by John Lawrence from the San Diego Free Press
Oil is less than $30. a barrel. This is over three times less than what it costs just to buy the barrel itself! Iran has been accepted back into the world community and is revving up to sell its oil on the world market which will bring down the price of oil even more. Frackers and oil producers in the US have taken on a huge amount of debt under the assumption that it would pay off down the road. They hadn't counted on the price of oil plummeting. What will they do when we convert 100% to renewables?
The debt overhang in the US economy is, as The Donald would say, UUUUGE! All the Wall Street banks and hedge funds, which have bet on the US becoming oil independent and have bought derivatives up the ying yang, are on the losing end of their bets. This presages a crash similar to the mortgage based crash of 2008. Then the Big Banks will ask for another bailout. Or maybe they won't ask; they'll just tell us that we're bailing them out because, after all, they run the government.
Goldman Runs the Government While Committing Fraud
Goldman Sachs runs the government's finance department. Treasury Secretaries Robert Rubin (1995-99) and Hank Paulson (2006-2009) were at Goldman from 1966 to 1992 and 1974 to 2006 respectively. At Treasury, Paulson was aided by Chief of Staff Mark Patterson (Goldman lobbyist 2003-2008), Neel Kashkari (Goldman Vice President 2002-2006) , Under-Secretary Robert K Steel (Vice Chairman at Goldman, where he worked from 1976 to 2004), and advisors Kendrick Wilson (at Goldman from 1998 to 2008) and Edward C Forst (former Global Head of Goldman's Investment Management Division).
Paulson's successor, Timothy Geithner, a protege of Robert Rubin, was kept close to the Goldman fold with the usual tactic of paying him lucrative speaking fees, the same tactic they use to keep Hillary's ear. I could go on with Goldman's connections to the US government, but I don't want to bore you. For a fuller account I refer you to Michael Hudson's book, Killing the Host, How Financial Parasites and Debt Destroy the Global Economy.
This January 2016 Goldman admitted to committing massive fraud and was fined $5 billion. The Wall Street firm had agreed with federal prosecutors and regulators to resolve claims stemming from the marketing and selling of faulty mortgage securities to investors. These are the people who are running your democratic (ha, ha) government. While the 99% got screwed, Wall Street got bailed out because they ARE the government.
But not to worry. This looming market crash is a problem for the big guys, the billionaires, the investor class, not the 99%. The mortgage defaults of 2008, on the other hand, brought real pain to the middle class. While the banks got bailed out, the average middle class homeowner did not. HAMP, the Home Affordable Mortgage Program which was supposed to help homeowners stay in their homes with loan modifications, was a colossal failure.
The program gave permanent mortgage modifications to 1.3 million people, but 350,000 of them defaulted again on their mortgages and were evicted from their homes. Fewer than one million homeowners remain in the HAMP program – just a quarter of its target – and $28 billion of the funding remains unspent. The HAMP program, supposed to help homeowners save their houses, may have led them deeper into a bureaucratic swamp.
401ks - the Worst Idea Perpetrated on the American People
Now that that crisis has settled down, the main worry of the middle class is that, when the stock market tanks, so will their 401k. 401ks were one of the worst travesties visited on the average American worker. Folks lucky enough to have traditional pensions don't have to worry especially if it's a government pension. On the other hand those with traditional pensions from corporations have to worry about corporate raiders and hedge fund takeover artists raiding their pension funds. Those with 401ks are taking all the risk in their individual portfolios over which they have no control really. They are at the mercy of the market and Wall Street. God help them.
There is also widening inequality which means that American consumers have less money to spend to keep the economy going. US GDP depends on consumer purchases because they are 70% of the economy. If everyone goes to ground and starts growing their own vegetables and keeping their own chickens, all those nonpurchases at the supermarket will drive the economy down. 2015 was a big year for car sales; that means that 2016 will not be because consumers are carred up.
Robert Reich thinks the economy is on the edge of recession:
Consider: The median wage is 4 percent below what it was in 2000, adjusted for inflation. The median wage of young people, even those with college degrees, is also dropping, adjusted for inflation. That means a continued slowdown in the rate of family formation—more young people living at home and deferring marriage and children – and less demand for goods and services.
At the same time, the labor participation rate—the percentage of Americans of working age who have jobs—remains near a 40-year low.
The giant boomer generation won’t and can’t take up the slack. Boomers haven’t saved nearly enough for retirement, so they’re being forced to cut back expenditures.
Wall Street and hedge funds are running the economy. They are the central planners not the US government which is basically just a pawn in their hands. They borrow money from the Federal Reserve at extremely low rates and then buy Treasury bonds which amounts to making money off the spread or making money off their ability to finance the American government which boils down to us, the American taxpayers.
Fortunately, the US isn't dependent on Japanese or Chinese or Saudi Arabian investors to buy its bonds. Wall Street has taken over that role in a symbiotic Ponzi scheme which requires the Fed, Wall Street and the US Treasury to all play their parts. That means that now the Big Banks are really, really Too Big To Fail. They are an essential part of funding and running the US government!
Better to Put Your Money Under the Mattress
While Wall Street banks are too big to fail, the next banking crisis could trigger not a bail out but a bail in. According to Ellen Brown, the mechanics are already in place to loot depositors' bank accounts:
While the mainstream media focus on ISIS extremists, a threat that has gone virtually unreported is that your life savings could be wiped out in a massive derivatives collapse. Bank bail-ins have begun in Europe, and the infrastructure is in place in the US. Poverty also kills.
At the end of November, an Italian pensioner hanged himself after his entire €100,000 savings were confiscated in a bank “rescue” scheme. He left a suicide note blaming the bank, where he had been a customer for 50 years and had invested in bank-issued bonds. But he might better have blamed the EU and the G20’s Financial Stability Board, which have imposed an “Orderly Resolution” regime that keeps insolvent banks afloat by confiscating the savings of investors and depositors. Some 130,000 shareholders and junior bond holders suffered losses in the “rescue.”
Something to think about. Maybe hiding your money under the mattress is the best solution since it's not earning any interest in the bank anyway.
“The United States is more vulnerable today than ever before including during the Great Depression and the Civil War,” says Thom Hartmann, in “The Crash of 2016.” Why? “Because the pillars of democracy that once supported a booming middle class have been corrupted, and without them, America teeters on the verge of the next Great Crash.” Thanks to an obstructionist GOP, hell-bent on destroying Obama the past six years. [Thom's] indictment hits hard, but matching something you might hear from Rush Limbaugh on the Right.
“The United States is in the midst of an economic implosion that could make the Great Depression look like child’s play,” warns Hartmann. His analysis is brutal, sees that “the facade of our once-great United States will soon disintegrate to reveal the rotting core where corporate and billionaire power and greed have replaced democratic infrastructure and governance. Our once-enlightened political and economic systems have been manipulated to ensure the success of only a fraction of the population at the expense of the rest of us.” And he wrote that before Picketty’s “Capital in the 21st Century.”
The US has a boom bust economy. Unfortunately, the busts are becoming more frequent and the booms more superficial. People get all euphoric when the stock market goes up. As someone once said, it leads to "irrational exuberance." Then when it crashes, they sell leaving their 401ks and retirement incomes in shambles. That's what happens when investing is left in the hands of amateurs. The big guys, the hedge funds will make money either way - when the stock market goes up they go long; when it goes down they're short. They are high frequency traders and act on insider information. They commit fraud.
They have billions of dollars at their disposal from low interest loans from Wall Street. That's why they can buy entire corporations, break them up, lay off the employees, raid their pension funds and sell the remaining eviscerated hulk off to the unsuspecting and naive. The hedge (vulture) funds and Wall Street make out like bandits which is what they essentially are. The banks, whose function used to be capital formation to fund industry which created jobs, now functions as a conduit to hedge funds to wreak havoc with the American economy in pursuit of short term profits.
The world is polarized between the uber wealthy and the rest of us. Just 62 people own as much wealth as the 3.6 billion poorest. That's globalization for you. Nation states are no longer important or in control. The uber wealthy, the billionaires, who can buy and sell politicians and governments at their whim are the controllers. They - not the communists or socialists - are the central planners of the economy, and their plan for the economy is to benefit them and only them. The World Bank and the IMF are their henchmen.
The New Feudalism - Billionaires Replace the Nobility
This is from a recent report from Oxfam, AN ECONOMY FOR THE 1% How privilege and power in the economy drive extreme inequality and how this can be stopped:
The gap between rich and poor is reaching new extremes. The richest 1 percent have now accumulated more wealth than the rest of the world put together… Meanwhile, the wealth owned by the bottom half of humanity has fallen by a trillion dollars in the past five years.”
The wealth of the richest 62 people has risen by 44 percent in the five years since 2010—that’s an increase of more than half a trillion dollars ($542 billion), to $1.76 trillion,” Oxfam noted. “Meanwhile, the wealth of the bottom half fell by just over a trillion dollars in the same period—a drop of 41 percent. Since the turn of the century, the poorest half of the world’s population has received just 1 percent of the total increase in global wealth, while half of that increase has gone to the top 1 percent.
There is really only one candidate for President who is addressing these issues - Bernie Sanders. Republicans want us to take our eyes off the ball of growing inequality and impoverishment of the 99% while the billionaires take on the role of oligarchs. They want us to focus on international terrorism and the threat that that brings to our everyday lives.
While that is surely a threat, ISIS cannot do major damage to the US. A few people can be blown up here and there and that is a tragedy. It's just not as great a tragedy as the gun violence done by Americans to other Americans on a daily basis which is orders of magnitude bigger.
If the economy takes a tumble, Hillary Clinton's ties to Wall Street will take on an even more ominous cloud over her campaign while the fact that Bernie Sanders has raised millions in small donations without the help of Wall Street or Super PACs will cast him in an even more favorable light. That might be the deciding factor. The Republicans will surely be left behind if they place all their bets on getting the American people to vote for them out of fear of ISIS.
by John Lawrence from the San Diego Free Press
Income Inequality is Getting Worse
Income and wealth inequality is only getting worse. It's not hard to understand why. Certain corporations have a lock on economic activity throughout the world. Mom and Pop operations have been forced out of business or have merged with the Big Guys. Artificial intelligence, automation, robots and computers have taken over many menial but used-to-be-better-than-minimum-wage jobs like check-out clerks, bank tellers and customer service operators. Other jobs have been off shored to cheaper labor jurisdictions.
The rest of us, college graduates included, have been reduced to being expendable appendages of the large corporate machines to be sucked in and spit out at their pleasure. When our skill sets are outmoded, we will be laid off and fresh talent will be acquired. The job pool is shrinking because the number of necessary jobs is shrinking. Today, there are approximately 1.2 million fewer jobs in mid-and higher-wage industries than there were prior to the 2008 recession, while there are 2.3 million more jobs in lower-wage industries. According to the Bureau of Labor Statistics most jobs in the next decade won't even require a college education. They are jobs that can't be done by robots: care givers, nurses, house cleaners, gardeners, retail.
Another reason for income and wealth inequality is that the US Federal Reserve's quantitative easing policy screws savers who get zero interest on their life savings while injecting money into the largest Wall Street banks. This money is siphoned off by wealthy investors and hedge funds. It never enters the real economy. It only encourages the average Joes and Janes to take on more debt. Ninty percent of the money supply is created by private banks who loan money into the economy through their policy of fractional reserve banking. As the money supply increases, so does debt.
Wall Street Banking Giants Create Most of the US Money Supply
Fractional reserve banking is a simple concept that has become more complicated and convoluted as it has evolved over the years. In its simplest terms, if a bank takes in a deposit of $100 from 10 people or $1000 total, it loans out $900 of that keeping $100 back as a reserve in case someone wants their deposit back before the principal and interest on the loans start flowing in. Their premise is that not everyone will demand their deposit back at the same time. If, however, everyone does want their money back at the same time, there could be a run on the bank unless the bank can borrow the money from some other entity like another bank or the Federal Reserve
Thus money is created by the bank with a few keystrokes on a computer and is fed into the economy as debt. The banks are at the top of the food chain since they create the money and loan it out on interest. Thus the US economy is a debt based economy. Bad things happen when people all demand their money back at the same time or collective debt becomes so big and untenable that it can't be paid back. This is what happened in the 2008 financial crisis when mortgages were given to people who couldn't pay them back and hence defaulted. Eventually this whole financial structure, which was a house built upon sand instead of a rock, to use a Biblical metaphor, collapsed.
It is to be noted that when a bank creates money, it is not backed by gold. Nixon took us off the gold standard in 1971. Money not based on anything but the government's say so is called fiat money. Thus all money created by private banks is fiat money, and, although the government says it is all good, it is the private banks that actually create it, not the supposedly democratically elected government.
The Federal Reserve has also been involved in money creation recently with a process called quantitative easing (QE). When the government needs money beyond the revenues it takes in by means of taxes, it goes into debt by issuing bonds. Sometimes those bonds are bought by Joe and Jane Average Investor or sometimes by other countries like Japan. However, much of the time they are bought by Wall Street banks. Then the Federal Reserve turns around and pays cash for those bonds taking them off the hands of the big banks. The result is that the banks end up with more money and the loans disappear on the Federal Reserve's balance sheet which is sort of like a black hole. Effectively, the government never has to pay those loans back.
Quantitative Easing for the People
There is another way that money could be created and injected into the economy. It might be called quantitative easing for the people (PQE) as Britain's Leader of the Labor Party, Jeremy Corbyn has termed it. He proposes to give the Bank of England a new mandate to upgrade the economy to invest in new large scale housing, energy, transport and digital projects. The investments would be made through a National Investment Bank set up to invest in new infrastructure and in the hi-tech innovative industries of the future.
The money creation (or printing if you like) would entail the government issuing a bond that a National Investment Bank would buy. Then the central bank would take that loan on its balance sheet in return for cash that the bank would then use to pay for infrastructure. The end result is that the government would owe the central bank the amount of the loan, but because the central bank is a financial black hole, it would never have to pay.
In Addition to Pocketing the QE, Wall Street Bankrupts Cities
The City of Los Angeles is paying a Wall Street bank $200. million annually in fees just to manage its money. The Huffington Post revealed:
LOS ANGELES, CA- At a lively downtown rally in front of the Bank of NY Mellon in Los Angeles, the Fix LA Coalition unveiled a groundbreaking research report, entitled "No Small Fees: LA Spends More on Wall Street than Our Streets," revealing that Wall Street charges the City of Los Angeles more than $200 million in fees. Coalition members called for action to reduce the high fees and put that money back into neighborhood services. After the rally, Fix LA Coalition members delivered the report to elected officials in City Hall.
In addition LA like a lot of cities that have gone bankrupt (Birmingham, Alabama for instance) has been snookered into interest rate swaps that end up costing much more money than if they had kept the original loan at the original rate. Then to get out of these toxic deals, they have to pay a substantial "termination fee."
Lisa Cody, SEIU 721 Research Analyst and report co-author stated: "Based on what we know, there are some concrete steps we can take to save LA millions. For example, we can start with Mellon Bank to renegotiate a 'swap' deal that was supposed to save the city money, but is instead costing LA almost $5 million a year. To fix this toxic deal, the bank wants $24 million more in fees. In 2012, NY Mellon charged the city $26 million in termination fees for another swap they had sold us that turned out to be a terrible deal for LA."
LA is not the first and probably won't be the last to be tricked into engaging in a fancy derivative deal that was way over the heads of the city employees that were talked into it by Wall Street hit men. If they had formed their own Public Bank of Los Angeles, they could not only have avoided being ripped off, but they could have actually made money and then be in a position to fix all those potholes they've been screaming about. And they could have created their own money supply the way Wall Street does it: fractional reserve banking.
Los Angeles Becomes Largest U.S. City to Take Action on Toxic Bank Deals; Unanimous Vote Requires City to Renegotiate or Terminate Multi-Million Dollar Interest Rate Rip-Off on Behalf of Taxpayers
Unanimous City Council vote sends strong message to Bank of NY Mellon, Wall Street: LA is not your ATM
The Los Angeles City Council voted 14-0 Wednesday to renegotiate or terminate without penalty a toxic swap deal the City entered into with two Wall Street banks, Bank of New York Mellon and Dexia. The measure, advanced by Fix LA, a coalition of clergy, unions and community groups aligned to restore city services and expand middle class jobs in the public sector, could save the City as much as $138 million. The International Business Times, noting the significance, reported that Los Angeles is now the largest city in the nation "to challenge ballooning Wall Street levies that accompany similar interest rate swap deals throughout the nation."
The motion further calls on the banks to return unfair profits and fees paid since 2008, estimated at more than $65 million to date. The deal costs taxpayers $4.9 million annually.
Los Angeles is now spending $290 million a year in financial fees or more than the entire city budget for maintaining its vast array of streets and highways. LA isn't the only sucker to enter into an interest rate swap in 2007 which was essentially a bet that interest rates would not fall below 2%. Then when the Federal Reserve, with its policy of QE, lowered interest rates to zero, LA and many other jurisdictions found themselves on the wrong end of a bet and were forced to shell out much more than they would have if they had kept the interest rate on the original loan.
The next sucker: Puerto Rico. Puerto Rico ran itself into debt and then tried to make up for it with interest rate swaps. Recent credit downgrades allowed Wall Street to demand hundreds of millions more in short-term lending fees, credit-default-swap termination fees, and higher interest rates. Between 2012 and 2014, Puerto Rico paid nearly $640 billion to terminate swaps in addition to $12 million annual swap payments. As a result Puerto Rico is in the same situation as Greece - borrowing money in order to make debt payments which is the same as borrowing money on one credit card to make the payments on another.
The Chicago Public School Teachers' Pension and Retirement Fund has brought suit against 10 of Wall Street's biggest banks including Goldman Sachs, JPMorgan Chase, Citigroup and Bank of America for colluding to prevent the trading of interest rate swaps with the result that it cost the Fund more money.
If these jurisdictions - whether they be cities, counties or states - formed public banks as the state of North Dakota did, there would be no outflow of cash to Wall Street. Money would stay at the local level and could be used to support local businesses and create jobs repairing and building infrastructure.
An Infrastructure Bank Would Mean Good Jobs in a Much Needed Enterprise
If the government creates money and puts it in an infrastructure bank, that money would be spent into the economy by creating jobs to build and repair infrastructure. Thus good jobs would be created at the low and middle parts of the economic spectrum. This money would have a multiplier effect as the job holders would spend their paychecks on the necessities and luxuries of life. American GDP is based on 70% consumer spending so that would go up. Thus the democratically elected government - not private banks - would be in charge of creating the money supply and it would be to the advantage of average workers not high end financiers. Since the big banks are the current recipients of the QE largesse, that money goes into the pockets of billionaires in various ways and drives wealth and income inequality.
Or the government, instead of the private Wall Street banks, could create money itself directly and inject it into the economy in a variety of ways as Abraham Lincoln did when he had the American government create and spend greenbacks into the economy. This money, therefore, does not create debt as money created by private banks and loaned into the economy does. It's a bottom up rather than a trickle down method. Problem is that most money created today does not trickle down into the real economy.
Australian blogger Prof. Bill Mitchell agrees that PQE is economically sound. But he says it should not be called “quantitative easing.” QE is just an asset swap – cash for federal securities or mortgage-backed securities on bank balance sheets. What Corbyn is proposing is actually Overt Money Financing (OMF) – injecting money directly into the economy.
Mitchell acknowledges that OMF is a taboo concept in mainstream economics. Allegedly, this is because it would lead to hyperinflation. But the real reasons, he says, are that:
It cuts out the private sector bond traders from their dose of corporate welfare which unlike other forms of welfare like sickness and unemployment benefits etc. has made the recipients rich in the extreme. . . .
It takes away the ‘debt monkey’ that is used to clobber governments that seek to run larger fiscal deficits.
So the government could just create money and inject it into the economy in one of two ways: directly to the people in the form of a basic guaranteed income or through an infrastructure bank that creates jobs. In the first instance money would be transferred directly to people to bolster consumption. In the second case jobs would be created that would get needed work done. Or a combination of both could be used.
A third way of reducing income inequality would be to redistribute money from the 1% to the 99% through the tax code. This is the method that Bernie Sanders advocates. Taxes on wealth and financial transactions would provide additional monies which could be transferred to the 99% through social programs such as Medicare-For-All, or it could be given directly in terms of a deposit to checking accounts as was done in the Economic Stimulus Act of 2008. Money was deducted from tax liabilities or deposited directly to American citizens.
The Concept of a Basic Guaranteed Annual Income
The concept of a Basic Income in the U.S. goes back to Thomas Paine, one of the driving forces for independence and reducing inequality during the American Revolution. More recently, it’s been supported by very non-liberal individuals like Fredrick Hayek, Milton Friedman, and Richard Nixon. This would eliminate poverty in one fell swoop. All the anti-poverty programs could be rolled into one with much fewer administrative costs. Just as Medicare-For-All would simplify and reduce medical costs, a basic guaranteed income would amount to Social-Security-For-All. The state of Alaska already has such a program called the Alaska Permanent Fund which hands out money to each resident on an annual basis. In 2015 each man, woman and child received $2,072.00. For a family of four that was a nice basic income of approximately $8000. Sweet!
In the Netherlands a number of cities are experimenting with a basic income after the city of Utrecht announced that it would give no-strings-attached money to some of its residents. Tilburg, a city of 200,000 inhabitants close to the border with Belgium, will follow Utrecht’s initiative, and the cities of Groningen, Maastricht, Gouda, Enschede, Nijmegen and Wageningen are also considering it. A recent study conducted in 18 European countries concluded that generous welfare benefits make people likely to want to work more, not less.
In Switzerland, the necessary 100,000 signatures have been obtained for holding a referendum on whether Swiss citizens should receive an unconditional basic income of €2,500 per month, independently of whether they are employed or not. Other countries such as Finland and Catalonia are also moving in the direction of a no-strings-attached guaranteed income. This would do more to reduce inequality and poverty than perhaps any other measure.
If Tilburg’s basic income project gets the green light from Netherland’s state secretary of social affairs, the town will provide an extra paycheck to a pilot group of 250 people starting in January 2016, Tillburg officials said. The city has not confirmed the amount of the stipend, but in Utrecht checks will range from around €900 ($1,000) for one adult to €1,300 ($1,450).
Although the classic basic income theory proposes universal payments across the population, the two Dutch experiments will only focus on residents who are already recipients of social assistance. Those in the program will be exempt from the severe job-seeking requirements and penalties in Dutch law.
Authorities aim to test how citizens react without that sword of Damocles over their heads. Will the money encourage them to find a job or will they sit on their couches comfortably?
A guaranteed income could be means tested. Why not? Rich people don't need an extra $1000. a month. It would reduce poverty, increase consumption and bolster GDP. Rich corporations would probably increase the price of staples as people had more money to buy them causing inflation. That's why the behemoth world wide franchise operations need to be broken up so they don't collude to raise prices on staples thus defeating the purpose of the basic income. With fiat money entering the real economy instead of the billionaire economy, inflation could become a concern.
Hyperinflation is always a concern when fiat money is created. When that money is spent by consumers, it will still wind up in the hands of a few major corporations, and that would be a problem. They could just keep raising prices. That's why breaking up those large behemoths by using the Sherman Anti-Trust Act is important. Money can also be pulled back by the government by taxation if inflation threatens to get out of hand.
As Ellen Brown says: "Thus there are many ways to recycle an issue of new money back to the government. The same money could be spent and collected back year after year, without creating price inflation or hyperinflating the money supply."
However, when fiat money ends up in the pockets of billionaires as has been the case with QE, inflation is not a concern because it doesn't enter the real economy and prices don't rise. Income inequality though becomes a major concern as does the influence of big money on the political system. Billionaire money has bought and paid for the political system through lobbying and campaign donations with the result that the US is effectively no longer a democracy but a plutocracy.
Trickle Down Economics Trickles Up Instead
As the article The Case for Universal Basic Income states:
What’s really scary is the general acceptance of a status quo in which most people are getting poorer and poorer, even while recent studies demonstrate that so-called “trickle-down” economics actually means an upwards flow of income until it stagnates as hoarded wealth. This stymies wealth creation in the economy, as the Institute for Policy Studies concluded after using standard economic multiplier models to show that every extra dollar paid to low-wage workers adds about $1.21 to the US economy. If this dollar went to a high-wage worker it would add only 39 cents to GDP. In other words, if the $26.7 billion paid in bonuses to Wall Street punters in 2013 had gone to poor workers, GDP would have risen by some $32.3 billion. ...
One of the main advantages of a universal basic income is that it would free people from the tyranny of the job market in which they are mere commodities by guaranteeing the most basic human right of all, that of material existence.
With inequality increasing some way or ways must be found to redress the balance. The alternative is to wake up and find ourselves in a neo-feudal society controlled by a few behemoth corporations employing only a few high level people at good wages. The rest of the population would be employed in low level service type jobs and live in relative poverty. What money they had would be spent in the troughs of the giant corporations and end up in the pockets of the 1%. Even if the 99% were given money to spend, it would still end up there - in the pockets of a few. An infrastructure bank funded by government created fiat money would provide people with decent jobs in which workers could maintain a sense of dignity and improve the quality of the nation's infrastructure at the same time.
In addition recipients of a basic income should have to give something back in terms of creating a better life for poor people around the world. Instead of armies with guns and weapons which have cost trillions and produced mainly negative results, a Peace Army could help poor people around the globe attain at least a minimally acceptable lifestyle in terms of clean water and sanitation, adequate nutrition, energy and education.
Installing solar around the world will not only provide energy for people who don't have anything but the most primitive kind while cleaning up the environment at the same time. The commitment of rich nations to help poorer nations convert to renewable energy could be manifested by funding unemployed and underemployed Americans to help build such infrastructure around the world.
It's not good for people to be idle. If they have no other job, they should at least be required to perform community service. If they have another job so that the basic income is just a supplement, this would be the ideal situation.
Income inequality will only increase as long as Wall Street banks control the money creation process, and the rest of US citizens keep going into debt whether it be with mortgages, student loans, car loans or credit cards. Local jurisdictions should take back the money creation process from Wall Street by creating their own public banks. Then the people will have the say in who gets the QE.
by Robert Reich
Monday, November 10, 2014
The President blames himself for the Democrat’s big losses Election Day. “We have not been successful in going out there and letting people know what it is that we’re trying to do and why this is the right direction,” he said Sunday.
In other words, he didn’t sufficiently tout the Administration’s accomplishments.
I respectfully disagree.
If you want a single reason for why Democrats lost big on Election Day 2014 it’s this: Median household income continues to drop. This is the first “recovery” in memory when this has happened.
Jobs are coming back but wages aren’t. Every month the job numbers grow but the wage numbers go nowhere.
Most new jobs are in part-time or low-paying positions. They pay less than the jobs lost in the Great Recession.
This wageless recovery has been made all the worse because pay is less predictable than ever. Most Americans don’t know what they’ll be earning next year or even next month. Two-thirds are now living paycheck to paycheck.
So why is this called a “recovery” at all? Because, technically, the economy is growing. But almost all the gains from that growth are going to a small minority at the top.
In fact, 100 percent of the gains have gone to the best-off 10 percent. Ninety-five percent have gone to the top 1 percent.
The stock market has boomed. Corporate profits are through the roof. CEO pay, in the stratosphere. Yet most Americans feel like they’re still in a recession.
And they’re convinced the game is rigged against them.
According to Pew, the percentage of Americans who believe most people who want to get ahead can do so through hard work has plummeted 14 points since 2000.
What the President and other Democrats failed to communicate wasn’t their accomplishments. It was their understanding that the economy is failing most Americans and big money is overrunning our democracy.
And they failed to convey their commitment to an economy and a democracy that serve the vast majority rather than a minority at the top.
Some Democrats even ran on not being Barack Obama. That’s no way to win. Americans want someone fighting for them, not running away from the President.
The midterm elections should have been about jobs and wages, and how to reform a system where nearly all the gains go to the top. It was an opportunity for Democrats to shine. Instead, they hid.
Consider that in four “red” states — South Dakota, Arkansas, Alaska, and Nebraska — the same voters who sent Republicans to the Senate voted by wide margins to raise their state’s minimum wage. Democratic candidates in these states barely mentioned the minimum wage.
So what now?
Republicans, soon to be in charge of Congress, will push their same old supply-side, trickle-down, austerity economics.
They’ll want policies that further enrich those who are already rich. That lower taxes on big corporations and deliver trade agreements written in secret by big corporations. That further water down Wall Street regulations so the big banks can become even bigger – too big to fail, or jail, or curtail.
They’ll exploit the public’s prevailing cynicism by delivering just what the cynics expect.
And the Democrats? They have a choice.
They can refill their campaign coffers for 2016 by trying to raise even more money from big corporations, Wall Street, and wealthy individuals. And hold their tongues about the economic slide of the majority, and the drowning of our democracy.
Or they can come out swinging. Not just for a higher minimum wage but also for better schools, paid family and medical leave, and child care for working families.
For resurrecting the Glass-Steagall Act and limiting the size of Wall Street banks.
For saving Social Security by lifting the cap on income subject to payroll taxes.
For rebuilding the nation’s roads, bridges, and ports.
For increasing taxes on corporations with high ratios of CEO pay to the pay of average workers.
And for getting big money out of politics, and thereby saving our democracy.
It’s the choice of the century.
Democrats have less than two years to make it.
by Robert Reich
Other cities and states should follow Seattle’s example.
Contrary to the dire predictions of opponents, the hike won’t cost Seattle jobs. In fact, it will put more money into the hands of low-wage workers who are likely to spend almost all of it in the vicinity. That will create jobs.
Conservatives believe the economy functions better if the rich have more money and everyone else has less. But they’re wrong. It’s just the opposite.
The real job creators are not CEOs or corporations or wealthy investors. The job creators are members of America’s vast middle class and the poor, whose purchases cause businesses to expand and invest.
America’s wealthy are richer than they’ve ever been. Big corporations are sitting on more cash they know what to do with. Corporate profits are at record levels. CEO pay continues to soar.
But the wealthy aren’t investing in new companies. Between 1980 and 2014, the rate of new business formation in the United States dropped by half, according to a Brookings study released in May.
Corporations aren’t expanding production or investing in research and development. Instead, they’re using their money to buy back their shares of stock.
There’s no reason for them to expand or invest if customers aren’t buying.
Consumer spending has grown more slowly in this recovery than in any previous one because consumers don’t have enough money to buy.
All the economic gains have been going to the top.
The Commerce Department reported last Friday that the economy grew at a 4.6 percent annual rate in the second quarter of the year.
So what? The median household’s income continues to drop.
Median household income is now 8 percent below what it was in 2007, adjusted for inflation. It’s 11 percent below its level in 2000.
It used to be that economic expansions improved the incomes of the bottom 90 percent more than the top 10 percent.
But starting with the “Reagan” recovery of 1982 to 1990, the benefits of economic growth during expansions have gone mostly to the top 10 percent.
Since the current recovery began in 2009, all economic gains have gone to the top 10 percent. The bottom 90 percent has lost ground.
We’re in the first economic upturn on record in which 90 percent of Americans have become worse off.
Why did the playing field start to tilt against the middle class in the Reagan recovery, and why has it tilted further ever since?
Don’t blame globalization. Other advanced nations facing the same global competition have managed to preserve middle class wages. Germany’s median wage is now higher than America’s.
One factor here has been a sharp decline in union membership. In the mid 1970s, 25 percent of the private-sector workforce was unionized.
Then came the Reagan revolution. By the end of the 1980s, only 17 percent of the private workforce was unionized. Today, fewer than 7 percent of the nation’s private-sector workers belong to a union.
This means most workers no longer have the bargaining power to get a share of the gains from growth.
Another structural change is the drop in the minimum wage. In 1979, it was $9.67 an hour (in 2013 dollars). By 1990, it had declined to $6.84. Today it’s $7.25, well below where it was in 1979.
Given that workers are far more productive now – computers have even increased the output of retail and fast food workers — the minimum wage should be even higher.
By setting a floor on wages, a higher minimum helps push up other wages. It undergirds higher median household incomes.
The only way to grow the economy in a way that benefits the bottom 90 percent is to change the structure of the economy. At the least, this requires stronger unions and a higher minimum wage.
It also requires better schools for the children of the bottom 90 percent, better access to higher education, and a more progressive tax system.
GDP growth is less and less relevant to the wellbeing of most Americans. We should be paying less attention to growth and more to median household income.
If the median household’s income is is heading upward, the economy is in good shape. If it’s heading downward, as it’s been for this entire recovery, we’re all in deep trouble.
by Robert Reich
It’s often assumed that people are paid what they’re worth. According to this logic, minimum wage workers aren’t worth more than the $7.25 an hour they now receive. If they were worth more, they’d earn more. Any attempt to force employers to pay them more will only kill jobs.
According to this same logic, CEOs of big companies are worth their giant compensation packages, now averaging 300 times pay of the typical American worker. They must be worth it or they wouldn’t be paid this much. Any attempt to limit their pay is fruitless because their pay will only take some other form.
"Paid-what-you’re-worth" is a dangerous myth.
Fifty years ago, when General Motors was the largest employer in America, the typical GM worker got paid $35 an hour in today’s dollars. Today, America’s largest employer is Walmart, and the typical Walmart workers earns $8.80 an hour.
Does this mean the typical GM employee a half-century ago was worth four times what today’s typical Walmart employee is worth? Not at all. Yes, that GM worker helped produce cars rather than retail sales. But he wasn’t much better educated or even that much more productive. He often hadn’t graduated from high school. And he worked on a slow-moving assembly line. Today’s Walmart worker is surrounded by digital gadgets — mobile inventory controls, instant checkout devices, retail search engines — making him or her quite productive.
The real difference is the GM worker a half-century ago had a strong union behind him that summoned the collective bargaining power of all autoworkers to get a substantial share of company revenues for its members. And because more than a third of workers across America belonged to a labor union, the bargains those unions struck with employers raised the wages and benefits of non-unionized workers as well. Non-union firms knew they’d be unionized if they didn’t come close to matching the union contracts.
Today’s Walmart workers don’t have a union to negotiate a better deal. They’re on their own. And because fewer than 7 percent of today’s private-sector workers are unionized, non-union employers across America don’t have to match union contracts. This puts unionized firms at a competitive disadvantage. The result has been a race to the bottom.
By the same token, today’s CEOs don’t rake in 300 times the pay of average workers because they’re “worth” it. They get these humongous pay packages because they appoint the compensation committees on their boards that decide executive pay. Or their boards don’t want to be seen by investors as having hired a “second-string” CEO who’s paid less than the CEOs of their major competitors. Either way, the result has been a race to the top.
If you still believe people are paid what they’re worth, take a look at Wall Street bonuses. Last year’s average bonus was up 15 percent over the year before, to more than $164,000. It was the largest average Wall Street bonus since the 2008 financial crisis and the third highest on record, according to New York’s state comptroller. Remember, we’re talking bonuses, above and beyond salaries.
All told, the Street paid out a whopping $26.7 billion in bonuses last year.
Are Wall Street bankers really worth it? Not if you figure in the hidden subsidy flowing to the big Wall Street banks that ever since the bailout of 2008 have been considered too big to fail.
People who park their savings in these banks accept a lower interest rate on deposits or loans than they require from America’s smaller banks. That’s because smaller banks are riskier places to park money. Unlike the big banks, the smaller ones won’t be bailed out if they get into trouble.
This hidden subsidy gives Wall Street banks a competitive advantage over the smaller banks, which means Wall Street makes more money. And as their profits grow, the big banks keep getting bigger.
How large is this hidden subsidy? Two researchers, Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz, have calculated it’s about eight tenths of a percentage point.
This may not sound like much but multiply it by the total amount of money parked in the ten biggest Wall Street banks and you get a huge amount — roughly $83 billion a year.
Recall that the Street paid out $26.7 billion in bonuses last year. You don’t have to be a rocket scientist or even a Wall Street banker to see that the hidden subsidy the Wall Street banks enjoy because they’re too big to fail is about three times what Wall Street paid out in bonuses.
Without the subsidy, no bonus pool.
By the way, the lion’s share of that subsidy ($64 billion a year) goes to the top five banks — JPMorgan, Bank of America, Citigroup, Wells Fargo. and Goldman Sachs. This amount just about equals these banks’ typical annual profits. In other words, take away the subsidy and not only does the bonus pool disappear, but so do all the profits.
The reason Wall Street bankers got fat paychecks plus a total of $26.7 billion in bonuses last year wasn’t because they worked so much harder or were so much more clever or insightful than most other Americans. They cleaned up because they happen to work in institutions — big Wall Street banks — that hold a privileged place in the American political economy.
And why, exactly, do these institutions continue to have such privileges? Why hasn’t Congress used the antitrust laws to cut them down to size so they’re not too big to fail, or at least taxed away their hidden subsidy (which, after all, results from their taxpayer-financed bailout)?
Perhaps it’s because Wall Street also accounts for a large proportion of campaign donations to major candidates for Congress and the presidency of both parties.
America’s low-wage workers don’t have privileged positions. They work very hard — many holding down two or more jobs. But they can’t afford to make major campaign contributions and they have no political clout.
According to the Institute for Policy Studies, the $26.7 billion of bonuses Wall Street banks paid out last year would be enough to more than double the pay of every one of America’s 1,085,000 full-time minimum wage workers.
The remainder of the $83 billion of hidden subsidy going to those same banks would almost be enough to double what the government now provides low-wage workers in the form of wage subsidies under the Earned Income Tax Credit.
But I don’t expect Congress to make these sorts of adjustments any time soon.
The “paid-what-your-worth” argument is fundamentally misleading because it ignores power, overlooks institutions, and disregards politics. As such, it lures the unsuspecting into thinking nothing whatever should be done to change what people are paid, because nothing can be done.
Don’t buy it.
It is easy to become numb to the realities we face. We hear near daily reporting of severe crises covering so many aspects of people’s lives, they even include our survival on the planet. Sometimes these crises seem larger than anything humans have ever seen before.
Rather than becoming numb, many in the human community see this as an opportunity to put forward big visions for a very different future.
On the agenda are transformative issues like:
- Creating a new democratic economy where people control their economic future at a time when big finance capitalism continues its collapse and the wealth divide has become so extreme that 85 people have wealth equal to 3.5 billion people.
- Rebuilding the ecology of the planet at a time when the oceans are threatened, when there is mass species die-off and as climate change threatens the planet in ways humans can barely imagine.
- Ending the extraction economy and shifting to a carbon-free, nuclear-free energy economy when extraction has become extreme and risky with tar sands, fracking, mountain top removal and offshore oil drilling; and when the global impacts of the dangers of nuclear energy have become more evident as a result of Fukushima.
- Creating real privacy in our communications when technology allows the security state to conduct dragnet surveillance of virtually every communication by phone or the Internet on the planet.
- Ending war at a time when the war economy robs us of money needed for urgent necessities, when killing has become robotic and the deaths of civilians are hidden, when the most expensive and high tech military is unable to resolve conflict and when the war culture is infecting civilian police forces and youth culture.
These are a few examples of many fronts where people are urging dramatic new approaches. Other examples are free post-high school education, healthcare for all in a non-profit system, rebuilding cities with vacant housing turned into housing for those who need it, low cost or free mass transit replacing dependence on cars, a guaranteed national income as robots take the place of humans, global trade that puts people and the planet before profits for the wealthiest and recognizing the legal rights of indigenous peoples. The list is long. The crises we face are consequences of the global neoliberal economic system; therefore, systemic transformation is needed.
One of the beautiful things about these visions is that they are all achievable. Thousands are already working to make them a reality.
A Systemic Crisis Links Issues: Climate, Economy, Energy and Social Justice
As the problems grow in size, the response also needs to grow to confront them. One of the most urgent situations we face is the climate crisis. But, the climate crisis does not stand alone.
Recently at an organizing meeting in Chicago, Tim DeChristopher, a climate justice activist, said that one of the reasons progress has not been made in solving the climate crisis is that it was relegated to the realm of being an environmental issue. In reality, the climate crisis affects every area of our lives from food and water security to health to jobs and housing and, of course, energy and the environment.
At the meeting, activists from around the country who work on a broad range of issues joined together to start organizing a Global Climate Convergence. Another organizer, Deneicha Powell describes it as “a new education and direct action campaign uniting people in an intentional and organized way from a broad spectrum of grassroots social justice movements including anti-poverty, labor, peace, economic, racial, indigenous, immigrant and environmental justice groups as well as Medicare for All, sustainable food and natural health advocates and Occupy Wall Street networks among others.”
Ten days of actions are being planned from Earth Day to May Day to bring greater awareness to the connections between climate change and all areas of our lives and to show that we are going to have to work together with urgency in our communities to build political power and to put solutions in place together.
The climate and extraction battles are bringing young climate justice activists, environmentalists, ranchers and farmers together. Indigenous communities are leading the resistance to extreme energy extraction and the Keystone XL Pipeline. In New Mexico, the Navajo and Pueblo are fighting a uranium mine that will destroy sacred land and threaten their health. The Moccasins on the Ground project is training communities all across America in direct action so that many people will have the skills needed to protect the air, land and water.
Climate justice advocacy is one example of people that have never worked together before joining in specific campaigns and finding that unity creates greater impact. We also see it in the work to stop the Trans-Pacific Partnership (TPP) and so far, it is succeeding in stopping Congress from passing the fast track bill, a law required in order to get this rigged corporate agreement into law. The growing opposition to the TPP is having a broader effect on the TPP negotiations. In advance of the next round of meetings, lawmakers from seven of the twelve countries involved are calling for the text of the agreement to be released to the public as has been the practice for every other trade agreement.
We also saw it on February 11 in the organized response to mass dragnet surveillance. “The Day We Fight Back” campaign brought together more than 6,000 websites that displayed a banner urging people to make phone calls and write emails to Congress calling for reforms to protect our privacy. In one day, 277,000 phone calls and emails were sent to Congress urging stopping the NSA and putting in place privacy protections.
Linking issues, joining together, working across issues and geography make us stronger. We are confronting a systemic crisis that requires a systemic response and solidarity among movements.
A Systemic Crisis Needs New Systems that We Must Create
To achieve real solutions requires both resistance actions to stop what is harmful and constructive work to create alternative approaches. These are intimately connected. Resistance alone may lead to unjust solutions if there isn’t also work being done to build just alternatives to replace the current systems. The work being done to build alternatives that are just empowers more people not only through increased knowledge but also by fulfilling critical needs for housing, food and jobs among others. Building new systems is part of building a social movement that has political power.
Wen Stephenson wrote about some of the places where this is happening around the country like Boston, Boulder, Detroit and Richmond, CA in “From Occupy to Climate Justice.” In Kentucky, there is a deep connection between the fight for environmental and climate justice and building a new economy. Communities depend on coal not just for energy but also for jobs. Community support means transitioning to renewable energy sources to replace the coal and to an economy that provides employment. In South Dakota, more than 80 families are solving this problem by pooling their land to build a giant wind farm.
A similar struggle is happening in Lake Superior where indigenous communities and allies are trying to stop very destructive mines and at the same time find ways to support the community economically that are sustainable. Tribal members and others are deeply committed to preventing the land from being mined and are prepared to use direct action and litigation to stop the mining from going forward.
They are also showing that there can be an alternative to the environmental destructive bomb-bust extraction economy, an economy that dies when the extraction is complete, leaving behind an ecological disaster. In 1880, 248,000 pounds of maple sugar came out of the region. Today, maple sugar sells for $22 dollars a pound. That one product would generate 5.4 million dollars. The environment in the region has many sustainable resources that can create an economy that does not leave behind post-extraction ghost towns, but instead builds communities that can go on and on.
The fight against the extraction economy is a global struggle. In Ecuador, President Correa, who signed the new constitution granting the rights of nature in 2008, is now launching an assault on nature by selling land in the Amazon to gold mining corporations. The same tribe, the Shuar, that was the only tribe to defeat the Spaniards and Incas, has vowed to defend the land with their lives if necessary. In Romania, the Rosia Montana community has been fighting off gold mining corporations for decades and is now asking for outside help so they can continue.
In both circumstances, the Shuar and Romanians see that traditional economies that sustained local communities will be destroyed by extraction that mostly enriches people outside the community, and they envision how their economies could continue in a longer-term, more successful way without extreme mining practices.
The new economy is not only being created in reaction to the extraction economy but also because the current economy is simply not working for most Americans. As a result, democratic economic institutions are being put in place. Baltimore activists are organizing a conference, “Building Our New Economy Together,” this May 16-17 that will bring together national experts and local activists. This is one of many conferences and meetings being held around worker cooperatives, links between farmers and people in need of food, community land trusts to control housing prices, participatory budgeting, moving beyond capitalism and creating a new economy.
Ending War: A New System for Resolving International Conflict is Needed
Another global crisis which is also connected to climate change, the unfair economy and the extraction economy is war. The United States military is one the biggest polluters and contributors to climate change. And most of our military actions, wars that are declared and some that are not, are over control of resources and economic domination.
A new effort is being organized that goes beyond traditional efforts to stop or end particular wars. World Beyond War is a global campaign to abolish war itself. So far the response has been very positive with thousands of people signing on to the pledge. The official launch date is September 21, the International Day of Peace.
People who have taken the pledge describe how war is connected to many other crisis issues, prevents people’s necessities from being met and continues the destruction of the planet. As David Swanson of World Beyond War summarizes “If we abolish war, humanity can not only survive and better address the climate crisis and other dangers, but will be able to create a better life for everyone. The reallocation of resources away from war promises a world whose advantages are beyond easy imagination.”
But, most important, people pierce the myth that ending war is impossible. As with many changes that seemed impossible, in a time of crisis, views change. Alice Slater of the Global Council of Abolition 2000 says: “The abolition of war is an idea whose time has come. We are at a transformative moment in history.” This is echoed by Judith Hand a founder of AFutureWithoutWar.org who writes “Human history has arrived at a pivotal moment. We can choose a path built on cooperation, where our caring and sharing side uplifts us, or we can continue to embrace a worldview where domination using violence imprisons us in cycles of killing and destruction. I’m a biologist, and war is not genetically fixed. War is a cultural invention.”
The power to create change will not come from the people who wage war. Russell Faure-Brac, author of Transition to Peace writes: “Change will not come from a President Gandhi. Rather, the initiate for change will come from the bottom up as citizens force politicians to act. We just need to put our voices together and get sufficiently organized.” Long-time peace and justice activist, David Hartsough cites a statement from President Eisenhower who made much the same point. Hartsough notes that Eisenhower said: “I like to believe that the people of the world will want peace so much that governments will have to get out of the way and let them have it.” Hartsough adds: “When the people of the world decide to end war, we can end it.”
Transformation Starts with a Bold Vision for the Future
It is time to be bold in our thinking. We are in a time of great transition. In another era of change, Thomas Paine wrote “We have it in our power to begin the world over again.” In many respects we are remaking the world. It is time to dare to dream about what you want the world to be like and join others in making it a reality.
In 1972, the 16-year old king of Bhutan decided to reject using Gross Domestic Product as the sole measure of his nation’s well-being and created the Gross National Happiness Index (GNH). The GNH looks beyond economic growth to evaluate other areas that affect people’s lives. Happiness is defined as “a state of being that one achieves when one is able to balance the needs of the body with the needs of the mind, when the material and the emotional, psychological needs are being met, within a stable, peaceful and secure environment.”
More than 40 years later, the GNH has changed the discussion at all levels, even internationally, to include consideration beyond economic indicators when determining the condition of businesses, cities, states and countries. The GNH created a cultural shift in the way that progress is measured.
On a smaller scale, there are many signs that people are thinking big, connecting their struggles and making a difference. Since 2007, a coalition of diverse groups has been meeting in North Carolina as a Peoples Movement Assembly to organize for social, economic and environmental justice. They are behind the Moral Mondays movement that is now spreading to other states. Recently, their yearly march in Raleigh, the Moral March which started as HKOJ (Historic Thousands on Jones Street), brought an estimated 80,000 people from inside and outside North Carolina.
The history of progress for humankind has always been one where the seemingly impossible becomes the new reality. This new reality is borne out of the visions of humanity and the work of people seeking to remake the world in seemingly impossible ways. Nelson Mandela said something that applies to all the great struggles of our era: “It always seems impossible until it’s done.”
by Robert Reich
According to news reports today, Facebook has agreed to buy WhatsApp for $19 billion.
That’s the highest price paid for a startup in history. It’s $3 billion more than Facebook raised when it was first listed, and more than twice what Microsoft paid for Skype.
(To be precise, $12 billion of the $19 billion will be in the form of shares in Facebook, $4 billion will be in cash, and $3 billion in restricted stock to WhatsApp staff, which will vest in four years.)
Given that gargantuan amount, you might think Whatsapp is a big company. You’d be wrong. It has 55 employees, including its two young founders, Jan Koum and Brian Acton.
Whatsapp’s value doesn’t come from making anything. It doesn’t need a large organization to distribute its services or implement its strategy.
It value comes instead from two other things that require only a handful of people. First is its technology — a simple but powerful app that allows users to send and receive text, image, audio and video messages through the Internet.
The second is its network effect: The more people use it, the more other people want and need to use it in order to be connected. To that extent, it’s like Facebook — driven by connectivity.
Whatsapp’s worldwide usage has more than doubled in the past nine months, to 450 million people — and it’s growing by around a million users every day. On December 31, 2013, it handled 54 billion messages (making its service more popular than Twitter, now valued at about $30 billion.)
How does it make money? The first year of usage is free. After that, customers pay a small fee. At the scale it’s already achieved, even a small fee generates big bucks. And if it gets into advertising it could reach more eyeballs than any other medium in history. It already has a database that could be mined in ways that reveal huge amounts of information about a significant percentage of the world’s population.
The winners here are truly big winners. WhatsApp’s fifty-five employees are now enormously rich. Its two founders are now billionaires. And the partners of the venture capital firm that financed it have also reaped a fortune.
And the rest of us? We’re winners in the sense that we have an even more efficient way to connect with each other.
But we’re not getting more jobs.
In the emerging economy, there’s no longer any correlation between the size of a customer base and the number of employees necessary to serve them. In fact, the combination of digital technologies with huge network effects is pushing the ratio of employees to customers to new lows (WhatsApp’s 55 employees are all its 450 million customers need).
Meanwhile, the ranks of postal workers, call-center operators, telephone installers, the people who lay and service miles of cable, and the millions of other communication workers, are dwindling — just as retail workers are succumbing to Amazon, office clerks and secretaries to Microsoft, and librarians and encyclopedia editors to Google.
Productivity keeps growing, as do corporate profits. But jobs and wages are not growing. Unless we figure out how to bring all of them back into line – or spread the gains more widely – our economy cannot generate enough demand to sustain itself, and our society cannot maintain enough cohesion to keep us together.
by Robert Reich
by Robert ReichFriday, May 31, 2013
Economic forecasters exist to make astrologers look good. But the recent jubilance is enough to make even weather forecasters blush. “Just look at the bull market! Look at home prices! Look at consumer confidence!”
I can understand the jubilation in the narrow sense that we’ve been down so long everything looks up. Plus, professional economists tend to cheerlead because they believe that if consumers and businesses think the future will be great, they’ll buy and invest more – leading to a self-fulfilling prophesy.
But prophesies can’t be self-fulfilling if they’re based on wishful thinking.
The reality is we’re still in the doldrums, and the most recent data gives cause for serious worry.
Almost all the forward movement in the economy is now coming from consumers — whose spending is 70 percent of economic activity. But wages are still going nowhere, which means consumer spending will slow because consumers just don’t have the money to spend.
On Thursday the Commerce Department reported that consumer spending rose 3.4 percent in the first quarter of this year. But the personal savings rate dropped to 2.3 percent — from 5.3 percent in the last quarter of 2012. That’s the lowest level of savings since before the Great Recession. You don’t have to be an economic forecaster, or an astrologer, to see this can’t go on.
Yes, home prices are rising. The problem is, they’re beginning to rise above their long-run historical average. (Before the housing crash they were were way, way above the long-run average.) So watch your wallets. We’ve been here before: The Fed is keeping interest rates artificially low, allowing consumers to get low home-equity loans and to borrow against the rising values of their homes. Needless to say, this trend, too, is unsustainable.
What about the stock market? It’s time we stopped assuming that a rising stock market leads to widespread prosperity. Over 90 percent of the value of the stock market — including 401(k)s and IRAs — is held by the wealthiest 10 percent of the population.
Moreover, the main reason stock prices have risen is corporate profits have soared. But that’s largely because corporations have slashed their payrolls and keep them low. Which brings us full circle, back to the fundamental fact that wages that are going nowhere for most people.
Not even fat corporate profits are sustainable if American consumers don’t have enough money in their pockets. Exports can’t make up for the shortfall, given the rotten shape Europe is in and the slowdown in Asia.
So don’t expect those profits to continue. In fact, the new Commerce Department report shows that corporate profits shrank in the first quarter, reversing some of the gains in the second half of 2012.
And, by the way, the full effect of the cuts in government spending hasn’t even been felt yet. The sequester is going to be a large fiscal drag starting next month.
Look, I don’t want to rain on the parade. But any self-respecting weather forecaster would warn you to zipper up and take an umbrella. Don’t be swayed by all the sunny talk. There are too many storm clouds ahead.
by Robert Reich
The biggest economic debate is between Keynesians (who want more government spending and lower interest rates in order to fuel demand) and supply-side “austerics” (who want lower taxes on the wealthy and on corporations to boost incentives to hire and invest, and who see government deficits crowding out private investment).
But both approaches have problems.
George W. Bush tried supply-side tax cuts but nothing trickled down. Jobs and wages declined. And austerity economics has been a disaster for Europe.
Unfortunately the U.S. is now adopting supply-side austerics by making the Bush tax cuts permanent for 98 percent of taxpayers, hiking Social Security taxes back up, and implementing the sequester.
I’m on the Keynesian side. Yet the biggest weakness of modern Keynesian economics is it doesn’t have a clear answer for how much spending is necessary in an economy, like ours, in which wages keep dropping and government debt keeps growing. Simply arguing “more” won’t cut it.
John Maynard Keynes urged that governments “prime the pump” to stimulate demand but pump priming has limited effect if the well is running dry.
Both sides of the modern debate have neglected the scourge of widening inequality.
We’re now witnessing what happens when all of the economic gains go to the top, and the rest of the population doesn’t have enough purchasing power to keep the economy going.
Four years into a so-called recovery and we’re still below recession levels in every important respect except the stock market. A measly 88,000 jobs were created in March, and total employment remains some 3 million below its pre-recession level. Labor-force participation is its lowest since 1979.
Businesses won’t hire and expand unless they have more customers, but most Americans can’t spend more. Last Friday’s retail sales report showed sales down .4 percent in March. Consumer sentiment has fallen to its lowest level in nine months.
The underlying problem is the vast middle class is running out of money. They can’t borrow more — and shouldn’t, given what happened after the last borrowing binge.
Real annual median household income keeps falling. It’s down to $45,018, from $51,144 in 2010. All the gains from the recovery continue to go to the top.
Widening inequality is not inevitable. If we wanted to reverse it and restore middle-class prosperity, we could.
We could award tax cuts to companies that link the pay of their hourly workers to profits and productivity, and that keep the total pay of their top 5 executives within 20 times the pay of their median worker. And impose higher taxes on companies that don’t.
We could raise the minimum wage to half the average wage.
We could increase public investment in education, including early-childhood.
We could eliminate college loans and allow all students to repay the cost of their higher education with a 10 percent surcharge on the first 10 years of income from full-time employment.
We could expand the Earned Income Tax Credit.
And we could pay for all this by adding additional tax brackets at the top and increasing the top marginal tax rate to what it was before 1981 – at least 70 percent.
But none of this will happen until the public understands why widening inequality is so damaging. Even the rich would do better with a smaller share of a rapidly-growing economy than a large share of one that’s barely growing at all.
Our political leaders in Washington have for now chosen supply-side austerity economics over Keynesian economics. That’s bad enough. Their inability or unwillingness to do much of anything about widening inequality will prove a larger problem.
by Robert Reich
“Our biggest problems over the next ten years are not deficits,” the President told House Republicans Wednesday, according to those who attended the meeting.
The President needs to deliver the same message to the public, loudly and clearly. The biggest problems we face are unemployment, stagnant wages, slow growth, and widening inequality — not deficits. The major goal must be to get jobs and wages back, not balance the budget.
Paul Ryan’s budget plan — essentially, the House Republican plan — is designed to lure the White House and Democrats, and the American public, into a debate over how to balance the federal budget in ten years, not over whether it’s worth doing.
“This is an invitation,” Ryan explained when he unveiled the plan Tuesday. “Show us how to balance the budget. If you don’t like the way we’re proposing to balance our budget, how do you propose to balance the budget?”
Until now the President has seemed all too willing to engage in that debate. His ongoing talk of a “grand bargain” to reduce the budget deficit has played directly into Republican hands.
As has his repeated use of the Republican analogy comparing the government’s finances to a household’s. “Just as families and businesses must tighten their belts to live within their means,” he said of his 2013 budget, “so must the Federal Government.”
Hopefully, he’s now shifting the debate.
The government’s finances are not at all like a household’s. In fact, it’s when American families can’t spend enough to keep the economy going, because too many of them are unemployed or underemployed and have run out of money, that government has to step in as spender of last resort — even if that means taking on more debt. If government doesn’t fill the spending gap, an economy can collapse into deeper recession or depression, pushing unemployment far higher. Look at what austerity economics has done to Europe.
At last the President wants to change the debate and focus on the real economic problem. In a Tuesday interview with George Stephanopoulos that got less attention than it deserved, he said “my goal is not to chase a balanced budget just for the sake of balance. My goal is how do we grow the economy, put people back to work, and if we do that we are going to be bringing in more revenue.”
Let the real contest begin.
by Dave Johnson
January 2011, Profits Are Booming. Why Aren’t Jobs?
August 2011, Companies near record profits amid high unemployment
November 2011, GDP revised downward; corporate profits up
by Ellen Brown from Nation of Change
Quantitative easing (QE) is supposed to stimulate the economy by adding money to the money supply, increasing demand. But so far, it hasn’t been working. Why not? Because as practiced for the last two decades, QE does not actually increase the circulating money supply. It merely cleans up the toxic balance sheets of banks. A real “helicopter drop” that puts money into the pockets of consumers and businesses has not yet been tried. Why not? Another good question . . . .
When Ben Bernanke gave his famous helicopter money speech to the Japanese in 2002, he was not yet chairman of the Federal Reserve. He said then that the government could easily reverse a deflation, just by printing money and dropping it from helicopters. “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent),” he said, “that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” Later in the speech he discussed “a money-financed tax cut,” which he said was “essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.” Deflation could be cured, said Professor Friedman, simply by dropping money from helicopters.
It seemed logical enough. If the money supply were insufficient for the needs of trade, the solution was to add money to it. Most of the circulating money supply consists of “bank credit” created by banks when they make loans. When old loans are paid off faster than new loans are taken out (as is happening today), the money supply shrinks. The purpose of QE is to reverse this contraction.
But if debt deflation is so easy to fix, then why have the Fed’s massive attempts to pull this maneuver off failed to revive the economy? And why is Japan still suffering from deflation after 20 years of quantitative easing?
On a technical level, the answer has to do with where the money goes. The widespread belief that QE is flooding the economy with money is a myth. Virtually all of the money it creates simply sits in the reserve accounts of banks.
That is the technical answer, but the motive behind it may be something deeper . . . .
An Asset Swap Is Not a Helicopter Drop
As QE is practiced today, the money created on a computer screen never makes it into the real, producing economy. It goes directly into bank reserve accounts, and it stays there. Except for the small amount of “vault cash” available for withdrawal from commercial banks, bank reserves do not leave the doors of the central bank.
According to Peter Stella, former head of the Central Banking and Monetary and Foreign Exchange Operations Divisions at the International Monetary Fund:
[B]anks do not lend “reserves”. . . . Whether commercial banks let the reserves they have acquired through QE sit “idle” or lend them out in the internet bank market 10,000 times in one day among themselves, the aggregate reserves at the central bank at the end of that day will be the same.
This point is also stressed in Modern Monetary Theory. As explained by Prof. Scott Fullwiler:
Banks can’t “do” anything with all the extra reserve balances. Loans create deposits—reserve balances don’t finance lending or add any “fuel” to the economy. Banks don’t lend reserve balances except in the federal funds market, and in that case the Fed always provides sufficient quantities to keep the federal funds rate at its . . . interest rate target.
Reserves are used simply to clear checks between banks. They move from one reserve account to another, but the total money in bank reserve accounts remains unchanged. Banks can lend their reserves to each other, but they cannot lend them to us.
QE as currently practiced is simply an asset swap. The central bank swaps newly-created dollars for toxic assets clogging the balance sheets of commercial banks. This ploy keeps the banks from going bankrupt, but it does nothing for the balance sheets of federal or local governments, consumers, or businesses.
Central Bank Ignorance or Intentional Sabotage?
Another Look at the Japanese Experience
That brings us to the motive. Twenty years is a long time to repeat a policy that isn’t working.UK Professor Richard Werner invented the term quantitative easing when he was advising the Japanese in the 1990s. He says he had something quite different in mind from the current practice. He intended for QE to increase the credit available to the real economy. Today, he says:
[A]ll QE is doing is to help banks increase the liquidity of their portfolios by getting rid of longer-dated slightly less liquid assets and raising cash. . . . Reserve expansion is a standard monetarist policy and required no new label.
Werner contends that the Bank of Japan (BOJ) intentionally sabotaged his proposal, adopting his language but not his policy; and other central banks have taken the same approach since.
In his book Princes of the Yen (2003),Werner maintains that in the 1990s, the BOJ consistently foiled government attempts at creating a recovery. As summarized in a review of the book:
The post-war disappearance of the military triggered a power struggle between the Ministry of Finance and the Bank of Japan for control over the economy. While the Ministry strove to maintain the controlled economic system that created Japan’s post-war economic miracle, the central bank plotted to break free from the Ministry by reverting to the free markets of the 1920s.
. . . They reckoned that the wartime economic system and the vast legal powers of the Ministry of Finance could only be overthrown if there was a large crisis – one that would be blamed on the ministry. While observers assumed that all policy-makers have been trying their best to kick-start Japan’s economy over the past decade, the surprising truth is that one key institution did not try hard at all.
Werner contends that the Bank of Japan not only blocked the recovery but actually created the bubble that precipitated the downturn:
[T]hose central bankers who were in charge of the policies that prolonged the recession were the very same people who were responsible for the creation of the bubble. . . . [They] ordered the banks to expand their lending aggressively during the 1980s. In 1989, [they] suddenly tightened their credit controls, thus bringing down the house of cards that they had built up before. . . .
With banks paralysed by bad debts, the central bank held the key to a recovery: only it could step in and create more credit. It failed to do so, and hence the recession continued for years. Thanks to the long recession, the Ministry of Finance was broken up and lost its powers. The Bank of Japan became independent and its power has now become legal.
In the US, too, the central bank holds the key to recovery. Only it can create more credit for the broad economy. But reversing recession has taken a backseat to resuscitating zombie banks, maintaining the feudal dominion of a private financial oligarchy.
In Japan, interestingly, all that may be changing with the election of a new administration. As reported in a January 2013 article in Business Week:
Shinzo Abe and the Liberal Democratic Party swept back into power in mid-December by promising a high-octane mix of monetary and fiscal policies to pull Japan out of its two-decade run of economic misery. To get there, Prime Minister Abe is threatening a hostile takeover of the Bank of Japan, the nation’s central bank. The terms of surrender may go something like this: Unless the BOJ agrees to a 2 percent inflation target and expands its current government bond-buying operation, the ruling LDP might push a new central bank charter through the Japanese Diet. That charter would greatly diminish the BOJ’s independence to set monetary policy and allow the prime minister to sack its governor.
From Bankers’ Bank to Government Bank
Making the central bank serve the interests of the government and the people is not a new idea. Prof. Tim Canova points out that central banks have only recently been declared independent of government:
[I]ndependence has really come to mean a central bank that has been captured by Wall Street interests, very large banking interests. It might be independent of the politicians, but it doesn’t mean it is a neutral arbiter. During the Great Depression and coming out of it, the Fed took its cues from Congress. Throughout the entire 1940s, the Federal Reserve as a practical matter was not independent. It took its marching orders from the White House and the Treasury—and it was the most successful decade in American economic history.
To free the central bank from Wall Street capture, Congress or the president could follow the lead of Shinzo Abe and threaten a hostile takeover of the Fed unless it directs its credit firehose into the real economy. The unlimited, near-zero-interest credit line made available to banks needs to be made available to federal and local governments.
When a similar suggestion was made to Ben Bernanke in January 2011, however, he said he lacked the authority to comply. If that was what Congress wanted, he said, it would have to change the Federal Reserve Act.
And that is what may need to be done—rewrite the Federal Reserve Act to serve the interests of the economy and the people.
Webster Tarpley observes that the Fed advanced $27 trillion to financial institutions through the TAF (Term Asset Facility), the TALF (Term Asset-backed Securities Loan Facility), and similar facilities. He proposes an Infrastructure Facility extending credit on the same terms to state and local governments. It might offer to buy $3 trillion in 100-year, zero-coupon bonds, the minimum currently needed to rebuild the nation’s infrastructure. The collateral backing these bonds would be sounder than the commercial paper of zombie banks, since it would consist of the roads, bridges, and other tangible infrastructure built with the loans. If the bond issuers defaulted, the Fed would get the infrastructure.
Quantitative easing as practiced today is not designed to serve the real economy. It is designed to serve bankers who create money as debt and rent it out for a fee. The money power needs to be restored to the people and the government, but we need an executive and legislature willing to stand up to the banks. A popular movement could give them the backbone. In the meantime, states could set up their own banks, which could leverage the state’s massive capital and revenue base into credit for the local economy.
Ellen is an attorney, author, and president of the Public Banking Institute. In Web of Debt, her latest of eleven books, she shows how the power to create money has been usurped from the people, and how we can get it back. Her websites are http://webofdebt.com and http://ellenbrown.com.
The World Economic Forum held its annual meeting in Davos, Switzerland last month. The official theme was "Resilient Dynamism," a catchphrase that makes about as much sense as the futureless economic policies trotted out at the meeting. At least the attendees had something to ponder at cocktail hour. The mission of the forum, on paper at least, is "improving the state of the world." And there is clear room for improvement: trillions of dollars of public debt, billions of people living in poverty, escalating unemployment, and a distinct possibility of runaway climate change.
The popular solution to these problems is sustained economic growth. In fact, the first item of the Davos meeting's global agenda was "how to get the global economy back on to a path of stable growth and higher employment" The thinking is that if we could just get people to produce and consume more stuff, then we could also pay off the debt, create jobs, eradicate poverty, and maybe even have some money left over to clean up the environment.
It's tempting to believe this economic fairy tale. But if growth is the cure to all of our ills, why are we in such a bind after sixty years of it? Even though the U.S. economy has more than tripled in size since 1950, surveys indicate that people have not become any happier. Inequality has risen sharply in recent years, and jobs are far from secure. At the same time, increased economic activity has led to greater resource use, dangerous levels of carbon dioxide in the atmosphere, and declining biodiversity. There is now strong evidence that economic growth has become uneconomic in the sense that it costs more than it's worth.
Maybe it's time to consider a new strategy—an economy of enough. Suppose that instead of chasing after more stuff, more jobs, more consumption, and more income, we aimed for enough stuff, enough jobs, enough consumption, and enough income.
To build a successful economy of enough, we would first need to eliminate the "growth imperative"—factors that make the economy reliant on growth. These include reliance on inappropriate measures of progress, creation of debt-based money, and the use of aggregate growth as a tool (albeit a blunt one) for generating jobs. With key policy changes, it is possible to dismantle the growth imperative and build an economy that works for people and the planet.
Let's start with measures of progress. Our main economic indicator, GDP, is a good measure of economic activity—of money changing hands—but a poor measure of social welfare. It lumps together desirable expenditures (food, entertainment, and investment in education) with expenditures that we'd rather avoid (war, pollution, and family breakdown). In the language of economics, GDP does not distinguish between costs and benefits, but counts all economic activity as "progress."
Instead of GDP, we need indicators that measure the things that matter to people, such as health, happiness, and meaningful employment. We also need indicators that measure what matters to the planet, such as material use and carbon emissions. In fact, we already have these indicators; the problem is that we largely ignore them, because we are so fixated on GDP. If the goal of society could be changed from increasing GDP to improving human well-being and preventing long-term environmental damage, then many proposals currently seen as "impossible" would suddenly become possible.
What about jobs? If we forgot about GDP, would the economy spiral into recession? The evidence for a relationship between economic growth and job creation is much weaker than you might expect and varies remarkably between countries. In the U.S., for example, a 3 percent increase in GDP tends to be accompanied by a 1 percent fall in unemployment. In France, the same amount of GDP growth reduces unemployment by about half a percent. In Japan, there is no relationship whatsoever. Clearly it is possible to break the connection between economic growth and unemployment. We just need the right economic policies.
One of these policies is work-time reduction. Over time, we have become more efficient at producing goods and services, such that it now takes us less time to produce the same amount of stuff as it did a few decades ago. But instead of using the benefits of technological progress to reduce working time, we have mainly used them to produce and sell more stuff. This may work in an economy where the goal is more (i.e., continuous growth), but not in one where the goal is enough. What we can do instead is use the benefits of technological progress to gradually shorten the working day, week, year, and career. Besides increasing leisure time, this would help keep people employed by distributing available work more equally.
Finally, there's the financial system. Most people don't realize it, but nearly all of our money is created by private banks. Banks are able to create money because they can issue loans far in excess of their deposits. This debt-based monetary system drives three things: (1) economic growth, as the need to pay back an ever-increasing amount of debt requires an ever-increasing amount of economic activity, (2) inflation, as the money supply tends to grow faster than the amount of real wealth that's available in the economy, and (3) instability, because if the banks stop lending, the whole house of cards collapses. If we want to take a stab at the heart of the growth imperative, and also prevent future financial crises, the answer is simple: stop banks from creating money out of thin air, and transfer this power to a public authority.
It's hard to believe that many folks in Davos (or anywhere else, for that matter) came away with a clear understanding of what "Resilient Dynamism" means. But one thing is certain: an economy founded on perpetual growth has no shot at being resilient. Maybe we could classify such an economy as dynamic, since it will continue to displace people and communities and erode the life-support systems of the planet. While the economic elites interpret "Resilient Dynamism" to fit their agenda, perhaps the rest of us should employ some plain language and let them know that enough is enough.
The unemployment rate is 7.8%. Both parties agree that this is too high, but they propose totally different solutions to create more jobs. The Republican solution is to give more tax breaks and other advantages to the rich and to corporations because they are the job creators. Really? Then why haven't they created more jobs in the last 30 years. This historical experiment of "trickle down" economics has been tried since the time of Ronald Reagan and it has proven to be an abject failure. Yet Republicans are still pushing it as the solution to all our problems.
Esteemed Nobel laureate and Princeton professor Paul Krugman wants to take the traditional Keynesian approach and do deficit spending to improve the economy. He says there's no reason to worry about the deficit since the US can borrow money at extremely low rates. Not to worry. He sides with Dick Cheney who famously said, "Deficits don't matter." He and Bush then went on to add trillions to the national debt by fighting two unpaid for wars, tax breaks for the rich and an unpaid for prescription drug benefit for seniors that was in reality a giveaway to the pharmaceutical companies. But now that a Democratic President is in office, Republicans are all worried about deficits. They should have been worried when George W Bush was doing the profligate spending.
However, I disagree with both Cheney and Krugman. Deficits do matter and here's why. Sure the government can borrow a lot of money, as much as it wants to, at extremely low rates. But the government has to pay interest on the national debt and that is a growing part of the budget. Interest on the debt is the fourth largest government expenditure after Defense, Medicare and Medicaid. In 2011 Federal, state and local governments spent $454,393,280,417.03 on interest. It actually came down dramatically in 2012 to $359,796,008,919.49. That's still a lot of money. The Federal government alone spent around $220 billion in net interest on its debt in 2012, and is predicted to spend over a trillion dollars in interest by 2020. That's $1 trillion we can't spend to educate our kids or to replace our badly worn-out infrastructure.
And there's no guarantee that interest rates will continue to remain at historical lows. They are being held there right now by the Federal Reserve's policy of quantitative easing. The Fed is printing money at the rate of $85 billion a month. This money is being essentially given to the large Wall Street banks. Theoretically it's being loaned, but if someone loans you money at a zero interest rate, why would you ever pay it back? It's foolish to think that interest rates will always remain this low and that foreign nations and individuals will continue to loan us money ad infinitum.
The Fed's policy of printing money and then giving it to the big banks relies on the theory that low interest rates will get the economy moving again. The theory goes that people will be attracted to the low interest rates, borrow money and consume. It assumes that banks will actually loan out the money. Since consumption is 70% of the US economy, GDP will increase and that will create more jobs. In other words the Fed is exercising the same trickle down theory of economic growth made famous by Ronald Reagan and that has been tried for the last 30 years and failed. The Fed is essentially devaluing American currency in the hopes that this will create jobs. And it has been a big failure insofar as job creation is concerned but it has kept the US government's borrowing rates low.
So if both deficit reduction and job creation are important, how do you do both. Put simply the US government has to walk and chew gum at the same time. The Republican emphasis on cutting spending, especially spending on social programs, would lead to austerity and that would contract the economy even more. So that isn't the solution. To be fair President Obama has not been on the side of deficit spending as a way to get the economy out of the doldrums. He has been for a balanced approach of stimulating the economy and paying down the deficit. But Paul Krugman and many Democratic theorists like Robert Reich have.
The trick is to note that government spending does not have to be deficit spending. Government spending can increase without incurring greater deficits by increasing government revenues. And there are different varieties of government spending. Republicans favor just giving government money to private corporations and having them do the job. Their policy is to let the government just be a money conduit from taxpayers to corporations. Alternatively, government can spend money directly on jobs programs like rebuilding infrastructure. Instead of using the indirect approach which amounts to pushing on a string which is what the Fed is doing and which Republicans advocate, the government can actually create jobs directly in the public sector. If you want to create jobs, why not just create jobs directly instead of trying to get the private sector to create jobs. President Obama should just get up and say, "We've tried various policies to get the private sector to create jobs; they haven't worked so now the government, the public sector, is going to create jobs directly."
But here's where Democrats and President Obama have a problem. Instead of calling for more revenue by taxing the rich and corporations and government direct spending instead of spending to fund private corporations to rebuild infrastructure, Obama is reticent because he is afraid of being labeled a socialist. No worries, he's already been labeled a socialist despite his administration's being the most pro-business administration in years. And beware of the public/private partnership which is just another variation of the privatization of functions which the government can do more efficiently. We don't want to replace the military-industrial complex with an infrastructure-industrial complex replete with lobbyists, cost plus contracts and highly paid CEOs. There's no need for Wall Street to get involved.
Well, where is the money going to come from? Senator Bernie Sanders has an answer: End Offshore Tax Havens. One out of four profitable corporations pays nothing in taxes. Tax rates on profits are the lowest since 1972. Last year Facebook paid nothing despite having a billion dollars in profits. Government revenue as a percentage of GDP is lower than at any time in history. Corporate contributions to tax revenue are the lowest of any major country on earth. It is absurd for major corporations to stash huge amounts of money in countries like the Cayman Islands which have a zero tax rate.
Bernie Sanders and Jan Schakowsky have introduced the Corporate Tax Fairness Act. The bill will raise $590 billion over the next decade. The bill will also stop giving tax breaks to corporations for shipping jobs overseas. Their bill would prevent oil companies from disguising royalty payments to foreign countries as taxes in order to reduce their taxes in the US among other things. And it has a snowball's chance in hell of passing. A financial transaction tax would bring in as much as $100 billion annually. We used to have one; Europe just recently enacted one. Let's end the "carried interest" loophole for hedge and private equity funds. Wall Street needs to start paying its fair share.
Corporations have been getting away with murder in not paying their fair share of taxes. This is from an article by Bernie Sanders:
"In 2010, Bank of America set up more than 200 subsidiaries in the Cayman Islands (which has a corporate tax rate of 0.0 percent) to avoid paying U.S. taxes. It worked. Not only did Bank of America pay nothing in federal income taxes, but it received a rebate from the IRS worth $1.9 billion that year. They are not alone. In 2010, JP Morgan Chase operated 83 subsidiaries incorporated in offshore tax havens to avoid paying some $4.9 billion in U.S. taxes. That same year Goldman Sachs operated 39 subsidiaries in offshore tax havens to avoid an estimated $3.3 billion in U.S. taxes. Citigroup has paid no federal income taxes for the last four years after receiving a total of $2.5 trillion in financial assistance from the Federal Reserve during the financial crisis."
The sad fact is that the private sector is not in the process of creating jobs but of destroying jobs through automation and robotics. Almost anything a human being might have done in a job is now being done by robots. Some say that this creates jobs for "knowledge workers." Sure if you're among the upper 1% in knowledge talent. Companies like Microsoft, Google, Apple and Facebook are not looking for the average college graduate. They're looking for the upper 1% of college graduates. Together they employ less than 200,000 people in the US. The top talent in every field are making good money. Everyone else is going downhill if they're employed at all. 50% of college graduates are either unemployed or underemployed in terms of their qualifications. In the 2009-2010 recovery, 93% of the gains in income went to the top 1%.
Why should the private sector create jobs if they can get a robot to do the work 24 hours a day at a cost of less than $5.00 an hour? If the private sector will not create jobs, that leaves the government to create jobs directly. Instead of pushing on a string with policies that are supposed to create jobs indirectly by encouraging the private sector to do so, government should get more involved. More government revenues plus direct job creation rebuilding infrastructure could result in growing the economy, providing good middle class jobs and paying down the debt.
Chrystia Freeman in her book Plutocracy explains this phenomenon which results in the divergence of jobs and income, creating a well to do upper 1% class and everybody else:
"This is what ecomomists call the "superstar" effect - the tendency of both technological change and globalization to create winner-take-all economic tournaments in many sectors and companies, where being the most successful in your field delivers huge rewards, but coming in second place, and certainly in fifth or tenth, has much less economic value."
We are seeing the effects of a meritocracy where the top 1% of talent merges with the top 1% in terms of income and wealth. This is great for the top 1% of graduates from elite colleges but not so much for the average graduates of average colleges with $100,000. in student loan debt and a job at Starbucks instead of a career type job in their field. In every field the chasm between the superstars and everyone else is getting bigger and bigger. Inequality increases with the acceleration of meritocracy. Meritocracy and plutocracy converge creating a democratic dystopia.
That's why the government has to step in to regulate this runaway dystopia. Taxes on corporations and the rich need to be increased in order to tamp down inequality. This revenue needs to be redistributed to the former middle class in terms of job programs. It could be redistributed in terms of welfare and unemployment insurance, but this creates a class of dependents. It would be much better to create a middle class of workers rebuilding infrastructure. And this is not a trivial job. The American Society of Civil Engineers estimates that there is $2 trillion worth of work that needs to be done just to bring roads, bridges and other basic infrastructure up to par. But there is more to infrastructure than just that. When you consider all that needs to be done to prevent and combat the changes due to global warming, there is enough potential work out there to fully employ US workers for generations. Utilities need to be hardened and undergrounded. Fossil fuel powered electric plants need to be converted to solar and wind. Buildings need to be made less energy consuming. High speed rail needs to be implemented. Housing needs to be moved back from the shorelines.
There is no lack of work that needs to be done, and this is work the private sector not only won't do but in many cases it is work that the private sector is lobbying against doing. They profit from using the atmosphere as a dump. It's crucial that the government prevent runaway wealth maldistribution, create jobs that the private sector has no incentive to create and save the planet from ecological disaster.
Posted by John on February 25, 2013 at 08:26 AM in John Lawrence, Paul Krugman, Robert Reich, Austerity, Climate Change, Corporations, Economics, Education, Careers, Jobs, Employment, Global Warming, Inequality, Infrastructure, Jobs, Middle Class, Obama Presidency, Offshore Bank Accounts, Taxes, The Budget, The Economy, The Environment, The Federal Reserve, The Role of Government, Unemployment, Wall Street, Wealth, Weather Disasters | Permalink
by Robert Reich
If you’re sitting in the well of the House when a president gives a State of the Union address (as I’ve had the privilege of doing five times), the hardest part is on the knees. You’re required to stand and applaud every applause line, which means, if you’re in the cabinet or an elected official of the president’s party, an extraordinary amount of standing and sitting.
But for a president himself, the State of the Union provides a unique opportunity to focus the entire nation’s attention on the central issue you want the nation to help you take action on.
President Obama has been focusing his (and therefore America’s) attention on immigration, guns, and the environment. All are important. But in my view none of these should be the central theme of his address Tuesday evening.
His focus should be on the joblessness, falling real wages, economic insecurity, and widening inequality that continue to dog the nation. These are the overriding concerns of most Americans. All will grow worse if the deficit hawks, austerity mavens, trickle-down charlatans, and government-haters who have commanded center stage for too long continue to get their way.
In coming weeks the GOP will be using another fiscal cliff, a funding crisis, and another debt ceiling showdown to convince Americans of an outright lie: that the federal budget deficit is our most important problem, that it is responsible for the continuing anemic recovery, and that we must move now to reduce it.
The President should make it clear that any Republican effort to hold the nation hostage to the GOP’s ideological fixation on the budget deficit and a smaller government will slow the economy, likely pushing us into another recession. And that those most imperiled are the middle class and the poor.
He should emphasize that the real job creators are not the rich but the vast majority of ordinary Americans whose purchases give businesses reason to add jobs. And that if most Americans still cannot afford to buy, the government must be the spender of last resort.
Perhaps it’s too much to hope for, but I’d encourage the President to call for boosting the economy: Reversing the recent Social Security tax hike by exempting the first $20,000 of income from payroll taxes and lifting the ceiling on income subject to it, to make up the shortfall. Reviving the WPA and CCC, to put the long-term unemployed directly to work. Raising the minimum wage. Imposing a 2% annual tax surcharge on wealth in excess of $7 million to fund a world-class system of education, so all our kids can get ahead. Cutting corporate welfare and the military but not cutting public investments or safety nets the middle class and poor depend on. Giving tax credits to companies that create more new jobs in America. Helping states and locales rehire the teachers, fire fighters, police officers, and social workers they need.
This is the most fragile recovery in modern history, from the deepest downturn since World War II. Most Americans are not experiencing a recovery at all. As has been shown in Europe, austerity economics is a cruel hoax. President Obama must acknowledge this in his State of the Union, and commit to fighting those who would impose it on America.
Today, governments around the world are implementing programs of austerity that are reversing the social protections that people have fought for over many generations. By dramatically cutting public spending on social welfare and essential services, austerity measures are undermining human rights and threatening to unravel the basic fabric of society and community. But is there really no alternative to these unjust economic policies, as we are being led to believe?
In a world that is already highly unequal, neglecting polices that redistribute income and wealth has resulted in what can only be described as a global emergency. Amidst the many crises we face - from the food, environmental and financial crises to the global systemic crisis - hundreds of millions of people across the world are facing extreme deprivation and dying needlessly from a lack of access to the essentials, whether as a consequence of extreme poverty, climate change or natural disasters. Even in the richest countries, policies of economic austerity are inflicting unnecessary hardship on millions of families, many of whom now struggle to afford basic food or healthcare.
Photo: London Permaculture
As the countless protesters across diverse continents are declaring, it doesn't have to be this way. Although addressing the underlying causes of the world's interrelated crises will necessitate structural reforms on a scale never before attempted by the international community, we don't have to wait for these transformative changes to take place in order to prevent people suffering from extreme hardship and avoidable poverty-related disability.
There is plenty of research available that demonstrates how governments could harness more than enough money to reverse policies of economic austerity, prevent life-threatening deprivation and mitigate the human impacts of climate change. By utilising just the policy options summarised below, governments could mobilise over $2.8 trillion every year to scale up and strengthen the ‘sharing economy' - systems of welfare and redistribution that have been progressively established across the world to protect the poor and vulnerable.
This colossal sum amounts to approximately 4% of global GDP - twice as much as required for securing a basic level of social protection for all the world's poor, according to calculations by the United Nations. It also underlines how the international community could do much more to scale up sharing between nations as well as within them, in order to help poorer countries meet the basic needs of their citizens and strengthen domestic systems of social protection.
Many of these policy measures would be hugely beneficial in their own right by helping to establish a world with less military spending, less corporate welfare, a greener economy, a fairer international trade regime, and more progressive and effective forms of taxation. Achieving these long-standing and widely championed goals would be an enormous step in the right direction for the world as a whole, signalling a triumph for millions of people working towards progressive change, and paving the way for more transformative reforms to the world's economic and political systems that must urgently follow.
1. Tax financial speculation - $650bn
Speculation in financial markets is increasingly disconnected from the ‘real' economy (concerned with actually producing goods and services) and has destabilised economies all over the world. The main beneficiaries of speculation are a minority elite of traders, investment banks, hedge funds and other companies that can reap huge profits from market volatility. A financial transaction tax (FTT) could help regulate markets by disincentivising the most destabilising trading practices. If implemented globally, an FTT could raise as much as $650bn a year for governments to tackle poverty, reverse austerity measures and address climate change.
2. End fossil fuels subsidies - $531bn
The burning of fossil fuels is the main contributor to global warming and is largely responsible for carbon emissions reaching a record high last year. It will be impossible to keep CO2 emissions to safe levels if governments continue to encourage the overuse of ‘dirty energy' through the massive subsidies it provides to the producers and consumers of fossil fuels. Governments could raise up to $531bn a year if all forms of biofuel and fossil fuel subsidies are progressively phased out by 2020. This colossal sum of money is sufficient to secure universal access to energy, leverage a significant investment in renewables on a global scale, and finance programs that can help countries mitigate and adapt to climate change.Photo: tolkien1914
3. Divert military spending - $434.5bn
Military spending by governments worldwide has risen by more than 50% since 2001, reaching over $1.7tn in 2011 - equivalent to around $250 annually for each person in the world. As a first step toward ending armed conflict and war, it is crucial that governments introduce substantial reductions to their military budgets. Diverting only a quarter of current global military expenditure would free up $434.5bn annually that could instead be used to save lives, prevent extreme deprivation and strengthen United Nations peacekeeping efforts.
4. Stop tax avoidance - $349bn
Strengthening tax systems in countries around the world remains the most pragmatic way for nations to share their financial resources more equitably and protect the poor and vulnerable. Tax avoidance by wealthy individuals and multinational corporations means governments often miss out on huge amounts of additional public revenue. Facilitated by a global network of highly secretive tax havens and ‘legitimised' by national and international tax rules, tax avoidance is big business. As a minimum step toward ending all forms of global tax avoidance, clamping down on tax havens and preventing corporate tax abuse could raise more than $349bn each year.
5. Increase international aid - $297.5bn
Official Development Assistance (ODA) is the main way in which the international community currently finances the global sharing economy. But foreign aid is severely compromised by the self-interest of donor countries and dwarfed by the net flow of money from developing countries to rich industrialised nations. Although an end to poverty will require extensive restructuring of the world economy to share wealth and power more equally between and within nations, increasing ODA to 1% of gross national income (GNI) in the short term could raise an additional $297.5bn per year - a sum much more in line with the urgent needs of poorer countries.
6. End support for agribusiness - $187bn
Agricultural subsidies are a foremost example of how governments support an environmentally destructive and socially unjust model of agriculture and trade. Redirecting these perverse subsidies is an urgent priority if the world is serious about addressing the global food crisis, reducing hunger and protecting the environment. Eliminating inappropriate and wasteful subsidies that are geared to supporting wealthy farmers and powerful agri-corporations could raise $187bn each year - money that could instead be used to tackle poverty and increase food security in the Global South. Remaining subsidies should be re-oriented to support small-scale producers and agro-ecological farming practices, in accordance with the principles of food sovereignty.
7. Harness IMF resources - $115.5bn
The powerful influence exerted by the International Monetary Fund (IMF) over economic policy decisions made across the world has earned it a deeply controversial reputation. Many civil society groups and millions of citizens throughout the Global South see the IMF and its market-driven policies as a threat to social and economic justice. Nonetheless, the Fund has the ability to raise and redistribute vast quantities of additional finance for poverty eradication and climate finance purposes. Expanding the IMF's Special Drawing Rights facility (SDRs) could raise $100bn annually, and progressively selling off the IMF's substantial gold reserves could raise an additional $15.5bn over a period of 10 years.
8. Tax dirty fuels - $108bn
Campaigners have long argued that the price of using fossil fuels does not accurately reflect the actual cost of its environmental, social or economic impacts. The artificially low price of burning oil, gas and coal has also encouraged overreliance on them, exacerbated climate change and prevented the development of alternative forms of energy. Taxing the carbon emissions from fossil fuels could raise $108bn each year in additional government revenues. The tax would also provide an incentive to use fossil fuels more efficiently, help encourage the transition towards low-carbon energy technology, and raise significdirant funding for international climate finance.
9. Cancel unjust debt - $81bn
The unconditional cancellation of all unjust and unpayable developing country debts is essential to achieve a more equitable distribution of the world's financial resources. Developing countries are indebted to the tune of over $4tr and spend more than $1.4bn every day repaying these debts - 400% more than they receive in aid. These funds should instead be spent on social welfare and public services that many of these countries urgently need. Cancelling illegitimate ‘dictator debts' alone - currently estimated at $735bn - could free up $81bn a year for public spending in developing countries.
10. Protect import tariffs - $63.4bn
Rich nations and global institutions must stop forcing poor countries to adhere to unjust trade rules. Income from taxes placed on imported goods is an important source of government revenue for developing countries, but they are increasingly being forced to reduce these import tariffs as a condition of free trade agreements (FTAs) or in return for financial assistance. If the current round of world trade negotiations is concluded, poor countries could lose $63.4bn from reductions in import tariffs - more than four times what they are estimated to gain from increased trade. In addition, many FTAs currently being negotiated between rich and poor nations will further reduce tariff revenues for governments throughout the Global South.
Total potential revenue of all 10 policies: $2.8 trillion every year.
The policies above highlight the many ways in which governments can mobilise hundreds of billions of dollars without creating more national debts or enacting austerity measures. Furthermore, using this money to reinforce the global sharing economy and prevent needless poverty-related deaths in poor countries could save the lives of around 15 million people every year and enable many millions more to contribute to the social, economic, political and cultural life of their nation. This makes sound economic sense at a time when economies across the world are contracting and unemployment is rising. In an interdependent world where trade and financial relationships span the globe, this massive investment in the sharing economy could stimulate demand, kick-start growth, create employment opportunities and substantially increase government revenues.
Reversing austerity measures across Europe and North America could also have a significant impact on economies by reducing unemployment and increasing the health, wellbeing and disposable income of citizens in these economically advanced regions. Similarly, investing heavily in renewable energy and green infrastructure projects as part of a ‘green new deal' on a national and global scale could create even more jobs, pave the way to a low carbon economy and significantly reduce greenhouse gas emissions.
Together these measures could help stimulate economic activity and increase government income, helping nations to plug the hole in public finances and reverse the big cuts in government spending. These ‘stimulus policies' are widely regarded as being more effective than the programs of austerity meted out by many indebted governments today, especially in times of recession or exceptionally high deficits. Although a profound transformation of the entire global economic structure is necessary to resolve the deepening financial crisis, in the meantime there is no excuse for undermining the sharing economy through government cutbacks in welfare and essential services.
These proposals may be relatively modest when compared to the scale of the crises confronting humanity, but they will clearly require massive public support if they are to stand a hope of being realised. As we move ever closer to social, economic and environmental tipping points, it is clear that we can no longer rely on governments alone to create the future we want. The responsibility to take a stand falls squarely on the shoulders of ordinary people, not just the usual campaigners and NGOs. But as the widespread mobilisation of people power around the world has begun to demonstrate, a united and informed global public opinion is ultimately stronger than the private interests that obstruct progressive change from taking place.
If public support for all the campaigns and policy priorities highlighted above continues to grow, the possibility of mobilising public opinion on an international scale and transforming governmental policy fast becomes a reality. For this to occur, everyone who seeks a fairer and more peaceful world - especially those who are new to these issues - must add their weight to the global call for sharing and justice.
This article was based on the report ‘Financing the global sharing economy'. For references, further resources and to read the full report, visit: www.stwr.org/financing-the-global-sharing-economy
Today’s economic warfare is not the kind waged a century ago between labor and its industrial employers. Finance has moved to capture the economy at large, industry and mining, public infrastructure (via privatization) and now even the educational system. (At over $1 trillion, U.S. student loan debt came to exceed credit-card debt in 2012.) The weapon in this financial warfare is no larger military force. The tactic is to load economies (governments, companies and families) with debt, siphon off their income as debt service and then foreclose when debtors lack the means to pay. Indebting government gives creditors a lever to pry away land, public infrastructure and other property in the public domain. Indebting companies enables creditors to seize employee pension savings. And indebting labor means that it no longer is necessary to hire strikebreakers to attack union organizers and strikers.
Workers have become so deeply indebted on their home mortgages, credit cards and other bank debt that they fear to strike or even to complain about working conditions. Losing work means missing payments on their monthly bills, enabling banks to jack up interest rates to levels that used to be deemed usurious. So debt peonage and unemployment loom on top of the wage slavery that was the main focus of class warfare a century ago. And to cap matters, credit-card bank lobbyists have rewritten the bankruptcy laws to curtail debtor rights, and the referees appointed to adjudicate disputes brought by debtors and consumers are subject to veto from the banks and businesses that are mainly responsible for inflicting injury.
The aim of financial warfare is not merely to acquire land, natural resources and key infrastructure rents as in military warfare; it is to centralize creditor control over society. In contrast to the promise of democratic reform nurturing a middle class a century ago, we are witnessing a regression to a world of special privilege in which one must inherit wealth in order to avoid debt and job dependency.
The emerging financial oligarchy seeks to shift taxes off banks and their major customers (real estate, natural resources and monopolies) onto labor. Given the need to win voter acquiescence, this aim is best achieved by rolling back everyone’s taxes. The easiest way to do this is to shrink government spending, headed by Social Security, Medicare and Medicaid. Yet these are the programs that enjoy the strongest voter support. This fact has inspired what may be called the Big Lie of our epoch: the pretense that governments can only create money to pay the financial sector, and that the beneficiaries of social programs should be entirely responsible for paying for Social Security, Medicare and Medicaid, not the wealthy. This Big Lie is used to reverse the concept of progressive taxation, turning the tax system into a ploy of the financial sector to levy tribute on the economy at large.
Financial lobbyists quickly discovered that the easiest ploy to shift the cost of social programs onto labor is to conceal new taxes as user fees, using the proceeds to cut taxes for the elite 1%. This fiscal sleight-of-hand was the aim of the 1983 Greenspan Commission. It confused people into thinking that government budgets are like family budgets, concealing the fact that governments can finance their spending by creating their own money. They do not have to borrow, or even to tax (at least, not tax mainly the 99%).
The Greenspan tax shift played on the fact that most people see the need to save for their own retirement. The carefully crafted and well-subsidized deception at work is that Social Security requires a similar pre-funding – by raising wage withholding. The trick is to convince wage earners it is fair to tax them more to pay for government social spending, yet not also to ask the banking sector to pay similar a user fee to pre-save for the next time it itself will need bailouts to cover its losses. Also asymmetrical is the fact that nobody suggests that the government set up a fund to pay for future wars, so that future adventures such as Iraq or Afghanistan will not “run a deficit” to burden the budget. So the first deception is to treat only Social Security and medical care as user fees. The second is to aggravate matters by insisting that such fees be paid long in advance, by pre-saving.
There is no inherent need to single out any particular area of public spending as causing a budget deficit if it is not pre-funded. It is a travesty of progressive tax policy to only oblige workers whose wages are less than (at present) $105,000 to pay this FICA wage withholding, exempting higher earnings, capital gains, rental income and profits. The raison d’être for taxing the 99% for Social Security and Medicare is simply to avoid taxing wealth, by falling on low wage income at a much higher rate than that of the wealthy. This is not how the original U.S. income tax was created at its inception in 1913. During its early years only the wealthiest 1% of the population had to file a return. There were few loopholes, and capital gains were taxed at the same rate as earned income.
By not raising taxes on the wealthy or using the central bank to monetize spending on anything except bailing out the banks and subsidizing the financial sector, the government follows a pro-creditor policy. Tax favoritism for the wealthy deepens the budget deficit, forcing governments to borrow more. Paying interest on this debt diverts revenue from being spent on goods and services. This fiscal austerity shrinks markets, reducing tax revenue to the brink of default.
The government’s seashore insurance program, for instance, recently incurred a $1 trillion liability to rebuild the private beaches and homes that Hurricane Sandy washed out. Why should this insurance subsidy at below-commercial rates for the wealthy minority who live in this scenic high-risk property be treated as normal spending, but not Social Security? Why save in advance by a special wage tax to pay for these programs that benefit the general population, but not levy a similar “user fee” tax to pay for flood insurance for beachfront homes or war? And while we are at it, why not save another $13 trillion in advance to pay for the next bailout of Wall Street when debt deflation causes another crisis to drain the budget?
But on whom should we levy these taxes? To impose user fees for the beachfront reconstruction would require a tax falling mainly on the wealthy owners of such properties. Their dominant role in funding the election campaigns of the Congressmen and Senators who draw up the tax code suggests why they are able to avoid prepaying for the cost of rebuilding their seashore property. Such taxation is only for wage earners on their retirement income, not the 1% on their own vacation and retirement homes.
By not raising taxes on the wealthy or using the central bank to monetize spending on anything except bailing out the banks and subsidizing the financial sector, the government follows a pro-creditor policy. Tax favoritism for the wealthy deepens the budget deficit, forcing governments to borrow more. Paying interest on this debt diverts revenue from being spent on goods and services. This fiscal austerity shrinks markets, reducing tax revenue to the brink of default. This enables bondholders to treat the government in the same way that banks treat a bankrupt family, forcing the debtor to sell off assets – in this case the public domain as if it were the family silver, as Britain’s Prime Minister Harold MacMillan characterized Margaret Thatcher’s privatization sell-offs.
In an Orwellian doublethink twist this privatization is done in the name of free markets, despite being imposed by global financial institutions whose administrators are not democratically elected. The International Monetary Fund (IMF), European Central Bank (ECB) and EU bureaucracy treat governments like banks treat homeowners unable to pay their mortgage: by foreclosing. Greece, for example, has been told to start selling off prime tourist sites, ports, islands, offshore gas rights, water and sewer systems, roads and other property.
Sovereign governments are, in principle, free of such pressure. That is what makes them sovereign. They are not obliged to settle public debts and budget deficits by asset selloffs. They do not need to borrow more domestic currency; they can create it. This self-financing keeps the national patrimony in public hands rather than turning assets over to private buyers, or having to borrow from banks and bondholders.© 2012 Naked Capitalism
by Paul Krugman
Let’s get one thing straight: America is not facing a fiscal crisis. It is, however, still very much experiencing a job crisis.
It’s easy to get confused about the fiscal thing, since everyone’s talking about the “fiscal cliff.” Indeed, one recent poll suggests that a large plurality of the public believes that the budget deficit will go up if we go off that cliff.
In fact, of course, it’s just the opposite: The danger is that the deficit will come down too much, too fast. And the reasons that might happen are purely political; we may be about to slash spending and raise taxes not because markets demand it, but because Republicans have been using blackmail as a bargaining strategy, and the president seems ready to call their bluff.
Moreover, despite years of warnings from the usual suspects about the dangers of deficits and debt, our government can borrow at incredibly low interest rates — interest rates on inflation-protected U.S. bonds are actually negative, so investors are paying our government to make use of their money. And don’t tell me that markets may suddenly turn on us. Remember, the U.S. government can’t run out of cash (it prints the stuff), so the worst that could happen would be a fall in the dollar, which wouldn’t be a terrible thing and might actually help the economy.
Let’s get one thing straight: America is not facing a fiscal crisis.
Yet there is a whole industry built around the promotion of deficit panic. Lavishly funded corporate groups keep hyping the danger of government debt and the urgency of deficit reduction now now now — except that these same groups are suddenly warning against too much deficit reduction. No wonder the public is confused.
Meanwhile, there is almost no organized pressure to deal with the terrible thing that is actually happening right now — namely, mass unemployment. Yes, we’ve made progress over the past year. But long-term unemployment remains at levels not seen since the Great Depression: as of October, 4.9 million Americans had been unemployed for more than six months, and 3.6 million had been out of work for more than a year.
When you see numbers like those, bear in mind that we’re looking at millions of human tragedies: at individuals and families whose lives are falling apart because they can’t find work, at savings consumed, homes lost and dreams destroyed. And the longer this goes on, the bigger the tragedy.
There are also huge dollars-and-cents costs to our unmet jobs crisis. When willing workers endure forced idleness society as a whole suffers from the waste of their efforts and talents. The Congressional Budget Office estimates that what we are actually producing falls short of what we could and should be producing by around 6 percent of G.D.P., or $900 billion a year.
Worse yet, there are good reasons to believe that high unemployment is undermining our future growth as well, as the long-term unemployed come to be considered unemployable, as investment falters in the face of inadequate sales.
So what can be done? The panic over the fiscal cliff has been revelatory. It shows that even the deficit scolds are closet Keynesians. That is, they believe that right now spending cuts and tax hikes would destroy jobs; it’s impossible to make that claim while denying that temporary spending increases and tax cuts would create jobs. Yes, our still-depressed economy needs more fiscal stimulus.
And, to his credit, President Obama did include a modest amount of stimulus in his initial budget offer; the White House, at least, hasn’t completely forgotten about the unemployed. Unfortunately, almost nobody expects those stimulus plans to be included in whatever deal is eventually reached.
So why aren’t we helping the unemployed? It’s not because we can’t afford it. Given those ultralow borrowing costs, plus the damage unemployment is doing to our economy and hence to the tax base, you can make a pretty good case that spending more to create jobs now would actually improve our long-run fiscal position.
Nor, I think, is it really ideology. Even Republicans, when opposing cuts in defense spending, immediately start talking about how such cuts would destroy jobs — and I’m sorry, but weaponized Keynesianism, the assertion that government spending creates jobs, but only if it goes to the military, doesn’t make sense.
No, in the end it’s hard to avoid concluding that it’s about class. Influential people in Washington aren’t worried about losing their jobs; by and large they don’t even know anyone who’s unemployed. The plight of the unemployed simply doesn’t loom large in their minds — and, of course, the unemployed don’t hire lobbyists or make big campaign contributions.
So the unemployment crisis goes on and on, even though we have both the knowledge and the means to solve it. It’s a vast tragedy — and it’s also an outrage.© 2012 The New York Times
by Sarah VanGelder
Yes! Magazine Op-Ed from Nation of Change, December 7 2012
Feeling panicked about the so-called “fiscal cliff?” Don’t be. At worst, if would be more of a “ramp” than a cliff, since effects would be spread out over time.
More importantly, the crisis atmosphere is a fabrication created by Congress. The cuts in spending and the end to tax breaks were intended to be so unacceptable that members of Congress would be forced to reach agreement to lower the deficit, which was considered, at least by some, to be at crisis levels.
Artificial or not, the outcome of this fiscal showdown could set policy for years to come. Times of crisis—even ones that are fabricated—open the door to changes that would be politically impossible in calmer settings, as author Naomi Klein has pointed out in her work on disaster capitalism.
We are told, for example, that we can’t afford full Social Security benefits, even though Social Security is entirely self-funded and not a contributor to the federal budget deficit. We are told Medicare must be cut, even though it is by far the least expensive means of providing health care coverage.
Fortunately, lowering living standards for ordinary people is not a necessary sacrifice, as the proponents of “entitlement cuts” would have us believe. Instead, these cuts would increase poverty and further undermine the stability of the middle class. And with less money to spend, there would be less money in circulation to maintain the economy’s already weak momentum.It’s not hard to see who would benefit from these cuts. Without Social Security, our retirement money would be poured into Wall Street accounts, which would profit investment bankers and financiers, but put savings at risk. And if eligibility for Medicare is moved from age 65 to age 67, more of the elderly would be forced to rely on expensive for-profit health insurance companies for coverage.
So how could we cut long-term deficits while also improving the standard of living of ordinary people? The answer, it turns out, involves a combination of familiar ideas and new ones.
1. Reduce the waste and overspending in the military budget.
We could be cut $440 billion from the military over 10 years without harming our security, according to a report by the Institute of Policy Studies. The Center for American Progress placed that number even higher, at $487 billion.
There are few threats facing the United States today—at least few that hundreds of billions in military spending can protect us from. Instead, we need massive investments in a transition to a clean-energy economy that will protect against climate change—which poses a real threat to our security. And we need spending that creates jobs; every $1 million spent on the military creates about eight jobs, but the same amount spent on home weatherization creates 12 jobs, and the $1 million spent on educationcreates 15 jobs.
In a recent New York Times column, Reagan administration Assistant Secretary of Defense Lawrence J. Korb puts the scale of U.S. military spending in a global context: “Even with sequestration-size cuts, we would still account for more than 40 percent of the world’s defense spending, and our allies would account for about half of the rest.”
And he shows that there is room to cut billions of dollars of waste. “Over the past decade, the Pentagonsquandered $46 billion on weapons it later canceled, and let half its procurement programs balloon beyond their original budgets.”
2. Cut subsidies for climate-polluting energy corporations.
Those companies now receive about $4 billion in subsidies each year, although they are among the largest and most powerful corporations in the world. Taxpayer money should not be spent supporting a form of energy that is destabilizing the climate. CNN developed a list of these subsidies and how they can be cut.
3. Get more tax revenue from those who can afford it.
The best place to start is by recovering some of the billions in tax cuts given to the wealthiest 1 percent and large corporations, and by creating some carefully crafted new taxes.
The Forbes richest 400 individuals have assets worth $1.7 trillion—more than five times the $300 billion they owned in 1992, according to Warren Buffett. That’s partly because they kept $1.3 trillion dollars they would have paid without the Bush tax cuts. Meanwhile, the share of federal revenue contributed by corporations fell from 27.6 percent in the 1950s to just 10.4 percent in the 2000s, according to the Congressional Progressive Caucus.
New York Times columnist Paul Krugman agrees that the wealthy can pay more. In the 1950s, he points out, the top marginal tax rate was over 90 percent—and that was under a Republican administration. “The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent.”
With the 400 wealthiest individuals paying an effective tax rate of about 18 percent, according to theNational Economic Council , there is lots of room for tax increases on the wealthy that would result in a fairer tax system.
4. Use these smart revenue ideas to create multiple benefits.
In addition to these familiar cuts and revenues, creative new ways of generating tax income are coming in from around the world and at home. Here are three we should do right away:
What do Americans think of these ideas? Here’s an indication:
According to a recent poll conducted by Princeton Survey Researcher Associates just one in five Americans supports cuts to Social Security and Medicare. Just one in three supports cuts in Medicaid.
But two out of three support cuts in military spending. And, 60 percent support raising taxes on those with incomes over $250,000 a year, according to an ABC News/Washington Post poll from late November.
Ask the American people, and you will find no patience for using an artificial “fiscal cliff” to push through cuts that will harm ordinary people and extend tax breaks for the wealthiest Americans. The subject was thoroughly debated during the election. The argument should be over.
Sarah van Gelder wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. Sarah is YES! Magazine's co-founder and executive editor.
Create an Infrastructure Bank and Transition from a Wartime to a Peacetime Economy.
The deal that Congress and the President made that created the so-called fiscal cliff may not be so bad after all. In fact it has many good elements: raising taxes on the rich which will reduce burgeoning inequality in the US, deficit reduction and reduction of the bloated military-industrial complex budget. The one thing that many experts are worried about is that taking this much money out of the economy will create a recesssion. However, increased economic activity that would offset the fiscal cliff provisions can come about with increased leveraged spending on infrastructure development. A relatively small amount of government money when combined with money from private investors can goose the economy while preserving the good elements of the fiscal cliff deal. This can lead to a conversion of what today is essentially a wartime economy to a peacetime economy and change the US from a national security state - one dependent on military related spending to create jobs - to a world leader in peacetime economic development.
It is important to realize that development of infrastructure in the US will set the stage for the revival of the economy. First class infrastructure will open up possibilities for the creation of 21st century businesses and enable them to thrive. It will also reduce carbon dioxide emissions and thus global warming.
President Obama backed the proposed legislation in February 2008 for the creation of an infrastructure bank. The bank would use the same methods as a commercial bank - that is fractional reserve banking. Fractional reserve banking allows banks to leverage depositor funds so that they can loan out ten times what their deposits are on the theory that not all depositors will want their money back at the same time. In this way banks can make many more loans than they would be able to do otherwise. Obama suggested that the Bank would borrow $60 billion of federal funding to invest in infrastructure over 10 years, while leveraging "up to $500 billion" of private investment. So a relatively small amount of Federal funding could be leveraged up to provide a substantial amount of spending on infrastructure.
The logic behind the bank isn’t hard to grasp. In recent years, reams of white papers have come out describing how much of the nation’s transportation, water and energy infrastructure is in shambles. A 2010 Government Accountability Office report, for one, found that a quarter of the country’s 600,000 bridges are either “structurally deficient” or inadequate to today’s traffic needs. The American Society of Civil Engineers (ASCE) estimates that an investment of $2.2 trillion is needed to bring America's infrastructure up to snuff. The US lacks a central source of low-cost financing for big construction projects akin to the European Investment Bank.
The deal that created the fiscal cliff has many good aspects including the following:
1) Taxes are raised on everyone but disproportionally on the rich reducing inequality. 2) A lot of revenue is generated to pay down the deficit. 3) The military-industrial complex takes a big hit. 4) Social Security, Medicare, Medicaid and Veterans' benefits are not affected. 5) There is a 5 to 1 ratio between revenues from taxes and savings from cuts.
The only downside to the deal crafted by politicians as a means of kicking the can down the road is that taking that much money out of the economy might cause a recesssion. But here's a way to avoid that: create an infrastructure bank. My premise is that money needs to be taken away from the military-industrial complex establishment and spent on rebuilding infrastructure in the US. In addition new infrastructure such as a smart electric and electronic grid, high speed rail and undergrounding and hardening of all utilities as a way to avoid widespread devastation from superstorms such as the recent Sandy is of paramount inportance. Whether or not we go over the fiscal cliff, creation of an infrastructure bank should be part of any deal before or after January 1.
Here's another way to do it: take some of the money from revenues generated by the fiscal cliff, about one tenth will do, and then, through the magic of fractional reserve banking, that money can be multiplied ten times. The government would make a deposit with savings generated by the fiscal cliff, and then investors would also be invited to make deposits. They would draw interest on those deposits. The bank's sole dedicated purpose would be to loan out or grant money for infrastucture projects. Those loans or grants would be made after due diligence on the requesting company's business model for the infrastructure project it has in mind. These projects could be created by entrepreneurs or by the government itself. Some of these projects could be revenue producing such as toll roads; some could be public investments with interest paid to investors over a period of time.
Obama's proposed Secretary of Business could oversee the infrastructure projects funded by the infrastructure bank to make sure that there is a cohesive vision for a national infrastructure model that made sense as a whole and not a collective hodge podge of unrelated projects that didn't fit together or work together. The Secretary of Business could also oversee industrial policy in the US similar to Japan's Ministry of Industrial Trade and Industry (MITI). MITI ran much of Japanese industrial policy, funding research and directing investment. In 2001, its role was taken over by the newly created Ministry of Economy, Trade and Industry (METI). An industrial policy coupled with an infrastructure development policy could make the US better fit for not only nation building at home but place it on a better footing for international competition. At the same time infrastructure redevelopment would create hundreds of thousands of jobs thereby avoiding a recession and placing the economy on a sounder footing.
The US is lagging other countries in infrastructure development. While other countries have been pouring money into infrastructure, the US has been pouring money into its military-industrial complex. More money is spent on defense than is spent by the next ten highest defense spending nations combined. For example the US ranks 29th among the world's nations in internet speed behind such countries as Romania, Bulgaria and Latvia. We rank first only in price. We pay six to ten times as much as the French, for instance, for a triple play package (phone, cable TV and internet). The French internet is ten times faster downloading and twenty times faster uploading than what most Americans can buy.
Undergrounding of utilities is one much needed infrastructure project. According to a Morgan Stanley analysis, power outages, caused by trees falling on electric power lines cost the U.S. economy between $25 billion and $180 billion every year. In Germany there are hardly any power outages from storms because their lines are all underground. Other infrastructure projects that can be encouraged by intelligent government policies is the creation of and retrofitting of smart buildings.
In Germany architects have created buildings that have a net zero consumption of energy. This translates to fewer carbon emissions into the atmosphere - a good thing. There are over 50 passive houses and at least 100 units with 'plus energy' standard (houses which produce more energy than they need) in Vauban, a neighborhood of Freiburg, one of the largest 'solar districts' in Europe.
"Within Vauban, a new ecologically designed settlement of 2000 houses that is being built on the site of an abandoned French military base, a Solar Village - Europe's most modern solar housing project - is being built at Schlierberg, with 50 solar houses that will produce more energy than they consume, designed by Rolf Disch, one of the most renowned solar architects in Europe. The brightly coloured terraced homes use only 15% of the energy that is needed by Freiburg's low-energy homes, and need additional heat for only a few weeks a year, from a wood chips biomass combined heat and power (CHP) plant."
"A district centre has been created at Vauban with shops, a primary school, kindergartens and public green spaces. Vauban has been designed to create a 'district of short distances' where the schools, farmer's market, businesses, shopping centre, food coop, recreation areas and approximately 600 jobs will be within walking and cycling distance of residents."
The US electric grid is also not performing at the same level it was decades ago. Energy losses in the transmission and distribution system nearly doubled from 5 percent in 1970 to 9.5 percent in 2001. There is also a considerable security risk in the design of the grid with centralized generation plants serving distant loads over long transmission lines. A smart grid would consist of a network with distributed sources of electricity generation from many different types of sources. It would optimize asset utilization and operating efficiency. It would anticipate and respond to system disturbances in a self-healing manner. It would be resilient against physical and cyber attacks and natural disasters.
In summary, the importance of infrastructure development for the long term healing and soundness of the economy cannot be underestimated. The creation of an infrastructure bank as Obama has suggested would be a cost effective way to ward off a recession, leverage government money with private investment and put the US on a sound competitive footing vis a vis other countries of the world. The provisions of the fiscal cliff provide for many good things, among them deficit reduction, raising taxes disproportionally on the rich and reduction of the Defense budget. It might also reduce economic activity leading to a recession unless another way can be found to stoke the economy and employ laid off defense workers. Many of them would welcome the opportunity of switching over to a job in the infrastructure-industrial complex.
Any deal Obama makes, whether before or after the fiscal cliff dive, should provide for infrastructure development, something that is sorely needed in the US both in terms of security from physical and cyber attack and from attacks from Mother Nature which are gearing up in ferocity. Obama may have only one chance to make any kind of grand bargain since the Republicans in Congress will probably be as intransigent and obstructive as they have shown themselves to be for the last four years. He better get it all done in one fell swoop.
Published on Thursday, November 22, 2012 by Common Dreams
An incredible opportunity is coming for America, starting in just a few weeks. The Bush tax cuts will expire. Pentagon spending will be slashed – although still hugely larger than it was just a decade ago. And, to make conservatives smile, funding for programs that keep poor and unemployed people alive and healthy will be cut.
This is an opportunity for several reasons.
First, when the Bush tax cuts expire, everybody’s taxes will go up, particularly taxes on the rich and the very rich. Which means that if Democrats propose cutting taxes on working class people while ignoring the new rates for the rich, Republicans can sign on and vote for the legislation without violating their blood oath to multimillionaire K-Street lobbyist Grover Norquist. While it goes nowhere as far as it should – which would be to roll back the Reagan tax cuts – it’s a start on moving America in a more egalitarian direction.
Second, most of the cuts to the Pentagon budget are good things. The Pentagon has lost over $2 trillion that they can’t account for – it’s a good guess that you’ll find a lot of it in the 20-bedroom mansions owned by defense contractors and lobbyists that ring Washington DC – and this nation needs a healthy and robust debate on our role as empire. As President Obama said during the campaign, it’s time to do some nation-building right here at home.
And, third, by breaking out the social spending cuts and requiring Republicans – particularly in the House of Representatives – to go on record on their position to them, the American people will get to see Paul Ryan’s and Mitt Romney’s “47 percent are moochers” philosophy played out writ large. Americans will see, in a way that’s absolutely irrefutable, that the Republican Party is only out for the interests of the top one percent and doesn’t give a rat’s ass about working people or the poor. That could also set the stage for a Democratic victory in the House of Representatives in two years.
To make the most of this opportunity, Democrats need to have legislation in place now, this week or next, that addresses these three issues. It should be three separate bills, in fact, that will break out each of these issues. The first cuts taxes on middle and lower income people, while leaving rich people’s taxes the same as they were during the Clinton years. The second ratifies cuts to the Pentagon budget, but in a way that’s rational and reflects the reality that our biggest current and future threats are not nuclear war but cyberwar, not so much nation states as non-state actors angry that our drones killed their families. The legislation should, incidentally, put some serious limits on presidential power to be judge, jury, and executioner via drone strikes – particularly when the target is an American citizen.
If the Democrats put this legislation on the table now – with the promise of a vote on it the week after the New Year – it’ll sooth the fears of those who believe in the uncertainty fairy. And, if it’s decent legislation, it’ll give progressives a rallying point to pressure their members of Congress.
While I’d much rather see a rollback of the incredibly destructive Reagan tax cuts, this, at least, would be a start. It would calm the hysteria, provide a basis for moving forward, and put the lie to the stupid Republican theory that it’s good for our economy when the rich get richer and the poor get poorer. Combine it with some reasonable trade policies like those advanced by Senators Sherrod Brown and Bernie Sanders, and we might even see a return to the Eisenhower and Clinton prosperities.
It’s time to drive off the so-called “fiscal cliff.” Once done, Americans will realize it was just a speed-bump, and nothing like the Thelma and Louise fears being hyped by so-called deficit hawks.
There are lots of good reasons to avoid letting the U.S. fall over the looming fiscal cliff, some $800 billion in annual spending cuts and tax increases scheduled to start Jan. 1 unless Congress and President Obama reach a deal. The U.S. could slip back into recession, credit-rating agencies might downgrade the U.S. for political dysfunction, and the military and a host of government programs and agencies would face pretty drastic cuts — the threat of pain was the point of the "sequestration," after all. But "some people, left, center, and right, believe careening over the cliff would be an affirmative good, a willful act of liberation, a step that is necessary to rationalize our tax code," says Daniel Gross at The Daily Beast. "I've dubbed these folks the Thelma & Louise Caucus. And I count myself a member." Here, five serious reasons people are actually rooting for us to drive over the cliff:
1. The Bush tax cuts are wrongly skewed toward Wall Street
"I'm not eager to see all the tax cuts expire" — like Obama, and a majority of Americans, I want taxes to stay lower for all but the wealthiest taxpayers, says Gross at The Daily Beast. "But I think the cliff does offer a rare opportunity to correct a historical error." The Bush-era tax cuts set to expire "introduced all sorts of harmful wrinkles and distortions into the tax code, in ways that privilege passivity over labor." There's no reason capital gains and hedge-fund fees should be taxed at half the rate of the "wages for hardworking professionals." But the people who benefit from those breaks have a loud, powerful voice in Washington. Once we go over the cliff, they'll have to use it to justify their special treatment. "Good luck to them."
2. Republicans can force Democrats to reform the tax code
So far, "the only ones in Washington who advocate fiscal cliff-diving are liberal Democrats," says Marc Theissen at The Washington Post. "It's time for conservatives to join them." It's not only lower tax rates on the wealthy that expire, after all — "so do a lot of tax policies the Democrats support," like higher child tax credits and lower payroll taxes. Letting those taxes lapse, too, "may be the only way Republicans can force President Obama and Senate Democrats to agree to fundamental tax reform," which is what the GOP wants. Besides, going over the cliff "would save Republicans from having to break their pledge not to raise taxes," and thus save the GOP brand. After all, "raising taxes and losing a fight to stop automatic tax increases are two different things."
3. The spending cuts, while crude, are good policy
Oddly, the man who convinces Republicans to take those no-tax-hikes pledges, activist Grover Norquist, seems untroubled by the looming cliff, too. After all, along with the tax increases come big drops in federal spending. "I'm for the spending cuts," Norquist tells The Daily Beast. "Just let them take effect. My first preference, like most Republicans in the House, is the Ryan budget," which "lowers the tax rate, saves the same amount of money, and doesn't hit the defense budget as hard." But if Democrats insist on raising taxes on the rich — he doesn't think they will — at least government will still shrink. "The only thing worse than the sequester would be not reducing spending."
4. Letting all taxes revert to 1990s levels will fix the deficit
"The long-term goal of our fiscal policy should be to reduce deficits," says Jonathan Cohn at The New Republic. Well, "that's not possible without raising taxes, and the place to start is on high incomes." The wealthiest earners can afford Clinton-era rates, and upping their tax rates "would not harm the economy, according to the best evidence out there." But it also wouldn't be enough to solve our fiscal problems. The best way to make up the gap would be a federal carbon or consumption tax, "but since neither option seems to be viable right now, the next best thing might be to let all of the Bush tax cuts expire, so that everybody — not just the wealthy — go back to paying what they did during the Clinton era."
5. Foolish panic is a great investing opportunity
Let's be honest: For all the scaremongering out there, "nothing bad is likely to happen at the beginning of January," says Jonathan Chait at New York. The cuts and tax hikes take place over a year, and they can be fixed retroactively. "What will change on Jan. 1 is bargaining leverage" — Democrats get much more — and that explains why Republicans "are desperately trying to convince America that this would lead to terrifying outcomes." The most plausible downside of going over the cliff is that financial markets could panic. "It's possible! Markets are dumb." But that only means when a deal is reached, we get a rally. Right, a fix to this phony crisis is inevitable, but "if the market wants to panic," we'll gladly jump in, says Scott Phillips in Australia's BusinessDay. "When investors come back to their senses, either before or after the deal is done, we'll be glad we did."
by Robert Reich
I hope the President starts negotiations over a “grand bargain” for deficit reduction by aiming high. After all, he won the election. And if the past four years has proven anything it’s that the White House should not begin with a compromise.
Assuming the goal is $4 trillion of deficit reduction over the next decade (that’s the consensus of the Simpson-Bowles commission, the Congressional Budget Office, and most independent analysts), here’s what the President should propose:
First, raise taxes on the rich – and by more than the highest marginal rate under Bill Clinton or even a 30 percent (so-called Buffett Rule) minimum rate on millionaires. Remember: America’s top earners are now wealthier than they’ve ever been, and they’re taking home a larger share of total income and wealth than top earners have received in over 80 years.
Why not go back sixty years when Americans earning over $1 million in today’s dollars paid 55.2 percent of it in income taxes, after taking all deductions and credits? If they were taxed at that rate now, they’d pay at least $80 billion more annually — which would reduce the budget deficit by about $1 trillion over the next decade. That’s a quarter of the $4 trillion in deficit reduction right there.
A 2% surtax on the wealth of the richest one-half of 1 percent would bring in another $750 billion over the decade. A one-half of 1 percent tax on financial transactions would bring in an additional $250 billion.
Add this up and we get $2 trillion over ten years — half of the deficit-reduction goal.
Raise the capital gains rate to match the rate on ordinary income and cap the mortgage interest deduction at $12,000 a year, and that’s another $1 trillion over ten years. So now we’re up to $3 trillion in additional revenue.
Eliminate special tax preferences for oil and gas, price supports for big agriculture, tax breaks and research subsidies for Big Pharma, unnecessary weapons systems for military contractors, and indirect subsidies to the biggest banks on Wall Street, and we’re nearly there.
End the Bush tax cuts on incomes between $250,000 and $1 million, and — bingo — we made it: $4 trillion over 10 years.
And we haven’t had to raise taxes on America’s beleaguered middle class, cut Social Security or Medicare and Medicaid, reduce spending on education or infrastructure, or cut programs for the poor.
Mr. President, I’d recommend this as your opening bid. With enough luck and pluck, maybe even your closing bid. And if enough Americans are behind you, it could even be the final deal.
by Ruth Conniff
from the Progressive, November 16, 2012
After all, he was among the very first economists to warn about the housing bubble in back 2002--way before the bubble popped in 2005.
In his many books, including, “The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, and “Social Security: The Phony Crisis,” as well as numerous magazine articles and blogs, Baker offers a bracing alternative to conservative economic orthodoxy.
On the eve of President Obama’s first meeting with members of Congress to negotiate how to avoid veering off the “fiscal cliff,” Baker told The Progressive that the best outcome would probably be no deal at all.
"Obama is on very solid footing," says Baker, the co-director of the Center for Economic and Policy Research in Washington, DC.
"The do-nothing outcome is the one he campaigned on."
On January 1, if there is no deal with Congress, "It will raise taxes on the richest 2 percent, which is what he wanted," Baker points out.
And while taxes will also go up on the middle class, Obama can wait until after the deadline to fix that problem:
"At the end of the year, he’s in a position where he can tell Congress that he wants to cut taxes on 98 percent of the public. My guess is it would be hard for Republicans to resist that."
The Republicans will be in a jam, as Baker sees it, if, having gone off the cliff, they are faced with a President who proposes to lower taxes on the middle class, and they refuse to do so--even as the economy is slowing.
The Republicans don't want to say no to a broad tax cut, and "they don’t want to be perceived as people who would deliberately the send economy into recession in order to prove a point--especially if that point is lower taxes on the rich."
So is the best outcome of the fiscal cliff deliberations really no outcome at all?
"Absolutely," says Baker.
"If you have a deal before the end of the year, it's likely to be on much more favorable terms to the Republicans."
"My only qualification is that, if the Republicans become convinced that Obama is serious, it becomes more likely they’ll actually strike a deal beforehand."
The key to that, Baker says, is Obama's willingness to stick to the real possibility of getting no deal at all.
"If they look ahead and see that they don’t gain anything by waiting--that they'll just look really foolish, if President Obama can convince them he’s not moving on this—then at that point, you may well get a deal."
So what can we hope for in a possible deal?
The key elements to look for, says Baker, include:
Extending the tax cuts for the bottom 98 percent
Something like an extension of the payroll tax cut to boost demand
A continued extension of unemployment insurance. The current extension from 26 weeks to 97 weeks expires in January. So a renewed extension--if not to 97 weeks than to 72 or some number significantly higher than 26 weeks.
Finally, on spending cuts--"one major criterion is whatever they take out of domestic discretionary spending, that they take at least as much out of the military," says Baker.
Clearly, budget cuts of the size now on the table--maybe $55 billion or so--will have a recessionary impact, slowing growth and increasing unemployment. "And there is no way you can make lop off $55 billion and not think you’re gonna be damaging some programs that are actually servicing people."
But at least on discretionary spending for programs like low-income housing, Congress reconsiders funding every year--full funding is not gone forever.
Entitlements--Social Security and Medicare and Medicaid, are a different story.
Once those programs are restructured with new cuts, there is no reason to think Congress will ever reconsider.
On Social Security, the possibility that cuts are on the table is particularly unacceptable, says Baker, since the program is fully funded through a separate pool of money, and has no impact on the deficit.
"There is really no reason to bring up Social Security in this context," he says. "It's off-budget, it's still running a surplus, and it has as separate designated source of funding."
While Social Security faces a projected shortfall 20 years from now, there is no reason why the program should be part of the current negotiations.
On Medicare and Medicaid, Baker has been pointing out in blog posts lately that the Congressional Budget Office's projections of exploding health-care costs, which are a major contributor to the projected deficit and a large reason for the rationale for cuts to these programs, are not showing up.
"We haven’t seen it," says Baker.
Instead, "health care costs have stalled sharply—growing at slower rate than projected for last 3 to 5 years."
"Already our health-care costs are more than twice per person the costs of other nation." For the projections to be accurate, "that gap would have to rise 3-to-1 or 4-to-1--Would we really spend 3 to 4 times as much as Germany and Canada and France? It's implausible," he says.
Part of the reason for the slowing of health-care costs is the economic downturn—as people on tight budgets avoid seeing the doctor, or put off elective procedures.
Prescription drugs costs have also been rising more slowly for the last 7 or 8 years, Baker adds.
So all in all projections of the deficit are overstated.
And then there are the dire effects of possible cuts to Medicare and Medicaid:
Medicaid, Baker points out, is largely run by the states and "many are already willfully deficient in serving their population."
"The quality of care in terms of what you get and who’s covered is much worse in Southern states. A lot of people aren’t getting decent care now." That would only get worse with more cuts.
On Medicare: raising the age of eligibility from 65 to 67 as has been discussed is "especially pernicious," Baker says, since "People are already struggling to make it to 65 without help."
But the worst thing, from an economic viewpoint, is the waste involved in throwing people currently eligible for Medicare on the mercy of the private market.
"Medicare provides care more efficiently than the private sector, so you would make people throw money in the garbage," Baker points out.
"That's just about the worst possible way to do it if you want to save money to provide care."
With so much at stake, people should resist the fiscal-cliff hype, says Baker, and the implication "there’s some great importance to getting a deal by January 1."
The higher taxes that would temporarily go into effect in January would not have any immediate effect on people, he says.
"If there’s no deal by the end of the month, then more people will have more money taken out of their paychecks," he says. "But if people know that any money taken out will be refunded in their next check, the impact on consumption will be zilch."
The other thing to keep in mind, he says, is that the President has a lot of control over the timing of spending.
"So for example, if you are talking about Defense—you may appropriate money for a bomber in 2012 that doesn’t start construction until 2015 or 2016."
Again, the effects are not immediate.
Finally, "People are trying to hype this as a big deal because of the impact on markets," says Baker. "Suddenly they're all experts on market psychology—but they are just making this up—they don’t have any basis for saying it will happen," he says.
Most of all, the bipartisan consensus that entitlement spending is out of control, that something needs to be done right away or Social Security and Medicare will go bankrupt, is "really discouraging," Baker says.
"It's very clear that the reason we have large deficits is that the economy collapsed," he says.
All the talk about entitlements is a political attack on the safety net--and it predates the current economic downturn.
Over the last several years, apart from the downturn, "we certainly weren't running unsustainable deficits," Baker argues.
The reason we are where we are today is that "the economy fell out, that led tax collections to plummet, and we're spending more on unemployment. Then there was the deliberate stimulus, and temporary tax cuts like payroll tax cut."
In other reasons, we have a deficit because of economic collapse--"it wasn't an issue of profligate spending."
"That has been hugely misrepresented by both sides."
As for what the majority who rejected the Republicans' vision of austerity can do now.
Let your representatives in Congress know you care about these programs—Social Security and Medicare, suggests Baker, and that you think "it's reasonable for the wealthy to pay the same taxes as under President Clinton."
On the Democratic side, at least, most members who were recently re-elected to Congress "did run on raising taxes on wealthy," he points out. "They didn't run on cutting Social Security and Medicare—it seems a little less than honest to come in right after the election and cut Social Security and Medicare a week later, and some of them are willing to do it."
by Robert Kuttner
from Huffington Post, 11/12/2012
President Obama gave a pretty good speech on Friday about the economy and the budget. In his most quoted line, the president said, "I am not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me, making over $250,000, aren't asked to pay a dime more in taxes."
So far, so good -- Obama is not willing to accept the Republican demand that all of the deficit cutting come out of spending. And House Speaker John Boehner appeared to give ground, conceding that some "revenue" increase would be necessary, though Boehner still deludes himself in thinking, as Mitt Romney did, that this can somehow be done by "closing loopholes." (The Congressional Budget Office has shot down that balloon. There aren't enough loopholes.)
Obama, evidently, is willing to play hardball to compel the Republicans to allow tax rates on the top two percent to revert to something like the Clinton era top rate of 39.5 percent but spare the bottom 98 percent any tax increases. As Obama put it, "On Tuesday night, we found out that the majority of Americans agree with my approach."
But that was about the only good thing in Obama's speech, or his posture towards the Republicans and the budget. Obama still believes that the economy needs budget cuts of $4 trillion over the next decade.
It doesn't. If anything, it needs spending increases.
We need more public spending both because the private economy is weak and because Hurricane Sandy just revealed the need for hundreds of billions of more outlay to protect our coastal communities from ocean waters that will continue rising. We will need hundreds of billions beyond that invested in renewable energy to keep global climate change from worsening.
But if Obama and the Republicans strike a deal to cut the budget by $4 trillion over a decade, there will not be a penny available for new infrastructure spending. And budget cuts of that magnitude will slow down the recovery.
We have heard a great deal about a "fiscal cliff."
The cliff is partly made up of mandatory budget cuts that take effect in January dictated by the House Republicans back in 2011 as their price for extending the debt ceiling. In addition, the cliff includes automatic tax increases scheduled to kick in as the Bush tax cuts sunset, as well as hikes in payroll taxes that take effect as the temporary two percentage point reduction expires.
All of these automatic budget cuts add up to $560 billion in the next fiscal year. According to the Congressional Budget Office, cuts of that magnitude in a still-fragile recovery would push the economy back into recession. Everyone seems to agree that this cliff is to be avoided.
But the president's own proposed budget cuts of $4 trillion over ten years average out to $400 billion a year. In other words, the Obama Cliff is almost as large as the fiscal cliff that everyone dreads. Whatever the precise mix of tax increases and spending cuts, $4 trillion is too big a cliff.
And while Obama's supposed new toughness on tax policy has gotten most of the attention, he seems poised to give away the store on spending cuts. Recently, Bob Woodward was given a leaked copy of the Administration's offer in the proposed budget deal of 2011 that fell apart because House Speaker John Boehner was unable to deliver his Republican caucus to support any revenue increases.
In that aborted deal, Obama was prepared to cut Social Security and increase the Medicare eligibility age. White House leaks have suggested that both items will be on the table this time. That's bad policy, and worse politics. The clearest principled differences that distinguish Democrats from Republicans is that Democrats are staunch defenders of Social Security and Medicare, while Republicans are eager to cut, privatize, and voucherize.
So the good news is that the Democrats won the election and President Obama's spine has been stiffened on the subject of taxes. The bad news is that the skids are greased for a budget deal that cuts more than necessary, risks putting the economy back into recession, and blurs differences between the parties on critical issues like Social Security and Medicare.
If Obama will just realize it, he holds most of the cards. He prevailed in the election. Most voters agree that the rich should pay higher taxes. Most don't want cuts in Medicare and Social Security.
Tactically, if he just waits and lets the automatic tax increases take effect, public pressure will mount on the Republicans to agree to tax hikes for the wealthiest so that the bottom 98 percent can get tax relief. If Obama just lets the automatic "sequester" take effect, there will be $600 billion in military cuts, and pressure will mount on the Republicans not to allow the cuts to start biting.
The stock market has been swooning since the election for fear that Republicans and Democrats will not agree to a deal in time. Well, let it. Obama should wait for Republicans to come to him.
But by all appearances, the eager-beaver bipartisan Obama that we saw in early 2009, (until he got his clock cleaned) is back. Despite his recent victory, if he is too eager to make a deal, he --and we -- will get rolled.
Last time, Boehner's Republicans saved Obama from himself. This time, it will be up to his fellow Democrats.
Robert Kuttner is co-editor of The American Prospect and a Senior Fellow at Demos. His latest book is A Presidency in Peril.
The looming so-called crisis facing the US after the reelection of Barack Obama is the fiscal cliff. It has been hyped as something that will bring wrack and ruin to the US economy unless something is done soon to prevent it from happening. However, in my opinion and that of others, if nothing was done and the provisions already agreed upon went into effect on January 1, 2013, it might actually turn out to be the best thing for the US in the long run, mainly because the military-industrial complex would take a hit while there would be no consequences for Social Security, Medicare and Veteran benefits. And it is not exactly what I'd call a big hit for defense. In 2011 the defense budget was $712 billion - larger than the rest of the world's military budgets combined. The 'fiscal cliff' would just mean that the military budget would be $55 billion (or 8%) less in 2013 so what's the big deal especially with two wars coming to an end? Where's the peace dividend in all this? Evidently, nowhere if defense contractors have anything to say about it. The fiscal cliff also provides that defense and non-defense discretionary spending increases from 2013-2021 would be about 1.5% annually, a good thing I'd say.
The other great things about letting the fiscal cliff just happen is that it would represent a relatively big tax increase on the rich and lowering of the deficit - two of Obama's campaign pledges. So Obama could reduce the deficit and raise taxes on the rich just by doing nothing - no negotiations with obstructionist Republicans, no time wasted with John Boehner, no excuses for selling out to his base. It would be a glorious exercise of Presidential power and then he could get on with other business.
Here's the deal on the tax increases. Taxes would go back to what they were under Clinton. Since the Bush tax cuts gave paltry reductions to the middle class and huge reductions to the rich, repealing the Bush tax cuts would mean a paltry increase for the middle class and a huge increase for the rich. That's why Boehner wants to "reform the tax code and eliminate loopholes." This is code for "let's increase taxes in such a way that the middle class not the rich takes most of the brunt." The problem with lowering tax rates and eliminating loopholes is that the lowered rates will remain permanent, a big boon to the wealthy, while eliminating loopholes will be temporary because lobbyists for the rich will go right to work drilling new loopholes as they did after the "tax reform" in the 1980s. Except the middle class loopholes like the mortgage deduction would remain permanent.
In an op-ed in the New York Times, Nobel winning economist Paul Krugman said, "So what should [Obama] do? Just say no, and go over the cliff if necessary." First of all, as others have pointed out, it's more like a hill than a cliff. Second, the advantages outweigh the disadvantages especially if Obama would have to negotiate away the very positive results of doing nothing: 1) a transfer of funds away from the military-industrial complex, (2) going a long way to solve the deficit problem and getting our fiscal house in order, (3) raising taxes on the rich relatively more than on the middle class and (4) reversing the growing economic inequality between the rich and everybody else.
Republicans are using the scare tactic of threatening that letting the fiscal cliff happen will return the economy to recession. The so-called fiscal cliff is actually a good deal for most Americans except for the very wealthy and the military-industrial complex. The outcome of negotiations to forestall the fiscal cliff could actually turn out to be a worse deal for the middle class if Obama isn't careful. He has the stronger bargaining position politically because he doesn't have to run for reelection and the fiscal cliff itself actually mostly favors Democratic principles. But count on the Republicans not to be in a conciliatory mood. Boehner has already indicated that his idea of resolving the fiscal cliff crisis is to not raise taxes on the rich. First of all, their logic is flawed. A tax increase on a successful business is not going to cause layoffs in that business if demand for product is steady or increasing. Second, the employed middle class is going to continue to consume (70% of GDP is consumption) albeit at a slightly lesser rate (a good thing as we discuss later). The concern should be with the already unemployed and marginally employed and the economically vulnerable, but the so-called fiscal cliff doesn't affect them one way or the other. Tax increases on the already employed will be of no major economic consequence or hardship. The biggest threat is that the economy will go into recession because Lockheed Martin will lose a lot of jobs. But so what? If the size of the military-industrial complex is ever to be reduced, it means loss of jobs in the military-industrial complex. It's as simple as that.
There is no political downside for President Obama. He doesn't have to stand for election again. Even if the economy goes into recession temporarily, it will all but be forgotten four years from now especially if the deficit has been reduced and the rich are finally paying their fair share. If there's to be any pain let it happen at the start of a term, not the end. Letting the fiscal cliff happen will accomplish several of President Obama's objectives without him even having to break a sweat. Then he can get on with further accomplishments to add to his legacy. He will be on a roll. He has nothing to lose and everything to gain without negotiating with Boehner and the Republicans. To the extent he negotiates at all, it should be to accomplish his remaining objectives: a huge infrastructure bill to put displaced defense workers and others back to work in the peace industry rather than the war industry and extended unemployment insurance (something taken away by the fiscal cliff).
Letting the fiscal cliff happen will finally do something about growing inequality in the US.
The latest data show the top 1 percent garnering 93 percent of all the gains from the recovery so far. But median family income is 8 percent lower than it was in 2000, adjusted for inflation. The richest 400 Americans now have more wealth than the bottom 150 million of us put together. Political equality is being sacrificed to economic inequality.
In an excellent book, "Winner-Take-All Politics, How Washington Made the Rich Richer and Turned Its Back on the Middle Class" Hacker and Pierson demonstrate that the average after tax income of the richest 1% rose from $337,100 in 1979 to more than $1.2 million in 2006 - an increase of nearly 260%. Meanwhile, average take home pay for the majority of Americans has remained stagnant for 30 years. And this wasn't due to the fact that the super rich are better educated than the rest of us. It's due to the fact that they and their lobbyists have curried favor with Washington politicians and turned the levers of political power to favor their increased economic power largely through an advantageous tax code. It's more crony capitalism than laissez-faire capitalism.
The conventional wisdom is that we can't tolerate another recession. The truth is that we're not only addicted to debt, we're addicted to consumption. We're addicted to the fact that growing GDP is the answer to all our problems.
It isn't. Since consumption in the US represents 70% of GDP, if people stopped consuming at the present rate, it would mean a diminution in GDP possibly even a recession, but at the same time the American people might be better off. Here's an example. A significant part of GDP is made up by sales at fast food and pizza restaurants. If people cut their consumption of these foods by 50% the economy might go into recession, but the American people would be far healthier. Health care (really it's sickness care) is 17% of the economy. If Americans cut their consumption of unhealthy foods and started exercising, sickness care costs might be reduced to 8% of GDP. This would put the US economy into recession while at the same time the average American would be better off. If Americans stopped going to casinos and gambling, they would be individually better off while GDP would decrease as would the profits of billionaire casino moguls Sheldon Adelson and Donald Trump who tried to buy the Presidential election for Mitt Romney.
There are all sorts of reasons why reducing GDP, even if it meant a recession, might also mean that the American people would be better off. For instance, if I pay you $50. to mow my lawn, and you pay me $50, to mow your lawn, GDP has increased by $100. If we both mow our own lawns, GDP does not increase at all. In general if people do more for themselves and their families rather than paying someone or some corporation for equivalent goods and services, GDP will decrease. The average person, however, will be better off if they save their money and pay down their debts rather than increasing or maintaining their consumption levels. If we go from a cash economy to a do-it-yourself economy we will be better off even if GDP and corporate profits decrease. When we participate in the cash economy most of the profits go to large corporations and are siphoned off from local communities.
Unfortunately, the US economy is addicted to GDP growth as well as debt. Changing priorities and buying habits could result in consumption coming down from 70% of GDP to say, perhaps 60%. Would this throw the economy into technical recession? You bet it would. Would it be better for American families. You bet it would. They would be better off if they readjusted their priorities and became less dependent on consumption and more inclined to produce locally for their own needs instead of purchasing everything at Wal-Mart. However, corporate profits and Wall Street would suffer. Too bad.
Let's give Paul Krugman the last words of wisdom:"And the looming combination of tax increases and spending cuts looks easily large enough to push America back into recession.
"Nobody wants to see that happen. Yet it may happen all the same, and Mr. Obama has to be willing to let it happen if necessary.
"Why? Because Republicans are trying, for the third time since he took office, to use economic blackmail to achieve a goal they lack the votes to achieve through the normal legislative process. In particular, they want to extend the Bush tax cuts for the wealthy, even though the nation can’t afford to make those tax cuts permanent and the public believes that taxes on the rich should go up — and they’re threatening to block any deal on anything else unless they get their way. So they are, in effect, threatening to tank the economy unless their demands are met.
"Mr. Obama essentially surrendered in the face of similar tactics at the end of 2010, extending low taxes on the rich for two more years. He made significant concessions again in 2011, when Republicans threatened to create financial chaos by refusing to raise the debt ceiling. And the current potential crisis is the legacy of those past concessions.
"Well, this has to stop — unless we want hostage-taking, the threat of making the nation ungovernable, to become a standard part of our political process."
By PAUL KRUGMAN
Published: November 8, 2012 in the New York Times
To say the obvious: Democrats won an amazing victory. Not only did they hold the White House despite a still-troubled economy, in a year when their Senate majority was supposed to be doomed, they actually added seats.
Nor was that all: They scored major gains in the states. Most notably, California — long a poster child for the political dysfunction that comes when nothing can get done without a legislative supermajority — not only voted for much-needed tax increases, but elected, you guessed it, a Democratic supermajority.
But one goal eluded the victors. Even though preliminary estimates suggest that Democrats received somewhat more votes than Republicans in Congressional elections, the G.O.P. retains solid control of the House thanks to extreme gerrymandering by courts and Republican-controlled state governments. And Representative John Boehner, the speaker of the House, wasted no time in declaring that his party remains as intransigent as ever, utterly opposed to any rise in tax rates even as it whines about the size of the deficit.
So President Obama has to make a decision, almost immediately, about how to deal with continuing Republican obstruction. How far should he go in accommodating the G.O.P.’s demands?
My answer is, not far at all. Mr. Obama should hang tough, declaring himself willing, if necessary, to hold his ground even at the cost of letting his opponents inflict damage on a still-shaky economy. And this is definitely no time to negotiate a “grand bargain” on the budget that snatches defeat from the jaws of victory.
In saying this, I don’t mean to minimize the very real economic dangers posed by the so-called fiscal cliff that is looming at the end of this year if the two parties can’t reach a deal. Both the Bush-era tax cuts and the Obama administration’s payroll tax cut are set to expire, even as automatic spending cuts in defense and elsewhere kick in thanks to the deal struck after the 2011 confrontation over the debt ceiling. And the looming combination of tax increases and spending cuts looks easily large enough to push America back into recession.
Nobody wants to see that happen. Yet it may happen all the same, and Mr. Obama has to be willing to let it happen if necessary.
Why? Because Republicans are trying, for the third time since he took office, to use economic blackmail to achieve a goal they lack the votes to achieve through the normal legislative process. In particular, they want to extend the Bush tax cuts for the wealthy, even though the nation can’t afford to make those tax cuts permanent and the public believes that taxes on the rich should go up — and they’re threatening to block any deal on anything else unless they get their way. So they are, in effect, threatening to tank the economy unless their demands are met.
Mr. Obama essentially surrendered in the face of similar tactics at the end of 2010, extending low taxes on the rich for two more years. He made significant concessions again in 2011, when Republicans threatened to create financial chaos by refusing to raise the debt ceiling. And the current potential crisis is the legacy of those past concessions.
Well, this has to stop — unless we want hostage-taking, the threat of making the nation ungovernable, to become a standard part of our political process.
So what should he do? Just say no, and go over the cliff if necessary.
It’s worth pointing out that the fiscal cliff isn’t really a cliff. It’s not like the debt-ceiling confrontation, where terrible things might well have happened right away if the deadline had been missed. This time, nothing very bad will happen to the economy if agreement isn’t reached until a few weeks or even a few months into 2013. So there’s time to bargain.
More important, however, is the point that a stalemate would hurt Republican backers, corporate donors in particular, every bit as much as it hurt the rest of the country. As the risk of severe economic damage grew, Republicans would face intense pressure to cut a deal after all.
Meanwhile, the president is in a far stronger position than in previous confrontations. I don’t place much stock in talk of “mandates,” but Mr. Obama did win re-election with a populist campaign, so he can plausibly claim that Republicans are defying the will of the American people. And he just won his big election and is, therefore, far better placed than before to weather any political blowback from economic troubles — especially when it would be so obvious that these troubles were being deliberately inflicted by the G.O.P. in a last-ditch attempt to defend the privileges of the 1 percent.
Most of all, standing up to hostage-taking is the right thing to do for the health of America’s political system.
So stand your ground, Mr. President, and don’t give in to threats. No deal is better than a bad deal.
by Frank Thomas
Our political system is so immersed in a sea of lies and distortions, not helped by a professionally uncritical, fact misinformed media that too often plays the snappy, surface, hype-searching analysis and interview game, ‘What do you think? And now what do you say to that?’
There are so many areas of factual and biased distortion of the issues, it’s hard to know where to begin. First, as Clinton rightly stated, the central issue facing us today is, “What is The Role of Government?” Republicans as supply-siders favor an inactive government, tax cuts (lavishly for high income groups) overly decreased government spending, no unions, privatization of social nets like Medicare, minimum regulations of financial sectors under a small government … all to spur dynamic economic growth. The Democrats favor an active government, basic social nets to protect vulnerable people in bad times and volatile markets, government spurring of infrastructure development, quality public health care and education, R&D, progressive taxes and closing tax loopholes … all to support middle class progress, a fair playing field, and to contain, if not reverse, our burgeoning, destabilizing income inequality gap.
Let’s review some facts/myths in three federal government areas under different presidencies: federal revenues and spending, federal debt, and job creation. Tables 1-3 confirm numerous recent studies showing persistent US poverty, falling middle class wages, rising inequality, and NO correlation between the top tax rates and economic growth (see “Taxes and the Economy: An Economic Analysis of the Top 10 Tax Rates Since 1945” by the Congressional Research Service (CRS) and the recently released Economic Policy Institute “Review of US Economic Policy”).
I. Federal Revenues and Spending
We are programmed that Democrats are high government spenders, big tax and budget deficit ‘producers’ and Republicans are low government spenders, low tax and budget deficit ‘producers.’ TABLE 1 examines these “Myths” (Source: Office of Management & Budget):
TABLE 1: FEDERAL REVENUES, SPENDING, DEFICITS AS A % OF GDP (Average Year of Presidential Terms Starting With President Carter)
Revenues Spending Deficit(-)
Prior 30 Year Average 18.1% 19.6% -1.5%(1950-1980)
Carter: 1977-80 18.4% 20.8% -2.4%
Reagan: 1981-88 18.2% 22.4% -4.2%
Bush I: 1989-92 17.9% 21.9% -4.0%
Clinton: 1993-2000 19.0% 19.8% -0.8%
Bush II: 2001-08 17.6% 19.8% -2.2%
Obama: 2009-12 (a) 15.4% 24.4% -9.0%
(a) Obama inherited Bush II’s mini-depression with the following carryover Deficits:
Conclusions: One can hardly call Reagan and Bush I low spending and deficit producers during their presidential terms. Neither reduced the size of government as government spending was well above the 40-year average largely from an ‘explosion’ in defense spending (as generally happens under all Republican administrations). Despite aggressive tax cutting under a false “trickle down” theory, Reagan couldn’t stop the accelerating budget deficits hitting a high of 6.3% in 1983, 5% the next 3 years, falling to 3.1% by 1988 … largely due to several tax increases by Reagan to counter lost revenues from slashing the top rate from 78% to 28%. While Reagan reduced middle class income taxes, he sharply increased regressive payroll taxes. On the positive side, he also made it tougher to evade taxes and reduced many tax breaks and shelters. He realized his initial sharp tax decreases with exceptionally high defense spending were producing serious budget deficits and debt levels despite expanded job opportunities.
Clinton’s term showed that sound tax policy and moderate spending can go hand-in-hand to produce budget surpluses. Bush II learned nothing from Reagan’s mistakes and gyrated the top rate down while loosening financial regulations even further causing one of the most dangerous recessions since the Great Depression. Little wonder tax revenues dropped during his term of office, and declined further into Obama’s presidency as consumption plummeted well below 70% of GDP.
Then comes Obama’s massive drop in revenues and increase in spending. Now we are drowning in the political chicanery so corrupting our political system … where Republicans accuse Obama of huge deficits and debt levels arising in 2009, 2010, etc., which are mainly a carryover of the Bush Administration’s mini-depression. The same applies to the substantial national debt increase Obama inherited from Bush II’s mini-depression.
II. Federal Debt
The political right puts all the blame on Obama for our continuing high deficits and debt levels. My view is they could have been far worse without the $800 billion Obama stimulus and far less if the stimulus had been in the order of $1.2 - 1.5 trillion. Obama can be rightly blamed for not fighting all-out for more stimulus funds, for stoppage of foreclosures, and for not increasing the top income rate back to 39.5% - a very weak compromise he allowed himself to be blackmailed into to keep unemployment benefits going for the innocent victims of Bush II’s mini-depression. As all studies have proven, the tax revenue carryover loss of the Bush tax cuts and drug industry subsidies is in the order of magnitude of $2 trillion during Obama’s term.
Let’s put the historical debt trends into perspective as we have done very briefly for federal revenues, spending, and deficits under different presidents.
TABLE 2: GROSS PUBLIC DEBT ON A FISCAL BASIS IN $BILLIONS (At End of Budget Term In September)
End of Budget Term Increase
Term - Sept Amount %
Carter: 9/30/81 $998 -- --
Reagan: 9/30/89 $2,857 $1,859 186%
Bush I: 9/30/93 $4,411 $1,554 54%
Clinton: 9/30/2001 $5,804 $1,396 32%
Bush II: 9/30/09 $11,910 $6,106 105%
Obama: 9/30/12 $16,000 $4,090 34%
Obama: 9/30/13 est. $17,000 $5,090 43%Source: Treasury Direct, Office of Management & Budget
NOTE: Monthly statistics are quoted from January, as US presidents take office at the end of January and from September, as this is the last month of the federal fiscal year. In other words, the election in November will cause a president to take office at the end of January and begin the process of passing a federal budget which takes effect in the October following the election year. Calculating financial data and job growth in this way for each president is in fact more accurate.
Conclusions: When one properly allocates the carryover deficits and debt caused by Bush II’s policies over 8 years, then one comes to a more accurate picture of Obama’s so-called “bad management” of our nation’s finances. Don’t get me wrong. The numbers are AWFUL! But they are, relatively speaking, from a president faced with the worst structural financial crisis in 70 years, much LESS AWFUL than the debt/deficit results under Bush II’s administration. The spiraling of deficits and debt beginning in 2003 and splurging in big measure over into Obama’s term were a result of Bush tax cuts, drug firm subsidies, wars in Iraq/Afghanistan and the Great Recession.
Again, this is not to say that Obama has sufficiently and forcefully stood up to mitigate the mess he inherited from Bush II. He has given in far too easily to Republican blackmail that started the very first month of his presidency – when both Boehner and McConnell announced they would vote against all of his Administration’s key policy measures (including job stimulus) to ensure his defeat in 2012.
But, as Table 2 shows, the percentage debt increase over Obama’s one-term was even less than Bush I’s term where there was but one small, short war with Iraq’s Saddam Hussein. But, if elected to a 2nd term , Obama and the Democrats must come up with many more aggressive actions to keep the national debt from exploding further to the $20 trillion range by the end of his second term. This will definitely mean raising taxes on incomes – perhaps rate-stair-stepped progressively, for example, on income above $350,000, above $750,000, above $1,500,000, etc. Despite all of Romney’s blarney that a Defense budget of 5.5% is hardly adequate although it’s almost bankrupting us, Obama needs to get defense expenditures down to less than 4.0% of GDP (as Clinton did) over a 5 year span. This is still DOUBLE the approximate 2% of GDP expenditure rate of all other advanced countries.
Let’s now review the historical job creation trends also on a fiscal basis under various presidents as shown in Table 3.
TABLE 3: JOB CREATION ON A FISCAL BASIS – END OF BUDGET TERM SEPTEMBER
Jobs Created 1977 - 2012
Democratic Presidents 31,459,000 = 63% over 16 Years
Republican Presidents 18,097,000 = 37% over 20 years
Carter: 09/30/81 7,939,000
Reagan: 1st Term 09/30/85 6,552,000
2nd Term 09/30/89 10,303,000
Bush I: 09/30/93 3,032,000
Clinton: 1st Term 09/30/97 12,060,000
2nd Term 09/30/2001 8,106,000
Bush II: 1st Term 09/30/05 2,716,000
2nd Term 09/30/09 -4,506,000
Obama: 09/30/12 3,354,000
Source: BLS Data, Wikipedia
Conclusions: It’s seems that politicians, media, and some esteemed economists have missed the true dimensions of Obama’s turnaround of the enormous job destruction carried out under Bush II and inherited by Obama as more accurately shown on a fiscal basis in Table 3. Viewed this way: job creation went from a Positive 8.1 million under Clinton’s 2nd term to a NEGATIVE 4.5 million under Bush II’s 2nd term back to a Positive 3.3 million in Obama’s 1st term of 3 years to date on a fiscal basis. Going from a positive 20 million job gain in 8 years under Clinton to negative -1.8 million job loss in 8 years under Bush II – a net disastrous negative job loss reversal of over 22 million to a positive 3.3 million jobs creation in 3 years under Obama is a significant turnaround to say the least. NOT ENOUGH BY FAR, BUT HEADED IN THE RIGHT DIRECTION!
Let’s not forget that those officially unemployed peaked at an astronomical 15 million PLUS another 8 million underemployed as a result of the Great Recession under Bush II. During the long mini-depression created under Bush II’s watch, corporations have been taking advantage of the crisis to reduce permanently a large number of people through automation – adding more pain upon pain to the middle class while the Republican Congress has been thwarting Obama’s efforts at greater stimulus, leaving quantitative easing by the Federal Reserve as a last resort.
Given these huge comeback structural obstacles, Obama has got to step on the gas pedal for ever stronger job creation in the 200,000 a month range. Companies are not going to do it. Only government can provide the scale of job and demand push needed through infrastructure investments. Considering the enormity of the financial chaos and job loss situation Obama inherited – the worst in 70 years - Obama has not done badly but must continue to do better.
Facts don’t lie, people do. A fact many politicians and media pundits have amorally become comfortable with in a winner-take-all political system where “hype is life” and brain dead “one-liners” sway the faithful and undecided.
There’s another indoctrinated MYTH out there we struggle to deal with objectively in our broken social-economic system … namely:
In a recent Foreign Affairs publication, “America the Undertaxed” by Andrea Campbell, similar research also found little correlation across OECD countries between taxes as a percentage of the economy and the size of the economy itself, as measured by per capita GDP. Nor, according to this research, is there a high correlation between taxes as a percentage of GDP and the annual rate of economic growth. As Andrea Campbell says in her Foreign Affairs article:
“With the earnings of the top one percent mostly back to their pre-recession levels ( vs. persistent stagnation for the middle class), past experience suggests that a tax hike today would NOT severely damage the economy, and productivity might even rise with the security and investments that government spending can provide.
“In proposing a mix of options to regenerate the economy, from reducing spending to raising revenue, policymakers are confronting the reality of US fiscal policy: compared with its counterparts among the advanced nations, the US tax system collects little revenue, poorly redistributes that money across the population, and is mind-bogglingly complex.”
This is something the Romney types unabashedly and greedily exploit to the HILT! Reagan is no doubt shouting from his grave at the elite tax avoiders and tax loophole chasers costing our nation at least $200 billion in lost tax revenues yearly!
May I add a few other important facts relating to how the our nation manages corporate tax revenues?
It’s important to point out that US corporate tax revenues as a source of total federal taxes has plunged from 30% in the 1950s to 10% today as described by Andrea Campbell in Foreign Affairs and my writing some time ago, “Our Fiscal-Economic Quagmire: Some Solutions.”
Despite a seven percentage point higher gap between US top statutory corporate tax rate and the OECD average rate, the US EFFECTIVE corporate tax rate has trended around 13% vs. an OECD rate of 16%. Thus, US business effective tax rates are LOWER, NOT HIGHER than OECD average rates, contrary to what right wing conservatives often claim.
Why is this so?
Over the years, our US superbly complex tax code has evolved through persistent insider lobbying efforts with the result that statutory rates are applied to a much narrower base of taxpayers or taxpayer adjusted income base – both for individual and corporation incomes. This has been achieved by an intricate, multi-layered barrage of business tax credits, subsidies, and breaks – all of which are practically non-existent in the tax codes of the mature OECD countries.
So, the self-serving right wing political cry the Romneys and Ryans join in that US businesses are disadvantaged with much higher effective tax rates vs. their European business competitors is simply NOT TRUE. What is TRUE, however, is that total European taxes – federal, state, and local – are higher than those of the US as a % of GDP. For example, in 2006 before the financial-crisis startup and long recession, US total tax revenues were 28% of GDP vs. 35% for the OECD. This difference was and continues to be mainly due to Europe’s very stable flowing VAT consumption tax … a tax America doesn’t have. But, over the decades for the majority of the better performing and mature European countries, this total tax difference as a % of GDP has Not resulted in notably lower GDP growth rates vs. the US. Quite the opposite, higher total taxes and clever redistribution of same have resulted in a broad-based sharing in societal progress with relatively low income/wealth gaps between the top 10% and everyone else.
The mature OECD countries visibly and concretely see a larger share of their tax bill fairly redistributed across all regions and income classes in the form of:
This post Obama-Romney 1st debate Postscript addresses the falsehoods and non-sequiturs of the Romney/Ryan cut taxes and spending plan that they say will be Deficit Neutral – a Supply Side Economics cure-all to speed up GDP growth … a policy which caused federal debt under Reagan to increase 186% over 8 years.
Romney and Ryan’s 20% across the board tax cuts without increasing deficits raises an obvious question no one in the media or informed commentator world has raised or put in proper historical perspective.
Romney assumes that simplifying the tax code (good idea) and then implementing broad-based aggressive tax rate cuts involving trillions in annual federal tax losses will be offset by reducing tax deductions and loopholes he doesn’t identify. BUT, this is mathematically impossible without dramatic reductions in spending (except Defense) including social nets. This approach, says Romney and Ryan, insures a DEFICIT-NEUTRAL effect … in other words, the same amount of taxes will be paid on a FISCAL year basis.
The trillion dollar question is: HOW WILL THIS DEFICIT-NEUTRAL PLAN IMPROVE CONSUMER SPENDING, PRIVATE INVESTMENT and JOBS IF ABSOLUTE EFFECTIVE TAXES PAID REMAIN THE SAME ??
Romney is selling the same economic miracle Reagan/Bush II sold the public: across the board tax and spending cuts to increase jobs without gyrating deficits and debt, nor income/wealth gaps. Romney says under his plan the top 5% will still pay 60% of all income taxes as they do now … but he forgot to say 60% on a much higher total income under 20% lower marginal rates and ever lower rates on capital gains. Remember, the top 5% earn most of their income from capital gains and exploiting offshore tax havens and loopholes.
We are hearing the same Reagan supply-sider economic assumptions that large reductions across the board in marginal income tax and capital gains tax rates will stimulate more jobs by investments while lowering deficits and debt. Table 4 captures the TRUE Big Picture of what actually happened to tax revenues, spending, deficits, debt, job creation during Reagan’s presidency.
TABLE 4: 1981-89 FISCAL YEAR RESULTS DURING REAGAN’S TERM
DATA EXPRESSED AS A % OF GDP
1981-1989 Ave. 40 Year Ave.
Federal Revenues 18.2% 18.1%
Federal Spending 22.4% 20.6%
Deficit -4.2% -2.6%
Federal Debt (a) 53.1% 32.5% (Carter’s Term)
Federal Debt Increase (a) 186% = +$1.9 Trillion
(a) As of 9/30/1989
Average Annual Jobs Increases On A Fiscal Year Basis
Carter 2.0 Mil.
Reagan 2.1 Mil.
Bush I 0.4 Mil.
Clinton 2.5 Mil.
Bush II -0.2 Mil.
Obama 1.1 Mil. (10/30/2009—09/30/2012)
Sources: Office of Management & Budget, BLS
Reagan’s Supply Side Economic plan increased average annual job growth 2.5% or 2.1 million per year vs. 4% or 2.0 million per year under Carter. Reagan´s job growth was no better than Carter´s. GDP growth did improve to an average of 1.8% vs. 0.8% under Carter with high inflation. BUT, Reagan´s supply-side Trickle/Down tax-spending-cut panacea caused annual deficit and debt levels to MUSHROOM … despite his commendable efforts eliminating tax loopholes and tax avoidance and changing his mind to increase taxes 11 times to offset resulting big deficits! In fact, average yearly growth in federal tax revenues hardly grew as a % of GDP from levels that would have been realized WITHOUT the substantial net tax rate decreases.
Furthermore, unlike Reagan promised, spending INCREASED as a % of GDP, not helped by an explosion in Defense spending. Not surprisingly, INCOME and WEALTH GAPS began widening considerably between the top 10% and all other Americans.
So, just the OPPOSITE revenues, spending, deficits, debt results and income-wealth gaps happened from what Reagan promised – and what Romney and Ryan are now similarly promising with their extreme supply side economics of across the board tax rate cuts under the premise of being Deficit Neutral … an equitable income improvement for the middle class. These were exactly Reagan words when he said a just economic model is one where, “A rising tide lifts all boats.”
WHY DID ABOVE NOT HAPPEN?
Reagan’s income tax rate cuts grossly favored the rich who did not trickle down their expanded income/wealth to the middle class. His lowering of income tax rates for the bottom 50% was largely offset by higher regressive payroll taxes for lower income people. Tax revenue growth remained stagnant and the rate of spending did NOT decline.
His administration forgot, as Romney and Ryan are now conveniently forgetting, that the so-called Laffer Curve – or better said, Laugher Curve which is the foundation of conservative Supply Side Economics theory – even warns that tax rates too high or too small will NOT MAXIMIZE tax revenues and hence GDP growth. Reagan´s extreme tax-cut policies fell into this trap despite curtailment of tax avoidance schemes and later raising taxes 11 times. Spending grew at a much faster rate and revenues at a very slow rate … with resultant deficit/debt acceleration.
What happened under Reagan´s policies was rightly called VOODOO ECONOMICS by President Bush I. In fact, Reagan´s goal of lowering taxes to increase revenues was seen by many experts as really a “smokescreen” for starving the government of revenues, thus making it smaller.” Does this right wing goal sound familiar today? Government under Reagan as well as Bush I, Clinton, Bush II did NOT get smaller.
Reagan´s `Trickle Down´ idea that we can produce our way out of economic slowdowns by seriously cutting taxes and spending without exploding deficits and debt proved FALSE. California is on the constant edge of bankruptcy from extreme Supply Side Economic policies inherited from Reagan. Such a policy idea is only TRUE or possibly has merit in a HIGH TAX environment which the US does not have and in a WEAK TAX REDISTRIBUTION environment which the US does have. Lowering US taxes under these two conditions to the right level could indeed raise net tax revenues and cause improved economic growth. BUT today, the US already has very LOW EFFECTIVE corporate and individual marginal tax rates compared to most developed countries.
Compounding the false basis of the Romney/Ryan plan is a gross underestimation of the depth of the Bush mini-Depression hangover where companies are still engaged in balance sheet deleveraging, canceling/delaying investments, laying off/outsourcing workers all to increase cash; and consumers are still struggling to pay off debts and increase savings; banks building up profit reserves, management bonuses, and restraining lending.
This all means the Romney/Ryan (Reagan-like) plan of significantly reducing tax rates for personal income, capital gains, and corporate income will have a negligible effect on job growth, deficit and debt reduction even more so when incorporating idea of OFFSETTING resulting tax revenues losses in the trillions with comparable reductions tax deductions and loopholes.
What Romney/Ryan are in effect saying is that total absolute federal taxes will remain the SAME.
How does this benefit anyone? Will still unknown Giant cuts in discretionary spending and social nets do the job – e.g., privatize Medicare, repeal Affordable Health Care Act while getting rid of Dodd-Frank financial regulation legislation? How to do this without worsening a slow but steadily improving economic situation and without exacerbating deficits and debt as Reagan and particularly Bush II did on a perilously grand scale? How to do this without investing in infrastructure and education? Without forcing states to increase taxes and fees to compensate for vastly reduced federal support?
Romney and Ryan remain vague and obtuse about these questions while comforting those understandably skeptical with the words, “Trust us, we intend to work together with our Democratic colleagues across the table to arrive at a suitable compromise.”
This brings me back to my original trillion dollar QUESTION:
HOW WILL THIS `DEFICIT-NEUTRAL´ PLAN IMPROVE CONSUMER SPENDING, PRIVATE INVESTMENT and JOBS … IF ABSOLUTE EFFECTIVE TAXES PAID REMAIN THE SAME??
from the San Diego Free Press
Ben Bernanke, Federal Reserve Chairman, has been in the business of printing money. His program is euphemistically called "Quantitative Easing (QE)." In September 2012 Bernanke announced QE3 in which the Fed would purchase $40 billion of mortgage backed securities per month indefinitely. There had been QE1 and QE2 previously, which were one time injections of capital into the nations' money supply. All theses QEs have resulted in one thing: interest rates have been brought down to practically zero. This may be great for people wanting to buy a car or a house, but for savers, like senior citizens, they have been robbed from gaining any interest on their savings accounts. They might as well have put their money in their mattresses. However, the interest that the nation pays on its national debt has certainly been minimized and this has given the US budget deficit, already enormous, a little break.
The purpose of the Federal Reserve is to pursue full employment and stable prices. In practice the only thing the Fed can do to promote full employment is to lower interest rates in the hopes that people will borrow and spend more money. It can promote stable prices by raising interest rates in order to put a damper on inflation. However, inflation is not the present problem. Employment is. QE injects money into the economy at the top in the hopes that it will trickle down to the average person in terms of consumer loans. The general idea of QE is that the Fed buys up financial assets, injects capital into the big banks and lowers interest rates. This should get the economy moving again by encouraging people to borrow money. Only it has not worked out that way. Instead the money injected at the top of the economy, just like the Bush tax breaks for the rich, has resulted in making more money available for speculation.
At the street level the average person has been reluctant to go into even more debt by taking out more loans. This is why Bernanke has been practically begging the Congress to implement a fiscal policy to complement the Fed's monetary policy. A fiscal policy would mean that the Federal government would have to borrow money or go into more debt and then spend that money into the economy in terms of such projects as infrastructure development. A fiscal policy such as this would result in the injection of capital at a lower level than the Big Banks as construction workers would be hired lowering unemployment and presumably increasing GDP. They then might be more willing to take out a car loan, for example. Since the private sector isn't hiring to any great extent, it remains for the government to act as employer of last resort. The only problem is that conservative politicians are deadset against any expansion of government or any increase in government debt, in short, any stimulus. That leaves the situation in a stalemate with Ben Bernanke vainly trying to increase employment by giving money to people who don't need it. This is the policy that Republicans also want to pursue through the tax code: reduce taxes on the rich in the hopes that they will create jobs.
The problem is that neither of these policies - tax breaks for the rich or printing money and giving it to the rich - has worked. Both of these policies inject money into the top of the economy, into the hands of the wealthiest people. Both of these policies are debt based: fiscal policy increases the US national debt by having the government issue more Treasury bonds while getting people to borrow more money to increase GDP increases consumer debt. Ellen Brown critiques the whole idea of a debt based economy in her path breaking book, Web of Debt. She suggests that, instead of the US central bank, the Federal Reserve, being privately owned, Congress itself should own the nation's central bank i.e. the central bank should be publicly owned. All the money that Ben Bernanke prints is fiat money. That is it's not backed by gold or anything else. A dollar is worth a dollar just because the government says it is. So instead of Ben Bernanke's "helicopter money" (another name for quantitative easing which is just dropping money out of the sky), the government itself could issue the fiat money. That way no interest would be involved! The money would just be spent into the economy. When the government issues bonds that are bought up by the Federal Reserve (quantitative easing), it has to pay interest. If the government, instead of the Federal Reserve, issues the fiat money, it doesn't. Because the government and the Federal Reserve have to go through the big Wall Street banks, the banks profit and the people go into debt. If the American people owned the nation's central bank, Wall Street profits and citizens' debts could be eliminated or at least drastically reduced.
The American government has in the past issued its own fiat money. Abraham Lincoln issued fiat money, Greenbacks, that were used to win the Civil War, build the transcontinental railroad and provide the Land Grant colleges. Greenbacks were fiat money, totally. They weren't backed by gold. In the process he saved the nation an estimated $4 billion in interest. Other countries' central banks are owned by their governments, for instance, Japan and China. Even the European Central Bank is publicly owned. Publicly owned central banks can increase the money supply without incurring ever more debt.
As Ellen Brown states on p. 384 of "Web of Debt,":
Debt-free government-created money was the financial system that got the country through the American Revolution and the Civil War; the system endorsed by Franklin, Jefferson and Lincoln; the system that Henry Clay, Henry Carey and the American Nationalists called the "American system." The government could simply acknowledge that it was pumping money into the economy. It could explain that the economy needs the government's money to prevent a dollar collapse, and that the cheapest and most honest way to do it is by creating the money directly and then spending it on projects that "promote the general welfare." Laundering the money through non-producing middlemen is giving the people's Constitutionally-ordained money-creating power away.
To summarize, the Fed's quantitative easing only enriches the big banks like Goldman Sachs and JP Morgan Chase who use the money to speculate. It does little for the average person including savers who are not able to get any return on their savings. Government money could have been used to bail out under water mortgagees; instead it was used to bail out Wall Street. A central bank that created fiat money and then spent it into the economy to do infrastructure rebuilding and improvement would do more to increase employment and raise GDP than the schemes that the Federal Reserve Bank and the Congress are now capable of because it would inject money at the bottom of the economy and not the top. Currently, both US fiscal policy and US monetary policy are flops.
By CHRISTINA D. ROMER
Published: September 8, 2012 by the New York Times
ASIDE from the empty chair that Clint Eastwood debated, the main prop at the Republican convention was a debt clock, highlighting the federal deficit and the growing national debt. The importance of dealing with the deficit will clearly be a major Republican theme this fall. So far, Democrats have mostly been playing defense on this issue by criticizing the Romney-Ryan approach. It’s time for them to go on offense by putting their own plan front and center.
Thanks to former President George W. Bush — remember the compassionate conservative? — I have a good name for the fundamental principle that should guide the Democratic alternative: compassionate deficit reduction. The essence is to cut the deficit in a way that does as little harm as possible to people, jobs and economic opportunity. This principle was implicit in much of what President Obama proposed in his 2013 budget, and in what he said about the deficit at the Democratic convention on Thursday. But embracing it more explicitly would improve the substance of the president’s plan, and make it easier to explain to voters.
The first tenet is to go slowly. Investors are willing to lend to the United States at the lowest interest rates in our history. That gives us the ability to cut the deficit on our own timetable. We should pass a comprehensive, aggressive deficit reduction plan as soon as possible, but the actual spending cuts and tax increases should be phased in as the economy recovers.
Why is this the compassionate approach? Because immediate, extreme austerity would plunge us back into recession. The Congressional Budget Office set off alarm bells a few weeks ago when it said that going over the fiscal cliff — a reference to the nearly $500 billion of automatic fiscal contraction scheduled for the start of 2013 — would cause a rapid rise in unemployment. Well, duh.
A crude rule of thumb is that every $100 billion of deficit reduction will cost close to a million jobs in the near term. If that isn’t a reason to move gradually, what is? But if you need another, just look at Europe.
A concrete way to adjust gradually is to pair serious long-run deficit reduction measures with equally serious, near-term jobs measures — like a sizable short-run infrastructure program and a one-year continuation of the payroll tax cut for working families first passed in 2010. President Obama advocated both in his proposed American Jobs Act last September.
Even better would be to give businesses increasing employment a tax credit so large they couldn’t help but notice it, and state and local governments a round of aid generous enough to finally stop the hemorrhaging of teacher jobs and essential government services.
A second feature of compassionate deficit reduction is well-designed tax reform that raises at least some additional revenue. Our budget problems are so large that solving them entirely through spending cuts would devastate the social safety net and slash investments essential for long-run growth and economic opportunity. So revenue increases must be part of the package.
President Obama has repeatedly urged Congress to let the Bush tax cuts expire for those earning more than $250,000 a year. Increasing rates on top earners is an obvious way to raise revenue from those who can afford it most.
Many experts also recommend raising revenue by lowering tax expenditures — the roughly $1 trillion of deductions, credits and loopholes in the income tax code. Cutting tax expenditures would probably have fewer undesirable incentive effects than raising marginal tax rates. But it’s important to move carefully. Many tax expenditures, like the mortgage interest deduction and the tuition credit, go to middle-class families. Cutting only those expenditures wouldn’t be compassionate: it would shift tax burdens toward ordinary families already struggling to make ends meet.
One big tax expenditure benefiting the wealthy is the low tax rate on capital gains and dividends. The tax cuts of 2003 lowered the top rate on this income to 15 percent, far below the 35 percent top rate on other income. Compassionate deficit reduction requires a willingness to raise this preferential rate.
Government health care spending is a major cause of our terrifying long-run budget outlook. Any effective deficit plan has to slow that spending growth. But a compassionate plan would minimize risk to people, especially the most vulnerable.
The central question is whether Medicare and Medicaid should remain entitlement programs guaranteeing a certain amount of care, as Democrats believe, or become defined contribution programs in which federal spending is capped, as Republicans suggest.
Democrats have been forceful in explaining that if the federal contribution is limited and competition doesn’t magically slow costs commensurately, individuals and states will have to pay more. With Medicare, if individuals couldn’t pay the extra cost, they’d have to settle for less complete coverage and fewer benefits. With Medicaid, if states weren’t willing to pay the extra cost, they’d have to throw people off the rolls.
But Democrats need to explain their own plans for slowing government health care spending. To start with, they shouldn’t be defensive about having found $716 billion of Medicare savings as part of the health care reform legislation. They should explain, as former President Bill Clinton did in his speech on Wednesday, that these were reasonable changes that reduced overpayments to providers. They should ask Mitt Romney, who has vowed to roll back these reforms, why he wants to waste taxpayers’ money.
Moreover, Democrats should explain that compassionate deficit reduction will involve more such reforms. Fortunately, there is much inefficiency in the current system, so it should be possible to cut costs without lowering benefits. But if we can’t save enough money by reducing waste and finding better ways to provide care, we might have to consider more painful choices.
Making the wealthy pay a larger share of their Medicare costs, through further means-testing of benefits, would be one way to go. Gradually raising the Medicare eligibility age would be another. That may not sound like a winning message until you contrast it with the Republican plan, which trusts private insurers to decide how to cut costs.
Dealing with the deficit will require more than increasing revenue and reforming health care programs. We’ll also have to cut other spending. Compassionate deficit reduction requires that we choose carefully what to trim.
Spending that protects children, such as money for school lunches and vaccinations, must be maintained. So should assistance for workers displaced by international trade and for veterans struggling to recover from combat wounds.
Democrats shouldn’t be ashamed to advocate actually increasing spending that encourages opportunity and long-run growth. Aid for effective public education and Pell grants that help low-income students go to college aren’t luxuries — they are the building blocks of tomorrow’s labor force and the foundation of the American dream. And spending on infrastructure and basic scientific research is essential for the growth of productivity and standards of living.
BUT to make support for good spending credible, compassionate deficit reducers should be specific about what they would cut. Personally, I’d start with agricultural price supports and subsidized crop insurance programs that mainly benefit large commercial farmers. High-speed rail might be next. (Sorry, Mr. Vice President.) And if the defense secretary says that there is $487 billion that can be safely cut from the Pentagon’s budget over the next 10 years, we should listen to him.
Honest talk about the deficit is risky. Voters are more enthusiastic about the abstract notion of deficit reduction than about the painful details of accomplishing it. But deficit reduction is coming, and this election will most likely determine how it’s done. Democrats owe it to the American people to detail their more compassionate approach so that voters can make an informed choice.
Christina D. Romer is an economics professor at the University of California, Berkeley, and was the chairwoman of President Obama’s Council of Economic Advisers.
by Robert Reich
The question at the core of America’s upcoming election isn’t merely whose story most voting Americans believe to be true – Mitt Romney’s claim that the economy is in a stall and Obama’s policies haven’t worked, or Barack Obama’s that it’s slowly mending and his approach is working.
If that were all there was to it, last Friday’s report from the Bureau of Labor Statistics showing the economy added only 96,000 jobs in August – below what’s needed merely to keep up with the growth in the number of eligible workers — would seem to bolster Romney’s claim.
But, of course, congressional Republicans have never even given Obama a chance to try his approach. They’ve blocked everything he’s tried to do – including his proposed Jobs Act that would help state and local governments replace many of the teachers, police officers, social workers, and fire fighters they’ve had to let go over the last several years.
The deeper question is what should be done starting in January to boost a recovery that by anyone’s measure is still anemic. In truth, not even the Jobs Act will be enough.
At the Republican convention in Tampa, Florida, Romney produced the predictable set of Republican bromides: cut taxes on corporations and the already rich, cut government spending (mainly on the lower-middle class and the poor), and gut business regulations.
It’s the same supply-side nonsense that got the economy into trouble in the first place.
Corporations won’t hire more workers just because their tax bill is lower and they spend less on regulations. In case you hadn’t noticed, corporate profits are up. Most companies don’t even know what to do with the profits they’re already making. Not incidentally, much of those profits have come from replacing jobs with computer software or outsourcing them abroad.
Meanwhile, the wealthy don’t create jobs, and giving them additional tax cuts won’t bring unemployment down. America’s rich are already garnering a bigger share of American income than they have in eighty years. They’re using much of it to speculate in the stock market. All this has done is drive stock prices higher.
The way to get jobs back is to get American consumers to spend again. Consumer spending is 70 percent of the nation’s economic activity. Most of it comes from the middle class and those aspiring to join the middle class. They’re the real job creators.
But here’s the problem. Middle-class consumers won’t and can’t spend because their savings are depleted, their homes are worth a fraction of what they were five years ago, their wages are dropping, and they’re worried about keeping their jobs.
And they’re no longer able borrow against the rising values of their homes because the housing bubble burst — which means they can no longer pretend they’re in better financial shape than they really are.
This is the heart of our economic dilemma.
Last Thursday night at the Democratic convention in Charlotte, North Carolina, President Obama suggested a way to correct this, or at least not make things worse: Raise taxes on the wealthy rather than cut programs the middle class and poor depend on (such as Medicare and Medicaid), give tax incentives to companies that create jobs in the United States, and invest in education.
It’s a start but America’s middle class and poor need far more. They need to be able to refinance their mortgages at today’s low interest rates. They need a larger Earned Income Tax Credit – a wage subsidy for lower-paying jobs. And a higher minimum wage that’s automatically adjusted for inflation.
They could use a new Works Projects Administration and Civilian Conservation Corps designed to put the long-term unemployed back to work.
They need stronger unions to bargain for a larger share of the gains from economic growth. And a Social Security payroll tax that exempts the first $25,000 of income and eliminates the ceiling (now $110,100) on income subject to it.
And they need an industrial policy designed to create high-wage jobs in America.
In accepting his party’s nomination for president, Obama said the “basic bargain” that once rewarded hard work and gave everyone a fair shot had come undone.
He’s right. And the U.S. economy won’t return to normal until that basic bargain is remade.
If Obama gets a second term, recreating that bargain — and getting enough votes from Congress to do so — will be his central challenge, and America’s
The Five Reasons Why the Ryan-Romney Economic Plan Would Be A Disaster for America
Mitt Romney hasn’t provided details so we should be grateful he’s selected as vice president a man with a detailed plan Romney says is “marvelous,” “bold and exciting,” “excellent,” “much needed,” and “consistent with” what he’s put out.
So let’s look at the five basic features of this “marvelous” Ryan plan.
FIRST: It would boost unemployment because it slashes public spending next year and the year after, when the economy is still likely to need a boost, not a fiscal drag. It would be the same austerity trap now throwing Europe into recession. According to the Economic Policy Institute, Ryan’s plan would mean 1.3 million fewer jobs next year than otherwise, and 2.8 million fewer the year after.
SECOND: Ryan would take from lower-income Americans and give to the rich – who already have the biggest share of America’s total income and wealth in almost a century. His plan would raise taxes on families earning between 30 and 40 thousand dollars by almost $500 a year, and slash programs like Medicare, food stamps, and children’s health What would Ryan do with these savings? Reduce taxes on millionaires by an average of almost $500,000 a year.
THIRD: Ryan wants to turn Medicare into vouchers that won’t keep up with the rising costs of health care – thereby shifting the burden onto seniors. By contrast, Obama’s Affordable Care Act saves money on Medicare by reducing payments to medical providers like hospitals and drug companies.
FOURTH: He wants to add money to defense while cutting spending on education, infrastructure, and basic research and development. America already spends more on defense than the next five biggest military spenders put together. Our future productivity depends on the public investments Ryan wants to cut.
FIFTH AND Finally, Ryan’s budget doesn’t even reduce the federal budget deficit – not for decades. Remember: He’s adding to military spending, giving huge additional tax cuts to the very rich, and stifling economic growth by cutting spending too early. The Center for Budget and Policy Priorities estimates Ryan’s Roadmap would push public debt to over 175 percent of GDP by 2050.
So there you have it. The Ryan – Ryan-ROMNEY – economic plan.
And the five reasons why it would be a disaster for America.
(Please watch the video — and share.)
by Robert Reich
But you’d be wrong. Neither candidate wants to take any chances by offering any large, serious proposals. Both are banking instead on negative campaigns that convince voters the other guy would be worse.
President Obama has apparently decided against advancing any bold ideas for what he’d do in the second term, even if he has a Congress that would cooperate with him.
He’s sticking to a worn script that says George W. Bush caused the lousy economy, congressional Republicans have opposed everything he’s wanted to do to boost it, it’s slowly on the mend anyway, the Bush tax cuts shouldn’t be extended for the rich, and we shouldn’t take a chance electing Romney.
Yet the public wants bigger ideas from the President, and wants to know what he’ll do in his second term to get us out of this mess. A New York Times-CBS News poll released last week showed that a majority of voters believe the president “can do a lot about” the economy. That’s a double-digit jump from the fall of 2011.
The President could propose a new WPA, modeled after the Depression-era jobs program that hired hundreds of thousands of jobless Americans to rebuild the nation’s infrastructure, or a new Civilian Conservation Corps.
He could suggest permanently exempting the first $25,000 of income from payroll taxes, and making up the lost revenues by eliminating the ceiling on income subject to it. He could propose resurrecting the Glass-Steagall Act and breaking up the big banks, so Wall Street doesn’t cause another financial collapse.
But you won’t hear any of this, or anything else of this magnitude, because the White House doesn’t want to take any risks. Polls give Obama a slight edge in the critical eight or so battleground states, so, the thinking goes in the Obama camp, why say anything that might give Romney and the GOP a target?
Besides, polls also show Romney isn’t well-liked by the electorate.
So Obama has decided to campaign as the anti-Romney.
Mitt Romney is playing it even more cautiously. His economic plan is really a non-plan: more tax cuts for the rich, undefined spending cuts, and no details about how he’d bring down the budget deficit. No presidential candidate since Herbert Hoover in 1928 has been more vague about what he’d do on the critical issues facing the nation.
Romney’s advisors assume Obama can’t possibly be reelected with the economy this bad. Just 44 percent of registered voters in a Washington Post-ABC News poll earlier this month approve of the job the president is doing on the economy, while 54 percent disapprove. Even more encouraging for Romney is that 41 percent of those polled “strongly” disapproved of Obama’s economic performance, while just 21 percent “strongly” approved — an enthusiasm gap of major proportion.
So Romney’s advisors have concluded that all Romney has to do between now and Election Day is avoid a mistake that might give Obama and the Democrats something to shoot at.
Romney has decided to campaign as the anti-Obama.
The two anti-the-other-guy strategies fit with a ton of negative advertising that’s just begun but will reach mammoth proportions after Labor Day. Much of it will be financed by super-PACs and by political fronts already taking in hundreds of millions of dollars in secret donations. Romney’s camp hopes to out-negative Obama by almost two to one.
So whatever happens on Election Day, the next president will have to contend with two handicaps. The public won’t have endorsed any new ideas or bold plans, which means he won’t have a clear mandate to do anything on the economy.
The only thing the public will have decided is it fears and distrusts the other guy more. Which means the winner will also be burdened by almost half the electorate thinking he’s a scoundrel or worse.
The worst economy since the Great Depression, but we’re in an anti-election that will make it harder for the next occupant of the oval office to do a thing about it.
Think back a couple hundred years ago - before industrialization when economic life was much simpler. Let's assume that when a good or service was purchased, that the person who received the money spent it all - no savings. Therefore, money was circulated just like water can be circulated in a closed pipe. If the pipe makes a circle, then all that is needed to keep water flowing through the pipe is a pump. Similarly, when the blacksmith received $10. for shoeing a horse, we can assume that he took that money and spent it at the grocery. The grocer then took that same $10. and spent it with the farmer. The farmer took the money and spent it at the haberdasher's and so on. So the same $10. gets passed around from person to person until it lands back up at the blacksmith's again and the process repeats itself over and over. As long as all the yeoman in any given village have a good or service they can sell and as long as the money flows through the hands of each person in the village, that same $10. is used over and over; it is circulated round and round just like the water in the pipe. As long as the money flows fast enough, everyone can purchase what they need and business is good. GDP is a measure of how many transactions occur in any given year. The faster the money flows through the system, the greater is GDP.
Now what happens when one of the participants saves some of the money instead of spending it all? Then there is less money to flow through the system and economic activity and hence GDP will be lower. The more money that is saved, the more economic activity will decrease until the money supply is inadequate to meet people's needs. It is a well known fact that, when consumers spend more and save less, economic activity and GDP increase. That's why George W Bush sent everybody a check and told them to go out and spend it. When economic activity decreases enough, a recession or a depression occurs. In the US consumer spending accounts for 70% of GDP so, if consumer spending decreases, economic activity decreases. This would happen in the simple economy described above if, instead of the blacksmith spending his money at the grocer's, he saved it instead. So saving decreases economic activity and GDP. There is one caveat to that and that is, if instead of the blacksmith saving the money, he invested it by expanding his business and created a couple of additional jobs. Then those additional workers would also go out and spend their paycheck adding to economic activity.
When the economy goes into recession two things happen. Government revenues from taxes decline and consumers spend less because they have less money to spend. Keynsianism is a philosophy that says that the government should borrow money in a recession and spend it into the economy thus creating jobs and increasing economic activity or at least preventing starvation and dire need. The other way that economic activity can be expanded is for the central bank to loan money to banks which then loan it to businesses who want to expand their businesses thus creating jobs. So money is injected into the economy either by the government borrowing money or by the central bank printing money in the form of a loan. In either case debt is created and the economy becomes a debt based economy.
If we think of money circulating similar to water circulating in a network of pipes, if a business or an individual saves a portion of the money instead of spending it, there is a continual need for money creation to keep up the same level of economic activity. That's why capitalism has to be a growth based economy. When there was one blacksmith for every village, saving money was not a problem since the income from blacksmithing over the economy as a whole was dispersed to many blacksmiths who all spent most of it keeping it in circulation. If one blacksmith captured most of the business - let's say he called his business Blacksmiths Are Us - and franchised it throughout the whole economy, then all the profits would flow to one person - more or less - and money would be continually taken out of circulation necessitating growth and debt based money creation by the government or private businesses just to provide enough jobs to keep money circulating to all people with economic needs. Money saved and not spent is similar to water in a system of pipes entering a cul de sac or black hole from which it never emerges or to being siphoned off never to return to mainstream circulation.
In today's economy money is continually siphoned off by the major corporations who have not only nationalized but who have internationalized. It's as if Blacksmiths Are Us has gone global. That money which is taken out of the real economy goes into the financial economy which is a black hole from which money never emerges again into the real world economy. So there is a continual need for either the central bank to print money (increase the money supply) or for the government to prime the pump with debt based stimulus money (the fiscal method).
In a western capitalist economy there is a continual need for money to be created either by government borrowing and the provision of fiscal stimulus or by means of the central bank loaning money into the banking system. The only problem is that today, when the Federal Reserve (the central bank) loans money to other banks, the money goes not into the real economy where jobs are created but into the financial or casino economy. In other words it goes to rich people like Jamey Dimon of JP Morgan Chase or Lloyd Blankfein of Goldman Sachs who don't spend it in the real economy but who gamble it in the casino economy so it doesn't do too much good for the creation of jobs which provides for the distribution of money to all who need it. A job is seen as the only legitimate means for an economic unit to acquire the money it needs to meet its needs. Of couse, just giving the money to all who need it would increase economic activity and GDP, but that isn't seen as legitimate. Similarly, when the government borrows and spends, the money also does not circulate much since it is soon siphoned off by the Wal-Marts, the Exxon Mobils - the modern day versions of Blacksmiths Are Us - where it ends up in the financial economy. There is no very good way to keep the money circulating in the real economy since large corporations are siphoning it off at every turn which means that either the central bank has to keep printing money or the government has to keep borrowing and spending money, the Keynesian approach.
Therefore, neither the method of giving money to rich people through zero interest loans nor fiscal stimulus requiring more government debt will work in today's economy. Paul Krugman, who advocates fiscal stimulus and more government borrowing, is wrong and the Republican supply siders who advocate giving more money to the rich are also wrong. Obviously, the central bank cannot go on indefinitely printing money because of the devaluation of the currency and subsequent inflation and the government can not go on indefinitely borrowing money because interest on the debt eventually consumes all expenditures so what is the solution? Giving more tax breaks to the rich only compounds the problem of money being siphoned off from the real economy, taken out of circulation and placed in the financial or casino economy where it circulates only among the financial elite. The Republican solution is to speed up the process of redistributing money from the poor and middle class to the rich even more.
The only viable solution is to redistribute the money from rich to poor. The money that has been siphoned off and taken out of circulation by the Wal-Marts and Exxon Mobils of the world needs to be siphoned back into the real economy where it can continue to circulate. Too much money is ending up in the cul de sacs where it never reenters the real economy but instead circulates endlessly in the casino economy among very rich people. 300 years ago when the economy was much simpler and consisted of a yeomenry who provided a good or service and spent all the money they took in, money circulated endlessly in the real economy. Today, Wal-Mart and Exxon Mobil take most of the money out of the real economy in the form of profits. That money leaves the real economy and enters the financial economy which is a big black hole as far as the real economy is concerned. In order not to increase the money supply endlessly or to require the proliferation of new products and services, which provide a temporary increase in economic activity, new jobs and circulation of money to a wider distribution of individuals and families, money has to be recirculated and redistributed into the local real economy. And in order for the Federal Government not to have to borrow money endlessly, it needs to siphon money from the rich who won't spend it and redistribute it to the poor and middle class who will. In this manner the economy needs not to be based so much on debt based growth but can become more of a steady state, balanced economy. Money siphoned off by Blacksmiths Are Us is siphoned back again and redistributed to the local blacksmiths where it can circulate in the real economy again.
Another way the economy can grow without creating debt or increasing the money supply endlessly, which means just fueling the casino economy, is to take Ellen Brown's suggestios from her book Web of Debt, and that is for the central bank to not loan money into the economy with zero interest loans to the big banks, but instead to spend the money into the economy for infrastructure projects and the like. Thus the money supply is increased as needed without the creation of debt. This is the method Abraham Lincoln used to fight the Civil War and to build the transcontinental railroad. It is estimated he saved the nation $4 billion in interest by spending the money into the economy with greenbacks instead of loaning it into the economy at interest.
Taxing the rich amounts to siphoning back money which has been siphoned off from the real economy in the first place and putting it back into circulation amongst a wider distribution of people. The Blacksmith Are Us franchisees supply a uniform blacksmithing experience for weary travelers regardless of which village they happen to be in. As such they take business from the Mom and Pop blacksmiths and concentrate wealth at the central headquarters of Blacksmiths Are Us. We imagine that no matter which village George Washington or Thomas Jefferson was in, they could count on the fact that their blacksmithing needs were met with satisfaction when they shopped at Blacksmiths Are Us. However, this would diminish the amount of money in the real local economy due to the fact that the business of the local blacksmith would diminish since the profits would be shipped elsewhere.
A final note: with all the economic turmoil in Europoe over the eventual default by Greece on its loans and the fact that this could create economic chaos, instead it could be seen as an opportunity for Greece to set up its economy as non-debt based by having its central bank spend fiat money into the economy thus creating jobs and distributing income until the economy picks up steam of its own accord. Thus Greece could drop out of the eurozone with it's western debt based economic methods and align itself more with the non-western world to create a non-debt based society instead of one drowining in debt as it is presently constituted.
by Robert Reich
Referring to his own electoral woes, Prime Minister David Cameron wrote Monday in an article in the conservative Daily Telegraph: “When people think about the economy they don’t see it through the dry numbers of the deficit figures, trade balances or inflation forecasts — but instead the things that make the difference between a life that’s worth living and a daily grind that drags them down.”
Cameron, whose own economic policies have worsened the daily grind dragging down most Brits, may be sobered by what happened over the weekend in France and Greece – as well as his own poll numbers. Britain’s conservatives have been taking a beating.
In truth, the choice isn’t simply between budget-cutting austerity, on the one hand, and growth and jobs on the other.
It’s really a question of timing. And it’s the same issue on this side of the pond. If government slices spending too early, when unemployment is high and growth is slowing, it makes the debt situation far worse.
That’s because public spending is a critical component of total demand. If demand is already lagging, spending cuts further slow the economy – and thereby increase the size of the public debt relative to the size of the overall economy.
You end up with the worst of both worlds – a growing ratio of debt to the gross domestic product, coupled with high unemployment and a public that’s furious about losing safety nets when they’re most needed.
The proper sequence is for government to keep spending until jobs and growth are restored, and only then to take out the budget axe.
If Hollande’s new government pushes Angela Merkel in this direction, he’ll end up saving the euro and, ironically, the jobs of many conservative leaders throughout Europe – including Merkel and Cameron.
But he also has an important audience in the United States, where Republicans are trying to sell a toxic blend of trickle-down supply-side economics (tax cuts on the rich and on corporations) and austerity for everyone else (government spending cuts). That’s exactly the opposite of what’s needed now.
Yes, America has a long-term budget deficit that’s scary. So does Europe. But the first priority in America and in Europe must be growth and jobs. That means rejecting austerity economics for now, while at the same time demanding that corporations and the rich pay their fair share of the cost of keeping everyone else afloat.
President Obama and the Democrats should set a clear trigger — say, 6 percent unemployment and two quarters of growth greater than 3 percent — before whacking the budget deficit.
And they should set that trigger now, during the election, so the public can give them a mandate on Election Day to delay the “sequestration” cuts (now scheduled to begin next year) until that trigger is met.
by Robert Reich
Friday’s jobs report for April was even more disappointing than March. Employers added only 115,000 new jobs, down from March’s number (the Bureau of Labor Statistics revised the March number upward to 154,000, but that’s still abysmal relative to what’s needed). We need well over 250,000 new jobs per month in order to begin to whittle down the vast number of jobs lost in the Great Recession. At least 125,000 new jobs are necessary each month just to keep up with an expanding population of working-age people.
With only 115,000 jobs in April, the hole is getting even deeper.
Most observers pay attention to the official rate of unemployment, which edged down to 8.1 percent in April from 8.2 percent in March. That may sound like progress, but it’s not. The unemployment rate dropped because more people dropped out of the labor force, too discouraged to look for work. The household survey, from which the rate is calculated, counts as “unemployed” only people who are actively looking for work. If you stop looking because the job scene looks hopeless for you, you’re no longer counted.
In the winter months — December, January, and February – hiring had seemed to pick up, averaging over 250,000 new jobs per month. Then the mini-surge stopped. The simplest explanation is that the mild winter across much of the United States gave an unusual boost to hiring then, leading to a correction by the spring.
Most of the job gains in April were in lower-wage industries – retail stores, restaurants, and temporary-help. That means average wages continue to drop, adjusted for inflation – continuing their long-term decline. Most of the new jobs that have been added to the U.S. economy during this recovery have paid less than the jobs that were lost during the downturn.
What does all this mean? Together with other recent data showing slower economic growth during the first quarter of this year, it’s safe to say the economy has stalled.
This is bad news for millions of Americans.
It’s also bad news for Obama and the Democrats. Voters don’t pay much attention to the economy in an election year until after Labor Day, so it’s not necessarily a huge help to Romney and the Republicans. But it’s a bad political omen nonetheless.
No set of policies between now and Election Day are likely to expand the economy. To the contrary, government at all levels continues to contract, acting as a fiscal drag when government needs to be doing the exact reverse – boosting the economy through additional spending. In 2013, when spending major cuts are scheduled, we’ll fall off a fiscal cliff.
Obama needs to push back loudly and clearly, saying he won’t support additional spending cuts until the economy is showing clear signs of improvement.
But widening inequality is the underlying culprit here. As long as almost all the gains from economic growth continue to go to the top, the vast middle class doesn’t have the purchasing power to boost the economy on its own. And rich Americans spend a much smaller portion of their incomes than does the vast middle class. Their marginal satisfaction from additional spending falls off. The second yacht isn’t nearly as much fun as the first.
Get it? We’ve still got a terrible cyclical problem – we can’t get out of the gravitational pull of the Great Recession.
Yet the underlying problem is structural, and it’s been growing for decades. The structural problem of stagnant or declining real incomes for most people, and soaring income and wealth at the top, was masked during the boom years when the middle class could turn their homes into piggy banks and extract home-equity loans or refinance. But the mask came off in 2008 as home values plummeted.
There’s no way to put the mask back on. We’ve got to face the truth. Obama and the Democrats have to explain to the American people why inequality isn’t just unfair; it’s also economically unsustainable.
by Robert Reich
The Institute of Supply Management’s non-manufacturing index fell to a four-month low in April (53.5, down from 56 in March – still positive territory but just barely). New orders dropped to their lowest level in six months.
That doesn’t bode well, especially when combined with other recent data. The Commerce Department reports that the economy as a whole has slowed from the last quarter of 2011 when it was expanding at an annual rate of 3 percent, to 2.2 percent for the first quarter of this year. And last month’s unemployment report showing only 120,000 new jobs in March was downright alarming.
What’s going on? Europe is sliding into recession, and gas prices are still high. But the real problem lies closer to home. Cuts in government spending are reducing domestic demand precisely at the time when consumers are reaching the end of their ropes and can’t spend more.
Consumers did all the spending they could in the first quarter. Household purchases increased 2.9 percent between January and March. That was the biggest increase since the last quarter of 2010.
Absent real wage gains, that spending pace can’t possibly continue. Consumer savings are down and their debt is up. Consumer confidence dropped last week to a two-month low.
The only people left spending are in the top 5 percent, whose stock portfolios have been doing so well they feel even richer. But the top 5 percent can’t pull the entire economy out of the doldrums. Besides, if demand continues to slide the stock market will follow.
The real problem is political, not economic. Republicans in Congress insist on cutting public spending even before the economy has mended.
Conspiracy theorists might think Republicans want the economy to be so bad by Election Day that Obama is swept out of office, along with most congressional Democrats.
Paranoid double-conspiracy theorists might come to the opposite conclusion: Democrats are allowing Republicans to do this because they want Romney elected and Republicans in charge next year as the economy slides into a terrible recession due to far larger spending cuts already scheduled to kick in then, as well as increased taxes on the middle class.
Under President Romney and a Republican congress there will be no escape from this downward spiral; fiscal hawks and right-wing government-haters will be in control. As a result of this nightmarish mess, Republicans will be booted out of office for a generation.
by Robert Reich
That’s not good enough. This recovery is too anemic, and the chance of an economic stall between now and Election Day far too high.
Even now, Mitt Romney’s empty “I’ll to it better” refrain is attracting as many voters as Obama’s “we’re on the right track.” Each man is gathering 46 percent of voter support, according to the latest New York Times/CBS poll. Only 33 percent of the public thinks the economy is improving while 40 percent say they’re still falling behind financially — an 11 point increase from 2008. Nearly two-thirds are concerned about paying for housing, and one in five with mortgages say they’re underwater.
If the economy stalls, Romney’s empty promise will look even better. And I’d put the odds of a stall at 50-50. That puts the odds of a Romney presidency far too high for comfort. Need I remind you that Romney enthusiastically supports Paul Ryan’s wildly regressive budget, and as president would be able to make at least one or possibly two Supreme Court appointments, and control the EPA and every other federal agency and department?
The Obama White House should face it: “We’re on the right track” isn’t sufficient. The President has to offer the nation a clear, bold strategy for boosting the economy. It should be the economic mandate for his second term.
It should consist of four points:
First, Obama should demand that the nation’s banks modify mortgages of homeowners still struggling in the wake of Wall Street’s housing bubble — threatening that if the banks fail to do so he’ll fight to resurrect the Glass-Steagall Act and break up Wall Street’s biggest banks (as the Dallas Fed recently recommended).
Second, he should condemn oil speculators for keeping gas prices high — demanding that the oil companies allow the Commodity Futures Trading Corporation to set limits on such speculation and instructing the Justice Department to investigate and prosecute oil price manipulation.
Third, he should stand ready to make further job-creating investments in the nation’s crumbling infrastructure, and renew his call for an infastructure bank. And while he understands the need to reduce the nation’s long-term budget deficit, he won’t allow austerity economics to take precedence over job creation. He’ll veto budget cuts until unemployment is down to 5 percent.
Finally, he should make clear the underlying problem is widening inequality. With so much of the nation’s disposable income and wealth going to the top, the vast middle class doesn’t have the purchasing power it needs to fire up the economy. That’s why the Buffett rule, setting a minimum tax rate for millionaires, is just a first step for ensuring that the gains from growth are widely shared.
The President can still say we’re on the right track. But he should also say he’s not content with the pace of the recovery and will do everything in his power to quicken it. And he should ask the American people for a mandate in his second term to make the economy work for everyone, not just those at the top.
Such a mandate can be put into effect only with a Congress that’s committed to better jobs and wages for all Americans. He should remind voters that congressional Republicans prevented him from doing all that was needed in the first term, and they must not be allowed to do so again.
The American solution to the 2008 financial crisis was flooding the economy with money. There was the TARP, the Troubled Asset Relief Program, a $700 billion bailout of the US' largest banks. But that was only the beginning. Dr. Ben Bernanke at the Federal Reserve bank added another $9 trillion to the money supply with his policy of "quantitative easing" which is just a euphemism for "printing money." The Fed has printed money again and again. There was a follow-up policy, QE2, because the Fed figured it hadn't printed enough money with QE1. In addition to the US Fed, the European Central Bank (ECB) has been printing money to bail out Greece and other vulnerable European economies. The Central Bank of Japan has also been printing money fast and furiously. Both the US Fed and the ECB are legally prohibited from buying up their country's debts directly, but they can loan money to their big banks and these banks can in turn loan money to the respective countries in an indirect "wink-wink" transaction thus getting around the inconvenient limitations imposed by law. As a consequence another layer of interest accrues to the big banks increasing their power and dominance over the world economy to the point that supposedly sovereign countries have become mere dependencies on them.
What does all this money creation do? First, it supposedly offers a stimulus to economies that are verging on recession. But that is not really happening due to the fact that most of this money is simply being siphoned off by the world's big banks, and, instead of stimulating the economy, is simply going into the financial sector fueling even more speculation and contributing to a possible further meltdown and bailout down the road. In Europe the money is simply going to pay down debts incurred by the various countries. Nothing is being done to spur Greece's economy, for example. Instead the Greeks are being subjected to a regime of austerity - firing workers, reducing pensions and generally creating economic malaise for the average Greek citizen. This will force the Greek economy into a deeper recession with the result that Greek indebtedness will only increase requiring another round of bailouts by the ECB.
Another effect of printing money, sometimes called government "fiat money", since it's not backed by gold or anything else, is the debasement of the currency and inflation. In general the larger the money supply, the more inflation there is. This is not a big concern when an economy is in recession, but becomes a greater concern when the economy starts to "heat up." As far as the debasement of the currency is concerned, the dollar is starting to lose value with respect to other currencies. The more fiat money the government creates, the less the dollar will be worth and this has implications for the dollar as the world's "reserve currency."
Ellen Brown has written extensively about the good aspects of fiat money, namely, Abraham Lincoln's use of it to win the Civil War and build the transcontinental railroad. But all fiat money is not created equal. In Lincoln's day his fiat money went directly into the "real" economy. That is it went to average working people to fight a war and create infrastructure. It avoided having to borrow the money and saved the US government $4 billion in interest. There is a difference in the fiat money that the Fed and the ECB are creating today. Their fiat money is going directly into the financial sector instead of into projects that distribute the money to average citizens and workers. In other words in a perverted downward spiral, today's fiat money is going to pay off the world's big banks like JC Morgan Chase and Goldman Sachs and to pay interest on huge debts owed to private bankers. The Lloyd Blankfeins and the Jamie Diamonds of the world are profiting while the average working person and citizen is only going deeper into debt. The money is not "trickling down", making Republican assertions that all we need to do to get the economy booming again is to give more money to the rich, a ridiculous assertion. The only way to get the economy working again is to give the money directly to the average working person, but this possibility is not even on the radar of the world's western economies like it was during the Great Depression. That is, instead of inserting fiat money into the financial sector resulting in huge profits for bankers and miniscule results for the middle class, the money needs to be inserted into the economy directly at the middle class level which is to say in the form of infrastructure development and support programs like food stamps and tax breaks for the middle class.
The dollar is the world's reserve currency only because the US cut a deal with the middle east oil sheiks that oil on the world market would only be traded in dollars. But here too the dollar is being undercut since some countries, notably China, are cutting direct country to country deals which bypass the world oil market and bypass having to purchase oil in dollars. There are also moves afoot to replace the dollar by a basket of other currencies which would compete with the dollar. All of this is not promising for the continuance of the predominace of the dollar. Increasingly, US Treasuries are becoming less desirable as investment vehicles which means that the money printed by the Federal Reserve is increasingly being used just to buy up the US deficit which is the shortfall between Federal government expenditures and Federal tax revenues. So money is being printed just to bridge the gap. Obviously, this can only be a short term solution to US deficit and fiscal problems. For the long term the US economy itself has to produce tax revenues sufficient to balance government expenditures or, more likely, to pay increasingly higher interest rates to attract private investors just as Greece and Spain are having to do.
So as the US money supply is further diluted by quantitative easing, the value of US money is diminishing, dollar-denominated debt is less desirable as an investment and the role of the US dollar as the world's reserve currency is being eroded. European countries are in a similar predicament having become essentially subsidiaries of US and European banks. One of the statistics that substantiates these assertions is that 93% of the income gains since the Great Recession have gone to the upper 1%. In other words most of the money created has gone to the hedge funds, large banks and other elements of the financial sector. This money has not "trickled down" to the real economy. This is the ultimate denouement of the fact that the western world has relied too much on debt basing their economies. Rather than spending from strength which is spending from savings and accumulated wealth which countries with sovereign wealth funds are able to do, western countries and individuals have overspent by going into debt and the accrued interest is only driving them further into debt. The result is that huge amounts of interest are owed to the big banks, and this amount of money is swamping western economies and debasing the values of the dollar, euro and yen.
In a Trillion Euros Didn't Buy Much Time, Rick Ackerman discusses the fact that the US and Europe have both been reduced to the same level. Their central banks are being forced into the position of bailing out the US and the European countries by buying up their debt since private investors are becoming more and more reluctant to buy it. The US Fed is printing money to make up the difference between US government expenditures and what US taxes and private investors are willing to fund and in the European case, the ECB is buying up Greek and Spanish debt that private investors are turning up their noses at. This buying of debt means that central banks are effectively printing money to pay off the big banks which are owed money that US and European citizens as taxpayers don't have the money to pay and which increasingly cannot be borrowed from private investors.
All this supports my contention that the real action in the world economy these days is not with the average worker/consumer. The average person is becoming increasingly irrelevant. Instead the big banks, hedge funds and central banks are where the action is. In the US the big banks were bailed out while practically nothing was done to bail out the average person. Just think of the foreclosure crisis where HAMP, the Home Affordable Mortgage Program, turned out to be a worthless, toothless approach which did more damage to the average home owner by raising hopes which were later dashed than if it had never been enacted. It did almost nothing to protect home owners from being foreclosed on even though most of the foreclosures were fraudulent. In some cases home owners were led on being promised modified mortgages if they would only keep up current payments only to be foreclosed on at a later date instead of being given the revised mortgages they had been promised. The government's attitude was "we have to let the banks do anything they want, even engage in fraudulent activities, because to do otherwise would risk collapse of the entire system." Ellen Brown's plea for the elimination of the debt based, interest oriented economy in favor of public banking favoring fiat money injected into the real economy instead of into the financialized economy seems further and further from any possibility of being realized.
Posted by John on April 21, 2012 at 09:38 AM in John Lawrence, Austerity, Banking, Capitalism, Europe, Federal Reserve, Foreclosure, Greece, Hedge Funds, International, Money, Mortgage Crisis, Recession, Speculation, The Economy, The Federal Reserve, Wall Street | Permalink | Comments (0) | TrackBack (0)
One of the most pernicious falsehoods you’ll hear during the next seven months of political campaigning is there’s a necessary tradeoff between fairness and economic growth. By this view, if we raise taxes on the wealthy the economy can’t grow as fast.
Wrong. Taxes were far higher on top incomes in the three decades after World War II than they’ve been since. And the distribution of income was far more equal. Yet the American economy grew faster in those years than it’s grown since tax rates on the top were slashed in 1981.
This wasn’t a post-war aberration. Bill Clinton raised taxes on the wealthy in the 1990s, and the economy produced faster job growth and higher wages than it did after George W. Bush slashed taxes on the rich in his first term.
If you need more evidence, consider modern Germany, where taxes on the wealthy are much higher than they are here and the distribution of income is far more equal. But Germany’s average annual growth has been faster than that in the United States.
You see, higher taxes on the wealthy can finance more investments in infrastructure, education, and health care – which are vital to a productive workforce and to the economic prospects of the middle class.
Higher taxes on the wealthy also allow for lower taxes on the middle – potentially restoring enough middle-class purchasing power to keep the economy growing. As we’ve seen in recent years, when disposable income is concentrated at the top, the middle class doesn’t have enough money to boost the economy.
Finally, concentrated wealth can lead to speculative bubbles as the rich in the same limited class of assets – whether gold, dotcoms, or real estate. And when these bubbles pop the entire economy suffers.
What we should have learned over the last half century is that growth doesn’t trickle down from the top. It percolates upward from working people who are adequately educated, healthy, sufficiently rewarded, and who feel they have a fair chance to make it in America.
Fairness isn’t incompatible with growth. It’s necessary for it.
Research done by Emmanuel Saez, left, and Thomas Piketty has shown that inequality among the middle class and the rich is nearly as acute as it was before the Great Depression.
By ANNIE LOWREY
Published: April 16, 2012, by the New York Times
WASHINGTON — High earners who are worried that this year’s Tax Day will be the last one before their rates rise have more than just the White House and Washington to blame. They can also look to two academically revered, if publicly obscure, left-leaning French economists whose work is the subtext for the battle over tax fairness.
Emmanuel Saez and Thomas Piketty have spent the last decade tracking the incomes of the poor, the middle class and the rich in countries across the world. More than anything else, their work shows that the top earners in the United States have taken a bigger and bigger share of overall income over the last three decades, with inequality nearly as acute as it was before the Great Depression.
Known in Washington and the economics profession by the of-course-you-know shorthand “Piketty-Saez,” the two have been denounced on the editorial page of The Wall Street Journal and won mention in White House budget documents.
Mr. Saez, 39, a professor at the University of California, Berkeley, has won the John Bates Clark Medal, an economic laurel considered second only to the Nobel, as well as a MacArthur Fellowship grant. Mr. Piketty, 40, of the Paris School of Economics, has won Le Monde’s prize for best young economist, among other awards.
Both admire, even adore, the United States, they say, for its entrepreneurial drive, innovative spirit and, not least, its academic excellence: the two met while researchers in Boston. But both also express bewilderment over the current conversation about whether the wealthy, who have taken most of America’s income gains over the last 30 years, should be paying higher taxes.
“The United States is getting accustomed to a completely crazy level of inequality,” Mr. Piketty said, with a degree of wonder. “People say that reducing inequality is radical. I think that tolerating the level of inequality the United States tolerates is radical.”
As much as Mr. Piketty’s and Mr. Saez’s work has informed the national debate over earnings and fairness, their proposed corrective remains far outside the bounds of polite political conversation: much, much higher top marginal tax rates on the rich, up to 50 percent, or 70 percent or even 90 percent, from the current top rate of 35 percent.
The two economists argue that even Democrats’ boldest plan to increase taxes on the wealthy — the Buffett Rule, a 30 percent minimum tax on earnings over $1 million — would do little to reverse the rich’s gains. Many of the Republican tax proposals on the table might increase income inequality, at least in the short term, according to William G. Gale of the Tax Policy Center and many other left-leaning and centrist economists.
Conservatives respond that high tax rates would stifle economic growth, at a minimum, and cause some businesses and high-income workers to flee to other countries. When top American tax rates were much higher, from the 1940s through the early 1970s, businesses could not relocate as easily as they can now, say critics of Mr. Piketty and Mr. Saez.
But Mr. Piketty and Mr. Saez argue that the historical facts are their side: Many countries have higher tax rates — and the United States has had higher tax rates — without stifling growth or encouraging the concentration of income in the hands of the very rich.
“In a way, the United States is becoming like Old Europe, which is very strange in historical perspective,” Mr. Piketty said. “The United States used to be very egalitarian, not just in spirit but in actuality. Inequality of wealth and income used to be much larger in France. And very high taxes on the very rich — that was invented in the United States,” he said.
Mr. Saez added, “Absent drastic policy changes, I doubt that income inequality will decline on its own.”
The two economists’ project of mapping income inequality started two decades ago, when Mr. Saez was teaching at Harvard and Mr. Piketty teaching down the road at the Massachusetts Institute of Technology.
Their innovation was to measure American income inequality historically. Existing data went back only to the 1970s. Tedious archival research at the Internal Revenue Service allowed them to stretch the data all the way back to 1913.
Once they had collected the data, the computation was easy. They figured out the benchmark for various income levels — the top 10 percent, top 1 percent and top 0.1 percent of earners, for instance — and calculated what share of income each group took each year.
What they found startled them. As in other industrially advanced countries, income inequality in the United States fell after World War II, a period that economic historians call the “Great Compression,” and remained stable through much of the 1970s.
But then inequality started increasing again, with the top 1 percent of earners drawing a bigger and bigger share of overall income. Their graph showing the trend became well-known: a deep U, with inequality as acute today as it was just before the depression.
When they first published their work, income inequality was mostly off the political radar screen, thanks to the 1990s boom, Mr. Saez said.
“Growing inequality was not perceived to be an issue because the economy was growing fast and even the incomes of the 99 percent were growing significantly,” he said.
But the deep downturn of the last few years, and Mr. Obama’s election, brought the issue back to the fore. Peter R. Orszag, the former Obama budget director, has said the Piketty-Saez work “helped to point the way for the administration in its pledge to rebalance the tax code.”
Now living many time zones apart, Mr. Piketty and Mr. Saez update their work with frequent e-mails, Skype conversations and data-sharing through Dropbox.
They have found that the trends have mostly continued. From 2000 to 2007, incomes for the bottom 90 percent of earners rose only about 4 percent, once adjusted for inflation. For the top 0.1 percent, incomes climbed about 94 percent.
The recession interrupted the trend, with the sharp decline in stock prices hitting the pocketbooks of the rich. But the income share of 1 percent has since rebounded. Data that the two economists released in March showed that the top 1 percent of earners got nearly every dollar of the income gains eked out in the first full year of the recovery. In 2010, the top 10 percent of earners took about half of overall income.
That has led the two economists to renew their calls for higher rates on the rich. Along with Peter Diamond, an emeritus professor at M.I.T. and a Nobel laureate, Mr. Saez has estimated the “optimal” top tax rates for the wealthy to be between 45 and 70 percent.
“The debate in Washington is between the Bush-era and Clinton-era tax rates,” said Mr. Diamond, whom Mr. Obama nominated to the Federal Reserve and Republicans blocked. “Our finding is that the debate should be between the pre-1986 Reagan tax rate, which was 50 percent, and the rates that existed from Johnson until Reagan,” which were higher.
“Thirty percent is three times smaller than the 91 percent of Roosevelt,” Mr. Piketty said, responding to the Buffett Rule proposal and referring to the presidency of Franklin D. Roosevelt, who engineered the New Deal. “And inequality is greater than in the time of Roosevelt.”
by Robert Reich
The economy added only 120,000 jobs in March – down from the rate of more than 200,000 in each of the preceding three months. The rate of unemployment dropped from 8.3 to 8.2 percent mainly because fewer people were searching for jobs – and that rate depends on how many people are actively looking.
It’s way too early to conclude the jobs recovery is stalling, but there’s reason for concern.
Remember: Consumer spending is 70 percent of the economy. Employers won’t hire without enough sales to justify the additional hires. It’s up to consumers to make it worth their while.
But real spending (adjusted to remove price changes) this year hasn’t been going anywhere. It increased just .5 percent in February after an anemic .2 percent increase in January.
The reason consumers aren’t spending more is they don’t have the money. Personal income was up just .2 percent in February – barely enough to keep up with inflation. As a result, personal saving as a percent of disposable income tumbled to 3.7 percent in February from 4.3 percent in January.
Personal saving is now at its lowest level since March 2009.
American consumers, in short, are hitting a wall. They don’t dare save much less because their jobs are still insecure. They can’t borrow much more. Their home values are still dropping, and many are underwater – owing more on their homes than the homes are worth.
The economy has been growing but almost all the gains have gone to the very top. As I’ve noted, this is the most lopsided recovery on record.
You will hear other theories about the hiring slowdown, but they don’t wash.
It’s not due to “uncertainty” about the economy. That’s a tautology – the economy’s future is always uncertain, especially when consumers don’t have the dough to keep it going.
It’s not because of fears about a European recession. Europe has been in the skids for some time now. Besides, the American economy doesn’t really depend on exports to Europe.
And it’s not about gas prices or the rise in healthcare insurance premiums. Both are up, but they’ve been trending up for many months.
It’s because consumers’ pockets are almost empty.
We’ll avoid a double-dip, but the most likely scenario in coming months is a continuation of the same – an anemic jobs recovery.
President Obama will claim the economy is improving – and, technically, it is. Growth this year will most likely average around 2 percent. The problem is, most Americans aren’t feeling it in their paychecks.
Mitt Romney will claim the economy is in terrible shape – and there will be enough evidence to justify his “cup-half-empty” rhetoric.
But when it comes to explaining what’s really wrong with the economy, Romney is the perfect foil for Obama because Romney represents the richest of the rich – a man who raked in more than $20 million last year, and paid a tax rate of just 13.9 percent (lower than much of the middle class).
He made that money by buying up “under-performing” companies – that is, companies that employed more people than they needed to, and carried less debt than was necessary to show big profits (interest on debt is deductible from company income). Romney’s firm, Bain Capital, made him and his colleagues fortunes by firing workers and loading companies up with debt.
And there’s America’s economic problem in a nutshell.
Romney and his ilk are doing wonderfully well, but the rest of the nation is still in deep trouble. Yet the U.S. economy can’t fully recover on the spending of millionaires.
The President has already announced that this election is about America’s surge toward ever-greater inequality. He’s right. And this painful recovery shows it.
It would be sadly ironic if Obama lost the election because the economy responded to widening inequality exactly as expected.
by Robert Reich
Luxury retailers are smiling. So are the owners of high-end restaurants, sellers of upscale cars, vacation planners, financial advisors, and personal coaches. For them and their customers and clients the recession is over. The recovery is now full speed.
But the rest of America isn’t enjoying an economic recovery. It’s still sick. Many Americans remain in critical condition.
The Commerce Department reported Thursday that the economy grew at a 3 percent annual rate last quarter (far better than the measly 1.8 percent third quarter growth). Personal income also jumped. Americans raked in over $13 trillion, $3.3 billion more than previously thought.
Yet it’s almost a certainly that all the gains went to the top 10 percent, and the lion’s share to the top 1 percent. Over a third of the gains went to 15,600 super-rich households in the top one-tenth of one percent.
We don’t know this for sure because all the data aren’t in for 2011. But this is what happened in 2010, the most recent year for which we have reliable data, and there’s no reason to believe the trajectory changed in 2011 or that it will change this year.
In fact, recoveries are becoming more and more lopsided.
The top 1 percent got 45 percent of Clinton-era economic growth, and 65 percent of the economic growth during the Bush era.
According to an analysis of tax returns by Emmanuel Saez and Thomas Pikkety, the top 1 percent pocketed 93 percent of the gains in 2010. 37 percent of the gains went to the top one-tenth of one percent. No one below the richest 10 percent saw any gain at all.
In fact, most of the bottom 90 percent have lost ground. Their average adjusted gross income was $29,840 in 2010. That’s down $127 from 2009, and down $4,843 from 2000 (all adjusted for inflation).
Meanwhile, employer-provided benefits continue to decline among the bottom 90 percent, according to the Commerce Department. The share of people with health insurance from their employers dropped from 59.8 percent in 2007 to 55.3 percent in 2010. And the share of private-sector workers with retirement plans dropped from 42 percent in 2007 to 39.5 percent in 2010.
If you’re among the richest 10 percent, a big chunk of your savings are in the stock market where you’ve had nice gains over the last two years. The value of financial assets held by Americans surged by $1.46 trillion in the fourth quarter of 2011.
But if you’re in the bottom 90 percent, you own few if any shares of stock. Your biggest asset is your home. Home prices are down over a third from their 2006 peak, and they’re still dropping. The median house price in February was 6.2 percent lower than a year ago.
Official Washington doesn’t want to talk about this lopsided recovery. The Obama administration is touting the recovery, period, without mentioning how narrow it is.
Republicans would rather not talk about widening inequality to begin with. The reverse-Robin Hood budget plan just announced by Paul Ryan and House Republicans (and endorsed by Mitt Romney) would make the lopsidedness far worse – dramatically cutting taxes on the rich and slashing public services everyone else depends on.
Fed Chief Ben Bernanke – who doesn’t have to face voters on Election Day – says the U.S. economy needs to grow faster if it’s to produce enough jobs to bring down unemployment. But he leaves out the critical point.
We can’t possibly grow faster if the vast majority of Americans, who are still losing ground, don’t have the money to buy more of the things American workers produce. There’s no way spending by the richest 10 percent – the only ones gaining ground – will be enough to get the economy out of first gear.
When I was a graduate student at UCSD in the midst of the anti-war movement, protesting the war in Vietnam, I went to the library and pondered what would make the world a better place, what could I do to contribute something that might make war less likely and peace time activity more likely. I concluded that more cooperation was needed. More ways to resolve conflicts big and small. For example, democratic voting systems resolve conflicts in such a way that solutions are found that are acceptable to all parties for the most part. I took it for granted that institutions that provided for more cooperation and less competition were more desirable. I thought that this was what the Enlightenment was all about. My heroes were the Enlightenment superstars: Jeremy Bentham, John Stuart Mill, Rousseau, Diderot, Voltaire, John Locke.
As I sat there and went through the stacks, I discovered another field and another set of superstars. Social choice has a long history going back to the French Enlightenment philosophers, the Marquis de Condorcet and Jean-Charles de Borda, and even further back than that. One of the 19th century superstars in this field was none other than the Rev. C. L. Dodgson otherwise known as Lewis Carroll, the author of Alice in Wonderland. These guys came up with voting systems which are essential to democracy and are essential to the whole notion of cooperation and conflict resolution. The most recent work in this field was by Kenneth Arrow who published a book Social Choice and Individual Values in the 1950s which attempted to generalize conflict resolution in society in both the political and economic spheres. Arrow concluded that this was impossible and came up with his famous Impossibility Theorem which was a generalization using sophisticated mathematics of the paradox of voting that was known to Condorcet hundreds of years ago. Therefore, Arrow concluded democracy was impossible and any economic system other than capitalism was impossible too. Hmmm, I thought, this is obviously a cop-out because some political and economic systems are more desirable than others and Arrow has done nothing except to throw cold water on any framework that could consider these. I took it as my self-assigned task to prove that Arrow was wrong, that social choice is possible. My work can be found on the website Social Choice and Beyond.
My latest work is "Politonomics: A Meta-Theory Encompassing Political and Economic Decision Making." This is from the Abstract:
In “Social Choice and Individual Values,” Kenneth Arrow said , “In a capitalist democracy there are essentially two methods by which social choices can be made: voting, typically used to make ‘political’ decisions, and the market mechanism, typically used to make ‘economic’ decisions.” This paper resolves that dichotomy by developing a meta-theory from which can be derived methods for both political and economic decision making. This theory overcomes Arrow’s Impossibility Theorem in which he postulates that social choice is impossible and compensates for strategic voting, an undesirable aspect of decision making according to Gibbard and Satterthwaite. Thus the politonomics meta-theory spawns both political and economic systems which are indeed possible and which cannot be gamed. In a typical voting system the outcome of an election among several candidates results in one realized outcome – the winner of the election - which applies to all voters. In a typical economic system, a consumer may choose among a variety of possible baskets of consumer items and work programs with the result that multiple realized outcomes are possible with a unique or quasi-unique outcome for each worker/consumer. As the number of possible realized outcomes of a political-economic decision making process increases, the process becomes more economic and less political in nature and vice versa. We show that as the number of possible realized outcomes increases, voter/consumer/worker satisfaction or utility increases both individually and collectively.
I never considered, as I sat there pondering, that there would be people who would argue that what the world needed was not more cooperation but more competition, but, as I sit here today, I realize that the whole conservative right wing is in favor of just that. They want not more cooperation in either the political or economic realm but more competition believing that only winners should prevail and human progress is only possible when you give free reign to those among us who are the most talented, intelligent and ambitious. They believe that competition will result in the strongest among us winning just as Nietzsche believed that a good war hallows every cause. Their ethic is that the naturally gifted elite should prevail, and they are not concerned about what happens to the rest of us or of who is trampled in the process. This is also the philosophy of Ayn Rand as espoused in her novels Atlas Shrugged and The Fountainhead.
The debate today about increasing inequality in the world has to do with the prevalent conservative belief that only the strong should survive and be promoted and that freedom should preclude equality as a value. The rich should get more tax breaks because they are the true instigators of human progress and should be catered to at every turn. Perhaps a few crumbs will trickle down to the rest of us. This kind of thinking is counter to the Enlightenment and is fast returning us to a neo-Dark Age. No more is human progress to be measured in reduction of poverty and extension of basic services like health care to everyone. It is to be measured in terms of the great advances to human civilization like iPads, iPods and iPhones. People who are capable of coming up with these advances should be cut every break and none of the billions of dollars they make should be transferred by government to the least of these among us like the homeless, the poverty-stricken and the destitute because, well, they are the least among us, not the best among us who should be given every break.
Nevertheless, I remain in the camp of those who think that more cooperation in the political and economic spheres will do more for human progress than more competititon. I also have spent about 40 years in my spare time trying to prove that Arrow was wrong, that social choice is not impossible and that democracy in both the political and economic spheres is not only possible but desirable. This has a lot to do with voting systems, democratic institutions and constitutions but also with cooperative economic systems in which freedom is seen not as the freedom to make money at other people's expense (the losers in the competitive struggle) but the freedom to work as much or as little as one chooses and in accordance with one's preferences as much as possible. Freedom from work is for many people just as desirable a goal as the freedom to make billions of dollars, and wealthy people who don't have to work would be the first to tell you that. Economic democracy in my view is more desirable than cutthroat capitalism, and can be practiced not only at the national level, but at the enterprise level in the form of co-ops like the Mondragon Corporation.
Marx's famous definition of the "good society" was "from each according to his ability, to each according to his needs." This of course was perverted in defining communism as a society where all the wealth created by those who had a lot of talent and ability as well as a strong work ethic combined with those who had not so much in those categories would be thrown into a pot and then divided up in equal portions and handed out by the government. Such need not be the case in achieving the "good society." The "needs" part is pretty basic and could probably be accomplished with abouit 10% of the wealth that exists in the world today. Most people can provide for their own needs - no transfer necessary. There are some who cannot and to transfer a small part of the wealth of the wealthy to provide for their basic needs seems to me to be no more than humane. That still leaves the vast amount of wealth in the hands of the wealthy. In other words if you total up how much it would cost to provide for all the basic needs of everyone in the world and tote up how much wealth there exists in the world, it would take a fraction of all that wealth to provide the basic needs for everyone who cannot provide for their basic needs themselves who turn out to be mainly children, seniors and handicapped (whether physically or mentally) people.
A recent documentary by German TV station Deutsche Welle pointed out that half the world's production of food is wasted because super markets only want perfect vegetables and ones with slight blemishes are thrown out even though they are perfectly edible. Shelves need to be fully stocked with bread right up till closing hours even though any bread left over at the end of day will be thrown out as "day old." All the food that is thrown out by advanced nations is enough to feed all the world's hungry three times over although no governments or other institutions, much less the supermarkets themselves, seem to be interested in organizing that effort. This is what I mean by the fact that the basic needs of all the world's people could be satisfied without subtracting much if anything from the world's wealthy although a lot of them would admit they do not need incomes of millions of dollars a day like the Fortune 400 billionaires have.
Another documentary noted that Finnish school children have the highest test scores in the world despite the fact that they have one of the world's shortest school days with 15 minutes intermissions between classes during which time they are encouraged to go outdoors and play. All grades have large amounts of music, art and self-defined projects. They don't teach to the test. They are concerned with the development of each student as an overall human being not just as some super competitive cog in a nationally competitive machine. The Chinese on the other hand have the opposite approach demanding that children learn by rote methods and extra hours in school and at study. The Finnish schools are all public and everyone is accepted into every class. There are no advanced classes or tracking of students into lesser classes if they are not among the elite intellectually. Everyone is thrown in together; yet they have the best outcomes of any country in the world on standardized international tests. Egalitariansim seems to gain the best results.
An egalitarian ethic in which the concern is for the development of the whole human being rather than a promotion of just those who have superior abilities in accordance with a competitive ethic seems to me to be the most humanitarian way to treat both children and adults. The 1948 Universal Declaration of Human Rights already provides for most of the "from each according to their abilities, to each according to their needs" ethic. It calls for free health care which most advanced socierties, with the exception of the United States, already provide. It calls for free education and other public institutions and covers most basic human needs including food and shelter.
Here are Articles 25 and 26:
All the basic needs of everyone on the planet could be provided for without subtracting much of the wealth of the rich since most people can provide for at least their basic needs without any transfer of wealth whatsover being necessary. Interestingly, the US among other nations does provide food security for the poor through its food stamps program. And of course seniors are provided for through Medicare, Medicaid and Social Security, programs which conservative free marketers are anxious to change or eliminate.
I am with the Enlightenment thinkers especially the English utilitarians like Jeremy Bentham and John Stuart Mill who thought about the happiness of society as a whole and concluded that everyone counted, not only the ones with exceptional talent, ability and other admirable qualities. A society should be judged by how it treats "the least of these my brethren" which is the core and essence of Jesus' teachings but, sad to say, not the core and essence of Christianity as it exists in the world today. Perhaps we should start thinking about an alternative constitution for the US which has the world's oldest constitution (236 years old!) while being the world's youngest advanced nation. Other societies including most European societies while being older than the US have newer constitutions. As far-sighted as the Founding Fathers were, a new and updated constitution incorporating not only political but also economic rights along the lines of the UN Declaration of Human Rights would do much to right the wrongs and shortcomings of present day America and the world.
Posted by John on March 14, 2012 at 03:34 PM in John Lawrence, Conservatives, Cooperatives, Corporations, Democracy, Economic Democracy, Economics, Education, Careers, Jobs, Employment, Enlightenment, Equality, Ethics, Morality, Human Rights, Inequality, Laissez Faire Capitalism, Medicaid, Medicare, Politics, Poverty, Preferensism, Republican War on the Poor, Right Wing, Social Choice, Social Security, Survival of the Fittest, The Economy, The Rich, The Role of Government, Values, Voting Methods, War, Waste, Wealth, Welfare | Permalink | Comments (0) | TrackBack (0)
by Robert Reich
Here’s the good news. The economic pie is growing again. Growth in the 4th quarter last year hit 3 percent on an annualized rate. That’s respectable – although still way too slow to get us back on track given how far we plunged.
Here’s the bad news. The share of that growth going to American workers is at a record low.
That’s largely because far fewer Americans are working. Although the nation is now producing more goods and services than it did before the slump began in 2007, we’re doing it with six million fewer people.
Why? Credit technology. Computers, software applications, and the Internet are letting us produce more with fewer people.
In theory, this is a huge plus. We can live better and have more time off.
But as Tonto asked the Lone Ranger, “who’s ‘we,’ kemosabe?”
The challenge at the heart of the productivity revolution – and it is a revolution – is how to distribute the gains. So far, we’ve been failing miserably to meet that challenge.
True, some of the gains are widely spread in the form of lower prices and higher value. My 3-year-old granddaughter gets more out of an i-Phone in five minutes than my 98-year-old father ever got out of reading the daily paper (putting to one side their relative capacities to process the information).
But many of the gains are distributed narrowly in the form of profits to owners, and fat compensation packages to the “talent.”
The share of the gains going to everyone else in the form of wages and salaries has been shrinking. It’s now the smallest since the government began keeping track in 1947.
If the trend continues, inequality will become ever more extreme.
We’ll also face chronically insufficient demand for all the goods and services the productivity revolution can generate. That’s because the rich save more of their earnings than everyone else, while middle and lower-income families – with fewer jobs or lower wages – no longer have the purchasing power to keep the economy going at full tilt. (Before 2008 they kept up their buying by sinking deep into debt. This proved to be an unsustainable strategy.)
Insufficient demand – as everyone but regressive supply-siders now recognize – is a big reason why the current recovery has been so anemic and the pie isn’t growing faster.
So while the productivity revolution is indubitably good, the task ahead is to figure out how to distribute more of its gains to more of our people.
One possibility: higher taxes on the rich that go into wage subsidies for lower-income workers, combined with job sharing.
We also need better schools (from early-childhood through young adulthood, followed by systems of lifelong learning) so everyone has a fair shot at a larger share of the gains.
Finally, the benefits of the productivity revolution should be turned into more abundant public goods – cleaner air and water, better parks and recreation, improved public health, and better public transit.
Regressive right wingers want Americans to believe we’ve been living beyond our means, and can no longer afford it.
The truth is just the reverse. Most Americans’ means haven’t kept up with what the economy could provide – if the fruits of the productivity revolution were more widely shared.
Regressives growl about America’s borrowing and tut-tut about future federal budget deficits. The reality is the world is willing to lend us vast amounts of money because we’re so productive. And the productivity revolution is making us ever more so.
Get it? The pie is growing again but most people aren’t getting much of a slice. That’s bad even for those getting the biggest pieces. They’d do better with smaller slices of a pie that grew much faster.
by Robert Reich
Treasury Secretary Tim Geithner, speaking at the World Economic Forum in Davos a few days ago, said the “critical risks” facing the American economy this year were a worsening of Europe’s chronic sovereign debt crisis and a rise in tensions with Iran that could stoke global oil prices.
What about jobs and wages here at home?
As the Commerce Department reported Friday, the U.S. economy grew 2.8 percent between October and December – the fastest pace in 18 months and the first time growth exceeded 2 percent all year. Many bigger American companies have been reporting strong profits in recent months. GE and Lockheed Martin closed the year with record order backlogs.
Yet the percent of working-age Americans in jobs isn’t much different than what it was three years ago. Yes, America now produces more than it did when the recession began. But it does so with 6 million fewer workers.
Average after-tax incomes adjusted for inflation are moving up a bit. (They increased at an annual rate of .8 percent in the last three months of 2011 after falling 1.9 percent in prior three-month period. For all of 2011, incomes fell .1 percent.)
But beware averages. Shaquille O’Neal and I have an average height of six feet. Exclude Mitt Romney’s $20 million last year — along with everyone else securely in the top 1 percent — and the incomes of most Americans are continuing to slip.
Consumer spending picked up slightly in the fourth quarter mainly because consumers drew down their savings. Obviously, this can’t last.
Meanwhile, government is spending less on schools, roads, bridges, parks, defense, and social services. Government spending at all levels dropped at an annual rate of 4.6 percent in the last quarter – and that’s likely to continue.
Some economists worry this drop is a drag on the economy. But it also means fewer public goods available to all Americans regardless of income.
Congress still hasn’t decided whether to renew the temporary payroll tax cut and extend unemployment benefits past February. If it doesn’t, expect another 1 percent slice off GDP growth this year.
Tim Geithner is surely correct that the European debt crisis and Iran pose risks to the American economy in 2012. But they aren’t the biggest risk. The biggest risk is right here at home – that most Americans will continue to languish.
All of which raises a basic question: Who or what is the economy for? Surely not just for a few at the top, and not just big corporations and their CEOs. Nor can the success of the economy be measured by how fast the GDP is growing, or how high the Dow Jones Industrial Average is rising, or whether average incomes are turning upward.
The crisis of American capitalism marks the triumph of consumers and investors over workers and citizens. And since most of us occupy all four roles – even though the lion’s share of consuming and investing is done by the wealthy – the real crisis centers on the increasing efficiency by which all of us as consumers and investors can get great deals, and our declining capacity to be heard as workers and citizens.
Modern technologies allow us to shop in real time, often worldwide, for the lowest prices, highest quality, and best returns. Through the Internet and advanced software we can now get relevant information instantaneously, compare deals, and move our money at the speed of electronic impulses. We can buy goods over the Internet that are delivered right to our homes. Never before in history have consumers and investors been so empowered.
Yet these great deals increasingly come at the expense of our own and our compatriots’ jobs and wages, and widening inequality. The goods we want or the returns we seek can often be produced more efficiently elsewhere around the world by companies offering lower pay, fewer benefits, and inferior working conditions.
They also come at the expense of our Main Streets – the hubs of our communities – when we get the great deals through the Internet or at big-box retailers that scan the world for great deals on our behalf.
Some great deals have devastating environmental consequences. Technology allows us to efficiently buy low-priced items from poor nations with scant environmental standards, sometimes made in factories that spill toxic chemicals into water supplies or pollutants into the air. We shop for great deals in cars that spew carbon into the air and for airline tickets in jet planes that do even worse.
Other great deals offend common decency. We may get a great price or high return because a producer has cut costs by hiring children in South Asia or Africa who work twelve hours a day, seven days a week. Or by subjecting people to death-defying working conditions.
As workers or as citizens most of us would not intentionally choose these outcomes but as seekers after great deals we are indirectly responsible for them. Companies know that if they fail to offer us the best deals we will take our money elsewhere – which we can do with ever-greater speed and efficiency.
The best means of balancing the demands of consumers and investors against those of workers and citizens has been through democratic institutions that shape and constrain markets.
Laws and rules offer some protection for jobs and wages, communities, and the environment. Although such rules are likely to be costly to us as consumers and investors because they stand in the way of the very best deals, they are intended to approximate what we as members of a society are willing to sacrifice for these other values.
But technologies for getting great deals are outpacing the capacities of democratic institutions to counterbalance them. For one thing, national rules intended to protect workers, communities, and the environment typically extend only to a nation’s borders. Yet technologies for getting great deals enable buyers and investors to transcend borders with increasing ease, at the same time making it harder for nations to monitor or regulate such transactions.
For another, goals other than the best deals are less easily achieved within the confines of a single nation. The most obvious example is the environment, whose fragility is worldwide. In addition, corporations now routinely threaten to move jobs and businesses away from places that impose higher costs on them – and therefore, indirectly, on their consumers and investors – to more “business friendly” jurisdictions. The Internet and software have made companies sufficiently nimble to render such threats credible.
But the biggest problem is that corporate money is undermining democratic institutions in the name of better deals for consumers and investors. Campaign contributions, fleets of well-paid corporate lobbyists, and corporate-financed PR campaigns about public issues are overwhelming the capacities of Congress, state legislatures, regulatory agencies, and the courts to reflect the values of workers and citizens.
As a result, consumers and investors are doing increasingly well but job insecurity is on the rise, inequality is widening, communities are becoming less stable, and climate change is worsening. None of this is sustainable over the long term.
Blame global finance and worldwide corporations all you want. But save some blame for the insatiable consumers and investors inhabiting almost every one of us, who are entirely complicit. And blame our inability as workers and citizens to reclaim our democracy.
John Coltrane: One Down, One Up
Monk and Coltrane: Thelonious Monk and John Coltrane at Carnegie Hall
Best album of 2005 (*****)
Doug Ramsey: Take Five: The Public and Private Lives of Paul Desmond
This is a great book! Paul Desmond and Dave Brubeck formed the heart of one of the best all time jazz groups. Paul was the quintessential intellectual, white jazz musician. A talented writer, he never published anything. However author, Doug Ramsey has collected Paul's letters here. How ironic that now his writing in the form of letters to his father and ex-wife, among others, is finally published showing another window on the mind of this talented person. A sideman, for the most part, his entire life, the Dave Brubeck Quartet might never have happened at all due to the fact that Paul had managed to offend Dave to the point where he never wanted to see him again. It had to do with a gig that Paul actually was the leader of. Paul wanted to take the summer off to play another gig, and Dave wanted Paul to let him take over the gig at the Band Box in Palo Alto, CA. Paul wouldn't let him and Dave, married with two children, proceeded to starve. Due to an elaborate publicity campaign, when he realized the error of his ways, Paul managed to worm himself back into Dave's good graces. The rest is history. This book is remarkable for the insight it gives into a working jazz musician's mind, wonderful pictures and interviews with the significant figures in Paul's life. Author Ramsey, not a remarkable penman himself, has nevertheless done a magnificent job of assembling all these various materials. Unlike a lot of jazz authors, he doesn't overly idolize his subject with the result that you get the feeling that you have met a real person and not a idealized version. That's high praise indeed for any biographer. (*****)