Unemployment figures in the U.S. are staggering: The official rate stands at 10.2%, the highest in 26 years. A broader measure that includes people who are involuntarily working part-time or who have given up looking for work is at 17.5%. That's a full-blown economic emergency.
But, as Joshua Holland explains for AlterNet, President Barack Obama's response to the unemployment crisis has not matched the urgency of his response to the crisis on Wall Street. This isn't just unfair, it's bad economics.
"It's important to understand that the economic crisis in which we find ourselves is not just a function of a shaky financial system but of a crash in consumption that's come along with the evaporation of $14 trillion worth of the wealth of American families," Holland writes.
Widespread joblessness can be every bit as damaging to the economic structure as a financial crisis. When people are out of work, they buckle down on household expenses. When several million people cut back at the same time, the economic machine grinds to a halt. If people are not buying and selling stuff, the economy isn't working.
As Mary Kane explains for The Washington Independent, about 40% of families don't have enough money to cover expenses through a three-month stretch of unemployment-even if one member of the household is receiving unemployment benefits. Kane highlights a Brandeis University study that reveals the haggard state of the American household and the unfair distribution of wealth along racial lines. A full 66% of African-American and Latino families can't afford three months without work. At a time when 5.6 million workers have been jobless for at least six months, the study highlights just how dire finances have become for many households.
GRITtv's Laura Flanders discusses potential labor market remedies with economist Dean Baker and The Nation's John Nichols. Baker suggests a work-share arrangement, in which employers cut back on their workers' hours to allow more people to work. To prevent losses for households, the government would step in and pay for the shortfall in hours. Employers would have more part-time jobs available, but the government would make sure everyone was paid as if they were working full-time. Baker also endorses a public jobs program, which he says could be especially useful in cities like Detroit and Cleveland that have been hit particularly hard by the economic downturn.
Nichols highlights the political consequences of failing to fix the unemployment mess. Unemployment directly affects the lives of voters. If widespread joblessness persists through November 2010, Democrats will net huge Congressional losses. If Obama thinks it's hard to garner bipartisan support for his legislative priorities now, imagine a few dozen more Republican obstructionists.
It's not that Obama failed to respond to the unemployment crisis. He did. That's what the stimulus package was all about. Today's 10.2% unemployment is a catastrophe, but it would be more like 12% without the stimulus package. But, given the seriousness of the issue, Obama is not giving unemployment enough attention.
In fact, Obama's economic priorities are a mirror-image of his campaign promises, as Robert Scheer argues in both a column for TruthDig and an interview with Amy Goodman on Democracy Now! After talking tough about reining in recklessness on Wall Street and making the financial system more accountable, Obama has hired many of the very policy makers who pushed through the deregulatory agenda back in the 1990s. Top Obama administration officials like Larry Summers, Timothy Geithner, Gary Gensler and Neal Wolin helped make this mess in the first place.
"This is not a minor criticism," Scheer says. "I think the guy is betraying his own presidency."
Obama's timid efforts to rein in Wall Street and heal the ailing job market are setting the stage for a political disaster. If Obama and Congressional Democrats can't take strong action to fix the economy, they will find themselves with much narrower majorities next November. The economy, and the public institutions that support it, are supposed to work for everyone, not just the financial elite.
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After several prominent members left the Chamber of Commerce over its prehistoric climate change policies, the organization appeared to do an about-face on its climate stance during a press conference on Monday. Sound too good to be true? It was. Members of the Yes Men, a group of satirical, anti-corporate activists, posed as Chamber of Commerce officials and held a fake press conference claiming that "There is only one sound way to do business: That's to support a strong climate-change bill quickly, so that this December in Copenhagen, President Obama can lead the entire business world in ensuring our long-term prosperity." In reality, the Chamber has not changed their climate stance and continues to oppose climate change legislation. The Yes Men's stunt is just one more in a chain of hoaxes this Autumn, including a boy in a balloon, death panels on health care reform, and recent allegations that radical Islamists are using interns to infiltrate Capitol Hill.
The U.S. economy may finally be bottoming out. But if the worst is really behind us, we are likely facing a painful period of "growth" that looks very much like the present. Without increasing unionization and mitigating racial inequality, our economic progress will prove as hollow as it is slow. While the economy may improve in a dry, statistical sense, the foundation for a productive economy has been decimated over the past three decades.
The economy has shown some encouraging signs of strength lately. Home prices have actually increased and the pace of layoffs slackened quite a bit in July. But that data doesn't signify a strong recovery, as Andrew Leonard notes in a pair of blog posts for Salon. Even in areas where there is some good news-housing and the job market-there is plenty of contradictory bad news. First, mortgage delinquencies are at an all-time high, and the souring loans are not just subprime. Even people with relatively affordable mortgages have problems paying when they lose their jobs, and with the unemployment rate at 9.4%, a lot of people are losing their jobs.
What's worse, Leonard notes, new claims for unemployment benefits escalated in August, suggesting that last month's job market improvements may have been a fluke. And while home prices may be ticking up slightly, they have been abysmal for the past two years. Since many households accumulated debt based on higher home values, the overall ratio of consumer debt to household net worth is perilously high.
Household net worth is a crucial statistic and is often overlooked by a focus on day-to-day measurements of worker well-being, like wage growth. While wages matter for paying the rent and buying groceries, our long-term economic security is defined not by what we make each week, but by the value of the things we own. In a piece for The American Prospect, economists Derrick Hamilton and William Darity Jr. detail the massive racial disparities in household net worth in the U.S. While the median white family has roughly $90,000 to its name, the median Latino family has just $8,000, while the median Black family has only $6,000.
Centuries of discrimination have resulted in today's inequality, but Hamilton and Darity propose a simple, straightforward solution: The government should establish savings accounts for children born into poor families, and fund it with a relatively small amount of money. Children will not be able to access the accounts until they turn 18, but over the years, interest will accrue on the accounts to the point where children should have between $50,000 and $60,000 by the time they can withdraw funds. Since so many people of color are born into households with relatively low net-worth, establishing a policy to use government money to boost the wealth of those born without it would have the effect of promoting racial economic equality.
But we also have to worry about jobs. President Barack Obama's economic stimulus package has succeeded in creating or saving hundreds of thousands of jobs since going into effect earlier this year, but it is important to focus not only on creating jobs, but on creating good jobs. As Laura Flanders of GritTV emphasizes in a roundtable discussion with key academics and labor representatives, our increasingly hostile attitude towards unions has created major barriers to a sustainable economic recovery.
The legislation critical to ending this intimidation is known as the Employee Free Choice Act, one of the most important bills presented to Congress in decades, although it has been overshadowed by the debates surrounding health care reform and financial regulatory overhaul. Flanders' panelists include Kate Bronfenbrenner, a Columbia University Professor who wrote a recent paper for the Economic Policy Institute examining 1,000 attempts to establish unions all over the country, and found that employer opposition to unionization is more aggressive than ever. A full 30 million workers want to be part of an organized union, but only 70,000 workers successfully organize each year.
"It's always been hard to organize, but employers now have made it harder than ever. They've literally have said to workers that, 'If you try to organize, we will go after you in every way possible,'" Bronfenbrenner said. "They threaten workers, they harass them, one in every three employers fire workers for union activity . . . . There literally is a war on workers who try to organize."
Another panelist, Mark Winston Griffith, Director of the Drum Major Institute, notes that the decline of unionization has weakened the economy. In the 1950s, when one-third of all U.S. workers belonged to a union, the potential foundation for the economy was strong. Workers were well-paid and had excellent job security, which created a strong source of demand. With less than 8% of U.S. workers unionized today, our economic demand is fueled by household debt, which has left families struggling for financial security and has injected a heavy dose of instability into the entire economy.
Writing for The Nation, Sarah Jaffe details the difficulties faced by a group of security officers in Philadelphia trying to unionize under current labor laws.
But while the workers who form the foundation of our economy are gasping for air, the elite have almost never had it better. A recent study found income inequality to be deeper than any period since World War I, and this absurdity plays out in public policy. While workers struggle to get a fair shake from their employers, executives and managers evade taxes through elaborate international financial deception. Swiss banking giant UBS recently agreed to turn over the names of thousands of its clients who allegedly used the company's banking operations to skip out on the bill for Uncle Sam.
UBS has been caught with its hand in nearly every cookie jar labeled "bank scandal" over the past two years, from the subprime mortgage crisis to phony securities peddling to diamond smuggling. But as Robert Scheer explains at Truthdig, former senator and deregulation hawk Phil Gramm (R-Texas), has been an executive at the firm while the company has been destroying its reputation. Gramm helped pass some two key anti-regulation bills later years of the Clinton administration, and was unabashed about jumping to UBS immediately after leaving office. Scheer notes that the public knows almost nothing about Gramm's role at the company, including any potential involvement in its laundry list of scandals.
Real economic progress in the U.S. is impossible without a stronger base of unionized workers. But it's just as important to invest in our future by giving the children of poor families an even economic playing field.
If we want our economy to be strong and stable, we have to start thinking about it as a product of community-not a get rich quick scheme. As unemployment escalates and the housing crisis deepens, ordinary people are feeling the economic pinch. In the meantime, corporate executives and shareholders are coasting above the storm. If we want to tear down the useless casino that is Wall Street, our wealthiest citizens will have to pitch in when times get tough.
Salon carries an excellent three-part email exchange between Simon Johnson, former Chief Economist for the International Monetary Fund, and John Talbott, a reformed Goldman Sachs investment banker. Taken together, the emails constitute a thorough, in-depth analysis of the causes of the economic crisis, needed reforms and political hurdles to making policy changes. Johnson's basic argument is as frightening as it is accurate: Bankers line our elected representatives' pocketbooks, convincing them to re-write regulations that made big bonuses for bankers and a catastrophe for everyone else.
Some of Talbott's most interesting observations concern Wall Street's epic transformaiton. Over the past three decades, our financial sector has morphed from a kind of economic rebar to a wrecking ball. Once upon a time, the financial industry provided loansto businesses and entrepreneurs and funded constructive enterprises. Today, almost all of this activity has been replaced by hedge fund speculation. As a result of excessive deregulation, a wild array of complex transactions called derivatives have developed on Wall Street. Many derivatives, including the credit default swaps that brought down AIG, are intended to provide insurance against losses.
But this readily available "insurance" has removed any sense of risk from the minds of U.S. financiers. All kinds of casino experiments have come in play over the last several years because traders could insure any bet, however crazy, against losses. The whole point of a financial sector is to make sure that good ideas get funding. Instead, we've guaranteed that risky ideas gets funding, even when the idea is socially destructive and financially unsound, like, say, subprime lending.
As David Sirota emphasizes in Truthdig, this financial recklessness has only deepened existing economic inequality. The wealthiest 1% of U.S. citizens have the greatest share of the nation's income since 1929, the onset year of the Great Depression. That's not just a coincidence. When economic inequality is out of control, the economy itself becomes unstable. If everybody is broke, no one has enough to buy the stuff that makes the economy go-round.
There's a paradox buried in all the instability. Even though outrageous inequality is bad for business, it's not necessarily bad for businessmen (Yes, businessmen. Women are still largely excluded from the top tier of corporate decision-making). When the whole economy pays the price for executive excess, the executives themselves don't actually take the hit. Even when elites lose their jobs, they stay rich. When people who depend on their paychecks for survival get the axe, it's a life-altering, often devastating, experience.
There's something we can do about this, Sirota notes. We need to treat the rich like members of a community, rather than an isolated special interest whose demands must be balanced against other special interests. When a community needs to pay for something, the people who can afford to pay pony up. We have real problems right now. There's nothing wrong with taxing the wealthy to fund them.
But why worry? The bailout is working, and banks on the mend, right? Maybe not so much. The Real News explains how bank profits don't always equal economic progress. Wells Fargo just booked a massive second-quarter profit, but the numbers are largely divorced from any economically useful activity.
Foreclosures are soaring, and bank lending is way down. Even though the banks are booking big profits, they aren't putting much money into the economy. How is this possible? Well, banking basically involves two steps. First, the bank borrows money at a low interest rate. Then, it makes a loan at a higher interest rate. The difference is the profit. Right now financing costs for banks are next to nothing, thanks to a host of government programs. Even if you don't make many loans, it's hard to lose money when you can borrow it for free.
As Steve Benen emphasizes for The Washington Monthly, using the stock market as as measure of economic vitality has proven pretty silly over the past few years. Back in February, just about every conservative pundit was screaming that the decline in the Dow Jones Industrial Average was purely a result of President Barack Obama's economic policies.
Obama's economic record is not perfect. He has continued the Bush administration's bank bailouts, and his stimulus package wasn't nearly big enough to fight this recession. But some of Obama's reform ideas have been very good, and he actually got a stimulus package through a very reluctant Congress. Now that the Dow is back on the ascent, are any of those conservative talking heads cheering Obama's proposal to create a new financial regulator focused on protecting consumers? Well, no. As it turns out, the stock market is pretty fickle. Its daily and weekly movements can rarely be attributed to individual economic policies. The things that make stocks advance don't necessarily create new jobs.
That new consumer regulator is by far the best part of Obama's financial regulatory overhaul. Harvard Professor and bailout watchdog Elizabeth Warren explains why in this video, available at AlterNet. They've also published a piece I wrote on the bank lobby's insane assault on the plan.
But even if the entire crazy bailout actually does work, the solution won't last without other major economic reforms. In The Progressive, Naomi Klein argues that the surreal boom-and-bust cycle of U.S. capitalism is an awful lot like a Sarah Palin fairy tale, a world in which the most outrageous structural imbalances never result in problems for ordinary people because a new dose of market magic swoops in at the last minute to save the day.
"What Palin was saying is what is built into the very DNA of capitalism: the idea that the world has no limits. She was saying that there is no such thing as consequences, or real-world deficits. Because there will always be another frontier, another Alaska, another bubble. Just move on and discover it. Tomorrow will never come," Klein writes.
If we want to get away from this predatory cycle, we have to give ordinary citizens more influence over the legislative process. As Talbott noted in Salon, that means demanding our due.
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