Allow me to make a confession. I was being naive thinking that I had any hope in hell of managing to come up with a coherent analysis of today's Health Care Reform summit in time to have it up any time today. In fact I'm not sure if it will be ready before next week. But never let it be said that I don't come through with at least a little something for my loyal readers.
Today's article comes from a comment that one of my readers at Daily Kos made in the comment section of my look at Obama's suggestions for Health Care Reform. He opined that he felt it was inappropriate for Doctors to ever have an investor interest in providing extra services. I said something to him in my reply, that the more I thought about it today seems more and more true.
I said, "What's more I'd like to see us return to a very old fashioned notion that there are simply some jobs you take expecting to not get rich. Medicine used to be one of those."
Political prognisticators inside the Beltway like to talk about all the reasons Obama's approval ratings are dropping, and what the results of the Massachusetts Senate race and other recent campaigns might mean. Is Obama communicating well enough about the key issues? Did Martha Coakley run a good campaign? Is Obama For America failing? Will David Plouffe's coming back shake things up? Was health care reform sold properly? Will Obama's budget freeze help him politically (even though it's truly terrible policy)?
You know, they are all interesting questions, and those of us who write and talk about politics for a living love to talk about them. But at the end of the day, nothing drives voters' opinion about politicians like jobs and the economy. As long as we are stuck with high unemployment and wages stuck in neutral or worse, voters are going to be angry at incumbent politicians. And the truth is that this economy has been far harder on working people than most of the inside the Beltway pundits even realize, so that anger is far bigger than the DC establishment realizes.
My friend Leo Hindery, a businessman in NYC, has taken it upon himself to look closely at the unemployment numbers, and has done some important analysis as to the actual level of misery in the jobs sector. Leo has started looking at the unemployment reports each time they come out, and factoring in things like people too discouraged to look for work, people working part time when they want and need full time jobs, and people in the shortest term jobs with no security or attachment to their place of work. The way Leo figures it, if you look at all the available data to come up with the real rate of unemployment and underemployment, it's currently 19.1% instead of 10.0%. Given that at the height of the Great Depression in 1933, unemployment was 25.3%, that 19.1 number is pretty damn scary. And that's with a "stronger than expected recovery", as one newspaper article said yesterday.
As important as health care reform is, as interesting to us political junkies as the latest communications tactics or staff shake-ups are by the White House, it is this crushing level of unemployment that is driving the President's approval numbers and the entire Democratic Party's political fortunes down. This level of misery is unprecedented in the years since the Great Depression, and until we begin to make serious progress, all else we do politically won't matter much.
That's why this latest move by the President, this freeze on domestic discretionary spending, is a fool's errand. The White House is saying they will exempt jobs programs and health care spending, which I am relieved to hear, but getting a short term political boost for sounding tough on the deficit in the State of the Union doesn't do much for your long term political fortunes while almost 20% of Americans are looking for work. Policy-wise, it is still a terrible idea even if you exempt jobs and health care because it is domestic discretionary spending in all kinds of areas that would help create more new jobs. The thing that is so frustrating about this proposal is that there are plenty of things that could be done to both cut the deficit and produce new jobs, and this proposal goes the wrong direction in both regards. To cut the deficit, there are literally scores of corporate tax loopholes that you could close, scores of specific cuts in wasteful defense spending, big cuts in agribusiness subsidies benefiting only the richest corporate farms, and programs to recover money from wealthy tax cheats that could all raise more than the budget savings you are going to get from this freeze in it's first year. The other way to lower the budget deficit over the next ten years is to actually create new jobs, so that instead of being on welfare and unemployment benefits, those people are working and paying taxes. And you can create jobs in a variety of ways, not just by new spending. For example, America could enact the same kinds of buying-in-country programs that every other industrialized nation in the world has, and you can award big new contracts to American firms rather than foreign ones.
Let me go on a slight detour here, and talk about one related jobs issue that I should do full disclosure on. This policy debate has even driven a progressive like me into the arms of a big business, Boeing. Over the last few months, I began reading about the controversy over whether the Department of Defense should award a new contract to build tankers to a European company, Airbus, or to Boeing, which would design and manufacture everything here in the US (Airbus says they would create some jobs in Alabama if they get the contract, but most of the work would be done in Europe). I got so mad about the idea that our government might award Airbus this contract that I actually got in touch with old friends who work at Boeing, and now I've taken a consulting contract with them, the first time in 14 years I have taken on a corporate client. I probably disagree with Boeing on much of what they lobby the government for, but they have 45,000 members of my old union (the Machinists), and personally, I'd like them to have more. To have Airbus get this contract when 19.1% of Americans are looking for work would be an outrage, so on this one, I'm actually working with a big business (and yes, it's an odd feeling.) But here's the bottom line, and it couldn't be more basic: the simplest way to create more jobs in America is for the American government to award contracts to American firms.
The jobs issue trumps everything for our party and our country over the next few years. If we don't start producing jobs ASAP, any chances of cutting the deficit will go up in smoke, along with any chance of Democrats winning elections in 2010 and 2012. Instead of doing phony and counterproductive things like this freeze on domestic spending, Obama ought to be focused like a laser beam on actually creating American jobs.
The Bureau of Labor Statistics published a new map this week. Using color codes of black and dark purple, it paints a grim picture of average annual unemployment at the county level all across the United States. It is a frightening picture of the gravest recession since the Great Depression.
If full employment is defined as four percent, then only nine counties east of the Mississippi River that fit that definition. Two counties west of the Rocky Mountains qualify; one in eastern Washington State and the other covers the North Slope of Alaska.
The bright spots of full employment can be found in the agricultural counties of the Great Plains. Montana, Wyoming, North and South Dakota, Nebraska and Kansas seem immune to the wave of persistent joblessness, at least for now.
Counties in the middle, the red zone - 5.0 to 5.9 percent average annual unemployment according the BLS map - are hard to find on this map. Wisconsin and Florida have three such counties; Mississippi, Alabama and Pennsylvania have two; New York, Illinois, Maine and North Carolina have one each; Oregon, California, Arizona, Michigan, Ohio, Kentucky, Tennessee, Georgia and South Carolina have none.
As scary and depressing as this map is, it is not the full picture. The heaviest lay-offs came after the presidential election last year. So this map almost certainly will turn even darker over the next three months.
And yet, the Bureau of Labor Statistics' monthly unemployment rate which now stands at 9.8 percent does not capture the depths of America's jobs crisis. Other BLS statistics do.
When that 9.8 percent unemployment rate was announced last Friday, the BLS press release contained three tables that told the rest of the story. Table A-1 indicated that 15.14 million Americans were unemployed. Table A-5 reported that 9.18 million Americans were working part-time involuntarily - employers had cut their hours or had furloughed them. Table A-13 noted that 5.65 million Americans had looked for a job in the last year but could not find one. What Table A-13 did not explain was that 998,000 Americans had vanished from that category since May, 2009. That adds up to 30.96 million Americans either unemployed or underemployed right now, or almost a fifth of our workforce (a note: unemployment peaked at 25% in the Great Depression).
How does our economy recover with that many people out of work or with considerably less disposable income than they are used to? How does the foreclosure crisis, and therefore housing prices, get better? I know the banks are doing great, and that will eventually trickle down to the rest of us, but in that long a run, we will definitely all be dead.
And since I'm a Democratic political consultant, I also need to point out there are a few political implications to all this. I am thrilled that my beloved home state of Nebraska, and the beautiful states of Kansas, North and South Dakota, Wyoming and Montana are still doing fairly well. But just to point out to my friends in Congress and the White House: not much in the way of swing or Democratic states or congressional districts in that grouping of states. The darkest states on that map are states like Ohio, Michigan, Pennsylvania, Florida, Virginia, Indiana, North Carolina, Missouri, Wisconsin. If those states sound familiar to you political junkies, it's because those were some of the closest states in the country in last year's election.
We need to an all-out, big, bold jobs program coming from the President and Democrats in Congress. The little ideas being mentioned right now in articles like these- extending unemployment, tinkering with some business tax incentives- will not create jobs on anywhere the scale that is needed. We need a big bold jobs bill, and we need it to come immediately after we get done with health care.
A new study by Economist Emmanuel Saez revealed this week that income inequality in the U.S. is more severe today than at any time since World War I, and the current recession is taking its heaviest toll on the worst-off members of our society. As our government rebuilds the financial sector using taxpayers' money, it's important to remember that both financiers and the government are responsible to our communities, not just bank shareholders. If we want to strengthen our country's economic foundation, we need to demand better wages for workers and an end to all kinds of predatory lending.
Saez's new data on income inequality is, as Paul Krugman put it, "truly amazing." Saez, who teaches at the University of California at Berkeley, found that the top 0.01% of U.S. earners had 6% of total U.S. wages, more than double the level in 2000. Earners in the top 10%, meanwhile, took home an astonishing 49.7% of all wages. That gap is larger now than during the Great Depression or the Gilded Age of the Roaring '20s.
"We're seeing Depression-era inequality again-only now it's slightly worse," writes Steve Benen for The Washington Monthly. Benen also notes that this level of inequality is not an inevitable consequence of a market economy: It's an extreme historical aberration. In the U.S., prosperity for much of the 20th Century was shared. But in 2007, at the economic bubble's peak, the wealthy simply got wealthier.
In that context, it is beyond absurd that the government is allowing 8-figure bonuses to be doled out by bailed out banks. Writing for Salon, Robert Reich dissects the policy implications of Citigroup's plans to pay its top executives an average of $10 million this year and award over $100 million to its top trader, a man who literally owns a castle in Germany. Citigroup was one of the most reckless U.S. banks during the housing bubble, a major subprime offender that received $45 billion in direct bailout money, as well as hundreds of billions in federal guarantees. How much is $45 billion? With the median U.S. home price at $174,100, that's the full market price of over 258,000 foreclosed homes. The company says that $10 million a head is necessary to attract and maintain top "talent," which Reich notes is a somewhat misleading term, given recent history. The problem is not just that Citigroup and other Wall Street firms are paying tons of money to a few people, it's that these people are being rewarded for the same kind of activities that got us into this mess to begin with: Risky, highly leveraged securities trading.
"Over the last several years Wall Street has exhibited a truly astonishing lack of talent," Reich says, noting that, "The Street is back to the same, relentlessly untalented tactics that made it lots of money before the meltdown-which also forced taxpayers to bail it out, caused the world economy to melt down, and tens of millions of people to lose big chunks of their life savings."
In truth, Reich argues, most large financial firms in the U.S. are much more like public utility companies than private-sector businesses. Even in good times, they depend on government guarantees and other support systems to function. In bad times, we bail them out. Instead of paying financiers tens of millions of dollars to reinforce a flawed system, Reich argues that we should impose rules that result in salaries similar to the public utilities sector, where top earners are generally restricted to 6-figure incomes.
The American Prospect features two pieces emphasizing problems in the current financial sector. Under a law known as the Community Reinvestment Act (CRA), enacted in 1977 we require banks to make loans in communities where they collect deposits. The loans have to be to dependable borrowers and they have to be relatively inexpensive. The law works very well-institutions covered by it made only a tiny fraction of the high-interest subprime loans that brought down the financial sector, as National Community Reinvestment Coalition President John Taylor notes for the Prospect. But CRA only applies to actual banks. You know, the places where you deposit your paychecks. CRA does not apply to subcompanies owned by the same corporation, and it does not apply to giant Wall Street securities firms like Bear Stearns and Goldman Sachs. Taylor says we need to expand CRA to cover these other big players in the financial world.
Why? As Alyssa Katz details in a piece for the Prospect funded by The Nation Institute, many Wall Street firms are bidding on foreclosed properties and selling them at rip-off rates to low-income borrowers.
But as Mary Kane notes for The Washington Independent, banks have also devised several methods of making money without making a loan. By charging tremendous fees on borrowers for minor infractions, banks generate billions of dollars without producing anything of social value. One of the worst forms of abuse, Kane writes, comes in the form of overdraft fees. When you withdraw too much money from your bank account, the bank fronts you the money, and then charges you a fee for this "protection." The trick is, banks almost never tell you that this has occurred, and often play around with the timing of your charges and deposits to maximize the fees they collect. Banks are on track to collect $38.5 billion in such fees this year alone. The worst part is, the fees come from the poorest customers-rich people don't overdraw their bank accounts, because they have tons of money.
In the case of credit cards, banks routinely slap borrowers with outrageous fees and interest rate hikes when the borrowers are making payments on time. Over the years, banks have targeted younger and younger credit card customers, as Adam Waxman notes for WireTap. After years of declining wages for all but the wealthiest citizens, consumers have been turning to pricey plastic to finance basic necessities.
Sadly, corporate America does not seem very focused on helping workers establish their financial independence. The Real News talks with Richard Wolff, an economist with the New School who emphasizes that, while worker productivity has jumped in recent months, wages have not made the corresponding increases. Quarterly productivity numbers tend to jump around a lot, but the trend of not compensating workers for improved efficiency has been around for years.
In a consumer-driven economy, major problems can't be fixed by giving lots of money to a few people, especially if those few people are already rich. To support broad, meaningful economic growth, we need to tailor our policies that empower those on the lower rungs of the economic ladder. And when we bail out giant corporations with taxpayer money, we need to make sure those companies arrange their business to improve the lot of taxpayers.
For all the talk of "green shoots", even the oxymoronic "jobless recovery" is almost certainly mythical, according to those with broader time horizons. For example, Martin Wolf, author of a mid-month (June 16) Financial Times article "The recession tracks the Great Depression". It begins:
Green shoots are bursting out. Or so we are told. But before concluding that the recession will soon be over, we must ask what history tells us. It is one of the guides we have to our present predicament. Fortunately, we do have the data. Unfortunately, the story they tell is an unhappy one.
Here's the four-part graph accompanying his article:
Wolf draws directly on the work of Barry Eichengreen and Kevin H. O'Rourke, whose June 4 article at Voxeu.org, "A Tale of Two Depressions", carried this into note:
This is an update of the authors' 6 April 2009 column comparing today's global crisis to the Great Depression. World industrial production, trade, and stock markets are diving faster now than during 1929-30. Fortunately, the policy response to date is much better. The update shows that trade and stock markets have shown some improvement without reversing the overall conclusion -- today's crisis is at least as bad as the Great Depression.
The problem, of course, is that no politicians are talking this frankly about how bad it is, and since they aren't talking frankly, they aren't laying the groundwork for continuing and expanding the sort of robust policy response that's needed.
If you roll a billiard ball very slowly off a table, it will fall along almost exactly the same trajectory as the most significant indicators of global financial activity right now.
In particular, you can see that global industrial output, stock prices, and the volume of world trade are falling faster now than they fell at the beginning of the Great Depression.
These diagrams were lifted from a current article by Barry Eichengreen and Kevin H. O'Rourke on the wonkish economics website Vox.
For the last week or so there has been a faint drumbeat of positive economic news. Consumer confidence ticked slightly higher in March, new home sales actually increased in February, durable goods orders have increased, inventories declined, and stocks rallied. Certain "market watchers" have told us to jump back into the stock market, the media is reporting signs of "economic hope", and Ben Bernanke talked about the economy's "green shoots", prompting an online debate about recovery hosted by The New York Times.
The response to this rather superficial positive news - after all, foreclosure activity increased again in February and the unemployment rate rose to 8.5% - was necessarily swift. Paul Krugman pointed to an increase in industrial production in 1931; Tyler Cowen warned about "suckers' rallies" and what will happen when Bernanke is eventually forced to hike interest rates; the new Baseline Scenario holds that "The one positive sign is that some forecasters are beginning to recognize that growth in 2010 is not a foregone conclusion"; at Vox EU economists plotted frightening graphs showing how the global downturn is in some ways worse than the Great Depression; and a gargantuan op-ed in the Wall Street Journal on Monday very chillingly sourced both the Great Depression and the current economic collapse to a consumer debt crash. In sum, the economic picture became worse for its comparison to the titillating glimmers of economic rebound.
One of the main pillars of Republican thought is that LBJ's spending on social programs and his relatively modest federal deficits caused the hyperinflation and economic stagnation of the 1970s and early 1980s. The problem with this theory which largely goes unopposed is that the much larger deficits of Ronald Reagan in the 1980s and Georhe W. Bush stubbornly failed to cause inflation. LBJ managed to produce a b udget surplus in his last year in office, as well. I f federal deficits cause inflation, this record makes no sense.
In fact, I patiently waited for Regan's deficits to run into hyper inflation and lo and behold, we never had it. The same thing held with George W. Bush. Were larger Republican deficits kept in check by complicit bankers and Wall Street types or was there something else at work here. Well, it turns out that price inflation remarkably correlates with rise in oil prices rather than with federal deficits. Following the Arab-Israeli War OPEC applied an oil embargo to countries considered friendly to Israel. prices zoomed from $3 a barrel in 1971 to over $12 a barrel and the prices at the gas station went above $1 per gallon. A scond shock followed with the Iranian Revolution (1979-80) and the Iraq-Iran War which mostly cut off Iranian exports until Iran started winning in late 1981 or 1982. By 1981, oil prices rose to $35 a barrel.
Reagan exacerabated hyperinflation and stagnation by secretly supporting Iraq as retaliation of the hostage crisis. It was Dick Cheney who first armed Saddam Hussein while working for reagan. But Reagan got the politically credit by deliberately engineering a steep recession (10 straight months with unemployment over 10%) which broke the back of both our own economy and oil demand. Future deficits, which were huge, were paired with falling oil prices (and therefore) falling or stable cost of living stats. This economic malpractice tranferred the blame from the Nixon-Ford era to LBJ and "social programs." Social programs were tarred and feathered semi permanently while the Reagan and George W. Bush tax cuts were deified. Only the tax cuts really didn't produce much growth and the social spending does not appear to be the real cause of infalation. Nonetheless, this is politically effective and has seeped into conventional wisdom.
This week President Obama promoted his much-needed economic recovery package in a prime-time news conference and a trip to economically depressed Elkhart, Indiana, where the unemployment rate has topped 15%. Cities and towns like Elkhart are bellwethers for where the nation as a whole could be headed without swift and bold governmental action.
As the President said in Elkhart, "That is not only our moral responsibility - to lend a helping hand to our fellow Americans in times of emergency - but it also makes good economic sense. If you don't have money, you can't spend it. And if people don't spend, our economy will continue to decline."
There's another bellwether even closer to home for the nation's first black president. Unemployment among African Americans rose in January to 12.6 percent, nearly double the current, already high rate of unemployment (6.9 percent) for white Americans. African Americans struggled throughout the 1960s, '70s, and '80s to gain equal access to manufacturing jobs, only to see those jobs evaporate with the advent of globalization. With the weak economy, their inroads into other sectors like education, healthcare, and construction are faltering as well.
What is a daunting economic recession for most of the nation is a crushing Great Depression for many of America's communities of color. Black male unemployment in New York City, for example, was a staggering 49% before the current recession. The Native American unemployment rate on reservations is upwards of 80%.
Driving home from work I endured NPR's inexplicable decision to give Jonah Goldberg airtime to admit that it is "more fun" for conservative pundits to be out of power (actually, I agree, it is more fun having Jonah out of power. Conservatives breaking the Planet isn't fun).
From my non-expert understanding of the subject matter, Alter does a fine job smashing up Shlaes' arguments throughout, but the highlight is the callers and emailers, who give me some sense and hope that conservative New Deal denialism isn't sticking with the public. In particular, at the 8:00 mark in the program, the very first caller actually attended FDR's inauguration and was 16 years old at the time, working as a Senate page. He makes a point of noting Shlaes' perception of history ignores that by 1935-36, things clearly had visibly improved. NPR's host stupidly insists on moving on to other callers in the too-quick manner of NPR, but Alter makes a point of getting contact info from the caller, so hopefully we will hear more from this man. There are very few people alive who were old enough to remember the New Deal in progress, never mind that actually worked in Washington and knew the players. The guy also has a good quip about the 20th Amendment (also from 1933) saving the country from 2 more months of Bush.
One thing is clear: the GOP is not about to fold up shop and go along with Barack Obama, just because he's President and the Democrats won a substantial legislative victory as well last November. They're already starting to marshall their forces to oppose, or at least slow down, and render as ineffective as possible, whatever stimulus package Obama comes up with. And, of course, recycling lies about the New Deal, FDR and the Great Depression are essential parts of the package. On Sunday I wrote a diary, "A Brief Peek At UCLA's Anti-FDR Propaganda", which looked only at the gross parameters surrounding claims made in a paper that David had referred to in passing in a previous diary.
While kanzeon weighed in late to make the point: "The measure of when the Depression ended, to conservative critics, isn't usually GDP or real output, but unemployment," negative GDP growth is the standard by which economists routiney identify recesssions--and by extension depressions--as well as being the single most comprehensive measure of economic activity (for good or ill), so I still think it's useful to look a little more closely at GDP as a pre-emptive antidote against conservative/GOP bullshit that's bound to be coming at us in the days ahead.
The UCLA report claimed that the Depression should have ended in 1936--7 years after it began, and roughly 3 3/4 years after FDR took office. Without ignoring Kanzeon's caveat, that still seems rather hard to accept given just how badly the GDP was doing. Thing is, I don't think I've ever seen a clear graphical representation of just how bad that was. So I decided to make one myself. Given the UCLA author's belief in a magic 7-year time-frame, I decided to chart the 7-year GDP growth figures from around the beginning of the US economy to date. You can clearly see just how drastically the Great Depression departs from anything else in our history, as well as just how powerful our recovery was, particularly once WWII spending kicked in:
This chart just goes to show how incredibly unusual the Great Depression was. No wonder a large number of people, all across the political spectrum, thought that it well might be the end of capitalism. There was nothing remotely like it in all our history. And the idea that everything could readily be solved by simply letting normal economic forces work--as the UCLA researchers propose--seems utterly unbelievable, simply by looking at the relatively limited scope of any of the other previous sharp rises, none of which is remotely large enough to get us back into the 20-40% 7-year GDP growth range that is normal for the economy in the specified 7-year time frame--much less the 3 3/4 years that FDR actually had in office before the end of 1936 rolled around.
