US growth slows as consumers cut back on spending

(* And really, since the govt counts goods that have been produced but not ordered or sold as "growth" if you discount those goods, we've not been experiencing slow growth, but the 4th year of an economic depression. --jef)

 

+++++++

GDP grew at 1.5% between April and June, government figures show, compared to 2% in the previous three months

• Dominic Rushe in New York

• guardian.co.uk, Friday 27 July 2012

Factories received fewer orders and exports were hit by a global slowdown, the commerce department reported.

 

The US economy slowed again during the second quarter of the year, government figures showed Friday.

The nation's gross domestic product (GDP) – the broadest measure of the economy – grew at a sluggish 1.5% between April and June, the US commerce department said. The latest figure compares to 2% growth during the prior three months, and 4.1% in the fourth quarter of 2011.

The slowdown came as consumers cut back, local governments cut spending, factories received fewer orders and exports were hit by a global slowdown and a stronger dollar.

The latest news comes as the number of jobs created each month has also fallen sharply. The GDP figure is likely to be a blow to president Barack Obama as the economy emerges as the key issue of the 2012 election.

A Wall Street Journal/NBC News poll released this week found the economy was the only issue for which voters expressed more confidence in Mitt Romney, Obama's Republican rival, than the president.

The GDP figure was slightly higher than many economists had predicted. Economists surveyed by Dow Jones Newswires had expected a rate of 1.3% in the second quarter.

Consumer spending slowed in the quarter. Personal consumption expenditures rose 1.5% during the quarter, down from a 2.4% in the first quarter and the smallest gain in a year.

Spending on durable goods – including cars and home appliances – fell 1.% in the second quarter.

Cuts in government spending, especially at the local level, also held back growth. State and local spending fell 2.1% during the quarter while federal spending declined 0.4%.

Non-residential fixed investment, including business spending on structures and equipment, increased 5.3% during the second quarter, down from 7.5% in the previous quarter.

The US economy has grown for 12 consecutive quarters, but the gains have been small.*

"The current recovery has been utterly anaemic in relation to the average recovery in the post-war era. Real GDP is growing at a pace slower than virtually any recovery since the war," Dan Greenhaus, chief global strategist at BTIG, said in a note to clients.

Low-Wage Jobs and the Stalled Recovery

Growth at the Bottom
by EILEEN APPELBAUM


Slower-than-expected employment growth in March 2012 has brought the halting pace of economic recovery into sharp focus again. Nearly three years since the recession officially ended in June of 2009, 12.7 million people are still out of work and unable to find a job—a figure that rises to 22.8 million if workers who have given up looking but still want to work and those employed part-time because of the poor economy are included.

Demand for goods and services has been slow to recover—consumer spending has been hampered by a loss of housing wealth, continued high unemployment, and economic insecurity while government spending has been hamstrung by political infighting in Washington. The job growth that has occurred has been largely concentrated in very low wage occupations.

Economic theory—and common sense—tells us that high unemployment will persist until demand picks up. Businesses are not going to increase the pace at which they hire workers until the pace of spending increases.

Despite the obvious employment gap that results from the shortfall in spending, some observers contend that it is a mismatch between the skills of unemployed workers and the skills employers require that is responsible for the continuing high unemployment. Many of the ills of the labor market have been attributed to a supposed hollowing out of the job distribution—to “job polarization.”

Indeed, the claim that middle-skill/middle-income jobs in the United States are disappearing while jobs at the top and bottom of the occupational ladder are growing has been put forward as the explanation for four decades of wage stagnation for men.

Today, the claim that employers have good jobs but can’t find workers with the right skills to fill them has gained currency in the popular press. Yet such an imbalance between supply and demand would cause wages to rise in those occupations, and no such increase in pay can be observed.

Now a new study attributes the jobless recoveries following recent recessions to such job polarization. The study’s authors argue that jobs in the middle of the skill and income distribution disappear during recessions and fail to come back during recoveries. How real is job polarization?

The job polarization thesis is widely attributed to work by David Autor and his colleagues. But as Autor makes very clear, it is only the decade of the 1990s that can be characterized by a hollowing out of middle-skill jobs. In that decade, according to Autor, employment growth was most rapid in high-skill jobs, was modestly positive in low-skill jobs, and was modestly negative in middle-skill jobs.

From 1999 to 2007, in contrast, Autor finds that employment growth was concentrated in the bottom third of the skill distribution, a pattern that has persisted through the recovery from the 2007-2009 recessionand that is expected to persist to 2020.

Looking at the nature of job growth as economic recovery took hold, the National Employment Law Project found that lower-wage occupations—retail sales persons, office clerks, food prep workers, and stock clerks topped this list—grew by 3.2 percent from the first quarter of 2010 through the first quarter of 2011, and mid-wage occupations grew by 1.2 percent, while higher-wage occupations declined by 1.2 percent. Occupational projections to 2020 tell a similar story.

The Bureau of Labor Statistics projects that five of the top six occupations with the most job growth from 2010 to 2020 will be low-wage jobs that require little or no post-high school education—retail sales persons, home health aides, home care aides, office clerks general, and food prep and serving workers. Personal care aides and home health aides are also the two fastest growing occupations according to these projections.

Thus the job polarization of the 1990s has been replaced in the last dozen years by job growth that is dominated by occupations in the bottom tier of the skill and wage distributions. This trend is likely to continue in the absence of policies that increase demand more broadly in the economy and that improve wages and working conditions for the millions of workers—mainly women—in the occupations that are growing. Low wages in the expanding occupations limit gains in consumer spending and hamper more robust job growth.

Austerity Does Not Grow the Economy

The Results are in From Britain!
by DEAN BAKER

The Federal Reserve Board issued new projections for the economy last week, and they are not pretty. It projects the unemployment rate will still be 8.2 percent at the end of this year, 7.4 percent at the end of 2013, and 6.7 percent at the end of 2014. To put this in context, the unemployment rate peaked at 7.6 percent in the 1990-91 recession and never got above 6.3 percent in the 2001 recession. The Fed is projecting that seven years after the onset of the current recession, the unemployment rate will still be higher than at any point in the last recession.

This should have people alarmed and angry since it means that millions of lives will be ruined. Workers who are unable to find jobs will not be able to support families, contributing to stress and breakups.

The reason the economy is not creating jobs is simply that there is no source of demand to replace the demand created by the housing bubble. With nothing to replace this lost demand, companies see little reason to expand production and hiring.

Government spending is an obvious source of demand. However this spigot has been closed due to concerns over deficits. We have thousands of people in Washington who seem convinced that if the government would just stop spending money and lay off more employees then the private sector would respond with increased output and hiring.

While this might seem implausible on its face (what business hires people because the government has laid off school teachers or firefighters?), we no longer have to speculate about the impact of budget cuts and government layoffs, the United Kingdom is showing us.

The government elected last spring in the United Kingdom committed itself to rapidly reducing the size of its deficit. This government austerity was supposed to give a big boost to the private sector. It actually did the opposite. Growth has fallen to a near standstill. The IMF projects that the U.K. economy will grow by just 0.6 percent this year and an only slighter better 1.6 percent in 2013. This pace is not even fast enough to keep up with the growth of the U.K.’s labor market.

It would be good if the politicians in Washington could learn these basic facts about the British economy. They might then realize that deficit reduction destroys jobs, it doesn’t create them. There are times when we should be worried about the size of the deficit, but this is not one of them.

IMF says US economy may be weak 'for years to come'

AFP - Tuesday, September 20, 2011

WASHINGTON (AFP) - The International Monetary Fund on Tuesday warned the US economy could remain weak for years to come, describing a recovery stalled amid unrelenting headwinds and in dire need of a push from government.

The Washington-based fund slashed its US growth forecasts for this year and next, while warning of the need for more government stimulus in the short-term as well as a credible longer-term plan to cut spending.

"The US economy is struggling to gain a strong foothold, with sluggish growth and a protracted job recovery," the IMF said, as it cut US growth forecasts for this year by a full percentage point to a paltry 1.5 percent.

That is a slower rate than projected for the crisis-wracked eurozone.

Citing crushed US consumer confidence and battered business sentiment -- as well as ongoing crises in the housing and financial markets -- the IMF said "growth will be modest relative to historical averages for years to come."

That bleak assessment is certain to fuel fears that the United States is destined for a Japan-like "lost decade" of growth, particularly as the White House and Congress continue to bicker over how to cut debt levels and how to stimulate growth.

"The first priority for the US authorities is to commit to a credible fiscal policy agenda that places public debt on a sustainable track over the medium term, while supporting the near-term recovery."

As President Barack Obama and his Republican foes fight over how to put the budget back on an even keel, the IMF said a solid deal was essential both for the US, and for the global economy.

"Delays in accomplishing an adequate medium term debt-reduction plan could suddenly induce an increase in the US risk premium, with major global ramifications."

By contrast a deal could pave the way for sounder short-term fiscal policies.

"This would allow the near-term fiscal policy stance to be more attuned to the cycle, for example, through temporary stimulus to support labor and housing markets, state and local governments, and infrastructure spending."

The IMF's gloomy assessment of the US economy comes as Washington girds to enter a presidential election year, making political compromise all the more tricky.

But the pessimistic outlook is shared by private economists.

"In an economy like that of the United States where around 60 percent of the economy is consumption, confidence is perhaps the most important ingredient requisite for economic growth and an improving job market," said Jason Schenker of Prestige Economics.

"Without confidence and without spending, deflation and recession are major risks."

Labor Day 2011: What Are We Celebrating? The Lack Of Jobs In America?

The Economic Collapse
Monday, September 5, 2011

If you still have a good job, you certainly have something to celebrate on Labor Day 2011.

So far you have survived the decline of the U.S. economy.  But your day may be coming soon.  This weekend, there will be millions of Americans that will not be doing any celebrating.

They are not enjoying a break from their jobs because they don’t have any jobs.  In fact, it seems kind of heartless for the rest of us to be celebrating while so many of our countrymen are destitute.  What are we celebrating on Labor Day 2011?  The lack of jobs in America?

At this point, the U.S. economy closely resembles a gigantic game of musical chairs.  Every time the music stops, even more good jobs are pulled out of the game and even more workers are added.  Once upon a time, if you really wanted a job in America you could get one.  But now the competition for even the most basic jobs is absolutely brutal.  If you gathered together all of the unemployed people in the United States, they would constitute the 68th largest country in the world.  It would be a nation larger than Greece.  All of those unemployed people are not going to be taking trips with their families this holiday weekend.  Instead, most of them are going to be trying to figure out what to do with their shattered lives.

With the economy in such a mess, you would think that someone out there would be suggesting that Labor Day 2011 should really be a day of mourning.  This economic downturn has shredded the lives of millions of American families.

Is there any other crisis in recent years that has had more of an impact on a national level?

On Friday, the U.S. Bureau of Labor Statistics reported that no new jobs were created during the month of August and that the official unemployment rate remained steady at 9.1 percent.

Wait, aren’t we supposed to be in the middle of an economic recovery?

Actually, we need at least 150,000 new jobs or so each month just to keep up with the growth of the U.S. population.  So it seems odd that the economy would add zero jobs but the unemployment rate would not increase.

But that is what the government is saying.

In any event, things don’t look good.  According to the U.S. Bureau of Labor Statistics, the civilian employment-population ratio was at 58.2 percent last month.  This is an incredibly low figure.

In a recent article, John Mauldin explained what would have to happen to return the employment-population ratio to where it was in the year 2000….

The US has roughly the same number of jobs today as it had in 2000, but the population is well over 30,000,000 larger. To get to a civilian employment-to-population ratio equal to that in 2000, we would have to gain some 18 MILLION jobs.

Does anyone have an extra 18 million jobs laying around somewhere?  The following is a chart showing what has happened to the employment-population ratio over the last several decades….

What makes this chart even more startling is that the number of women in the workforce was constantly rising for most of the time period reflected in this chart.  So when you take that into account our current situation is far worse.

For example, back in 1969 95 percent of all men between the ages of 25 and 54 had a job.

Pretty much any man in his prime working years that wanted a job could get a job.
In July, only 81.2 percent of men in that age group had a job.

But that is only part of the story.  Another significant trend has been how flat wages have been.  Average hourly earnings fell 0.1% in August.  Meanwhile, the prices in the stores continue to go up.

In this column, I write a lot about how the middle class is being destroyedin this country.

When you look at the ratio of employee compensation to GDP, it is now the lowest that is has been in about 50 years.  In other words, U.S. workers are taking home a smaller share of the pie than at any other time in modern U.S. history.


But at this point those that still actually do have jobs consider themselves to be the lucky ones.

Tonight, there will be millions of desperate unemployed Americans that will blankly stare at their televisions as they try to figure out how their dreams got flushed down the toilet.

Remember how I mentioned at the beginning of the article that unemployed Americans would constitute a country larger than Greece?  Well, 42 percent of all of those unemployed

Americans have been out of a job for 27 weeks or longer.

What would you do if you lost your job and you were unemployed for half a year?
Would you be able to survive?

In America today, the longer that you are unemployed, the harder it is for you to get another job.  If you have been unemployed for at least one year, there is a 91 percent chance that you will not find a new job within the next month.

Out of sheer desperation, many Americans have taken jobs that they never even dreamed that they would take.

Only 47 percent of the U.S. workforce is “fully employed” at this point.  Right now there are hordes of Americans that are waiting tables, flipping burgers or stocking shelves at Wal-Mart because that is all that they can find right now.

Sadly, this is all part of a long-term trend.

Back in 1980, less than 30% of all jobs in the United States were low income jobs.

Today, more than 40% of all jobs in the United States are low income jobs.

This middle class is being pummeled out of existence, and most Americans don’t even understand what is happening.

It certainly does not help that both the Republicans and the Democrats have stood by as millions upon millions of our jobs have been shipped out of the country.

It also certainly does not help that both the Republicans and the Democrats have stood by as millions upon millions of illegal immigrants have taken jobs away from American citizens.

It also certainly does not help that both the Republicans and the Democrats have stood by as U.S. businesses have been absolutely crushed by mountains of nightmarish regulations and have been taxed into oblivion.

The decade that just ended was the worst decade for job growth in America since the Great Depression.  In fact, even though thirty million people were added to the U.S. population during the decade, there was essentially zero job growth.

Sadly, things look like they are going to continue to get even worse.  For example, the United States Postal Service is in such trouble that it is asking Congress to allow it to lay off 120,000 workers. Overall, the Postal Service wants to eliminate 220,000 positions by 2015.

So is this big speech that Obama is going to give on Thursday going to solve anything?
Of course not.

The reality is that if Obama or any of his advisors had any grand ideas for fixing our situation they would have implemented them by now.

And what is the big deal in making us wait until Thursday to hear these “new ideas”?  Why not just tell us now?

Sadly, the truth is that everything that our politicians do now is about setting themselves up for the 2012 election.

Most likely, Obama is just going to take a bunch of tired ideas that do not work and “spin” them into a grand new plan.

Millions of Americans will actually buy into it.

But it is not as if establishment Republican candidates have anything to offer either.

You know, if Obama wanted to do something substantial, one place to start would be to order the Federal Reserve to stop paying banks not to make loans to individual and small businesses.

But just like all of our other weak-minded recent presidents, Barack Obama is not going to confront the Federal Reserve.

In fact, everything that Obama actually does “for the economy” only seems to make things worse.

As I have outlined before, we know exactly why our economy is losing jobs and we know things that we could start doing right now to reverse the long-term trends that are absolutely killing us.

But Barack Obama is not talking about real solutions and neither are the establishment Republican candidates.

So things are going to continue to get worse.  The number of Americans on food stamps has increased 74% since 2007.  Every month we have been setting a new record.  The middle class is going to continue to disappear as the number of good jobs continues to decrease.

So, no, there are not too many reasons to celebrate on Labor Day 2011.  Our economy is dying and millions upon millions of our fellow citizens are deeply suffering.

Urgent action is required in order to prevent our situation from rapidly getting worse, but right now the vast majority of our politicians are asleep at the switch.

So instead of celebrating this Labor Day, why don’t you say a prayer for America instead?

We really could use it.

How Austerity Is Ushering in a Global Recession

Wednesday, August 17, 2011 by RobertReich.org

by Robert Reich

 

Not only is the United States slouching toward a double dip, but so is Europe. New data out today show even Europe’s strongest core economies – Germany, France, and the Netherlands – slowing to a crawl. Policy makers be warned: Austerity is the wrong medicine.

We’re on the cusp of a global recession.

Policy makers be warned: Austerity is the wrong medicine.

We all know about the weaknesses in Europe’s “periphery” – Greece, Ireland, Spain, Portugal, and Italy. But the drop in Europe’s core is dizzying.

Germany grew at an annualized rate of just half a percent last quarter, down from 5.5 percent in the first quarter of the year. France didn’t grow at all.

What’s going on in Europe’s core? Partly it’s a loss of confidence due to debt crises in the periphery. But that’s hardly all.

Europe depends on exports – especially to Asia, India, Latin America, and the United States. But exports to China and other emerging markets have been dropping. China, worried about inflation, has pulled in the reins on its sizzling economy. Brazil has been pulling back as well.
And as the United States economy sputters, exports to America have been slowing.

But chalk up a big part of Europe’s slowdown to the politics and economics of austerity. Europe – including Britain – have turned John Maynard Keynes on his head. They’ve been cutting public spending just when they should be spending more to counteract slowing private spending.

The United States has been moving in the same bizarre direction. Cutbacks by state and local governments have all but negated the federal government’s original stimulus, and no one in Washington is talking seriously about a second. The pitiful showdown over increasing the debt limit has produced the opposite: a Rube-Goldberg-like process for capping spending rather than increasing it, and a public that’s being sold the Republican lie that less government spending means more jobs.

Yes, governments on both sides of the Atlantic are deeply in debt. But policy makers on both sides seem to have forgotten that economic growth is the most important tonic.

Public debt has meaning only in relation to a nation’s GDP. When more people are working, more companies are profiting, and economies are expanding, revenues pour into national treasuries.

When economies stop growing or contract, the opposite occurs. Economies can fall into vicious cycles of slower growth, lower tax revenues, spending cuts, and even slower growth.
That’s what we’re seeing now.

What’s worse, nations are so intertwined that when every major economy is slowing the cumulative effect is larger.

With anemic growth in America and Europe, the Japanese economy comatose, and emerging markets (including China) pulling in their reins, the vicious cycle could become worldwide. If global demand for goods and services continues to fall behind the potential supply we’ll see unemployment rise further and growth slow even more — especially in Europe and the U.S.

Central banks may try to reverse this course. Ben Bernanke and company at the Fed have committed themselves to near-zero interest rates for the next two years (not exactly a rousing endorsement of America’s economic prospects in the near term). Given the sharp slowdown in Germany, the European Central Bank might now feel some pressure to lower interest rates there – or at least delay the next increase.

But when growth is slowing so dramatically and unemployment is already high, monetary policy can’t possibly do it alone.

Without an expansionary fiscal policy, low interest rates have little effect. Companies won’t borrow in order to expand and hire more workers unless they have reasonable certainty they’ll have customers for what they produce. And consumers won’t borrow money to spend on goods and services unless they’re reasonably confident they’ll have jobs.

Fiscal austerity is the wrong medicine at the wrong time.

The Rich Are Destroying the Economy

Sunday, June 12, 2011 by CommonDreams.org

by Shamus Cooke

 

Ever since the Great Recession shook the foundations of the U.S. economy, President Obama has been promising recovery. Evidence of this recovery, we were told, was manifested in the massive post-bailout profits corporations made. Soon enough, the President assured us, these corporations would tire of hoarding mountains of cash and start a hiring bonanza, followed by raising wages and benefits. It was either wishful thinking or conscious deception. The recent stock market meltdown has squashed any hope of a corporate-led recovery.

The Democrats fought the recession by the same methods the Republicans used to create it: allowing the super rich to recklessly dominate the economy while giving them massive handouts. This strategy, commonly referred to as Reaganomics or Trickle Down Economics, is now religion to both Democrats and Republicans; never mind the staged in-fighting for the gullible or complicit media.

When it becomes obvious to even the President that the economic recovery never existed beyond the bank accounts of the rich, questions will have to be answered. Why, for example, did nobody in either political party foresee the disastrous consequences of the bailouts? Not only did the U.S. deficit drastically increase but the same U.S. corporations that caused the recession were given reinforcement for their destructive actions, ensuring that it would continue unabated.

In his book, Crisis Economics, Nouriel Roubini outlines the insane response to the recession by Republicans and Democrats. Because both parties simply threw money at the banks and hedge funds instead of punishing them, a condition of "moral hazard" was created, meaning, that banks would assume another bailout would come their way if they destroyed the economy again -- too big too fail, remember? Roubini explains how the Democrats allowed the "too big" banks to get even bigger; how Wall Street salaries based on short-term profits went unregulated; how the regulations that were put into place were inadequate and filled with loopholes; how nothing of any significance changed.

Roubini has also written extensively about how the post-bailout Federal Reserve policies were fueling a commodity bubble that may be in the midst of bursting, possibly triggering a double dip recession. Essentially the big banks and rich investors were borrowing cheap dollars from the Fed and investing abroad in commodities with the hopes of higher returns. Roubini states:

“The risk is that we are planting the seeds of the next financial crisis...this asset bubble is totally inconsistent with a weaker recovery of economic and financial fundamentals." (October 27, 2009).

This investor-created commodity bubble pushed up prices in oil, food, and other basic products, causing further pain for working families and the economy as a whole. This speculative bubble was easily predictable but ignored by both political parties, since they claimed the bubble was a sign of recovery.

Another mainstream economist, Paul Krugman, also admits that the rich's death-grip on the U.S. political and economic system is causing pain for everybody else:

"Far from being ready to spend more on job creation, both parties agree that it's time to slash spending - destroying jobs in the process - with the only difference being one of degree...policy makers are catering almost exclusively to the interests of rentiers [rich investors] - those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else's expense." (June 10, 2011)

Krugman explains that this process continues because the rich dominate the political system through campaign contributions, "access to policy makers,” promises of high paying corporate jobs after their congressional term is over, and good o'l fashion corruption. Because he's a true blue Democrat at heart, Krugman nevertheless focuses most of his rage on Republicans.

Krugman's repeated calls to Democrats and Republicans to create jobs have fallen on deaf ears. Both parties agree that the "private sector" [corporations] should create jobs; until they decide to hire, nothing will happen. This is not merely "bad policy,” as liberals like Krugman like to fret about, but the conscious agenda of the rich. Corporations and rich investors love high unemployment. The Kansas City Star explains why:

"Last year [2010], for the second year in a row, U.S. companies got more work out of their employees while spending less on overall labor costs." (February 3, 2011)

It really is that simple. High unemployment creates a downward pressure on wages, allowing employers to work the remaining employees harder and thus to increase profits. This dynamic, combined with the above commodity speculation, has been the entire basis for the corporate recovery, while working people have literally seen nothing beneficial.

This process is an extension of the bailouts, in the sense that more wealth is being transferred from working people to the corporations. Since consumer spending accounts for 70 percent of the U.S. economy, policies like these ensure that another crisis is inevitable.

Further complicating matters is the ending of the Federal Reserve's Quantitative Easing program (printing money), which amounted to the Fed buying $600 billion in U.S. Treasury bonds since last fall, essentially funding the U.S. debt and driving down interest rates.

Since the Fed was buying 60 percent of the bonds, a new creditor will need to be found; and this lender will likely require higher interest rates before loaning to the U.S. government, to make sure the loan is profitable. And although different nations buy U.S. debt for different reasons, much of this debt is bought by rich U.S. citizens, who will put the squeeze on the rest of us that have to pay back this debt. The Washington Times explains:

"...Bill Gross, the head of America's own Pimco bond fund, the largest buyer of bonds worldwide, recently reduced Pimco's holdings of Treasuries to zero out of concern that they weren't yielding enough given the risks of inflation and deficit spending." (June 7, 2011)

When the Federal Reserve raises interest rates to satisfy these rich investors, the economy will likely take a further nosedive. It appears, then, that the rich have a win-win situation: they got free bailout money, which increased the deficit; and because the deficit is too high, the rich want higher interest rates for investing in U.S. Treasury Bonds. In both instances working people pay the bills.

This insanity cannot be stopped by conventional measures, since politicians are tone deaf to anything that doesn't ring of corporate cash. The jobs crisis continues as a result of the policy agreed to by both Democrats and Republicans. The labor movement has a special role to play in reversing the above policies.

The corporate-led discussion around cutting social programs to fix the deficits -- on a state and national level -- can be challenged by a nationally coordinated campaign of unions and community allies demanding: Tax the Rich! This demand is significant because it can address both the deficits and the jobs crisis: a massive public works program can be funded by taxing the corporations and the wealthy to pre-Reagan levels. And it makes complete sense because the growing inequalities in wealth over the past three decades has meant a spectacular concentration of wealth at the top. The rich have plenty of money to spare.

Organized labor needs to bring masses of people in the street all over the country in order to get attention and pressure the government to respond to these demands. And it can succeed, especially if it organizes a serious, protracted campaign and especially if this campaign does not get funneled into supporting Democratic candidates, the surest way to kill campaign momentum.

AFL-CIO President Richard Trumka recently spoke in favor of a strong, independent labor movement. This is the direction it must take, rather than relying on the Democrats. The labor movement must get its act together, unite to put up a fight and demand specific policies that can concretely address the crisis faced by millions of working people.

Obama and the Economy in Freefall

Time to Panic? You Betcha!By STEPHANIE KELTON

Earlier this week, President Obama talked about the weakening state of the economy, telling us that he's not worried about a double-dip recession and that the nation should "not panic." It's hard to imagine a more alarming statement at this juncture.

The recovery is faltering. Our economy is growing at annual rate of just 1.8 percent. Manufacturing just grew at its slowest pace in 20 months. More than 44 million Americans – one in seven – rely on food stamps. Employers hired only 54,000 new workers in May, the lowest number in eight months. Jobless claims increased to 427,000 in the week ended June 4. The unemployment rate rose to 9.1 percent. Nearly half of all unemployed Americans have been without work for more than 6 months. About 25% of all teenagers who are looking for work are unemployed. Eight-and-a-half million Americans are underemployed – i.e. working part-time because their hours have been cut or because they can't find full-time work. There are, on average, 4.6 unemployed people for every 1 job opening. And even if all the open positions were filled, there would still be 10.7 million people looking for work.

The Case-Shiller index shows that the housing market has already double-dipped.

And, because of the huge shadow inventory of yet-to-be-foreclosed homes, Robert Shiller thinks home prices could easily fall another 15-25%. As prices continue to decline they create hidden losses elsewhere in the economy, hurting not just homeowners but the financial institutions that hold their mortgages. The list goes on and on.

These are not, as Obama said, "headwinds" that will slow the pace of our recovery. They are gale force winds that will push millions of families into poverty and thousands of business into bankruptcy.

There is a way out, but it seems unlikely that Congress and the White House will work together to do what's necessary to turn things around. Why? Because a recent poll shows that 59 percent of the public disapproves of the president's handling of the economy. And Republicans smell blood. They know that since WWII no president has been re-elected with unemployment above 7.2 percent, so they see Harry Hard Luck and Sally Sob Story as their best chance at reclaiming the White House in 2012. It is a victory the Republicans have been masterfully engineering since February 2009, when they succeeded in restricting the size and scope of the American Recovery and Reinvestment Act (ARRA).

Some of us saw this coming. For example, Jamie Galbraith and Robert Reich warned, on a panel I organized in January 2009, that the stimulus package needed to be at least $1.3 trillion in order to create the conditions for a sustainable recovery. Anything shy of that, they worried, would fail to sufficiently improve the economy and thereby make Keynesian economics the subject of ridicule and scorn.

But it's easy to see why the $787 billion package we ended up with didn't do the trick. Remember that the stimulus didn't take effect all at once – it was spread out over a three-year period. And while the left hand of the federal government was trying to rev up the economy with increased spending, the right hand of the private sector (together with state and local governments) was stomping on the breaks. Just consider the fact that bank lending declined by $587 billion in 2009 alone – the biggest one-year drop since the 1940s. That's a $587 billion hole that businesses and households created just as the stimulus was phasing in. ARRA was the right medicine, but it was administered in the wrong dosage, and this became clear within months of its passage.

In July 2009, I wrote an article entitled, "Gift-Wrapping the White House for the GOP." In it, I said:

If President Obama wants a second term, he must join the growing chorus of voices calling for another stimulus and press forward with an ambitious program to create jobs and halt the foreclosure crisis.

Two years later, both crises are still with us, and the election is just around the corner.

A new Washington Post-ABC News poll shows former Massachusetts Governor Mitt Romney with a slight edge over President Obama, and Howard Dean is convinced that without a marked improvement in the state of the economy, even Sarah Palin could clobber him in 2012.

To avoid this, Obama must get his economics right. Right now, he's too busy complaining that the discouraging data is hampering the recovery because it "affects consumer confidence, and it affects business confidence." But here's the thing – the recovery isn't going to be driven by a change in our mentality. It's going to be driven by a change in our reality.

So here's what he needs to do – deliver one of those jaw-dropping, awe-inspiring speeches of yesteryear. Tell the American people that he's calling on Congress to enact the most sweeping tax relief since Ronald Regan was in office. Tell us you understand that sales create jobs, and income creates sales. Tell us that you will not withhold a dime from our paychecks until cash registers across the nation are chiming and unemployment has fallen below 5 percent. Tell us before it's too late.

Obama Trusted the Wrong Economists

He Should Have Listened to Romer

By MIKE WHITNEY

Barack Obama figured his reelection was in the bag. All he had to do was throw the progressive wing of his party a bone by pulling a few thousand troops out of Afghanistan, and then wait for the economy to gradually get stronger. What could be easier? 2012 would be a romp. He never thought that his chief economic advisor, Lawrence Summers, might have misjudged the severity of the downturn or that all those pesky "lefty" economists (Stiglitz, Baker, Reich, Thoma, Krugman etc) were right in pushing for more fiscal stimulus. After all, what did they know? Most of them would have supported another W.P.A. if they were given half a chance. Good luck slipping that by the deficit hawks in congress!  Besides Wall Street wants "austerity";  so austerity it is. You don't get reelected by rocking the boat.

But then something unexpected (at least by the White House) happened, the economy started turning South. Housing, manufacturing and consumer confidence all began to lose altitude at the worst possible time, just when the GOP started hammering away the slowness of the recovery. So, when the BLS released its report last Friday, showing that US payrolls had risen by a paltry 54,000 and the unemployment rate climbed back to 9.1 percent, the Obama team went into full panic-mode.  They finally realized that the economy was  badly listing and that Obama might not be reelected after all. Horrors. That's all it took to put the wheels in motion.

In a matter of hours, Obama completely reversed his position on fiscal stimulus and began reciting from the Christina Romer songbook. Romer, you may recall, was the president's former economic advisor who Obama threw under the bus because she kept pushing for more fiscal stimulus. In an article in the Washington Post, Romer explained why she "decided to spend more time with her family". Here's an excerpt:

"There was a definite split among the economics team about whether we should push for more fiscal stimulus, or switch our focus to the deficit. A number of us tried to make the case that more action was desperately needed and would be effective. Normally, meetings with the President were very friendly and free-wheeling. He likes to hear both sides of an issue argued passionately. But, about the fourth time we had the same argument over more stimulus in front of him, he had clearly had enough. As luck would have it, the next day, a reporter asked him if he ever lost his temper. He replied, “Yes, I let my economics team have it just yesterday.”...("Christina Romer looks back — and forward", Washington Post)

Obama had been pushing hard to trim the deficits while shrugging off warnings that the economy was still "too weak".  He opined that  "At a time when American families are tightening their belts, government should be tightening their belt, too." Here's a clip from the Financial Times that illustrates how committed Obama was to austerity:

"US President Barack Obama warned that the US economy could head into a “double-dip recession” unless urgent steps were taken to rein in mounting public debt.

“The US president’s remarks... marked his strongest language yet on the necessity of putting public finances back on a sound footing.

“‘It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the US economy in a double-dip recession, ’said Mr Obama." (Financial Times)

So, why is this worth mentioning?

Well, because Obama has not only done a 180 on austerity, but he's also stolen Romer's basic fiscal plan, which just adds insult to injury.  This is from Firedog Lake:

"President Barack Obama gave a small hint today about what, if anything, he plans to do about unacceptably high unemployment and slow economic growth over the next year. In a press event with German Chancellor Angela Merkel, Obama was asked about the economy. His answer is worth repeating....

(Obama) ‘“And as long as there are some folks out there who are unemployed, looking for work, then every morning when I wake up, I’m going to be thinking about how we can get them back to work.Some of the steps that we took during the lame duck session, the payroll tax, the extension of unemployment insurance, the investment in — or the tax breaks for business investment in plants and equipment — all those things have helped. And one of the things that I’m going to be interested in exploring with the members of both parties in Congress is how do we continue some of these policies to make sure that we get this recovery up and running in a robust way.’" ("Obama Floats Extending Payroll Tax Cut, Unemployment Benefits", Firedog Lake)

The plan has "Romer" written all over it. No doubt Obama will add Romer's Number 1 recommendation to the package in due time-- a cut in the employer side of the payroll tax--just to add a bit of salt to the wound.  Romer explains how it works in the same Washington Post op-ed:

"My particular favorite additional short-run stimulus would be a cut in the employer side of the payroll tax. Congress cut the payroll tax for employees in the budget compromise last December. A similar cut in what firms have to contribute for payroll taxes would make hiring workers cheaper and would therefore likely be particularly helpful for employment growth. This is just a broader and simpler version of the new jobs tax credit that I thought would be a very good idea back in 2009. And, it has the virtue of being something that I suspect policymakers on both sides of the aisle could support." ("Christina Romer looks back — and forward", Washington Post)

So how did President Chameleon get into this mess? 

Obama simply trusted his Wall Street mentors Summers, Bernanke, and Geithner, the trio that sabotaged the recovery while making sure the banks and speculators got as much liquidity (and bailouts) as they needed. Also, Fed chairman Ben Bernanke misled Obama about the stimulative effects of his experimental bond purchasing program (QE2) which neither lowered interest rates, nor increased GDP, nor boosted employment, nor sparked another credit expansion. The only thing the policy did was send gas and food prices skyrocketing which further constrained consumer spending. All told, QE2 was a bust. Even so, Bernanke has continued to use his position as Central Bank boss to promote his own political agenda. Here's a clip from yesterday's speech where Bernanke makes the case for even more austerity:

"The prospect of increasing fiscal drag on the recovery highlights one of the many difficult tradeoffs faced by fiscal policymakers: If the nation is to have a healthy economic future, policymakers urgently need to put the federal government's finances on a sustainable trajectory....The solution to this dilemma, I believe, lies in recognizing that our nation's fiscal problems are inherently long-term in nature. Consequently, the appropriate response is to move quickly to enact a credible, long-term plan for fiscal consolidation. By taking decisions today that lead to fiscal consolidation over a longer horizon, policymakers can avoid a sudden fiscal contraction that could put the recovery at risk."

If Obama had listened to Romer instead of Bernanke he wouldn't be in the pickle he's in today. Instead, he's going to be blasted as a hypocrite for doing a volte-face on fiscal stimulus and the leaving the austerity bandwagon by the side of the road. None of this will help to restore confidence in the recovery nor improve his prospects for reelection.

Usually a Job Engine, Localities Slow US Economy

Monday, June 6, 2011 by Associated Press
by Paul Wiseman

WASHINGTON – In a healthy recovery, states and localities produce jobs, expand social services and help fuel the nation's economic growth.

Then there's the 2011 recovery.

The U.S. economy is moving ahead, however fitfully. Yet state and local governments are still stuck in recession. Short of cash, they cut 30,000 jobs in May, the seventh straight month they've shed workers. Rather than add to U.S. economic growth, they're subtracting from it.

And ordinary Americans are feeling it — from reduced services to fewer teachers, police officers and firefighters.

Few see the pain subsiding soon. Mark Vitner, senior economist at Wells Fargo Securities, expects state and local governments to slash 20,000 to 30,000 jobs a month through the middle of 2012.

Joel Naroff of Naroff Economic Advisors notes that when states cut spending to balance their budgets, as required annually, a ripple effect multiplies the damage: Companies that do business with states and localities suffer. These companies, in turn, scale back their own hiring.

"There's a whole slew of private companies that have to cut back when they don't get the (government) contracts they had been getting," Naroff said. "You can't balance a budget and say everything's going to be beautiful."

Moody's Analytics estimates that each job in state and local government supports an additional 1.3 jobs elsewhere in the economy.

The cutbacks stretch across the country:

• Monticello, Ga., has cut its police force in half — to five. It had planned to eliminate the force entirely until it found the money to keep some officers, says Police Chief Bobby Norris. 

• Zanesville, Ohio, just cut nearly 50 jobs from its schools, mostly through layoffs. "People have to realize: There's just so much money," says school Superintendent Terry Martin, who had to close a $7.2 million budget gap through 2016. "We have to watch every dime that we spend. 

• In Alameda, Calif., police and firefighters last week couldn't save a drowning man in the ocean because the fire department had cut funding for water rescue training, wet suits and other equipment.

The Great Recession officially ended two years ago this month. By the same point during previous recoveries, state and local governments were engines of growth: In the two years after the 1990-91 recession ended, for example, they'd added 430,000 jobs. At the same point after the 2001 recession ended, they had added 249,000.

This time is different. More than 467,000 state and local government jobs have vanished since the recession officially ended in June 2009, including 188,000 in schools.

The Great Recession of 2007-2009, the longest and deepest downturn since the 1930s, dried up state and local tax revenue. It also escalated demands for social programs like Medicaid and unemployment benefits and "ate through their rainy-day funds," notes Michael Gapen, senior U.S. economist at Barclays Capital.

For a while, federal stimulus spending cushioned the blow to state and local finances. But that money is running out. And it probably won't be replenished. The federal government is preparing to cut its own spending to shrink huge budget deficits.

States like Wisconsin, New Jersey and Ohio have first-term governors who "are trying to make their names by cutting spending," Naroff says. "It wasn't the `in thing' before to become a governor and immediately slash and burn. Now, you've got economic and political realities that are different from any time before."

Analysts hold out hope that state governments might be on the verge of a rebound. State tax revenue is forecast to rise 2.1 percent in the fiscal year that starts July 1, according to a report last week from the National Governors Association and the National Association of State Budget Officers.

But 29 states say they'll still spend less in the 2012 fiscal year than in 2008. And local governments are still waiting for a recovery in tax revenue. They rely heavily on property tax revenue, which continues to sink with the collapse in home prices in many areas.

"The state revenues are coming back, but the local revenues probably haven't seen the worst of it," says Christopher Hoene, director of research at the National League of Cities. "We still have another year to go for sure."

Steven Leslie, financial services analyst for the Economist Intelligence Unit, a research firm, predicts that tight government spending at the local, state and federal levels will persist during a prolonged period of slow growth.

"If I were going to tell college graduates what careers to follow," he says, "I wouldn't recommend public service."

Policymakers Have Made Another Depression Unavoidable

Down, Down, Down
By MIKE WHITNEY 

Equities markets have been battered all week by bad economic data sending investors piling into "risk free" Treasuries. The Dow Jones slipped 276 points on Wednesday followed by a 41 point loss on Thursday. The benchmark 10-year Treasury has ducked below 3 percent repeatedly signally a slowdown that could lead to another recession.

On Wednesday, the S&P/CaseShiller home price index confirmed that 5-year long housing crash was still gaining pace. Home prices have fallen to their lowest level in 8 years with no end in sight. Meanwhile the Chicago Manufacturing Gauge recorded its biggest decline in 2.5 years while factory orders dropped in April by the most since May, 2010. There was also bad news on the unemployment front where privately-owned businesses hired only 38,000 workers from April to May, nearly 100,000 less jobs than analysts had predicted. Also, consumer confidence fell to its lowest reading in six months.

So, housing, manufacturing, unemployment and consumer confidence are all down, down, down and down.

Friday's unemployment report was also worse than expected. The Bureau of Labor Statistics (BLS) reported that unemployment rose to 9.1 percent while the Labor Force Participation Rate remained stuck at 64.2%, well below the normal rate of 67%. According to Calculated Risk, "The current employment recession is by far the worst recession since WWII in percentage terms...(The BLS report) was well below expectations for payroll jobs, and the unemployment rate was higher than expected."

So, no new jobs are being created and the economy is quickly decelerating. It's all bad.

On Friday, the chairman of RIT Capital Partners Jacob Rothschild issued a warning about the fragility of world markets and the bleak prospects for future growth. He said,

"The risks ahead are glaring and global. It is likely that the withdrawal of the fiscal and monetary stimuli which will surely come soon will have an impact on global growth. Indeed there is already evidence of some slowing down."

Commodities have already been walloped, but the real carnage is yet to come. This is from Bloomberg:

"Commodities plunged yesterday as investors accelerated sales following year-to-date gains through April of more than 23 percent for silver, oil, gasoline and coffee. The Standard & Poor's GSCI index of 24 commodities sank 6.5 percent in the biggest one-day drop since January 2009, bringing its loss this week to 9.9 percent.

"It was a train wreck waiting to happen," Michael Mullaney, portfolio manager at Boston-based Fiduciary Trust, said in a telephone interview. Speculation drove commodity prices well above reasonable levels, "and we are going to see it shake out some more before we get back to normal prices," said Mullaney, who helps manage $9.5 billion."

Even a whiff of deflation will send commodities tumbling, which is why investors should be worried about the recent data. The economy is quickly losing steam and troubles in China, Japan and the eurozone have only added to the uncertainty. According to Bloomberg:

"A 'sudden' slowdown in China may lead commodity prices to fall as much as 75 percent from current levels, Standard & Poor's said.

Unexpected shifts in government policies or problems in the banking sector may trigger such a slowdown, S&P said in a report e-mailed today....."Given the extent to which China has bolstered commodity prices, that's something that we have to be concerned about," S&P analyst Scott Sprinzen said by telephone from New York.".....(Bloomberg)

The fact that 10-year Treasuries have dipped below 3 percent should also be of concern, because it's an indication that the policy is wrong. This is the real problem. When investors are still so scared that they're still loading up on "risk free" assets a full 3 years after the crisis began, then something is fundamentally wrong. The 10-year is saying quite clearly, "Whatever you are doing is not working, so stop it."

The Fed's bond buying program (QE2) has done nothing to increase activity, lower unemployment, stimulate growth, restore confidence or expand credit. It has been the biggest policy bust in Fed history, and now the economy is slipping back into a coma.

Remember, the economy is not a sentient being. It does not consider whether a policy is good or bad. Like any system it merely responds to input. If spending increases, incomes will increase, demand will increase, employment will increase and the economy will grow.

 

Conversely, contractionary policies are contractionary. This is something the deficit hawks don't seem to grasp. If you slash government spending, lay off workers, and trim the deficits, then spending will slow, incomes will shrivel, GDP will wither, and the economy will slip back into recession. In other words, if you take steps to shrink the economy, then the economy will shrink. This is why the economy has lost momentum, because congress and the White House have cut the blood flow of stimulus to the patient, so now we are headed back into ICU.

The Republican mantra, "job killing stimulus" is an oxymoron like "military intelligence" or "jumbo shrimp". It is idiocy squared. The economy needs stimulus because stimulus IS spending...government spending. And, as we noted earlier, the economy does not care "who spends"; it merely responds to input. And the input that's needed now is more spending. Government spending will do just fine.

Consumers are still deleveraging from the losses they sustained during the financial crisis, so they've cut back on their borrowing and spending. This creates a problem, because consumer spending represents 70% of GDP. So if consumers don't load up on debt again, there will be no recovery. (Every recovery since WW2 has been the result of a credit expansion.) This is why Fed chairman Bernanke has tried to induce more borrowing by lowering rates to zero and buying US Treasuries from the banks (which, in effect, creates negative interest rates) But it hasn't worked. Negative rates have not sparked another credit expansion because there are times when people will not borrow regardless of the rates or the inducements. John Maynard Keynes figured this out more than 80 years ago, but Bernanke has "unlearned" the lessons of the past. As a result, we are headed for another slump.

Consumers aren't spending, businesses aren't investing, and credit is not expanding. At the same time, state and federal governments are trimming budgets and laying off workers. So, all the main players are cutting, cutting, cutting. Naturally, the economy has responded in kind; housing prices are falling, unemployment is rising, manufacturing is stalling and consumer confidence is dropping.

There's nothing here that should surprise us. We are headed into a Depression because policymakers have made another Depression unavoidable. A policy-driven Depression is different than a financial crisis. It is a matter of choice. It means that the objectives of the people who control the system are different than our own. There are those who will benefit from another severe downturn, but most of us will only needlessly suffer.

The Truth about the US Economy

Tuesday, May 31, 2011 by RobertReich.org

by Robert Reich

 

 

The U.S. economy continues to stagnate. It’s growing at the rate of 1.8 percent, which is barely growing at all. Consumer spending is down. Home prices are down. Jobs and wages are going nowhere.

It’s vital that we understand the truth about the American economy.

How did we go from the Great Depression to 30 years of Great Prosperity? And from there, to 30 years of stagnant incomes and widening inequality, culminating in the Great Recession? And from the Great Recession into such an anemic recovery?

The Great Prosperity
During three decades from 1947 to 1977, the nation implemented what might be called a basic bargain with American workers. Employers paid them enough to buy what they produced. Mass production and mass consumption proved perfect complements. Almost everyone who wanted a job could find one with good wages, or at least wages that were trending upward.

During these three decades everyone’s wages grew — not just those at or near the top.
Government enforced the basic bargain in several ways. It used Keynesian policy to achieve nearly full employment. It gave ordinary workers more bargaining power. It provided social insurance. And it expanded public investment. Consequently, the portion of total income that went to the middle class grew while the portion going to the top declined. But this was no zero-sum game. As the economy grew almost everyone came out ahead, including those at the top.

The pay of workers in the bottom fifth grew 116 percent over these years — faster than the pay of those in the top fifth (which rose 99 percent), and in the top 5 percent (86 percent).

Productivity also grew quickly. Labor productivity — average output per hour worked — doubled. So did median incomes. Expressed in 2007 dollars, the typical family’s income rose from about $25,000 to $55,000. The basic bargain was cinched.

The middle class had the means to buy, and their buying created new jobs. As the economy grew, the national debt shrank as a percentage of it.

The Great Prosperity also marked the culmination of a reorganization of work that had begun during the Depression. Employers were required by law to provide extra pay — time-and-a-half — for work stretching beyond 40 hours a week. This created an incentive for employers to hire additional workers when demand picked up. Employers also were required to pay a minimum wage, which improved the pay of workers near the bottom as demand picked up.

When workers were laid off, usually during an economic downturn, government provided them with unemployment benefits, usually lasting until the economy recovered and they were rehired. Not only did this tide families over but it kept them buying goods and services — an “automatic stabilizer” for the economy in downturns.

Perhaps most significantly, government increased the bargaining leverage of ordinary workers. They were guaranteed the right to join labor unions, with which employers had to bargain in good faith. By the mid-1950s more than a third of all America workers in the private sector were unionized. And the unions demanded and received a fair slice of the American pie. Non-unionized companies, fearing their workers would otherwise want a union, offered similar deals.

Americans also enjoyed economic security against the risks of economic life — not only unemployment benefits but also, through Social Security, insurance against disability, loss of a major breadwinner, workplace injury and inability to save enough for retirement. In 1965 came health insurance for the elderly and the poor (Medicare and Medicaid). Economic security proved the handmaiden of prosperity. In requiring Americans to share the costs of adversity it enabled them to share the benefits of peace of mind. And by offering peace of mind, it freed them to consume the fruits of their labors.

The government sponsored the dreams of American families to own their own home by providing low-cost mortgages and interest deductions on mortgage payments. In many sections of the country, government subsidized electricity and water to make such homes habitable. And it built the roads and freeways that connected the homes with major commercial centers.

Government also widened access to higher education. The GI Bill paid college costs for those who returned from war. The expansion of public universities made higher education affordable to the American middle class.

Government paid for all of this with tax revenues from an expanding middle class with rising incomes. Revenues were also boosted by those at the top of the income ladder whose marginal taxes were far higher. The top marginal income tax rate during World War II was over 68 percent. In the 1950s, under Dwight Eisenhower, whom few would call a radical, it rose to 91 percent. In the 1960s and 1970s the highest marginal rate was around 70 percent. Even after exploiting all possible deductions and credits, the typical high-income taxpayer paid a marginal federal tax of over 50 percent. But contrary to what conservative commentators had predicted, the high tax rates did not reduce economic growth. To the contrary, they enabled the nation to expand middle-class prosperity and fuel growth.

The Middle-Class Squeeze, 1977-2007
During the Great Prosperity of 1947-1977, the basic bargain had ensured that the pay of American workers coincided with their output. In effect, the vast middle class received an increasing share of the benefits of economic growth. But after that point, the two lines began to diverge: Output per hour — a measure of productivity — continued to rise. But real hourly compensation was left in the dust.

Globalism and Technological advances have played key roles. Offshoring jobs has contributed to the high levels of long-term unemployment. Factories remaining in the United States have shed workers as they automated. So has the service sector.

But trade and technology have not by themselves reduced the overall number of American jobs. Their more profound effect has been on pay. Rather than be out of work, many Americans have quietly settled for lower real wages, or wages that have risen more slowly than the overall growth of the economy per person. Unemployment following the Great Recession remains high, and in order to get a job, many workers have to accept lower pay than before.

Starting more than three decades ago, trade and technology began driving a wedge between the earnings of people at the top and everyone else. The pay of well-connected graduates of prestigious colleges and MBA programs has soared. But the pay and benefits of most other workers has either flattened or dropped. And the ensuing division has also made most middle-class American families less economically secure.

Government could have enforced the basic bargain. But it did the opposite. It slashed public goods and investments — whacking school budgets, increasing the cost of public higher education, reducing job training, cutting public transportation and allowing bridges, ports and highways to corrode.

It shredded safety nets — reducing aid to jobless families with children, tightening eligibility for food stamps, and cutting unemployment insurance so much that by 2007 only 40 percent of the unemployed were covered. It halved the top income tax rate from the range of 70 to 90 percent that prevailed during the Great Prosperity to 28 to 35 percent; allowed many of the nation’s rich to treat their income as capital gains subject to no more than 15 percent tax; and shrunk inheritance taxes that affected only the top-most 1.5 percent of earners. Yet at the same time, America boosted sales and payroll taxes, both of which took a bigger chunk out of the pay the middle class and the poor than of the well off.

How America Kept Buying: Three Coping Mechanisms
Coping mechanism No. 1: Women move into paid work. Starting in the late 1970s, and escalating in the 1980s and 1990s, women went into paid work in greater and greater numbers. For the relatively small sliver of women with four-year college degrees, this was the natural consequence of wider educational opportunities and new laws against gender discrimination that opened professions to well-educated women. But the vast majority of women who migrated into paid work did so in order to prop up family incomes as households were hit by the stagnant or declining wages of male workers.

This transition of women into paid work has been one of the most important social and economic changes to occur over the last four decades. In 1966, 20 percent of mothers with young children worked outside the home. By the late 1990s, the proportion had risen to 60 percent. For married women with children under the age of 6, the transformation has been even more dramatic — from 12 percent in the 1960s to 55 percent by the late 1990s.

Coping mechanism No. 2: Everyone works longer hours. By the mid 2000s it was not uncommon for men to work more than 60 hours a week and women to work more than 50. A growing number of people took on two or three jobs. All told, by the 2000s, the typical American worker worked more than 2,200 hours a year — 350 hours more than the average European worked, more hours even than the typically industrious Japanese put in. It was many more hours than the typical American middle-class family had worked in 1979 — 500 hours longer, a full 12 weeks more.

Coping mechanism No. 3: Draw down savings and borrow to the hilt. After exhausting the first two coping mechanisms, the only way Americans could keep consuming as before was to save less and go deeper into debt. During the Great Prosperity the American middle class saved about 9 percent of their after-tax incomes each year. By the late 1980s and early 1990s, that portion had been whittled down to about 7 percent. The savings rate then dropped to 6 percent in 1994, and on down to 3 percent in 1999. By 2008, Americans saved nothing. Meanwhile, household debt exploded. By 2007, the typical American owed 138 percent of their after-tax income.

The Challenge for the Future
All three coping mechanisms have been exhausted. The fundamental economic challenge ahead is to restore the vast American middle class.

That requires resurrecting the basic bargain linking wages to overall gains, and providing the middle class a share of economic gains sufficient to allow them to purchase more of what the economy can produce. As we should have learned from the Great Prosperity — the 30 years after World War II when America grew because most Americans shared in the nation’s prosperity — we cannot have a growing and vibrant economy without a growing and vibrant middle class.

Third Depression Watch

May 25, 2011 by Paul Krugman, NY Times

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.

Brad DeLong points us to Macro Advisers, which has now downgraded its estimates for second-quarter growth. As Brad says, these estimates now suggest that we have now gone through a year and a half of “recovery” that has failed to make any progress toward closing the gap between what the economy should be producing and what it’s actually producing.

And nobody in power cares!

+++++++++++++++++++

Krugman: “Third Depression Watch”

by bobswern

It should not surprise any folks that have been closely following our economy (at least those following it with any degree of objectivity) when they read Paul Krugman’s Wednesday blog post, “Third Depression Watch,” as he references economist Brad DeLong’s commentary and notes:

…[G.D.P.] estimates now suggest that we have now gone through a year and a half of “recovery” that has failed to make any progress toward closing the gap between what the economy should be producing and what it’s actually producing.

An editorial in Wednesday’s NY Times pretty much sums it all up in the headline: “As Housing Goes, So Goes the Economy.” If that doesn’t convince you of where our economy is right now, perhaps a read of my post from early Tuesday -- where I discuss the inconvenient reality that roughly half of our nation’s mortgageholders will be underwater by year’s end — will.

While many Democrats parrot the now-totally-distorted Bureau of Labor Statistics’ U.3 Index numbers, the truth is the BLS’ U.5 Index provides us with a more accurate, apples-to-apples comparison between jobless measurements now versus publicized statistics from just two or three decades ago. And, the U.5 Index is currently at 10.4%, which is just a half-point less than it was a year ago.

With oil projected to remain relatively high from this point forward, as we segue into true peak oil over the next few years, the truth is that it’s highly unlikely that this country will be (net) exporting its way out of this economic downturn anytime soon.

And, last but not least, any manufacturing renaissance in America (where manufacturing accounts for a paltry 13.5% of our—primarily--services-driven economy) will, IMHO, take a decade or more to come to fruition, as well (if that ever happens, at all).

As Offshoring Continues, US Public Peeved at "Free Market"

Friday, April 22, 2011 by In These Times

by Roger Bybee 

Many Americans increasingly feel like a trap door has suddenly dropped them into economic quicksand, with major corporations and their government allies pulling them further away from the middle-class security they once had.

These feelings have been heightened by a wave of public-sector union-busting laws in Wisconsin and Ohio that will encourage more private sector wage-cutting (already at a record level ), revelations about the extent of corporations “off-shoring” jobs while creating virtually no new jobs in the U.S. for the entire 1999-2009 decade and news that two-thirds of major corporations are paying no federal income taxes.

Two surveys released this week suggest an intensifying sense of impatience with the agonizingly slow recovery and a profound and growing disillusionment with Corporate America. First, a New York Times/CBS News poll shows declining faith that America is on a path to economic recovery:

Americans are more pessimistic about the nation's economic outlook and overall direction than they have been at any time since President Obama's first two months in office...

At a time of rising gas prices, stubborn unemployment and a cacophonous debate in Washington over the federal government's ability to meet its future obligations, the poll presents stark evidence that the slow, if unsteady, gains in public confidence earlier this year that a recovery was under way are now all but gone.

The poll reflects a high degree of political disorientation and confusion among voters. While 72% of the public—including a stunning 55% of Republcians—favor President Obama’s proposal to raise taxes on incomes over $250,000, a slight majority backs Republican Paul Ryan’s (R-Wis.) plan for wrecking Medicare, which also contains relatively little-known provisions for further lowering taxes on corporations and the rich.

But Americans remain solidly clear and unified in believing that the economic recovery is not bringing meaningful benefits to folks like them, with 70 percent convinced that the country is “seriously on the wrong track.” President Obama's economic policies have a 57 percent disapproval rate, while congressional Republicans are seen even more dubiously.

BIG DROP IN SUPPORT FOR 'FREE MARKET'

Obama’s economic policies offer at least some appeal to economic fairness, but the president’s continued reliance on “private-sector job creation” seems downright absurd when corporations feel no sense of obligation to add create in the United States. “Winning the Future” for Obama’s team has meant business-friendly efforts that are utterly faling to lift decaying communities out of job loss and misery.

Prolonged unemployment—particularly high in old manufacturing towns—not only has generated understandable pessimism about the future state of the economy, but it is also propelling an increasing number of Americans to question whether the “free market” is the best economic system. Americans are growing increasingly suspicious of the giant corporations which largely shape the economy.

Thus, the polling firm Globescan found a sharp drop in the level of support for “free enterprise”:

When GlobeScan began tracking views in 2002, four in five Americans (80%) saw the free market as the best economic system for the future—the highest level of support among tracking countries. Support started to fall away in the following years and recovered slightly after the financial crisis in 2007/8, but has plummeted since 2009, falling 15 points in a year [emphasis added] so that fewer than three in five (59%) now see free market capitalism as the best system for the future.
Americans with incomes below $20,000 were particularly likely to have lost faith in the free market over the past year, with their support dropping from 76 percent to 44 percent between 2009 and 2010.

GlobeScan Chairman Doug Miller commented: "America is the last place we would have expected to see such a sharp drop in trust in the free enterprise system. This is not good news for business." He added:

The poll suggest that American business is close to losing its social contract with average American families that has enabled it to prosper in the world. Inspired leadership will be needed to reverse this trend."

The breakdown of the “social contract” is evident when you look at the radical shift in General Electric’s guiding philosophy. As Steven Greenhouse noted in The Big Squeeze, in 1962 GE’s employee benefits manager wrote,

Maximizing employer security is a prime company goal. The employee who can plan his economic future with reasonable certainty is an employer’s most productive asset.

Compare that quaint attitude with the ruthless creed of Jack Welch’s, GE’s CEO from 1981 to 2001, who showed his disregard for employee loyalty when he declared, "Ideally you'd have every plant you own on a barge"  By that, he meant a readiness to seek out at a moment's notice the lowest possible wages and most pliable governments (weak regulations, low taxes, hostile to unions, etc.) anywhere on the globe.

U.S. FIRMS GROWING ABROAD, SHRINKING AT HOME

More and more corporations are enthusiastically carrying out Welch’s strategy, as David Wessel's stunning Wall Street Journal article and chart revealed this week, generating extensive comment in progressive media (see here and here):

U.S. multinational corporations…cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million, new data from the U.S. Commerce Department show.

Given this callous disregard for the U.S. workers and communities that corporations have abandoned (as well as for the low-wage workers they degrade daily in Mexico, China and other sites of the relocated operations), the sharp, sudden drop in support for the “free market” is not mystifying at all.

Today, as America's prolonged and severe employment crisis continues, multinational corporations continue to unilaterally repudiate their side of the “social contract.”

The country's business leaders should hardly be surprised to hear Americans questioning the “free market” shield they use to justify their outrageous abandonment of American workers, their renewed attacks on decent wages by imposing two-tier wage structures, and their refusal to contribute their fair share of taxes to cope with the social damage that they are causing.

As suggested by the labor uprising in Wisconsin—now spreading to other states—working people have not only lost faith in corporations' ability to show any concern for fairness. Workers are increasingly moving from outrage to action.

Welcome to Banktopia

The Real Losers in Bernanke's Shell Game
By MIKE WHITNEY

Let's talk turkey. The dollar is getting hammered by the day. And the dollar is getting hammered by design, because the Fed wants a weaker currency to boost exports and lower the real burden of debt on the banks. (Yes, Martha, the banks are still insolvent) So, down goes the greenback, lower and lower, pushing up gas and food prices while the buying power of the average US worker vanishes down the plughole. And this process will continue for the foreseeable future because--as Obama stated earlier in the year--Washington is committed to "doubling exports in the next 5 years." Think about that: "the next 5 years". That's the same as saying that the American worker will be reduced to third-world poverty in a half decade or so. It's a death sentence.

And none of this has anything to do with lowering unemployment or raising GDP. In fact, the revisions of first quarter GDP reveal the lies behind the policy. The first announcement from the Commerce Department put GDP at 3.2%. Remember that? Now we've slipped to 1.4% and some predict the final revision could actually show negative growth. This is from the New York Times:

"Earlier this week we wrote that several prominent economic forecasters had lowered their estimates of gross domestic product growth in the first quarter of this year. Today saw even further declines. Macroeconomic Advisers, a forecasting firm, lowered its estimate to just 1.4 percent annualized, when just a few months ago they had pegged the number at 4.1 percent.

Capital Economics likewise brought its estimate down to 1 percent, writing in a client note:

Every data release last week seemed to necessitate a further downward revision to our first-quarter GDP growth forecast. By the end of the week when the dust had finally settled, that estimate was down to only 1% at an annualized pace. Indeed, there is now even a decent outside chance that the economy contracted outright." ("G.D.P. Estimates Slide Further", New York Times)

So, it's all baloney. The economy isn't growing. How could it be? Wages are flat, credit is still shrinking, (excluding student loans) and the only reason the unemployment numbers keep dropping is because more and more people are falling off the unemployment rolls. Everyone knows that. So, while there may be a slight uptick in consumption and retail; don't be fooled. It's just because it costs more to put food on the table or drive to work, not because people are scarfing up trinkets at the mall or living the highlife.

And the American people know what's going on; they can see through this "green shoots" charade. That's why the latest survey from the New York Times showed that the "Nation's Mood (is) at the Lowest Level in Two Years" and that "Americans are more pessimistic about the nation's economic outlook and overall direction than they have been at any time since President Obama's first two months in office when the country was still officially ensnared in the Great Recession." ("Nation's Mood at Lowest Level in Two Years, Poll Shows, New York Times)

 

People have lost faith in Obama, the congress, and the political process itself. They can see that the system is broken and no longer responds to the will of the people, which is why they're throwing up their hands and giving up. It's obvious. Gallup found the same thing. Here's a clip from their recent poll:

"Americans' optimism about the future direction of the U.S. economy plunged in March for the second month in a row, as the percentage of Americans saying the economy is "getting better" fell to 33% -- down from 41% in January....Optimism about the future of the economy declined across all political parties during the first quarter....Gallup's Economic Confidence Index, which includes the economic optimism measure, also plunged in March..." ("U.S. Economic Optimism Plummets in March", Gallup)

So, all the "happy-times" propaganda has had zilch effect. The public's not buying it. They know we're in a Depression. How could they not know? They're underwater on their mortgages, they can't get a loan, their kids and Uncle Arnie can't find work, and the guy in the Oval Office won't do a damn thing to help out. Is it any wonder why so many people are giving up on capitalism entirely. Just take a look at this survey from Globescan for a real shocker:

"American public support for the free market economy has dropped sharply in the past year, and is now lower than in China, according to a GlobeScan poll released today.....When GlobeScan began tracking views in 2002, four in five Americans (80%) saw the free market as the best economic system for the future—the highest level of support among tracking countries. Support started to fall away in the following years and recovered slightly after the financial crisis in 2007/8, but has plummeted since 2009, falling 15 points in a year so that fewer than three in five (59%) now see free market capitalism as the best system for the future.

GlobeScan Chairman Doug Miller commented: "America is the last place we would have expected to see such a sharp drop in trust in the free enterprise system. This is not good news for business."

The results mean that a number of the world's major emerging economies have now matched or overtaken the USA in their enthusiasm for the free market. The Chinese and Brazilians, 67 per cent of whom regard the free market system as the best on offer, are now more positive about capitalism than Americans." ("Sharp Drop in American Enthusiasm for Free Market, Poll Shows", GlobeScan)

Can you believe it? The Chinese like capitalism better than Americans. How's that for irony? And, don't kid yourself, the average working slob isn't spending his evenings thumbing through the Communist Manifesto while strumming L'Internationale on his 6-string. That's nonsense. Americans are practical people. They know they're getting screwed by both parties which is why their support for capitalism has eroded even faster under Obama. It fell "15 points in a year" since 2009. Way to go, Barry. 

And things will only get worse when congress starts hacking away at the budget deficits, eliminating popular programs and services. That will just add more fuel to the fire and convince people that the system is beyond repair. Bottom line: Conditions will steadily deteriorate, activity will slow, and economy will enter a period of protracted stagflation.

But that doesn't mean Wall Street will suffer. Hell, no. The markets will continue to bubble ever-higher fueled by lavish injections of monetary stimulus from the Fed just as they have for the last 3 years. As Bloomberg reported earlier in the week, Bernanke does not plan to end QE2 at the end of June as scheduled, but will continue to recycle the proceeds from maturing mortgage-backed securities (MBS) into bond purchases to ensure that the Blue Chips continue to post record profits while 42 million workers scrape by on food-stamps, and a couple million more wait to get booted out of their homes. Sounds fair, doesn't it?

So, if it seems like the big banks are writing the policy; it's because they are. Think of it like this: The US government keeps two sets of books. One is a record of all the public's revenues and debts. The other is an off-balance sheet operation run by the Fed. When congress spends money, it must be approved through the normal democratic process. When the Fed spends money, it simply writes a check on an account backed by "the full faith and credit of the US Treasury" without any oversight or supervision. And, the debts that it rings-up, do not add to the budget deficits or force policymakers to impose constraints on the banks. No way. The $2 trillion in junk mortgage-backed securities (MBS) and other handouts the Fed has given to Wall Street since Lehman collapsed, should have sent the deficits into the stratosphere and forced the resolution (bankruptcy) of the nation's largest banks. But they didn't, because the Fed's losses are kept "off-budget", where they don't attract congress's scrutiny. So, anything goes. 

The only problem is that the Fed's trillion dollar Bank Welfare Project has led to diminished buying power and a plunging dollar. So, it would be more accurate to call QE2 a stealth tax on working people, instead of "monetary stimulus".(which it is not.) The truth is, Bernanke is deliberately flogging the dollar to help his underwater bank buddies stay afloat and to keep stocks "frothy". But the net-result is a huge loss of personal wealth for everyone else. These are the real losers in Bernanke's QE shell game.

Looking ahead, it will be more of the same. Stocks will continue to rally, the red ink on the Fed's balance sheet will continue to build, and the dollar will continue its agonizing descent into oblivion. 

The Fed is running the whole shooting match now and the rest of us are just bystanders with no say-so. 

Welcome to Banktopia.