporations that is foreign sourced has risen rapidly. Some of the overseas hiring reflects traditional foreign investment in which a company builds abroad in order to sell abroad, but much of the hiring reflects offshored production for US markets.

The US has been able to survive the large trade deficits produced by jobs offshoring, because the US dollar is the world reserve currency. Being the world reserve currency, the US does not have to earn foreign currencies with exports in order to pay for its imports. However, as these trade deficits persist and the buildup of foreign holdings of dollar paper assets rises, there is a diminishing willingness of foreigners to trade real goods and services for financial assets denominated in a fiat currency whose value is diminishing with the ever-growing supply.
Thus, the basic notion of globalism–that a country’s corporations can produce goods and services in any country for home markets–is false.

Walsh is correct that China is not to blame for the decline in US manufacturing. Offshoring is to blame, and, thus, the blame lies with US corporations, policymakers, and the economists and financial media who shill for “globalism.” The decision was made to sacrifice the US economy to the short-term profits of the few. A country so poorly led can do nothing but decline.

Myths About Job Creation and the Private Sector

Trickle-Down Redux

by MARK VORPAHL

 

The issue of unemployment and underemployment loomed above the hype of both the Republican and Democratic Party conventions with the cold stare of a harsh judge. Many promises and dubious claims were made from the respective party podiums, but no real solutions were put forward.

Despite the antagonistic posturing between Obama and Romney, both stand by the “free market” commandment that it is the business of the private sector to create jobs, not the government. That is, the effects of the Great Recession will not be reversed until the big business owners invest in job creating ventures that they can make a profit from. In order to encourage them to make these investments it is necessary to fatten their financial reserves with bail outs, low interest loans, minuscule tax rates, and so on.

In short, the policies emanating from the belief that the private sector will rescue workers from the jobs crisis are variations of the discredited trickle down theory where the wealth built up at the top through government funded corporate welfare will somehow find its way into the pockets of working Americans.

Romney is an unapologetic supporter of this discredited scheme. While candidate Obama criticizes such an approach in order to get votes, nevertheless, as President, this has been the guiding philosophy of his actions. He has provided trillions of dollars in bailouts and loans to Wall Street, declared himself open to cuts to Social Security, Medicare, and Medicaid, supported the privatization of public schools through the “Race to the Top” program of charter schools, extended the Bush tax cuts for the rich, and the list goes on.

What have been the results? Ninety three percent of the economic growth that has occurred since the economic crisis went into the pockets of the top 1%.[i] Big business is sitting on $2 trillion in profits without reinvesting them.[ii] Side by side with this enrichment, high unemployment and underemployment persist and 58 percent of new jobs pay under $13.83 per hour.[iii]

The private sector is not coming to the economy’s rescue. Rather, those in the private sector are taking advantage of the crisis to enrich themselves at the expense of workers. Neither Romney or Obama are proposing an alternative course, only variations of the same failed approach.

The private sector did eventually help to lead the nation out of the deep recessions of the 1970s and 1980s. However, the Great Recession is much more profoundly structural in its nature. Conditions are worse today, and policies that depend on the private sector to create good jobs will only exacerbate the fundamental problems that led to the Great Recession and allow its results to continue to devastate the lives of tens of millions.

One difference is that today wealth is vastly more concentrated into fewer hands. The top richest 400 individuals have more net worth than the bottom 60 percent of all Americans.[iv] Six members of the Walton family behind Walmart have, by themselves, as much wealth as the bottom 150 million.[v]

These few are the most powerful owners of the private sector. This elite’s outlook is far removed from that of the majority. Because they are so powerful, they own a good part of both political parties. And because they are sitting on such vast financial reserves, they are less inclined to risk it on investments that provide jobs.

Their top goal is to generate as much short-term profit as possible for themselves. The long-term effects of how they do this are of no concern to them. If they can make more through destructive trickery rather than putting people to work making commodities, all the better.

The opportunities for such trickery have grown in parallel with the rapid expansion of the financial sector over the last thirty years. This is indicated by the fact that trade in U.S. equity (stock) markets grew from $1.671 trillion, or 13.1 percent of the US GDP in 1970, to $14.222 trillion, or 144.9 percent of the US GDP in 2000.[vi]

Profit has increasingly been made through financial schemes rather than production and trade. The problem developing out of this is not only a minimalization of job creating investment, it turns the economic system into a giant casino for the mega rich at the cost to society as a whole.

It was the growth of financial speculation that led to economic bubbles, particularly in housing, which helped make the collapse of 2008 so deep and lasting. The destructive possibilities of the financial sector’s activities continue unchecked. The banks have lobbied tenaciously to prevent any restrictive regulation. In fact, just last month the Securities and Exchange Commission abandoned efforts to tighten regulations on money market funds. All those who follow the financial sector agree that nothing substantial has been done to prevent a monumental financial disaster that will require an even bigger bailout than before.

Even more alarming has been the growth in derivatives trading. Paul Wilmott, an economic quantitative analyst, has estimated that the total amount of derivatives being played in the markets is $1.2 trillion — 20 times the amount of money currently in the global economy. Despite the enormous risk the exposure to such debt puts the economy in, financiers continue to realize more short-term profit through these investments than job creating production in manufacturing.

The main players in the private sector are not interested in job creating investment. The reality is that workers are too broke to buy much, therefore demand is too weak for big business to realize profits by making more goods. Better from the big business elite’s perspective to hoard trillions and invest in financial speculation, though it puts the world economy in peril.

In contrast to the claims of both Obama and Romney — and both of them know better — the private sector will not create the jobs necessary to lift workers out of the Great Recession. No matter how many incentives big business is showered with, there will not be enough to overcome the limits the profit motive places on investment, given the concentration of wealth, growth in financial speculation, and the lack of demand resulting from workers’ impoverishment.

The private sector is the problem, not the solution for the jobs crisis. It will take investment in the public sector to create full employment and lift up the economy. This investment can be funded by taxing corporations to the point where our nation is facing surpluses rather than deficits. Owners of immense wealth have for too long been let off the hook from paying their fair share.

There is no shortage of work that desperately needs to be done. Industries need to be retooled to reverse climate change. Our infrastructure needs to be maintained and, in many cases, rebuilt. Public education needs to be improved and expanded rather than privatized. Social services and health care need to be made available for everyone who needs them.

Unfortunately, this is exactly the opposite of the approach of both presidential candidates and their corporate funded parties. Workers need to wrest control of the economy from the 1% by building a politically independent mass social movement to place our needs, such as a federal jobs program to create full employment, on the front stage.

All progressive changes that have benefited the vast majority have been the result of such struggles. Our salvation from the Great Recession lies in forging the necessary grass roots/workers unity to rediscover our power to set the political agenda.

Notes.　
[i] “The Rich Get Richer” by Steven Rattner http://www.nytimes.com/2012/03/26/opinion/the-rich-get-even-richer.html?_r=1
[ii] “US firms hoarding $2 trillion” by John Aidan Byrnehttp://www.nypost.com/p/news/business/hoarding_cash_Yzfk2c8aK1wAPrZCRdEVnJ
[iii] “The low-wage jobs explosion” by Tami Luhby http://money.cnn.com/2012/08/31/news/economy/low-wage-jobs/index.html
[iv] “Michael Moore says 400 Americans have more wealth than half of all Americans” by Politifacthttp://www.politifact.com/wisconsin/statements/2011/mar/10/michael-moore/michael-moore-says-400-americans-have-more-wealth-/
[v] “Wal-Mart Heiress’s Art Museum a Moral Blight” by Jeffery Goldberg http://www.businessweek.com/news/2011-12-19/wal-mart-heiress-s-art-museum-a-moral-blight-jeffrey-goldberg.html
[vi] “Financialization” Wikipedia http://en.wikipedia.org/wiki/Financialization

Three Fallacies the Super-Rich (through their media outlets) Continue to Sell

Being in the Highest Class Doesn't Mean You're a High Class Person

by PAUL BUCHHEIT

 

When it comes to the economy, too many Americans continue to be numbed by the soothing sounds of conservative spin in the media. Here are three of their more inventive claims:

1. Higher taxes on the rich will hurt small businesses and discourage job creators

A recent Treasury analysis found that only 2.5% of small businesses would face higher taxes from the expiration of the Bush tax cuts.

As for job creation, it’s not coming from the people with money. Over 90% of the assets owned by millionaires are held in a combination of low-risk investments (bonds and cash), the stock market, real estate, and personal business accounts. Angel investing (capital provided by affluent individuals for business start-ups) accounted for less than 1% of the investable assets of high net worth individuals in North America in 2011. The Mendelsohn Affluent Survey agreed that the very rich spend less than two percent of their money on new business startups.

The Wall Street Journal noted, in way of confirmation, that the extra wealth created by the Bush tax cuts led to the “worst track record for jobs in recorded history.”

2. Individual initiative is all you need for success.

President Obama was criticized for a speech which included these words: “If you’ve been successful, you didn’t get there on your own…when we succeed, we succeed because of our individual initiative, but also because we do things together.”

‘Together’ is the word that winner-take-all conservatives seem to forget. Even the richest and arguably most successful American, Bill Gates, owes most of his good fortune to the thousands of software and hardware designers who shaped the technological industry over a half-century or more. A careful analysis of his rise shows that he had luck, networking skills, and a timely sense of opportunism, even to the point of taking the work of competitors and adapting it as his own.

Gates was preceded by numerous illustrious Americans who are considered individual innovators when in fact they used their skills to build upon the work of others. On the day that Alexander Graham Bell filed for a patent for his telephone, electrical engineer Elisha Gray was filing an intent to patent a similar device. Both had built upon the work of Antonio Meucci, who didn’t have the fee to file for a patent. Thomas Edison’s incandescent light bulb was the culmination of almost 40 years of work by other fellow light bulb developers. Samuel Morse, Eli Whitney, the Wright brothers, and Edison had, as eloquently stated by Jared Diamond, “capable predecessors…and made their improvements at a time when society was capable of using their product.”

If anything, it’s harder than ever today to ascend through the ranks on one’s own. As summarized in the Pew research report ”Pursuing the American Dream,” only 4% of those starting out in the bottom quintile make it to the top quintile as adults, “confirming that the ‘rags-to-riches’ story is more often found in Hollywood than in reality.”

3. A booming stock market is good for all of us

The news reports would have us believe that happy days are here again when the stock market goes up. But as the market rises, most Americans are getting a smaller slice of the pie.

In a recent Newsweek article, author Daniel Gross gushed that “The stock market has doubled since March 2009, while corporate profits and exports have surged to records.”

But the richest 10% of Americans own over 80% of the stock market. What Mr. Gross referred to as the “democratization of the stock market” is actually, as demonstrated by economist Edward Wolff, a distribution of financial wealth among just the richest 5% of Americans, those earning an average of $500,000 per year.

Thanks in good part to a meager 15% capital gains tax, the richest 400 taxpayers DOUBLED their income and nearly HALVED their tax rates in just seven years (2001-2007). So dramatic is the effect that anyone making more than $34,500 a year in salary and wages is taxed at a higher rate than an individual with millions in capital gains.

There’s yet more to the madness. The stock market has grown much faster than the GDP over the past century, which means that this special tax rate is being given to people who already own most of the unearned income that keeps expanding faster than the productiveness of real workers.

And one fading illusion: People in the highest class are people of high class.

Scientific American and Psychological Science have both reported that wealthier people are more focused on self, and have less empathy for people unlike themselves.

This sense of self-interest, according to a study published in the Proceedings of the National Academy of Sciences and other sources, promotes wrongdoing and unethical behavior.

Can’t help but think about bankers and hedge fund managers.

The Land of the Mega-Rich

No Jobs for Americans
by PAUL CRAIG ROBERTS

On March 9th, the Bureau of Labor Statistics (BLS) announced that 227,000 new nonfarm payroll jobs were created by the economy during February. Is the government’s claim true?

No. Statistician John Williams (shadowstats.com) reports that 44,000 of these jobs or 19% consist of an add-on factor derived from the BLS’s estimate that 44,000 more unreported jobs from new business start-ups were created than were lost by unreported business failures. The BLS’s estimate comes from the bureau’s “birth-death model,” which works better during normal times, but delivers erroneous results during troubled times such as the economy has been experiencing during the past four years.

Taking out the 44,000 added-on jobs reduces the February jobs number to 183,000, but does not provide a full correction. In an economy as troubled as the US economy is, most likely the deaths exceeded the births, but we don’t know what the number is. Was it 20,000? 50,000? What number do we deduct from the 183,000? We simply do not know.

Williams reports that seasonal adjustment factors do not work properly during troubled economic times and add their own overstatement to the jobs figure. If anyone could estimate the overestimate of new jobs that results from malfunctioning seasonal adjustments, it is John Williams, but he doesn’t provide an estimate.

Most likely, the new jobs did not exceed 150,000, a figure that would merely keep even with population growth and thus not reduce the rate of unemployment, which, consistent with this deduction, remained constant.

Let’s look now at the kind of jobs that were created. Of the new jobs reported by BLS, 92% are in services. Of this 92%, only 7% could possibly relate to exportable services–architectural, engineering, and computer systems services.

Of the reported new service jobs, 29% are in health care and social services. The categories that account for the health services jobs are ambulatory health care services and hospitals. Waitresses and bartenders account for 20% of the reported new jobs.

Employment services account for 29% of the new reported jobs. Transportation and warehousing accounted for 5% of the reported new jobs, despite a loss of 60,000 jobs in general merchandise and department stores.

In other words, the vast majority of the new jobs are low paying jobs, except for a few truck drivers.

Other conclusions that we can draw are:

The US has nothing to export to reduce its massive trade deficit, which has, sooner or later, disastrous implications for the US dollar.

Middle class income jobs are declining, with polarization at the two extremes.

US economic policy continues to focus on the mega-rich at the expense of 99% of the population. US interest rates are kept at, or near to, zero in order to maximize mega-bank earnings, while depriving tens of millions of retired Americans of interest income on their lifetime savings, forcing them to spend their capital in order to live, thus depriving their heavily indebted children of inheritance.

In short, the US is well on its way to becoming a third world country, as I predicted would be the case in 20 years at a Brookings Institution conference in Washington DC early in the 21st century.

America is no longer the land of the free and independent. It is the land of the 1% mega-rich.

261,200 Jobs Per Month Must Generate by End of 2016 to Return to 2007 Unemployment Rate

Source: Zero Hedge
October 7, 2011

Every few months Zero Hedge reruns an analysis of how many jobs the US economy has to generate to return to the unemployment rate as of December 2007 when the Great Financial Crisis started, by the end of Obama’s potential second term in November 2016.
This calculation takes into account the historical change in Payroll and includes the 90,000/month natural growth to the labor force, and extrapolates into the future. And every time we rerun this calculation, the number of jobs that has to be created to get back to baseline increases: First it was 245,500 in April, then 250,000 in June, then 254,000 inJuly.

As of today, following the just announced “beat” of meager NFP expectations, this number has has just risen to an all time high 261,200. This means that unless that number of jobs is created each month for the next 5 years, America will have a higher unemployment rate in October 2016 than it did in December 2007. How realistic is it that the US economy can create 16.2 million jobs in the next 62 months? We leave that answer up to the US electorate.

Rank-and-File Economics: Fighting for a Wage- and Job-Led Recovery

Wednesday, September 14, 2011 by Dollars & Sense

by Katherine Sciacchitano

 

Riddle 1: When is a recovery not a recovery?
Answer: When profits are at record levels, corporations are sitting on $1.7 trillion in cash, and unemployment is still at 16+% and rising.

Riddle 2: When is a stimulus not a stimulus?
Answer: When it’s less than one-fourth the size of the hole in the economy it is intended to fill.

Riddle 3: When will it be possible to rebuild the economy?
Answer: When the U.S. labor movement joins with community and international labor allies to demand global economic development, jobs, and rising wages.

When the U.S. housing bubble burst in 2008, putting jobs first was a no-brainer. Global unions demanded immediate action. The G-20—the group of 20 nations charged with coordinating a global response to the crisis—agreed. Governments rushed to do stimulus spending. The worst was prevented.

Then in the spring of 2010 the Greek debt crisis hit. Markets plummeted. The G-20 pulled back and told countries to cut spending. Greece, Ireland, Spain, Portugal, and the U.K. have since enacted austerity packages with drastic spending and wage cuts.

The global jobs crisis is now worse than ever. Between 2007 and 2010, 30 million workers lost their jobs worldwide. In the United States, GDP is falling, jobs have declined since the recovery started, and the unemployment rate is rising again as federal stimulus funds fade and layoffs mount in the states. The Brookings Institution estimates it will take over ten years to return to normal employment levels, even at pre-crisis growth rates. Now, real wages are falling as well.

Union reps negotiating contracts with state and local governments are on the frontlines of the resulting battles. Flanked as they are by terrified members on one side, and angry tax payers and state legislatures attacking wages, benefits, and bargaining rights on the other, their problems go far beyond what can be solved at the bargaining table.

The out-of-the-box solution would be to organize for a comprehensive program of job creation. Blueprints for jobs-based recoveries do exist. But such blueprints need “rank-and-file economists” to turn them into brick and mortar. With Democrats and Republicans actively vying to impose austerity, those rank-and-file economists—community organizers as well as union reps—must tell, not ask, our elected representatives what we need. Then they have to engage in the drawn-out battle to make what we need a reality.

A major obstacle to struggle is the widespread belief—even among many union members—that there is little that government can do besides cut spending, and that only the private sector can create jobs.

Yet the fact that so many are frustrated with government over the high unemployment is evidence that on some level people do believe government action is not only possible but necessary. A rank-and-file economics needs to channel that frustration and nurture that belief. It needs to explain why the “free market” isn’t going to create the jobs that are needed. It needs to educate people about the real causes of the crisis. And it needs to convince community and union members that a positive agenda for long-term growth still exists.

First, we have to arm ourselves by educating ourselves.

The Private Sector Can’t Do It Alone
Here in the United States, people are surrounded by the narrative that only the private sector can create jobs. Even those who acknowledge that we need to rebuild our infrastructure and that rebuilding would create jobs are likely to say that we can’t afford public investment right now. Instead, the argument goes, we should cut taxes and let corporations create the jobs and the investment we need: too much public spending got us where we are; every tax dollar spent by the government is one less dollar business could be used to create jobs.

There are three main responses to these arguments.

First, corporations already have enough cash to invest; tax cuts for corporations and the wealthy aren’t going to lead to more job creation.

The Bush tax cuts didn’t boost job creation, they didn’t boost wages, and they didn’t boost investment in the real economy. What they boosted was corporate profits and the deficit. Today businesses are sitting on record profits and $1.7 trillion in cash that they don’t want to invest. What investment is being done is aimed at boosting productivity and cutting labor costs—that is, cutting jobs. The jobs problem is not due to businesses not having enough cash to invest. Further enriching corporations with tax cuts isn’t going to fix it.

Second, the deficit didn’t cause the crisis; the crisis caused the deficit.

Calls to cut government spending in order to spur growth ignore the fact that the economic crisis we’re in has nothing to do with government spending. The deficit didn’t cause the crisis. The crisis caused the deficit. The spike in the deficit is principally due to the drop in revenues as people lost jobs and businesses lost sales. What additional spending we have done in the past three years—for the stimulus program and for TARP—was temporary. And as economist Dean Baker from the Center for Economic and Policy Research (CEPR) has calculated, in the long run the U.S. budget deficit would virtually disappear if it brought its health-care spending in line with other industrialized countries, all of which have universal health coverage.

Third, there are times when government spending is essential to help the economy over a crisis and when failure to spend will make the deficit worse.

In the short term, the best way to reduce the deficit without increasing unemployment is to recover from the crisis, not cut spending and create more joblessness while the economy is still weak. This is a lesson we should have learned from the last great global economic collapse, the Depression of the 1930s.

Before the 1930s, most economists believed that economies recovered naturally from recessions: in a downturn, either prices would fall and stimulate spending, or wages would fall and stimulate hiring, or both. But when consumers and businesses stopped spending during the Depression, falling wages and prices made the economy worse. It took the New Deal to get the economy growing. From 1933 through the end of the Depression, GDP rose and fell with government spending. By 1936 unemployment had fallen from 23% to 9%. But in 1937 unemployment rose again after Roosevelt cut the budget to reduce the deficit. After that it took massive spending for World War II to return the economy to full employment.

Stimulus Isn’t Enough Either
Given the lessons from the Depression of the 1930s, why didn’t the Obama stimulus plan work better than it did?

One reason is that the housing bubble drained nearly $1.4 trillion in annual spending, yet the Obama administration proposed a stimulus that was only $825 billion spread over several years. Congressional Republicans then reduced that number to $727 billion. They also cut proposed spending for infrastructure, green energy, and aid to states so they could increase tax cuts, even though tax cuts are known to create fewer jobs.

But the deeper reason the Obama stimulus failed is that the administration misunderstood the nature of the crisis. The country needs more than stimulus spending for recovery. It needs a sustained program for rebuilding the real economy and raising wages. The problem isn’t just that cutbacks over the past decades have left us with a shortage of over two trillion dollars in infrastructure spending. It’s that growing inequality has created too big a hole in demand.

During the boom following World War II, the United States regularly used government spending to ease recessions. The idea was that instead of waiting for unemployment to push down wages in the hopes that low wages would boost hiring, the government should boost job creation, and hence wages, by plugging holes in private consumption with public expenditures.

This worked because during the post-war boom, wages as a matter of policy rose with productivity. Recessions were due to short-term policy missteps or the “business cycle”—production temporarily getting ahead of demand. When that happened, businesses made fewer profits and investment would fall. Government spending would boost demand. And demand would spur investment.

In the current economy, stimulus spending can’t accomplish what it did in the post-war economy. Not only have we just had a massive financial crisis rather than a dip in the business cycle, but the crisis happened after decades of stagnating wages. Since the 1980s, demand has been based not on rising wages, as it was in the post-war era, but on household debt backed by the rising prices of assets such as stocks and real estate.

With the bursting of the housing bubble, 28% of homeowners are now under water. Under these circumstances, households that get a temporary bump in disposable income from a stimulus package are as likely to pay down debt as they are to increase spending. Even households that aren’t in debt may save instead of spending because of fear of unemployment. The economy may get a small boost. But businesses correctly see that demand isn’t there and hold back from investing. The economy remains in a hole unless the government embarks on a sustained program of rebuilding wages, jobs, and the real economy.

How We Unlearned Equality
To understand what it will take to rebuild the economy, we have to understand the strength of the post-war economy and how it was reversed.

The great economic lesson of the post-war era was the importance of equality for economic growth and stability. The period before the Great Depression had been marked by steep inequality, debt, and bubbles. Following World War II, the governments of the United States and most of Western Europe made commitments to full employment and rising wages in order to avoid another similar collapse. Global growth reached record rates. Inequality declined. And there were no serious global financial crises.

In the United States, real hourly wages roughly doubled during this period. The policies that made this wage growth and stability possible included corporate acceptance of collective bargaining; a strong social safety net; high quality public services; regulation of business; progressive tax systems—where corporations and the wealthy are taxed at higher rates—to help pay for public services and the cost of regulation; deficit spending to stimulate the economy during economic downturns, thereby preventing wages from falling; and a willingness to lower interest rates when unemployment rose.

Corporate tolerance for these pro-labor policies was transitory and grudging: it lasted as long as the extraordinary post-war levels of profit lasted. Once global profit rates slowed, corporations fought to reverse wage growth and restore profit rates under the guise of the policy mix that came to be known as neoliberalism. They attacked labor rights, the minimum wage, and unemployment insurance. They pushed to reduce taxes on corporations and the wealthy, shifting the tax burden to working people instead. They lobbied to privatize public services and deregulate industries—opening opportunities for profits, denigrating the role of government, and increasing the likelihood of financial crises. The rhetoric of balanced budgets and self-reliance replaced support for a strong safety net and stimulus spending to stabilize wages during recessions. And interest rate hikes were used to minimize inflation—now touted as a primary threat to living standards—by raising unemployment and keeping wages low.

There were changes in international policy as well. After World War II, U.S. trade policy had focused on opening up markets for U.S. exports, which meant not only higher profits but higher domestic employment. Under neoliberalism, boosting profits meant moving production to lower cost areas overseas and exporting back to the United States. It meant cutting jobs at home as well as and pushing down wages abroad.

In short, while the post-war strategy supported rising incomes in the United States and much of the rest of the world, the strategy from the 1980s onward was built on stagnating or falling wages for workers generally. The result was that the global rate of profit rose while hourly wages stagnated or fell, with few exceptions, throughout the globe—not just in the United States and developing countries, but in Europe as well.

To compensate for stagnating purchasing power, U.S. consumers borrowed, and the finance industry made credit more available: between 1981 and 2007, the last year of the housing bubble, household debt doubled as a percentage of GDP. The U.S. consumer became the consumer of last resort for the world. And the global economy balanced precariously on U.S. consumer debt and the dollar.

By the early 2000s, balancing on U.S. consumer debt meant balancing on the housing bubble: dollars exited the country to pay for imports and were recycled back, not as demand for U.S. exports, but as demand for investment in U.S. mortgage securities and other financial assets. The world found out how painful a balancing act this was when the U.S. housing bubble burst, homeowners defaulted on mortgages, and the banking system nearly collapsed, cutting off the supply of easy credit. Global demand plummeted. It hasn’t recovered since. Tackling Inequality Head-on In its own terms, neoliberalism worked: it increased profits, suppressed wages, and shifted tax burdens from the wealthy to lower income workers. Proponents have seized on the deficits created by the crisis to slash social spending, helping insure against future tax increases for those at the top.

The contradictions should be obvious to all: suppressing wages suppresses demand, and balancing consumer spending on debt rather than wages destabilizes the U.S. economy and the global economy. Cutting government spending before we rebuild private demand will throw the country and the world back into recession. It will keep U.S. unemployment at Depression-era levels. And it will result in larger, not smaller, deficits.

Yet the contradictions don’t register because people have a deep-seated belief that the very inequality that is crashing the system is essential to growth and jobs—that by limiting inequality we are limiting our ability to generate wealth.

To build momentum for a jobs- and wage-based recovery, the labor movement has to tackle the belief in inequality head on. It needs to show that the jobs crisis can only be addressed by rebuilding and rebalancing the national and global economies with higher wages and greater equality.

Going Global: Coordination, not Competition
Jobs debates tend to focus on national needs. We’re told repeatedly that competition is the key to a country’s economic success: increase productivity, decrease labor costs, hone our technology, and we’ll beat out the other guy to get the jobs. But the kind of development the world needs for recovery isn’t a zero-sum game. U.S. labor needs healthy manufacturing and wage growth in other countries every bit as much as we need a revival of manufacturing and wages in the United States.

Achieving the objectives proposed in this article—rising wages, demand-led growth, and global development—will require both struggle and international coordination. Labor is familiar with many of the economic tools that will be needed to achieve these core objectives, but it is used to applying them in a national context only, not advocating for their use as part of a global development agenda. Here are a few of the most familiar tools that will be needed and what labor can add by pressing for international coordination:

Fiscal and monetary policy to support employment growth. Governments need to return to wider use of fiscal and monetary policy to stimulate demand and put a floor on unemployment. But in a global economy, stimulus spending can end up “leaking” out of a country when consumers buy imports. Stimulus is most effective when countries act together so one country can’t “steal” demand from another by keeping its wages and demand low while another country raises wages and expands demand.

Labor rights and employment regulation to raise wages. Using fiscal and monetary policy to put a floor on unemployment can help keep wages from falling. But wage growth needs a vigorous commitment to collective bargaining, social benefits such as health care and pensions, minimum and living wage laws, and a strong safety net for unemployed and underemployed workers. These policies are most effective when widely adopted, both because widespread adoption raises global demand and also because it discourages low-wage competition.

Tax reform to provide adequate revenues. Tax reform is needed to ensure that the wealthy and corporations pay their share of the costs for the economic crisis, and to provide revenue for rebuilding and development. Corporate tax reform in particular needs to be coordinated to prevent corporations from gaming differences in countries’ tax rates by relocation or transfer pricing. Since the crisis began, a vigorous global movement has sprung up for a financial transaction tax, which could raise hundreds of billions globally from the finance industry.

Industrial policy to nurture high-wage manufacturing sectors. Ultimately, strong job growth is needed to support strong wage growth. Countries that have developed successfully—including the United States and Britain in their early years, Europe and Japan after World War II, the Asian Tigers in the 1980s, and now China—have done so by using industrial policies to nurture infant industries and growth. These policies have included such measures as regulation of the movement of capital in and out of the country; government investment in infrastructure, education, research and development; requirements that corporations purchase inputs locally and train local workforces; and facilitating the availability of credit for key industries and sectors. Since the eighties and nineties, neoliberal policies and trade agreements have sought to ban many of these policies and make countries dependent on transnational corporations instead. International labor campaigns to eliminate these bans will be critical for reversing this dependence and the advantage it gives corporations over labor. Freeing countries to use industrial policy will in turn be critical for the growth of green manufacturing and energy production as the world grapples with climate change.

Rebuild and Rebalance
A broad consensus is developing within the global labor movement on how this rebuilding and rebalancing needs to take place. There are three main goals:

Raise wages, raise demand. The most pressing economic problem today isn’t government debt or deficits. It’s the hole in demand left by 30 years of wage suppression, and the danger of another period of bubble-fueled growth. To be sustainable, demand has to be based on wages, not on household debt. Inequality isn’t just painful for workers. It’s destabilizing for the global economy. Correcting inequality isn’t a matter of charity. It’s a matter of economic survival.

First and foremost, rebalancing the global economy means correcting the global wage imbalance by creating jobs and raising wages. This imbalance isn’t primarily about high- versus low-income countries. It’s about the share of national incomes going to workers wages and the share going to profit. Since 1980, the share of income going to labor has fallen steadily in all regions of the world, with the possible exceptions of East and Central Asia. The decline hasn’t been due to shifts to low-wage occupations. It hasn’t been limited to low-wage countries. And it has occurred at all income levels. It’s also getting worse. In the current recovery, U.S. corporations captured a whopping 88% of the growth in national income through the beginning of 2010, while only 1% went to labor. Compare that to the recovery after the 1991 recession, when 50% of the growth in national income went to labor.

Replace growth based on low-wage exports with wage- and demand-led growth around the world. As U.S. corporations moved overseas in the eighties and nineties, the U.S. government used the carrot and the stick—as well as its powers over the IMF and the World Bank—to persuade destination countries to cut government spending, let wages fall, remove regulations on movement of foreign capital known as “capital controls,” and “devalue” currencies to artificially force down the price of exports. The result was intensified global competition and the emergence of an “export-led” model of growth: economies grew not because rising wages grow domestic demand, but because suppressed wage growth (or falling wages) pushed down the price of exports. Regardless of their income level, countries that adopt the export-led model suppress both wage growth and demand for imports. They export more than they import. And they run permanent trade surpluses while their trading partners lose jobs and run deficits.

European countries that are sharply reducing deficits to deal with the current crisis and letting wages stagnate or fall are turning to the export-led growth model in hopes of becoming “more competitive.” This kind of “competitiveness” as a primary strategy for global growth isn’t the solution for lagging incomes. It’s a recipe for an intensified race to the bottom and permanently depressed wages. It’s also impossible for a majority of the world to “export” its way out of the crisis and back to growth; for every country that exports, another must be able to import. The solution, whether in Europe or the developing world, is to trade in the model of export-led growth for one based on rising wages and domestic demand.

Create a global model for economic development and decent work. The idea of stimulus spending is that it “jumpstarts” a cycle of demand, investment, and job creation when a basically healthy economy stalls. Today, living on the “other side” of the export-led model the United States helped create, U.S. consumers are too mired in debt, corporations too addicted to outsourcing and cutting jobs and wages, and the country too far behind in infrastructure spending for this kind of stimulus to be effective. We need to rebuild, not “jumpstart,” the U.S. economy. The same is true overseas. Developing countries mired in the export-led model also suffer from a long-term lack of public investment and infrastructure.

To replace the export-led growth model unions need to demand a global agenda for decent work. This in turn requires a program for sustainable development that includes support for public services such as education and health care, funds for infrastructure, and support for sustainable manufacturing and green energy in both advanced and developing countries. The jobs and wages created by this investment will in turn build the base of demand needed for sustained demand-led growth.

Closer Than We Think

There are ways out of the current jobs crisis. Budget-cutting, austerity, and intensified wage competition aren’t among them. Unionists need to keep their eyes on the ball: The chief barrier to recovery is the lack of global demand. A main cause of the current crisis is a multi-decade, multi-pronged strategy of wage suppression across the world. And the response must include global coordination for economic development—a global New Deal.

Governments committed to neoliberal policies won’t be the prime movers behind a global New Deal. That’s labor’s job. So is forging the ties with other labor movements that will be needed to carry on the struggle both nationally and internationally (see sidebar).

This struggle must take place country by country. Over the past decade U.S. unionists have fought successful battles for living wage ordinances. They have won community benefits agreements from corporations receiving public funds, locking in pledges to create jobs and respect labor rights. They’ve renewed the battle for single-payer health care and made common cause with immigrant workers working at the margins of the U.S. economy. There is crucial organizing for a national infrastructure bank, withdrawal from Iraq and Afghanistan, putting a floor on foreclosures, and taxing the wealthy. Learning new strategies is not going to be the hard part of U.S. labor. Nor will forging international linkages with unions in other countries—a process which will deepen understanding of common problems and exponentially increase the energy and clarity of struggle.

The hard part will be unlearning the indoctrination we’ve received about the crisis, the role of government in the economy, and the free market. Once we do that, we can build successful movements at home and abroad. We’re closer than we think to the army of rank-and-file economists that we need.

How to Create More Jobs By Lowering Wages: Texas and America

Wednesday, September 14, 2011 by RobertReich.org

by Robert Reich

 

Perry and Romney can duke it out over who created the most jobs, but governors have as much influence over job growth in their states as roosters do over sunrises.

States don’t have their own monetary policies so they can’t lower interest rates to spur job growth. They can’t spur demand through fiscal policies because state budgets are small, and 49 out of 50 are barred by their constitutions from running deficits.

States can cut corporate taxes and regulations, and dole out corporate welfare, in efforts to improve the states’ “business climate.” But studies show these strategies have little or no effect on where companies locate. Location decisions are driven by much larger factors — where customers are, transportation links, and energy costs.

If governors try hard enough, though, they can create lots of lousy jobs. They can drive out unions, attract low-wage immigrants, and turn a blind eye to businesses that fail to protect worker health and safety.

Rick Perry seems to have done exactly this. While Texas leads the nation in job growth, a majority of Texas’s workforce is paid hourly wages rather than salaries. And the median hourly wage there was $11.20, compared to the national median of $12.50 an hour.

Texas has also been specializing in minimum-wage jobs. From 2007 to 2010, the number of minimum wage workers there rose from 221,000 to 550,000 – that’s an increase of nearly 150 percent. And 9.5 percent of Texas workers earn the minimum wage or below – compared to about 6 percent for the rest of the nation, according to the Bureau of Labor Statistics. The state also has the lowest percentage of workers without health insurance. Texas schools rank 44th in the nation in per-pupil spending.

The Perry model of creating more jobs through low wages seems to be catching on around America.

According to a report out today from the Commerce Department, the median income of U.S. households fell 2.3 percent last year – to the lowest level in fifteen years (adjusted for inflation). That’s the third straight year of declining household incomes. Part of this is loss of jobs. Part is loss of earnings.

More and more Americans are retaining their jobs by settling for lower wages and benefits, or going without cost-of-living increases. Or they’ve lost a higher-paying job and have taken one that pays less. Or they’ve joined the great army of contingent workers, self-employed “consultants,” temps, and contract workers – without healthcare benefits, without pensions, without job security, without decent wages.

It’s no great feat to create lots of lousy jobs. A few years ago Michele Bachmann remarked that if the minimum wage were repealed “we could potentially virtually wipe out unemployment completely because we would be able to offer jobs at whatever level.”

I keep on hearing conservative economists say Americans have priced themselves out of the global high-tech labor market. That’s baloney. The productivity of American workers continues to soar. The problem is fewer and fewer Americans are sharing the gains. The ratio of corporate profits to wages is the highest it’s been since before the Great Depression.

Besides, how can lower incomes possibly be an answer to America’s economic problem? Lower incomes mean less overall demand for goods and services — which translates into even fewer jobs and even lower wages.

In short, the Perry (and Bachmann) model of job growth condemns Americans to lower and lower living standards. That’s nothing to crow about.

Obama's Job Speech: Democrats Fear It’s Too Late

Wednesday, September 7, 2011 by The Hill (Washington, DC)

by Alexander Bolton 

 

 

President Obama’s new effort to revive the ailing economy may be too little, too late, according to Democrats and liberal policy experts.

“The president has to bring forward a bold proposal. He can’t start the process by negotiating with himself,” said Sen. Bernie Sanders (I-Vt.), who caucuses with Senate Democrats. “He needs to say, ‘If we do A, B and C, we can create millions of new jobs,’ and take it to the American people.” They contend that Obama missed his chance to turn the economy around by November 2012, but still want him to call on Congress to move an aggressive new jobs plan — even if it has little chance of passing.

Obama should swing for the fences during his speech on Thursday, they say, claiming there is no need to be politically pragmatic with the House in GOP hands.

“The president has to bring forward a bold proposal. He can’t start the process by negotiating with himself,” said Sen. Bernie Sanders (I-Vt.), who caucuses with Senate Democrats. “He needs to say, ‘If we do A, B and C, we can create millions of new jobs,’ and take it to the American people.”

The risk for Obama, however, is that he could appear weak by putting forth a jobs proposal that is immediately viewed as dead on arrival on Capitol Hill.

Liberal activists say the best chances for passing legislation that would have really spurred growth was in the last Congress, when Democrats controlled the House and as many as 60 seats in the Senate.

Obama successfully pushed a stimulus bill through the 111th Congress, but it attracted only a few votes from Republicans and was criticized by liberals as too small. The White House vowed it would keep unemployment rates at around 8 percent. Now, the nation’s unemployment rate stands at 9.1 percent.

Dean Baker, co-director of the Center for Economic and Policy Research, said Obama made a mistake by not pushing for more stimulus when Democrats had the votes in 2009 and 2010.

“He should have said, ‘This is a great first start, but we’re going to need more,’” Baker said.
Obama has dropped hints he will push ideas that he knows won’t pass anytime soon.
During an appearance on “The Tom Joyner Morning Show” last week, Obama said, “If Congress does not act, then I’m going to be going on the road and talking to folks, and this next election very well may end up being a referendum on whose vision of America is better.”

At press time, Bloomberg reported that Obama will propose boosting job growth with a $300-billion plan that focuses on tax cuts, infrastructure spending and direct aid to state and local governments.

The president is feeling pressure from the left and right on his highly anticipated speech. Speaker John Boehner (R-Ohio) and House Majority Leader Eric Cantor (R-Va.) on Tuesday called on Obama to meet with congressional leaders on both sides of the aisle before he delivers his address.

Some Democrats are publicly calling on Obama to embrace hundreds of billions of dollars in stimulus spending, complaining that Washington is focusing too much on the deficit and too little on job creation.

Without drastic action, they see little hope of turning the economy around in the next 14 months. And they concede Republicans, who are feeling more confident about winning back the White House next year, will block all of Obama’s ambitious plans.

Republicans counter that they agree with Obama that three pending trade agreements, with South Korea, Colombia and Panama, would create jobs. Those deals are expected to move later this year.

The worst scenario for many liberal Democrats would be if Obama proposes a modest, centrist approach that does little to encourage new hiring and gives them little ammunition against Republicans in the months ahead.

Rep. Marcy Kaptur (D-Ohio) said she wants Obama to emphasize incentives for domestically manufactured goods and stripping incentives for companies that outsource production overseas.

She also wants Obama to endorse and Congress to appropriate $16 billion immediately for a civilian conservation corps that would be led by unemployed military veterans.

Former Sen. Byron Dorgan (D-N.D.) said Obama should throw his support behind a made-in-America initiative that would provide incentives for companies that hire workers in this country. Like Kaptur, he says the Congress should do everything it can to eliminate incentives for companies that move production facilities overseas and outsource U.S. jobs.

“The country needs to see this as a very big crisis. You can’t nibble around the edges,” Dorgan said. “The president doesn’t have a choice but to be very bold.”

Still, Dorgan realizes the political realities: “The things we’ve seen from Congress [do not] suggest that very much can happen.”

Baker would like Congress to pass $100 billion a year in state aid to keep teachers, police officers and firefighters on local government payrolls. But he admits that is not likely to happen, given the political environment in Congress.

He thinks it’s more likely Obama could convince Republicans to support a work-share program that would redirect unemployment funds to encourage employers to keep workers at reduced hours and wages instead of firing them, a program that has worked well in Germany.

Jared Bernstein, a senior fellow at the Center for Budget and Policy Priorities and a former top economics official in the Obama administration, said an infrastructure program that addressed the national backlog of school maintenance would be effective. But he admits “it’s going to be a very heavy lift” to pass it through Congress.

Bernstein said he expects Obama to propose extending the payroll tax holiday and unemployment benefits, which he thinks Republicans are likely to accept.

He said those proposals could reduce the 9.1 percent unemployment rate by half to three-quarters of a percentage point. But that would likely fall short of what many Democrats think could be effected by an ambitious stimulus spending program.

Scott Lilly, a senior fellow at the Center for American Progress and the former Democratic staff director of the House Appropriations Committee, said Congress has waited on the private sector for three years to begin creating more jobs, and it has not happened. He said the government needs to borrow and spend more to augment consumer demand.
But he thinks the time for getting Congress to act might have passed.

“I think they’re going to bury their heads in the sand and do absolutely nothing,” Lilly said.