After months of modest gains, the U.S. economy lost 125,000 jobs during June. That's the worst jobs-related news this year. Without serious action soon, the struggling U.S. economy is going to get even uglier. Unfortunately, President Barack Obama's economic team was slow to recognize the severity of the jobs crisis, and now seems unable to get Congress to actually do something about it.
As David Corn notes for Mother Jones, the recent jobs data is actually much worse than the 125,000 figure implies:
"The economy needs about 150,000 new jobs a month to keep up with population growth and new entries into the jobs market. It needs a lot more than that to make up for the 8 million or so jobs lost in 2008 and 2009."
Recession 2.0
Although the economy sluggishly recovered from the catastrophic events of late 2008, economists are warning of a "double-dip" recession in which mass layoffs return. So why is Congress refusing to deal with the jobs crisis in the face of such terrible economic conditions?
Part of the problem, Corn notes, is that Obama didn't do a very good job selling his economic stimulus package to the public. The bill, which Obama pushed through in early 2009, really did improve the economy-it's the only reason why the unemployment rate is hovering around 10 percent instead of 12 percent or 13 percent. But by refusing to counter Republican attacks on so-called "wasteful spending" included in the package, Obama failed to show the public how much good the stimulus has done. Instead, the bill is widely perceived as another wasteful giveaway to special interests and akin to the bank bailout.
Spending is stimulus
In reality, government spending is the best way to stimulate the economy during a deep recession. It makes up for the shortfall in spending from consumers who have lost their jobs.
There are all kinds of ways the federal government can spend money to create jobs, including extending unemployment benefits to laid-off workers, providing funding to states to allow them to hire more teachers and cops, and hiring people to build roads and buildings. The government did all of these things with the stimulus package from early 2009, but it didn't do enough of any of them. The stimulus package was simply spread to thin.
Roots of recession
As Robert Reich explains for The Nation, the recession itself was created by deep economic inequality. By 2007, the wealthiest 1 percent of Americans made 23.5 percent of the nation's total income. Figures like that had not been seen since 1929, when the richest 1 percent made 23.9 percent of the nation's total wealth. All of this concentration at the top means that the elite enjoy a disproportionate share of economic gains, but it also sets the entire economy up for massive shocks.
When the rich have all of that money, they have to invest it somewhere. When the majority of citizens are seeing sluggish wage growth, or even a drop in wages, as the U.S. experienced during the Bush years, there aren't enough valuable assets out there that can absorb that investment. As a result, rich people put their money in speculative asset bubbles. When those bubbles burst, the entire economy can come crashing down, as it did in both 1929 and 2008.
Rampant inequalities around the globe
As Melinda Burns highlights for AlterNet, rampant inequality in not unique to the U.S. More than half of the world's population lives on less than $2 a day, and decades of conservative economic policies have been unable to reverse that hardship.
One of the best ways to relieve global poverty is also one of the most intuitive-give money to the poor. Brazil has made an aggressive push to cope with widespread poverty by providing $31 billion in pensions and grants to the poor every year. As a result, the nation's poverty rate has declined from 28 percent in 2000 to 17 percent in 2008, while child malnutrition was cut in half. These policies make good economic sense. When poor people have money to spend, they spend it and fuel growth that benefits the entire economy.
Social insecurity
And yet in the U.S., Obama is seriously considering cutting Social Security in order to reduce the federal budget deficit. As Margaret Smith emphasizes for In These Times, Obama has created a bipartisan "debt commission," and packed it full of ideologues from both political parties who have been fighting for years to slash Social Security.
This doesn't really make sense, because Social Security is funded by its own dedicated tax revenue, and is sitting on a multi-trillion-dollar surplus created by those taxes. It really can't do much to reduce the deficit. With interest rates at record lows, lawmakers do not currently have any reason to be worried about the deficit. But if they wanted to take action on it, they'd have to deal with long-term issues like the rising cost of health care, the bloated defense budget and absurdly low tax rates on the rich. Cutting off income for senior citizens won't help.
Blocking economic stimulus won't help
And neither will efforts to block short-term economic stimulus. But Obama's emphasis on the budget deficit plays into the hands of Congressional opportunists who want to block his economic recovery efforts. If we're told over and over again that the real economic problem is the budget deficit, no money is going to be dedicated to problems like jobs-even if that money would actually help the government's fiscal position by fueling economic growth.
The American economy is in the middle of an absolute employment crisis. Without strong federal action, it's going to get worse.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
Congress returns from its April recess this week with financial reform at the top of its to-do list. With millions of Americans still bearing the brunt of the worst recession in 80 years, Congress needs to start protecting our economy from Wall Street excess, and repair the shredded social safety net that has allowed the Great Recession to exact a devastating human cost.
Big banks are an economic parasite
In an excellent multi-part interview with Paul Jay of The Real News, former bank regulator William Black explains how the financial industry has transformed itself into an economic parasite. Black explains that banks are supposed to serve as a sort of economic catalyst-financing productive businesses and fueling economic growth. This was largely how banks operated for several decades after the Great Depression, because regulations had ensured that banks had incentives to do useful things, and barred them from taking crazy risks.
The deregulatory movement of the past thirty years destroyed those incentives, allowing banks to book big profits by essentially devouring other parts of the economy. Instead of fueling productive growth, banks were actively assaulting the broader economy for profit. None of that subprime lending served any economic purpose. Neither do the absurd credit card fees banks charge, or the deceptive overdraft fees they continue to implement.
As Matt Taibbi explains in an interview with Amy Goodman and Juan Gonzales of Democracy Now!, banks didn't just cannibalize consumers. They also went directly after local governments, bribing public officials to ink debt deals that worked wonderfully for the banks, and terribly for communities. In Jefferson County, Ala., J.P. Morgan Chase helped turn a $250 million sewer project into a $5 billion burden for taxpayers. The deal generated nothing of value for either citizens or the economy, but J.P. Morgan Chase was still able to line the pockets of its shareholders and executives. This kind of behavior was illegal, but the transactions involved were complex financial derivatives, which are not currently subject to regulation. To this day, nobody at J.P. Morgan Chase has been prosecuted for bribery or corruption.
Congress set to avoid tough regulations
There is a clear need for Congress to enact some firm restrictions against risky and predatory bank activities. But at the behest of Treasury Secretary Timothy Geithner, Congress is doing its best to avoid inserting any hard terms in legislative language, instead leaving the specifics to federal regulators to work out. As Tim Fernholz emphasizes for The American Prospect, this is an exercise in futility. Regulators already have the power to impose more stringent rules on nearly every arena of Wall Street business that matters (derivatives are a very noteworthy exception). If they wanted to fix things, they could do it without Congressional help. The trouble is, the financial sector has polluted most of the regulatory agencies, so that many regulators now act more like lobbyists for the banks they regulate, rather than law enforcers. Indeed, as I note for AlterNet, the top bank regulator in the U.S. spent over a decade lobbying for the nation's largest banks before taking up his current job. If Congress doesn't establish firm rules, regulators under future administrations would be free to simply undo any measures that the current agencies actually implement.
Megabanks equal mega risks
As Stacy Mitchell illustrates for Yes! Magazine, most of the problems in the financial sector are connected to the size of our banking behemoths. Big banks have enormous power-if they fail, the economy goes off a cliff. As a result, any responsible government wouldn't allow any of our megabanks to actually fail. But knowing that the government will protect them from any true catastrophes, big banks take bigger risks-if the risk pays off, they get rich, if it backfires, taxpayers will suck it up. That puts the interests of big banks at odds with the public interest, and creates an economy where bankers don't try to finance useful projects with a safe and steady return, but instead back crazy bets that just might pay off.
You can't fix that problem with regulations or idle threats of taking down a big bank when it gets itself in trouble-the markets won't believe it, and the banks will still take risks. The only solution, Mitchell notes, is to break up the banks into smaller institutions that can fail without wreaking havoc on the economy.
Economic inequality weakening the economy
All of this ties into rampant economic inequality in the United States. Since the 1970s, conservatives have waged a constant battle on the social safety net, shredding protections for ordinary people, while empowering corporate executives to take advantage of them. In an illuminating blog post for Mother Jones, Kevin Drum highlights the fact that average income has only rose from about $20 an hour in 1972 to $23 an hour today. This isn't because workers were slacking off-productivity has increased at roughly five times that rate. In other words, nearly all of the economic gains since the Nixon era have accrued to the wealthy.
When people don't have access to strong and improving income, they finance things with credit. But if wages never actually improve, that debt becomes a significant burden. When an entire society finds itself overly indebted, people stop buying things, and the economy tanks. The predation in the American financial sector makes this problem even worse.
But political theatrics are even trumping efforts to provide relief to those hit hardest by the recession. Sens. Jim Bunning (R-KY) and Tom Coburn (R-NE) have blocked the extension of unemployment benefits twice in the past month. As Kai Wright emphasizes for ColorLines, that recklessness puts up to 400,000 Americans at risk of losing their unemployment checks. That's a human tragedy-hundreds of thousands of people will have no way to pay the bills. It's also bad for business, since those people won't have any money to buy things that businesses produce. It is, in short, short-sighted economic insanity.
The economy is supposed to work for everybody, not just the rich, not just bankers. For that to happen, politicians have to establish meaningful regulations to make sure finance works for the greater good-- and safety nets to make sure that anyone who falls through the cracks doesn't see her life prospects permanently diminished.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
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.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
to appease the centrists, a plan that was already too small and too focused on ineffective tax cuts has been made significantly smaller, and even more focused on tax cuts....
Now the centrists have shaved off $86 billion in spending - much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast - because it prevents spending cuts rather than having to start up new projects - and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.
My first cut says that the changes to the Senate bill will ensure that we have at least 600,000 fewer Americans employed over the next two years.
The real question now is whether Obama will be able to come back for more once it's clear that the plan is way inadequate. My guess is no. This is really, really bad.
Top Cuts:
$40 billion State Fiscal Stabilization
$16 billion School Construction
$7.5 billion of State Incentive Grants
$5.8 billion Health Prevention Activity
STATE BLOGS
