"In a time of universal deceit telling the truth is a revolutionary act." -George Orwell

Posts Tagged ‘Recession’

As The Plutonomy Powers Ahead, The Realonomy Remains In Recession

In Uncategorized on February 3, 2012 at 4:55 pm

Oldspeak:‘In a Plutonomy “the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers.” In other words, official economic statistics no longer represent the experience of the economy as a whole. More and more, they represent only the experiences of the very rich...the Realonomy has been in recession since 1999. Even at the very top of the Realonomy, people have experienced flat or declining incomes over the past 12 years…The Realonomy won’t start growing again until America addresses its runaway inequality. We need fairer taxes, higher minimum wages, and more – not less – government spending…That may all sound counterintuitive in a recession, but that’s only because we’ve gotten so used to the politics of Plutonomy. Growth isn’t enough.’ -Salvatore Babones. Not only is Growth not enough, it’s unsustainable. Infinite growth in simply IMPOSSIBLE on a planet with finite resources. The current empire in decline, the U.S. of A. one of the biggest debtor nations on the planet has not come to terms with the fact that it is indeed an empire in decline, and is generating more debt than wealth, while drawing down assets faster than they can replenish them, thus accelerating the rate of decline. “The ‘culture of debt’ has become a global issue, and it is not just financial, but defines how every society and economy now interacts with respect to their fundamental economic, human and natural assets.” -Edward B. Barbier We can’t continue down this unsustainable path indefinitely. The music will stop and the party will end. Then what? That’s what we need to be asking ourselves. Then what?

By Salvatore Babones @ Truthout:

America’s longest recession since World War II officially ended in June 2009. Since then, the economy has expanded by almost 6 percent (adjusted for inflation). All of the losses of 2007-2009 have been erased.

American economic output is now at an all-time high. So why doesn’t it feel that way?

Back in October 2005, three Citigroup stock analysts heralded the arrival of a new kind of economic system in the United States. They called it the “Plutonomy,” the economy of the rich.

They explained that in a Plutonomy “the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers.” In other words, official economic statistics no longer represent the experience of the economy as a whole. More and more, they represent only the experiences of the very rich.

Official economic statistics show that US national income per capita grew a cumulative 10 percent between 1999 and 2011 (adjusted for inflation). In aggregate, we generate 10 percent more per person than we did 12 years ago. Where did that 10 percent growth go?

Up in the stratosphere of the American Plutonomy, the IRS reports that incomes among the top 400 American taxpayers increased 107 percent between 1999 and 2007 (adjusted for inflation). Top 400 incomes declined in 2008, but by most accounts they have now bounced back to pre-recession levels.

For people who just make it into the top 1 percent, the gains have been much more modest. Their real incomes have risen about 12 percent since 1999, depending how you count. By some estimates, the increase has been closer to 6 percent. In other words, people at the 99th percentile of the US income distribution – people making upwards of $360,000 per year – have just about kept pace with economic growth in the economy as a whole.

Since 1999, no group below the top 1 percent has even kept pace. They are the “other 99 percent.” They live in the “Realonomy.”

In the Realonomy, people make most of their money from wages, not investments. In the Realonomy, people have to worry about retirement planning and health insurance. In the Realonomy, people can’t afford to lose their jobs.

While the Plutonomy continues to grow by leaps and bounds, the Realonomy has been in recession since 1999. Even at the very top of the Realonomy, people have experienced flat or declining incomes over the past 12 years. For example, families at the 95th percentile of America’s income distribution have experienced, on average, a 1.2 percent decline in real income (income adjusted for inflation) since 1999.

Further down the ladder, the situation gets worse and worse. For families at the 80th percentile, incomes are down 1.3 percent; at the 60th percentile, down 4.4 percent; at the 40th percentile, down 7.1 percent; at the 20th percentile, down 10.5 percent.

Nor does education provide an insurance policy. Among college graduates with full-time, year-round jobs, real incomes are down 3.6 percent over the past 12 years.

On the other hand, those without college degrees or full-time jobs have fared even worse.

The simple fact is that the Realonomy has been stagnant or in recession since 1999. The Realonomy hit bottom in 2009-2010, but it still hasn’t bounced back. Only the Plutonomy is growing, not the Realonomy.

The Realonomy won’t start growing again until America addresses its runaway inequality. We need fairer taxes, higher minimum wages, and more – not less – government spending.

That may all sound counterintuitive in a recession, but that’s only because we’ve gotten so used to the politics of Plutonomy. Growth isn’t enough.

We have growth. The top of the top 1 percent is growing like crazy. It’s government’s job to redirect some of that growth to the other 99 percent.

 

THE TRUTH ABOUT THE DEBT DEAL: It’s Pretty Much Meaningless

In Uncategorized on August 1, 2011 at 5:33 pm

Oldspeak:Other than cuts to federally subsidized student loans to graduate and professional school students, the debt deal actually cuts NOTHING now and only promises future reductions that may never materialize…In short, for the past month, Congress has been arguing about little more than an agreement to reach an agreement at some point in the future. Your tax dollars at work. If the ‘Super-Committee’ can’t reach an agreement, or their recommendations cannot pass Congress, deep “real” spending cuts, which are painful to both sides, would take effect. For Democrats, entitlement cuts are at risk, while Republicans would see cuts to defense spending.” -Zeke Miller  This ‘deal’ sucks for the American people. It fails to address the root causes of America’s crushing debt: Lack of revenue generation via job loss and unemployment, multiple unpaid for ‘entitlement programs’ in the form of wars, and tax subsidies for the nations wealthiest “persons”: multinational corporations. “Yet it puts the nation’s most important safety nets, public investments, education, infrastructure, and everything else Americans depend on the chopping block. It also hobbles the capacity of the government to respond to the jobs and growth crisis. Added to the cuts already underway by state and local governments, the deal’s spending cuts increase the odds of a double-dip recession. And the deal strengthens the political hand of the radical right.” -Robert Reich” More change I can’t believe in.

Related Story

To Escape Chaos, A Terrible Deal

By Zeke Miller @ Business Insider:

The “historic, bipartisan compromise” reached to raise the debt limit does not end the struggle to reign in the federal deficit — in fact, it pushes the most difficult decisions off into the future.

More surprising, the debt deal actually cuts almost nothing now–it just promises future cuts that may or may not materialize.

There are very few specific cuts in the deal — and the $1 trillion in immediate cuts are almost entirely constituted of caps on future spending. And those caps are not required to be honored by future congresses.

The “real” spending cuts to current programs will come out of a bipartisan committee of Representatives and Senators, which is charged with finding an additional $1.5 trillion in savings from the federal deficit.

But White House and Republican leaders appear split on exactly what the so-called “Super Committee” can do.

In a presentation to his caucus, Speaker of the House John Boehner said it would “be effectively…impossible for [the] Joint Committee to increase taxes,” even though it could consider reforming the tax code.

White House officials strongly pushed back on that remark, saying revenue-increasing reform is possible — even though it almost certainly would not be able to get through Congress.

The committee is modeled on “BRAC” or the Base Realignment and Closure Commission, whose recommendations are presented to Congress for a straight up-or-down vote with no amendments allowed. Instead of non-partisan commissioners, each congressional leader will appoint three members of Congress to the committee.

If the Super-Committee can’t reach an agreement, or their recommendations cannot pass Congress, deep “real” spending cuts, which are painful to both sides, would take effect. For Democrats, entitlement cuts are at risk, while Republicans would see cuts to defense spending.

Additionally, President Barack Obama has the ability to veto an extension of the Bush tax cuts if he deems the committee’s solution insufficiently “balanced.”

So, again, other than cuts to federally subsidized student loans to graduate and professional school students, the debt deal actually cuts NOTHING now, and only promises future reductions that may never materialize.

In short, for the past month, Congress has been arguing about little more than an agreement to reach an agreement at some point in the future. Your tax dollars at work.

U.S. Adds 3.8 Million More To Ranks Of The Poor As Poverty Rate Jumps

In Uncategorized on September 20, 2010 at 10:32 am

Oldspeak: “As the Corplutocracy grows, so does the ranks of the Poor.”

From Hope Yen @ The Associated Press:

The ranks of the working-age poor climbed to the highest level since the 1960s as the recession threw millions of people out of work last year, leaving one in seven Americans in poverty.

The overall poverty rate climbed to 14.3 percent, or 43.6 million people, the Census Bureau said Thursday in its annual report on the economic well-being of U.S. households. The report covers 2009, President Barack Obama’s first year in office.

The poverty rate increased from 13.2 percent, or 39.8 million people, in 2008.

The share of Americans without health coverage rose from 15.4 percent to 16.7 percent — or 50.7 million people — mostly because of the loss of employer-provided health insurance during the recession. Congress passed a health overhaul this year to address the rising numbers of uninsured people, but its main provisions will not take effect until 2014.

In a statement, President Barack Obama called 2009 a tough year for working families but said it could have been worse.

“Because of the Recovery Act and many other programs providing tax relief and income support to a majority of working families — and especially those most in need — millions of Americans were kept out of poverty last year,” Obama said.

The new figures come at a politically sensitive time, just weeks before the Nov. 2 congressional elections, when voters restive about high unemployment and the slow pace of economic improvement will decide whether to keep Democrats in power in the House and Senate or turn to Republicans.

The 14.3 percent poverty rate, which covers all ages, was the highest since 1994. It was lower than predicted by many demographers who were bracing for a record gain based on last year’s skyrocketing unemployment. Many had expected a range of 14.7 percent to 15 percent.

Broken down by state, Mississippi had the highest share of poor people, at 23.1 percent, according to rough calculations by the Census Bureau. It was followed by Arizona, New Mexico, Arkansas and Georgia. On the other end of the scale, New Hampshire had the lowest share, at 7.8 percent.

Analysts said the full blow of lost incomes was cushioned somewhat by increases in Social Security payments in 2009 as well as federal expansions of unemployment insurance, which rose substantially under the economic stimulus program. With the additional unemployment benefits, workers were eligible for extensions that gave them up to 99 weeks of payments after a layoff.

David Johnson, the chief of the Census Bureau’s household economics division, estimated that expanded unemployment benefits helped keep 3.3 million people out of poverty last year.

The 2009 poverty level was set at $21,954 for a family of four, based on an official government calculation that includes only cash income, before tax deductions. It excludes capital gains or accumulated wealth, such as home ownership, as well as noncash aid such as food stamps.

An additional 7.8 million people would have been counted above the poverty line if food stamps and tax credits were included as income, Johnson said.

Last year saw the biggest single-year increase in Americans without health insurance, lifting the total number to the highest since the government began tracking the figures in 1987. The number of people covered by employment-based health plans declined from 176.3 million to 169.7 million, although those losses were partially offset by gains in government health insurance such as Medicaid and Medicare.

Diane Rowland, executive vice president of the Kaiser Family Foundation, said additional increases in the uninsured are probable in the short run.

In 2014, under the new health law, Medicaid will be expanded to pick up millions more low-income people, and the government will offer tax credits for many middle-income households to use to buy coverage through new online insurance markets in each state.

By 2019, the government has estimated that nearly 93 percent of the U.S. population will have health insurance, roughly a 10 percentage point increase from today’s level.

Other census findings:

—Among the working-age population, ages 18 to 64, poverty rose from 11.7 percent to 12.9 percent. That puts it at the highest since the 1960s, when the government launched a war on poverty that expanded the federal role in social welfare programs from education to health care.

—Poverty rose among all race and ethnic groups, but stood at higher levels for blacks and Hispanics. The number of Hispanics in poverty increased from 23.2 percent to 25.3 percent; for blacks it increased from 24.7 percent to 25.8 percent. The number of whites in poverty rose from 8.6 percent to 9.4 percent.

—Child poverty rose from 19 percent to 20.7 percent.


American Workers Are Forced To Accept Pay/Benefit Cuts As U.S. Economy Deflates

In Uncategorized on August 4, 2010 at 3:08 pm

Lynn Fillinger at the Mott's plant in Williamson, N.Y. Workers went on strike on May 23 over demands to cut pay and benefits.

Oldspeak:“The relentless corporate assault on American workers continues at the same time as corporate profits rise. “They keep piling more and more work on us, but they want to pay us less and less,” said Michele Morgan, a Mott’s employee. “It’s a slap in the face.”,” Seems simple enough. If workers are paid less, they have reduced buying power to consume goods, which further hastens the contraction of the U.S. Economy.  The shit will really hit the fan when corporate profits inevitably begins to shrink as well…”

From Stephen Greenhouse @ The New York Times:

The furloughs that popped up during the recession are being replaced by a highly unusual tactic: actual cuts in pay.

Local and state governments, as well as some companies, are squeezing their employees to work the same amount for less money in cost-saving measures that are often described as a last-ditch effort to avoid layoffs.

A new report on Tuesday showed a slight dip in overall wages and salaries in June, caused partly by employees working fewer hours.

Though average hourly pay is still higher than when the recession began, the new wage rollbacks feed worries that the economy has weakened and could even be at risk of deflation. That is when the prices of goods and assets fall and people withhold spending as they wait for prices to drop further, a familiar idea to those following the recent housing market.

A period of such slack economic demand produced a lost decade in Japan, and while it is still seen as unlikely here, some policy-making officials at the Federal Reserve recently voiced concern about the possibility because the consequences could be so dire.

Pay cuts are appearing most frequently among state and local governments, which are under extraordinary budget pressures and have often already tried furloughs, i.e., docking pay in exchange for time off. Warning that they will have to lay off people otherwise, many governors and mayors are pressing public employee unions to accept a reduction in salary of a few percentage points, without getting days off in exchange.

At the University of Hawaii, professors have accepted a 6.7 percent cut. Albuquerque has trimmed pay for its 6,000 employees by 1.8 percent on average, and New York’s governor, David A. Paterson, has sought a 4 percent wage rollback for most state employees. State troopers in Vermont agreed to a 3 percent cut. In California, teachers in the Capistrano and Pacheco school districts have accepted salary cuts.

“We’ve seen pay freezes before in the public sector, but pay cuts are something very new to that sector,” said Gary N. Chaison, an industrial relations professor at Clark University. Outsize pension costs and balanced budget requirements are squeezing many states as tax revenue has come up short.

It is impossible to say how many employers have cut workers’ pay, because the government does not keep such statistics. Economists say a modest but growing number of employers have ordered wage cuts, especially in the public sector. In a 2010 survey by the National League of Cities, 51 percent of the cities that responded said they had either cut or frozen salaries of city employees, 22 percent said they had revised union contracts to reduce some pay and benefits, and 19 percent said they had instituted furloughs.

Some businesses are also cutting workers’ pay, often to help stay afloat or to eliminate their losses, although a few have seized on the slack labor market and workers’ weak bargaining power to cut pay and thereby increase their profits and competitiveness.

Economists note that wages continued to increase in 2008 after the recession began, even adjusted for inflation. But those wages have been flat for the last 18 months, according to the Bureau of Labor Statistics.

Mr. Chaison says the latest wave of private-sector pay cuts is reminiscent of those in the early 1980s, when many companies — especially those with unionized work forces — cut wages in response to a recession, intensified competition from imports and new low-cost competitors spawned by government-backed deregulation. Now, as then, companies frequently say that compensation for unionized workers, in both wages and benefits, is out of line. For instance, the Westin Hotel in Providence, R.I., after failing to reach a new contract with its main union, has sliced wages 20 percent, saying its previous pay levels were not competitive with those at the city’s many nonunion hotels.

Factory owners sometimes warn that they will close or move jobs to lower-cost locales unless workers agree to a pay cut. In its most recent union contract, General Motors is paying new employees $14 an hour, half the rate it pays its long-term workers.

Sub-Zero, which makes refrigerators, freezers and ovens, warned its workers last month that it might close one or more factories in Wisconsin and lay off 500 employees unless they accepted a 20 percent cut in wages and benefits. Management warned that it might transfer those operations to Kentucky or Arizona, saying it needed lower costs because sales were weaker than hoped.

The pain is felt across industries. At the Seattle Symphony, musicians have taken a 5 percent pay cut, while ABF Freight System, a major trucking company, has asked theTeamsters to agree to 15 percent less. The St. Louis Post-Dispatch has lowered pay 6 percent, while Newsday has gotten its staff to accept a 5 to 10 percent pay cut.

While most of the pay cuts seem to hit unionized workers, David Lewin, a professor of management at the University of California, Los Angeles, who has written extensively on employee compensation, says some cuts are also quietly taking place among nonunion employers.

Reed Smith, a firm with 1,500 lawyers, has cut salaries for first-year associates in major cities to $130,000 from $160,000. Warren Hospital, a nonunionized facility in Phillipsburg, N.J., ordered pay cuts of 2 to 4 percent because lower Medicaid reimbursements had squeezed the hospital’s finances.

Fast-rising pension and health costs are making benefit costs grow more rapidly than wages, some employers say, and cutting wages is often easier than other ways to pare labor costs. But some workers say these cuts are unfair at a time when corporate profits and employee productivity have risen strongly.

Sometimes unions and their workers cooperate with management on pay cuts, hoping to recoup some wage increases when conditions improve. In Madawaska, Me., 460 unionized workers accepted an 8.5 percent wage cut in May to help keep their paper mill in business.

“Workers, of course, do not like to have their pay cut, but I think that workers’ major concern now is, ‘Do I have a job?’ ” Professor Lewin said. “If the unemployment rate were lower, we’d see a lot more resentment toward pay cuts.”

But workers sometimes fight back — particularly if an employer doesn’t show signs of distress.

In Albuquerque, where the mayor pushed through pay cuts to bridge a $66 million budget deficit, the largest union of municipal workers is suing, arguing that the mayor’s plan should include furloughs.

The mayor, Richard J. Berry, rejected that idea. “You want to keep people employed. You want to preserve public services. And you don’t want to raise taxes,” he said. “When you’re trying to lower the cost of government while maintaining services, furloughs don’t do the trick.”

Albuquerque would have to trim at least 100 jobs without the cuts, he said, which top out at 3.5 percent for employees earning more than $90,000. Those earning under $30,000 will not be affected.

At the Mott’s apple juice and sauce plant in Williamson, N.Y., 30 miles east of Rochester, 300 unionized workers have been on strike since May 23 over management’s demands for a $1.50-an-hour wage cut, a reduction in company 401(k) contributions and higher employee contributions to health insurance. The strikers are seething over management’s demands because the plant has been profitable and Mott’s corporate parent, the Dr Pepper Snapple Group, reported record profits last year.

“They keep piling more and more work on us, but they want to pay us less and less,” said Michele Morgan, a Mott’s employee. “It’s a slap in the face.”

Chris Barnes, a company spokesman, said the Mott’s employees were overpaid, at $21 an hour, given that the average in the area for food manufacturing workers was $14 an hour. The union disputes those figures.

“Our only objective,” Mr. Barnes said, “was to continue to enhance the competitiveness and flexibility of our operations.”

Despite Profits, US Corporations Won’t Hire American Workers

In Uncategorized on July 27, 2010 at 12:55 pm

Oldspeak:” ‘Big American companies may never rehire large numbers of workers. And they won’t even begin to think about hiring until they know American consumers will buy their products. The problem is, American consumers won’t start buying against until they know they have reliable paychecks.’ Most corporations only allegiance is to there share holders. Profit is Paramount.”

From Robert Reich @ Robert Reich.org:

Second-quarter earnings reports are coming in, and they’re making Wall Street smile. Corporate profits are up. And big American companies are sitting on a gigantic pile of money. The 500 largest non-financial firms held almost a trillion dollars in the second quarter, and that money pile is growing larger this quarter. Profits that plummeted in the recession have bounced back. Big businesses have recovered almost 90 percent of what they lost.

So with all this money and profit, they’ll start hiring again, right? Wrong – for three reasons.

First, lots of their profits are coming from their overseas operations. So that’s where they’re investing and expanding production.

GM now sells more cars in China than it does in the US, but makes most of them there. The company now employs 32,000 hourly workers in China. But only 52,000 GM hourly workers remain in the United States – down from 468,000 in 1970.

GM isn’t just hiring low-tech assembly workers in China. Last week the firm broke ground there on a $250 million advanced technology center to develop batteries and other alternative energy sources.

You and I and other American taxpayers still own over 60 percent of GM. We bought GM to save GM jobs, remember?

GM officials say no American taxpayer money is being used to expand in China. But money is fungible. Because of our generosity, GM can now use the dollars it doesn’t have to spend in the United States meeting its American payrolls and repaying its creditors, for new investments in China.

Second, big U.S. businesses are investing their cash in labor-saving technologies. This boosts their productivity, but not their payrolls.

Last Friday, for example, Ford reported a $2.6 billion second-quarter profit. The firm is already more than two-thirds the way to equaling its record 1999 profits. But due to labor-saving technologies, Ford now has half as many employees as it did a decade ago.

Wall Street analysts are happy with Ford’s “commitment to keeping capacity in check,” according to the Wall Street Journal. Ford shares rose 5.2 percent Friday. “Keeping capacity in check” is the Street’s way of saying “no new hiring.” In fact, the Street is advising investors to sell the stocks of companies that talk openly of expanding capacity.

Finally, corporations are using their pile of money to pay dividends to their shareholders and buy back their own stock – thereby pushing up share prices.

Last Friday, GE announced it would raise its dividend by 20 percent and reinstate its share-buyback plan. It’s GE’s first dividend increase since the company cut its dividend in early 2009. As a result, GE shares are up more than 5% in the past few days.

Bottom line: Higher corporate profits no longer lead to higher employment. We’re witnessing a great decoupling of company profits from jobs.

The next supply-side economist who tells you companies need more incentive (i.e. lower taxes) before they’ll hire is living on another planet.

We’re In A Recession Because The Rich Are Raking In An Absurd Portion Of the Wealth

In Uncategorized on July 12, 2010 at 9:52 am

Oldspeak: “Seems simple enough. It’s happened before. We did something to fix it in the past, but now we’re doing things to make it WORSE. “Health Care Reform”, “Financial Reform”, “Energy Policy Reform” Are essentially giveaways to the rich, that don’t really address the fundamental problem in the systems. Inequality. It persists in every aspect of society. So the rich get richer, more and more power and wealth is transferred from public to private hands, all while the country is torn asunder… “

From Robert Reich @ The Nation:

Consider: in 1928 the richest 1 percent of Americans received 23.9 percent of the nation’s total income. After that, the share going to the richest 1 percent steadily declined. New Deal reforms, followed by World War II, the GI Bill and the Great Society expanded the circle of prosperity. By the late 1970s the top 1 percent raked in only 8 to 9 percent of America’s total annual income. But after that, inequality began to widen again, and income reconcentrated at the top. By 2007 the richest 1 percent were back to where they were in 1928—with 23.5 percent of the total.

Each of America’s two biggest economic crashes occurred in the year immediately following these twin peaks—in 1929 and 2008. This is no mere coincidence. When most of the gains from economic growth go to a small sliver of Americans at the top, the rest don’t have enough purchasing power to buy what the economy is capable of producing. America’s median wage, adjusted for inflation, has barely budged for decades. Between 2000 and 2007 it actually dropped. Under these circumstances the only way the middle class can boost its purchasing power is to borrow, as it did with gusto. As housing prices rose, Americans turned their homes into ATMs. But such borrowing has its limits. When the debt bubble finally burst, vast numbers of people couldn’t pay their bills, and banks couldn’t collect.

China, Germany and Japan have surely contributed to the problem by failing to buy as much from us as we buy from them. But to believe that our continuing economic crisis stems mainly from the trade imbalance—we buy too much and save too little, while they do the reverse—is to miss the biggest imbalance of all. The problem isn’t that typical Americans have spent beyond their means. It’s that their means haven’t kept up with what the growing economy could and should have been able to provide them.

A second parallel links 1929 with 2008: when earnings accumulate at the top, people at the top invest their wealth in whatever assets seem most likely to attract other big investors. This causes the prices of certain assets—commodities, stocks, dot-coms or real estate—to become wildly inflated. Such speculative bubbles eventually burst, leaving behind mountains of near-worthless collateral.

The crash of 2008 didn’t turn into another Great Depression because the government learned the importance of flooding the market with cash, thereby temporarily rescuing some stranded consumers and most big bankers. But the financial rescue didn’t change the economy’s underlying structure. Median wages are continuing their downward slide, and those at the top continue to rake in the lion’s share of income. That’s why the middle class still doesn’t have the purchasing power it needs to reboot the economy, and why the so-called recovery will be so tepid—maybe even leading to a double dip. It’s also why America will be vulnerable to even larger speculative booms and deeper busts in the years to come.

The structural problem began in the late 1970s, by which time a wave of new technologies (air cargo, container ships and terminals, satellite communications and, later, the Internet) had radically reduced the costs of outsourcing jobs abroad. Other new technologies (automated machinery, computers and ever more sophisticated software applications) took over many other jobs (remember bank tellers? telephone operators? service station attendants?). By the ’80s, any job requiring that the same steps be performed repeatedly was disappearing—going over there or into software. Meanwhile, as the pay of most workers flattened or dropped, the pay of well-connected graduates of prestigious colleges and MBA programs—the so-called “talent” who reached the pinnacles of power in executive suites and on Wall Street—soared.

The puzzle is why so little was done to counteract these forces. Government could have given employees more bargaining power to get higher wages, especially in industries sheltered from global competition and requiring personal service: big-box retail stores, restaurants and hotel chains, and child- and eldercare, for instance. Safety nets could have been enlarged to compensate for increasing anxieties about job loss: unemployment insurance covering part-time work, wage insurance if pay drops, transition assistance to move to new jobs in new locations, insurance for communities that lose a major employer so they can lure other employers. With the gains from economic growth the nation could have provided Medicare for all, better schools, early childhood education, more affordable public universities, more extensive public transportation. And if more money was needed, taxes could have been raised on the rich.

Big, profitable companies could have been barred from laying off a large number of workers all at once, and could have been required to pay severance—say, a year of wages—to anyone they let go. Corporations whose research was subsidized by taxpayers could have been required to create jobs in the United States. The minimum wage could have been linked to inflation. And America’s trading partners could have been pushed to establish minimum wages pegged to half their countries’ median wages—thereby ensuring that all citizens shared in gains from trade and creating a new global middle class that would buy more of our exports.

But starting in the late 1970s, and with increasing fervor over the next three decades, government did just the opposite. It deregulated and privatized. It increased the cost of public higher education and cut public transportation. It shredded safety nets. It halved the top income tax rate from the range of 70–90 percent that prevailed during the 1950s and ’60s to 28–40 percent; it allowed many of the nation’s rich to treat their income as capital gains subject to no more than 15 percent tax and escape inheritance taxes altogether. At the same time, America boosted sales and payroll taxes, both of which have taken a bigger chunk out of the pay of the middle class and the poor than of the well-off.

Companies were allowed to slash jobs and wages, cut benefits and shift risks to employees (from you-can-count-on-it pensions to do-it-yourself 401(k)s, from good health coverage to soaring premiums and deductibles). They busted unions and threatened employees who tried to organize. The biggest companies went global with no more loyalty or connection to the United States than a GPS device. Washington deregulated Wall Street while insuring it against major losses, turning finance—which until recently had been the servant of American industry—into its master, demanding short-term profits over long-term growth and raking in an ever larger portion of the nation’s profits. And nothing was done to impede CEO salaries from skyrocketing to more than 300 times that of the typical worker (from thirty times during the Great Prosperity of the 1950s and ’60s), while the pay of financial executives and traders rose into the stratosphere.

It’s too facile to blame Ronald Reagan and his Republican ilk. Democrats have been almost as reluctant to attack inequality or even to recognize it as the central economic and social problem of our age. (As Bill Clinton’s labor secretary, I should know.) The reason is simple. As money has risen to the top, so has political power. Politicians are more dependent than ever on big money for their campaigns. Modern Washington is far removed from the Gilded Age, when, it’s been said, the lackeys of robber barons literally deposited sacks of cash on the desks of friendly legislators. Today’s cash comes in the form of ever increasing campaign donations from corporate executives and Wall Street, their ever bigger platoons of lobbyists and their hordes of PR flacks.

The Great Recession could have spawned another era of fundamental reform, just as the Great Depression did. But the financial rescue reduced immediate demands for broader reform. Obama might still have succeeded had he framed the challenge accurately. Yet in reassuring the public that the economy would return to normal, he missed a key opportunity to expose the longer-term scourge of widening inequality and its dangers. Containing the immediate financial crisis and then claiming the economy was on the mend left the public with a diffuse set of economic problems that seemed unrelated and inexplicable, as if a town’s fire chief dealt with a conflagration by protecting the biggest office buildings but leaving smaller fires simmering all over town: housing foreclosures, job losses, lower earnings, less economic security, soaring pay on Wall Street and in executive suites.

Legislation to improve America’s healthcare system illustrates the paradox. Initially, the nation was strongly supportive. But the president and Democratic leaders failed to link healthcare reform to the broader agenda of widely shared prosperity. So as unemployment rose through 2009, the public understandably focused its attention on the loss of jobs and earnings, to which healthcare appeared tangential. Consequently, the nation was not as actively supportive of reform as it needed to be in order to weaken the hold of Big Pharma and private health insurers, who demanded that any so-called reform improve their bottom line. The resulting law is fodder for the right, because it won’t adequately control future costs and requires Americans to pay more for health insurance than they would have had the deals not been made.

Much the same has occurred with efforts to reform the financial system. The White House and Democratic leaders could have described the overarching goal as overhauling economic institutions that bestow outsize rewards on a relative few while imposing extraordinary costs and risks on almost everyone else. Instead, they defined the goal narrowly: reducing risks to the financial system caused by particular practices on Wall Street. The solution thereby shriveled to a set of technical fixes for how the Street should conduct its business.

Even the disaster in the Gulf of Mexico could have been put into the larger frame of how giant corporations use their influence to capture regulators and impose risks and costs on the broader public, and the central importance of public health and environmental safety to widespread prosperity. But here again, the administration and Democratic leaders failed to connect the dots. The disaster morphed into a technical question of how to plug the gusher and a policy discussion of how best to regulate deepwater drilling.

If nothing more is done, America’s three-decade-long lurch toward widening inequality is an open invitation to a future demagogue who misconnects the dots, blaming immigrants, the poor, government, foreign nations, “socialists” or “intellectual elites” for the growing frustrations of the middle class. The major fault line in American politics will no longer be between Democrats and Republicans, liberals and conservatives. It will be between the “establishment” and an increasingly mad-as-hell populace determined to “take back America” from them. When they understand where this is heading, powerful interests that have so far resisted reform may come to see that the alternative is far worse.

A virtual pendulum underlies the American political economy. We swing from eras in which the benefits of economic growth concentrate in fewer hands to those in which the gains are more broadly shared, and then back again. We are approaching the end of one such cycle and the start of the next. The question is not whether the pendulum will swing back but how it will swing—whether with reforms that widen the circle of prosperity or with demagoguery that turns America away from the rest of the world, shrinks the economy and sets Americans against one another.

None of us can thrive in a nation divided between a small number of people receiving an ever larger share of the nation’s income and wealth, and everyone else receiving a declining share. The lopsidedness not only diminishes economic growth but also tears at the social fabric of our society. The most fortunate among us who have reached the pinnacles of economic power and success depend on a stable economic and political system. That stability rests on the public’s trust that the system operates in the interest of us all. Any loss of such trust threatens the well-being of everyone. We will choose reform, I believe, because we are a sensible nation, and reform is the only sensible option we have.

US Money Supply Plunges At 1930s Pace As Obama Eyes Fresh Stimulus

In Uncategorized on May 27, 2010 at 8:48 am

Oldspeak: “The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history. Despite warnings from the IMF are that the gross public debt of the US will reach 97% of GDP next year and 110% by 2015.”

From Ambrose Evans-Pritchard @ UK Telegraph:

The M3 figures – which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened.

“It’s frightening,” said Professor Tim Congdon from International Monetary Research. “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,” he said.

The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.

Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to “grit its teeth” and approve a fresh fiscal boost of $200bn to keep growth on track. “We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on,” he said.

David Rosenberg from Gluskin Sheff said the White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4pc of GDP) this year and set up a commission to target cuts. “You truly cannot make this stuff up. The US governnment is freaked out about the prospect of a double-dip,” he said.

The White House request is a tacit admission that the economy is already losing thrust and may stall later this year as stimulus from the original $800bn package starts to fade.

Recent data have been mixed. Durable goods orders jumped 2.9pc in April but house prices have been falling for several months and mortgage applications have dropped to a 13-year low. The ECRI leading index of US economic activity has been sliding continuously since its peak in October, suffering the steepest one-week drop ever recorded in mid-May.

Mr Summers acknowledged in a speech this week that the eurozone crisis had shone a spotlight on the dangers of spiralling public debt. He said deficit spending delays the day of reckoning and leaves the US at the mercy of foreign creditors. Ultimately, “failure begets failure” in fiscal policy as the logic of compound interest does its worst.

However, Mr Summers said it would be “pennywise and pound foolish” to skimp just as the kindling wood of recovery starts to catch fire. He said fiscal policy comes into its own at at time when the economy “faces a liquidity trap” and the Fed is constrained by zero interest rates.

Mr Congdon said the Obama policy risks repeating the strategic errors of Japan, which pushed debt to dangerously high levels with one fiscal boost after another during its Lost Decade, instead of resorting to full-blown “Friedmanite” monetary stimulus.

“Fiscal policy does not work. The US has just tried the biggest fiscal experiment in history and it has failed. What matters is the quantity of money and in extremis that can be increased easily by quantititave easing. If the Fed doesn’t act, a double-dip recession is a virtual certainty,” he said.

Mr Congdon said the dominant voices in US policy-making – Nobel laureates Paul Krugman and Joe Stiglitz, as well as Mr Summers and Fed chair Ben Bernanke - are all Keynesians of different stripes who “despise traditional monetary theory and have a religious aversion to any mention of the quantity of money”. The great opus by Milton Friedman and Anna Schwartz - The Monetary History of the United States – has been left to gather dust.

Mr Bernanke no longer pays attention to the M3 data. The bank stopped publishing the data five years ago, deeming it too erratic to be of much use.

This may have been a serious error since double-digit growth of M3 during the US housing bubble gave clear warnings that the boom was out of control. The sudden slowdown in M3 in early to mid-2008 – just as the Fed talked of raising rates – gave a second warning that the economy was about to go into a nosedive.

Mr Bernanke built his academic reputation on the study of the credit mechanism. This model offers a radically different theory for how the financial system works. While so-called “creditism” has become the new orthodoxy in US central banking, it has not yet been tested over time and may yet prove to be a misadventure.

Paul Ashworth at Capital Economics said the decline in M3 is worrying and points to a growing risk of deflation. “Core inflation is already the lowest since 1966, so we don’t have much margin for error here. Deflation becomes a threat if it goes on long enough to become entrenched,” he said.

However, Mr Ashworth warned against a mechanical interpretation of money supply figures. “You could argue that M3 has been going down because people have been taking their money out of accounts to buy stocks, property and other assets,” he said.

Events may soon tell us whether this is benign or malign. It is certainly remarkable.

** While the Fed does not publish M3, it still publishes the underlying components. The indicator is reconstructed accurately for clients by Dr John Williams. See it here.

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