Robert Reich

The Stock Market Rally Versus the World's Economic Fundamentals

Wed, 01 Sep 2010 19:50:00 -0400

What passes for business reporting in the United States is too often a series of breathless reports about the stock market. When the Dow rises precipitously, as it did today (Wednesday), the business press predicts an end to the Great Recession. When the stock market plummets, as it did last week, the Great Recession is said to be worsening.

Pay no attention. The stock market has as much to do with the real economy as the weather has to do with geology. Day by day there’s no relationship at all. Over time, weather and geology interact but the results aren’t evident for many years. The biggest impact of the weather is on peoples’ moods, as are the daily ups and downs of the market.

The real economy is jobs and paychecks, what people buy and what they sell. And the real economy — even viewed from a worldwide perspective — is as precarious as ever, perhaps more so.

Today’s rally was triggered by news that one of China’s official measures of its growth – its Purchasing Managers Index – rose. The index had been in decline for three straight months.

Why should an obscure measurement on the other side of the world cause stock markets in New York, London, and Frankfurt to rally? Because China is so large and its needs seemingly limitless that its growth has been about the only reliable source of global demand.

Many big American companies have been showing profits because they’re doing ever more business in China while cutting payrolls at home. American consumers aren’t buying much of anything because they’ve lost their jobs or are worried about losing them, and are still trying to get out from under a huge debt load (the latest figures show more consumer debt delinquent now than last year and a surge in personal bankruptcies). The U.S. housing market is growing worse, auto and retail sales are dropping, and the ranks of the jobless continue to swell.

Europe is in almost as much a mess. The problem there isn’t just or even mainly that Greece and other nations on the “periphery” have too much public debt. A bigger problem is European consumers aren’t buying nearly enough to generate more jobs. Unemployment remains high, and the trend is bad. Manufacturing growth there has slowed to its weakest pace in six months. Yet bizarrely, Europe’s large economies – Britain, Germany, and France – are paring back their public budgets. It’s exactly the wrong time, and a recipe for disaster.

Germany’s so-called “job miracle” (as Chancellor Angela Merkel calls it) is more mirage than miracle. Most of the gains in employment there have come from part-time jobs, often at low pay. Average annual net income per German employee continues to drop. This explains why domestic demand there is so sluggish and why Germany is desperately dependent on its exports of machinery and manufacturing components to Asia, especially China.

Meanwhile, Japan, now the world’s third-largest economy, is a basket case. Japanese consumers aren’t buying much of anything, and why would they? The country is still in the grip of a deflationary cycle that shows no end. Japanese consumers reason if they can buy it cheaper next week there’s no reason to buy now. Basically the only thing keeping Japan’s economy going are its exports of cars and electronic components to China.

Australia is booming, but look closely and you see the same buyer. Australia is making a boatload of money selling its minerals and raw materials to China (Australia is fast becoming one big Chinese mine shaft). The Brazilian economy is soaring. Why? Exports of wheat and cattle to China. Middle East oil producers are getting richer. Why? China’s insatiable thirst for oil.

Elsewhere around the globe the picture is as uncertain. Much of Pakistan is under water. Much of the rest of the Middle East is under tyrannical or corrupt regimes. Russia has suffered such a dry spell it’s hoarding wheat. Despite its wealthy few, India’s masses are still terribly poor.

The stock market could plunge tomorrow or the next day because the world’s economic fundamentals are so precarious.

The global economy cannot be sustained by one big, voracious nation – especially one that’s suffering bouts of civil unrest, actively repressing dissent, suffocating under a blanket of pollution and coping with other environmental hazards, and whose biggest companies are run by the state.

Why A Civil Society Extends Unemployment Benefits

Mon, 30 Aug 2010 20:51:00 -0400

I have the questionable distinction of appearing on Larry Kudlow’s CNBC program several times a week, arguing with people whose positions under normal circumstances would get no serious attention, and defending policies I would have thought so clearly and obviously defensible they should need no justification. But we are living through strange times. The economy is so bad that the social fabric is coming undone, and what used to be merely weird economic theories have become debatable public policies.

Tonight it was Harvard Professor Robert Barro, who opined in today’s Wall Street Journal that America’s high rate of long-term unemployment is the consequence rather than the cause of today’s extended unemployment insurance benefits.

In theory, Barro is correct. If people who lose their jobs receive generous unemployment benefits they might stay unemployed longer than if they got nothing. But that’s hardly a reason to jettison unemployment benefits or turn our backs on millions of Americans who through no fault of their own remain jobless in the worst economy since the Great Depression.

Yet moral hazard lurks in every conservative brain. It’s also true that if we got rid of lifeguards and let more swimmers drown, fewer people would venture into the water. And if we got rid of fire departments and more houses burnt to the ground, fewer people would use stoves. A civil society is not based on the principle of tough love.

In point of fact, most states provide unemployment benefits that are only a fraction of the wages and benefits people lost when their jobs disappeared. Indeed, fewer than 40 percent of the unemployed in most states are even eligible for benefits, because states require applicants have been in a full-time job longer than most jobless had one. A majority of the jobless typically have moved from job to job before they failed to find a new one, or have held a number of part-time jobs.

So it’s hard to make the case that many of the unemployed have chosen to remain jobless and collect unemployment benefits rather than work.

Anyone who bothered to step into the real world would see the absurdity of Barro’s position. Right now, there are roughly five applicants for every job opening in America. If the job requires relatively few skills, hundreds of applicants line up for it. The Bureau of Labor Statistics says 15 percent of people without college degrees are jobless today; that’s not counting large numbers too discouraged even to look for work.

Barro argues the rate of unemployment in this Great Jobs Recession is comparable to what it was in the 1981-82 recession, but the rate of long-term unemployed then was nowhere as high as it is now. He concludes this is because unemployment benefits didn’t last nearly as long in 1981 and 82 as it they do now.

He fails to see – or disclose – that the 81-82 recession was far more benign than this one, and over far sooner. It was caused by Paul Volcker and the Fed yanking up interest rates to break the back of inflation – and overshooting. When they pulled interest rates down again, the economy shot back to life.

The Great Jobs Recession is far more severe. It’s continuing far longer. It was caused by the bursting of a giant housing bubble, abetted by the excesses of Wall Street. Home values are still 20 to 30 percent below where they were in 1997. The Fed is powerless because consumers cannot and will not buy enough to bring the economy back to life.

A record number of Americans is unemployed for a record length of time. This is a national tragedy. It is to the nation’s credit that many are receiving unemployment benefits. This is good not only for them and their families but also for the economy as a whole, because it allows them to spend and thereby keep others in jobs. That a noted professor would argue against this is obscene.

Warning: Why Cheaper Money Won't Mean More Jobs

Sun, 29 Aug 2010 20:11:00 -0400

Can the Fed rescue the economy by making money even cheaper than it already is? A debate is being played out in the Fed about whether it should return to so-called “quantitative easing” – buying more mortgage-backed securities, Treasury bills, and other bonds - in order to lower the cost of capital still further.

The sad reality is cheaper money won’t work. Individuals aren’t borrowing because they’re still under a huge debt load. And as their homes drop in value and their jobs and wages continue to disappear, they’re not in a position to borrow. Small businesses aren’t borrowing because they have no reason to expand. Retail business is down, construction is down, even manufacturing suppliers are losing ground.

That leaves large corporations. They’ll be happy to borrow more at even lower rates than now — even though they’re already sitting on mountains of money.

But this big-business borrowing won’t create new jobs. To the contrary, large corporations have been investing their cash to pare back their payrolls. They’ve been buying new factories and facilities abroad (China, Brazil, India), and new labor-replacing software at home.

If Bernanke and company make it even cheaper to borrow, they’ll be subsidizing a third corporate strategy for creating more profits but fewer jobs — mergers and acquisitions.

The M&A wave has already started. Continental and United Airlines just got approval to merge. Biotech giant Genzyme is on the auction block after Sanofi-Aventis announced a $18.5 billion bid. On Friday, 3Par, a data storage company, accepted a $1.8 billion takeover offer from Dell – one day after Hewlett-packard raised its offer. Campbell Soup is eyeing parts of United Biscuits, BHP Billiton has put in a takeover bid for Potash, Oracle or H-P are likely to pay up to $1.5 billion for security software maker ArcSight. Bain Capital is expected to acaquire Air Medical Group for almost $1 billion. The insurance industry is headed for the biggest merger boom in recent history.

Who wins from all this? If history is a guide, shareholders of acquired companies do better than shareholders of companies doing the acquiring. Top executives who end up running bigger corporations get fatter pay packages. And Wall Street and big-name corporate law firms who engineer the M&As reap a bundle.

Who loses? Large numbers of ordinary workers will lose their jobs. After all, the purpose M&As is to create greater economies of scale and more “synergies.” Translated: More pink slips.

Last week at the Fed’s annual confab in Jackson Hole, Ben Bernanke insisted the Fed will do what’s necessary to increase consumer and business spending in order to keep the economy growing. But cheaper money won’t necessarily create the kind of spending that generates more jobs. In fact, right now it’s having the opposite effect. When consumers and small businesses can’t and won’t borrow more, big businesses use cheap money to bid up the prices of corporate assets and cut payrolls.

What we need now is more jobs, not bigger corporations. And that means focusing on the demand side of the economy, not the supply side.

The Two Stories of This Terrible Economy, Yet Obama and the Dems Won't Tell Theirs

Fri, 27 Aug 2010 11:18:00 -0400

The public doesn’t understand specific policies but it does understand stories that link them together. The stories give the policies context and meaning, and thereby show where policymakers are taking a nation (and, by implication, where the opposition would take it).

Republicans lack specific policies but they have a story. Obama and the Democrats have lots of specific policies but don’t have a story. That spells even more trouble for Democrats.

The Commerce Department reported today (Friday) that the economy grew only 1.6 percent in the second quarter, which is a fancy way of saying what everyone on Main Street already knows. The economy has stalled. Unemployment is still in the stratosphere and shows no sign of improving. The housing market is worsening.

Why? What to do? The Republican story is simple. It’s the fault of government. They say Obama’s policies have bankrupted the nation and made businesses too uncertain to create jobs. The answer is less government. Cut taxes and spending, privatize, and deregulate.

It’s not a new story but it’s capturing the public’s mind because the Democrats offer no story to counter it with.

Obama and the Democrats respond by defending their specific policies. The stimulus worked, they say, as did the bailout of Wall Street, because the economy is better today than it would be without them. If anything, we need more stimulus. And healthcare reform will protect tens of millions.

A large and growing segment of the public believes none of this. The public doesn’t think in terms of specific policies. All it knows is the economy has stalled and there’s only one story that explains why and points the way forward – and that’s the Republican’s.

What should the Democratic story be? How can they connect the dots?

Here’s a clue. In times of economic stress, Americans lose faith in the nation’s large institutions. They blame either government or its counterpart in the private sector – big business and Wall Street.

Twenty years ago, 42 percent of Americans said they trusted government to do what was right just about always or most of the time. Now, only 25 percent do. Twenty years ago 26 percent they had a great deal or quite a lot of confidence in big business; now, only 16 percent do. And almost no one trusts Wall Street. The drop in trust toward all major institutions has been most precipitous since the start of 2008.

The underlying political debate in America is which of these is most responsible for the mess we’re in, and which can be most trusted to get us out of it – big business and Wall Street, or government.

It wouldn’t be hard for Democrats to make the case that big business and Wall Street blew it. The Street’s wild speculation took the economy off the cliff, caused the stock market to crash (and millions of 401(k)s along with it), and created a housing bubble whose burst has hurt millions more.

Big business has used the Great Recession as an opportunity to slash payrolls and cut wages and is now sitting on a $1.8 trillion mountain of cash it refuses to use to create new jobs. Instead, it’s using the cash to build more factories abroad, buy back its own shares of stock, invest in more labor-replacing technologies at home, and do mergers that will lead to even fewer jobs.

Meanwhile, a parade of “public-be-damned” actions have threatened small investors (Goldman Sachs’s double dealing), individuals trying to buy health insurance (WellPoint’s double-digit premium increases), worker safety (the Massey mine disaster), the environment (BP), and even our food (Jack DeCoster’s commercial egg operations).

And a gusher of corporate and Wall Street money has flooded Washington, exemplified by Big Pharma and the health-insurance lobby fighting heatlhcare reform, and Wall Street’s minions fighting off stricter financial reform.

If Obama and the Democrats would connect these dots they’d have a story that would make Americans’ hair stand on end. We’re in this mess because of big business and Wall Street. Government is needed to get us out of it.

It’s not that big business and Wall Street are evil. It’s that they’re out to make as much money as possible – which is what they’re set up to do. That’s why we need an activist government to stimulate the economy, create jobs, and protect the public from their excesses.

So why haven’t Obama and the Dems succeeded yet? Big business and Wall Street have used their money and political clout to stop government from doing as much as needs to be done.

The story is clear, and it has the virtue of being the truth. Why won’t Obama and the Democrats tell it? Is it because big business and Wall Street have the money and political clout even to prevent the story from being told?

Why Boehner's Blaming Bureaucrats

Thu, 26 Aug 2010 19:07:28 -0400

We’re moving ever closer to a double-dip. Of course, as I’ve said before, most Americans never got out of the first one.

In previous postings I’ve suggested ways to reverse course, including a “people’s tax cut” exempting the first $20K of income from payroll taxes and making up the revenue loss with a payroll tax on incomes over $250,000.

Yet Democrats seem frozen in the headlights of conservative supply-siders, blue-dog deficit hawks, and pollsters who say the public doesn’t trust anything government does.

As to Republicans, now comes John Boehner, capitalizing on this distrust by blaming the bad economy on government bureaucrats.

In an address billed as a major speech on economic policy, the House GOP leader yesterday (Tuesday) attributed our economic woes to the fact that “taxpayers are subsidizing the fattened salaries and pensions of federal bureaucrats who are out there right now making it harder to create private sector jobs.”

What?

It’s true workers at all levels of government now earn more than their private-sector counterparts. But that’s mainly because private-sector benefits have dropped precipitously over the last few years. Companies have replaced defined-benefit pensions with do-it-yourself 401(k)s, and have ratcheted up premiums, co-payments, and deductibles on employee health-care. Government workers’ benefits haven’t yet been sliced the diced these ways, but the cuts are coming.

The pay gap is also due to the fact that the typical public-sector job requires more education. According to the Center for State and Local Government Excellence, 48 percent of state and local employees have a college degree while only 23 percent of private-sector employees do.

Blaming government workers for this bad economy is absurd, regardless. The Great Recession continues because consumers can’t and won’t spend. They’re overwhelmed with credit-card debt, their mortgages are under water, their nest eggs have become chick peas, and they can’t afford health insurance.

Rather than help alleviate all this, Boehner and his Republican colleagues have been busily voting against extending unemployment insurance, against reorganizing mortgages under bankruptcy, against forcing credit card companies to stop charging exorbitant interest, and against giving Americans affordable health insurance.

As far as I can tell, all Republican want to do is to privatize Social Security, extend the Bush tax cuts to the richest 3 percent of Americans, and deregulate. But none of this seems particularly relevant to the task at hand.

Privatizing Social Security would put retirees entirely at the mercy of the Wall Street casino.

Extending the Bush tax cuts to the richest 3 percent wouldn’t stimulate demand because the very rich save rather than spend most of their extra cash.

And if anything we need more rather than less regulation. Just consider BP’s oil spill, Massey’s mine cave-in, DeCoster’s rotten eggs, Goldman Sach’s predations, and Wellpoint’s double-digit insurance premium increases.

Boehner delivered his speech at the City Club of Cleveland, a safe distance from those government employees he says are on the make. But of course Boehner is a federal employee. He gets $193,400 a year along with generous retirement benefits. In fact, he has among the fattest salaries and pensions in Washington.

Tax Jujitsu: Why Democrats Should Propose a "People's Tax Cut"

Tue, 24 Aug 2010 15:35:00 -0400

Republicans are calling the Democrat’s proposal to end the Bush tax cuts on the richest 3 percent a “tax increase,” and demagoging that it will hurt the economy and small business. This is baloney, to put it politely. Let me count the ways:

– Bush’s ten-year tax cut was designed to end this year, so it’s not a tax increase.

– Ending it for the rich simply returns them to the Clinton tax rate, which was hardly confiscatory (reminder: the Clinton years were damn good for business).

– Small businesses would barely be affected. Only 3 percent of small business owners earn over $250,000. And because it’s a “marginal” tax, the Clinton rate would apply only to the portion of their incomes over $250,000.

– Yet extending the Bush tax cut to the richest Americans would give them a $36 billion bonus next year. ($31 billion of this would go to billionaire households.) And that $36 billion would be added to the budget deficit.

– And it wouldn’t even stimulate demand and jobs, because the very rich save (rather than spend) more of their disposable income than the rest of us.

– Finally, ending the Bush tax cut for the top is fair. Income inequality has become so grotesque that the top 3 percent of households rake in almost a third of total income (the highest portion since 1928).

But by the time Democrats explain all this, it’s too late. The Republican furor over a “tax increase” has framed the debate.

Republicans understand the art of tax demagoguery: Put the other side on the defensive by forcing them to explain why a “tax increase” is warranted and they lose regardless.

So instead of playing defense, Democrats should go on the attack.

Accuse Republicans of being shills for the rich.

And don’t stop there. Do tax jujitsu. In addition to ending the Bush tax cut for the rich, put forward another proposal for growing the economy that cuts taxes on lower-income Americans.

Democrats should propose eliminating payroll taxes on the first $20,000 of income, and making up the revenue loss by applying payroll taxes to incomes above $250,000.

This would give the economy an immediate boost by adding to the paychecks of just about every working American. 80 percent of Americans pay more in payroll taxes than they do in income taxes. And because lower-income people would get most of the benefit, it’s likely to be spent.

It would also give employers an extra incentive to hire because they’d save on their share of the payroll tax. And most of the incentive would be directed toward hiring lower-income workers – who have taken the biggest hit on jobs and pay during the recession.

It wouldn’t add to the deficit. Lost revenues would be made up by applying payroll taxes to income exceeding $250,000. This is certainly fair. As it is now, the Social Security payroll tax doesn’t apply to any income over $106,000. Having the tax kick in again at $250,000 would draw on the top 3 percent of earners, who (as noted) now rake in a larger portion of total income than they have in more than 80 years.

Call it the People’s Tax Cut, and let Republicans explain why they’re against it.

Corporate Rotten Eggs

Fri, 20 Aug 2010 23:54:53 -0400

There are rotten apples in every industry. Or perhaps I should say rotten eggs.

One especially rotten egg is Jack DeCoster, whose commercial egg agribusiness, which goes under the homey title “Wright County Egg,” headquartered in Galt, Iowa, sends eggs all over the country under many different brands. Those eggs have now laid low thousands of Americans with salmonella poisoning, and may well infect thousands more.

DeCoster is recalling 380 million eggs sold since mid-May. Another commercial egg company, also headquartered in Iowa, and in which DeCoster is a major investor, is recalling hundreds millions more.

It’s not clear how recall rotten eggs are recalled. They’re not like Toyotas. They’re already in our food supply.

But this is only the beginning of the story.

Thirteen years ago when I was Secretary of Labor, DeCoster agreed to pay a $2 million penalty (the most we could throw at him) for some of the most heinous workplace violations I’d seen. His workers had been forced to live in trailers infested with rats and handle manure and dead chickens with their bare hands. It was an agricultural sweatshop.

Several people in Maine told me the fine wouldn’t stop DeCoster. He’d just consider it a cost of doing business. Evidently they were right. DeCoster’s commercial egg business has a record that would make a repeat offender blush.

In 2003, DeCoster pleaded guilty to knowingly hiring undocumented immigrants (who don’t complain about unsafe working conditions, below-minimum-wage pay, and unsanitary facilities). DeCoster paid a record $2.1 million penalty for that one.

In the 1990s he was charged by Iowa authorities for violating state environmental laws governing the runoff of manure into rivers. He continued to violate environmental laws so often that the Iowa Supreme Court approved an order barring him from building more hog structures.

In 2002 the U.S. Equal Employment Opportunity Commission fined DeCoster’s operation $1.5 million for mistreating female workers. The charges included rape, sexual harassment, and other abuses.

Earlier this year, DeCoster paid another fine to settle state animal cruelty charges against his egg operations in Maine.

In other words, the current national salmonella outbreak is just the latest in a long series of DeCoster corporate crimes. He’s fostered a culture that disregards any law standing in the way of profits. Along the way, DeCoster has abused the environment, animals, his employees, and his customers.

Corporations that play fast and loose with one set of laws are likely to cut corners on others. Look at Massey Energy Company, which owned the mine where 27 miners were killed several months ago. Massey also had a long record of law breaking, and had racked up an even longer list of alleged violations and settlements. Or consider BP, whose malfeasance even before the Gulf spill, included workplace safety violations, deaths, and other environmental disasters.

When I was Secretary of Labor, Bridgestone-Firestone’s refused to install safety equipment resulted in the maiming or deaths of its workers in Oklahoma. A few years later, its faulty tires caused still more deaths.

Some CEOs are just bad citizens, and the corporations they head get the message that the public be damned.

Too often, though, one level or agency of government doesn’t know about corporate malfeasance turned up by another level or agency of government. This is especially true when violations are settled out of court, as is now common. Government doesn’t have nearly enough inspectors or lawyers to bring every rotten egg to trial.

A national database of corporate crimes and settlements would tip off federal, state, and local inspectors to rotten eggs like Jack DeCoster’s agribusiness, Massey Energy, BP, Bridgestone Firestone, and other serial corporate offenders. Scarce inspection resources could be targeted at them rather than at the good eggs. Consumers could benefit as well.

And the rot wouldn’t spill over to other companies now under competitive pressure to treat fines and penalties as the costs of doing business.

Before we can get rid of corporate rotten eggs we need to know about them.

The Anatomy of Intolerance

Fri, 20 Aug 2010 18:27:00 -0400

Connect the dots:

Many Americans (and politicians who the polls) don’t want a mosque at Manhattan’s Ground Zero.

An increasing percent believe the President is a Muslim.

Most Americans approve of Arizona’s new law allowing police to stop anyone who looks Hispanic and demand proof of citizenship.

Most would deny citizenship to children born in the United States to parents who are here illegally.

Where is all this coming from?

It’s called fear. When people are deeply anxious about holding on to their homes, their jobs, and their savings, they look for someone to blame. And all too often they find it in “the other” – in people who look or act differently, who come from foreign lands, who have what seem to be strange religions, who cross our borders illegally.

Americans who feel economically insecure may even become paranoid, believing, say, that the President of the United States is secretly one of “them.”

Economic fear is the handmaiden of intolerance. It’s used by demagogues who redirect the fear and anger toward people and groups who aren’t really to blame but are easy scapegoats.

It has happened before.

Economic crises animated the pre-Civil War Know-Nothings and Anti-Masonic movements, the Chinese exclusion acts, the Ku Klux Klan in the economically-ravaged South, and the anti-immigrant movements of the early decades of the 20^th century.

In different places around the world, mass economic stress has had far worse results. At its most extreme it has spawned genocide.

We are far from that. But it’s important to understand the roots of America’s growing intolerance. And to fight the hate-mongers and cynical opportunists who are using the fears unleashed by this awful economy to advance their own sordid agendas.

Why The Unfolding Disaster in Pakistan Should Concern You

Thu, 19 Aug 2010 15:31:15 -0400

The human tragedy unfolding in Pakistan right now demands our full attention.

Flooding there has already stranded 20 million people, more than 10 percent of the population. A fifth of the nation is underwater. More than 3.5 million children are in imminent danger of contracting cholera and acute diarrhea; millions more are in danger of starving if they don’t get help soon. More than 1,500 have already been killed by the floods.

This is a human disaster.

It’s also a frightening opening for the Taliban.

Yet so far only a trickle of aid has gotten through. As of today (Thursday), the U.S. has pledged $150 million, along with 12 helicopters to take food and material to the victims. (Other rich nations have offered even less – the U.K., $48.5 million; Japan, $10 million, and France, a measly $1 million. Today (Thursday), Hillary Clinton is speaking at the UN, seeking more.)

This is bizarre and shameful. We’re spending over $100 billion this year on military maneuvers to defeat the Taliban in Pakistan and neighboring Afghanistan. Over 200 helicopters are deployed in that effort. And we’re spending $2 billion in military aid to Pakistan.

More must be done for flood victims, immediately.

Beyond helping to prevent mass disease and starvation we’ll also need to help Pakistan rebuild. Half of the nation’s people depend on agriculture for their livelihood, and a large portion of the nation’s crops and agricultural land have been destroyed. Roads, bridges, railways, and irrigation systems have been wiped out.

Last year, Congress agreed to a $7.5 billion civilian aid package to Pakistan to build roads, bridges, and schools. That should be quadrupled.

While they’re at it, Congress should remove all tariffs on textiles and clothing from Pakistan. Textiles and clothing are half Pakistan’s exports. More than half of all Pakistanis are employed growing cotton, weaving it into cloth, or cutting and sewing it into clothing. In the months and years ahead, Pakistan will have to rely ever more on these exports.

Yet we impose a 17 percent tariff on textiles and clothing from Pakistan. If we removed it, Pakistan’s exports would surge $5 billion annually. That would boost the wages of millions there.

That tariff also artificially raises the price of the clothing and textiles you and I buy. How many American jobs do we protect by this absurdity? Almost none. Instead, we’ve been importing more textiles and clothing from China and other East Asian nations. China subsidizes its exports with an artificially-low currency.

If you’re not moved by the scale of the disaster and its aftermath, consider that our future security is inextricably bound up with the future for Pakistan. Of 175 million Pakistanis, some 100 million are under age 25. In the years ahead they’ll either opt for gainful employment or, in its absence, may choose Islamic extremism.

We are already in a war for their hearts and minds, as well as those of young people throughout the Muslim world.

Right now, Islamic insurgents are using the chaos as an opportunity, attacking police posts in Pakistan’s northwest while police have been occupied in rescue and relief work. Meanwhile, lacking help and losing hope, many Pakistanis are becoming increasingly hostile toward President Asif Ali Zardari.

And, of course, Pakistan has the bomb.

What can you do? Government efforts are important but so is private giving. Check the New York Times’s Lede blog for organizations providing disaster relief. The Oxfam website has lots of good information about who’s doing what, and how effectively.

Mitt Romney's Wet-Noodle Economics

Wed, 18 Aug 2010 14:13:00 -0400

Mitt Romney is smart enough not to join Newt Gingrich and Sarah Palin in using the proposed mosque at Ground Zero to to lauch a presidential bid. While Gingrich is busy comparing Muslims to Nazis (“Nazis don’t have the right to put up a sign next to the holocaust museum in Washington”), and Palin is calling on New Yorkers to “refudiate” the plan (she subsequently corrected her word choice), Romney is offering an economic plan.

That’s a wise choice. Mitt knows Americans don’t care about mosques in Manhattan. They care about money in their own mitts.

Romney is intent on selling himself to America as the businessman who can turn the country around (sad to say, unemployment is likely to remain high all the way through November, 2012). Unlike Palin and Gingrich, Romney did, after all, run a business (yes, it was a firm that bought and sold companies and laid off lots of people along the way but, hey, that’s business).

So we should take Romney’s economics seriously. In today’s (Wednesday’s) Boston Globe op-ed Romney attacks Obama’s economic policies for being ineffective and calls for what he calls a “growth and jobs” agenda. Here are the main points:

– match U.S. corporate taxes with those of other developed economies,

– preserve the Bush tax cuts for everyone, “especially small business,”

– allow businesses to write off capital investments made in 2010 and 2011 rather than over time,

– eliminate taxes on investment dividends,

– eliminate taxes on capital gains and interest for households earning less than $250,000 a year, and

– balance the federal budget.

Apart from the impossibility of simultaneously cutting taxes and balancing the budget without taking a meat cleaver to Social Security, Medicare, and defense spending (Romney delicately sidesteps this conundrum by urging we “reshape government programs” and “restructure entitlements”), his policies raise a more fundamental problem.

Call it the wet-noodle problem.

For Romney, the key to America’s recovery is to cut taxes on businesses and on people who invest in them. These steps, he says, are the “conditions that enable businesses of all sizes to grow and thrive.” In other words, if businesse get more capital at less cost, they’ll create jobs.

But anyone looking closely at the American economy today would see this is nonsense. American corporations have an unprecedented $1.8 trillion of cash. The Fed, meanwhile, has slashed interest rates to essentially zero – a record low – and is still holding over $2 trillion in securities that it said last week it will keep from shrinking. And a Federal Reserve survey released earlier this week showed that banks have been making it easier for businesses of all sizes to get loans. Credit standards for small firms have been loosened for the first time since late 2006.

In other words, businesses have all the capital they need. They’re sitting on it or can borrow it more cheaply than ever. But they aren’t using it to create jobs.

Why not? Because there’s not enough demand for their products or services. Consumers aren’t buying.

Retail sales continue to slide. Wal-Mart, Home Depot, and Target report disappointing sales. Same with popular back-to-school retailers like Aeropostale, American Eagle Outfitters, and TJX. Housing sales are down. Appliances are down. (Cars sales are up a bit but that’s mainly because they fell to record lows in 2008 and 2009, and by now some people who have held back need another.)

Romney’s supply-side economics won’t create jobs. It’s pushing on a wet noodle. Businesses create jobs only if consumers are pulling the noodle from the other end.

These days, businesses are raising profits by cutting costs (mostly by laying off even more workers), shifting operations abroad wherever they can find consumers (China, Brazil, India), and buying up their own shares of stock. Romney’s tax breaks will only hasten all this.

If Mitt Romney really wanted to increase American jobs and not just corporate profits he’d understand why consumers aren’t buying, and focus his proposals there.

The first reason they’re not buying is they’re still carrying a huge debt load. Mortgage debt is still engulfing millions of families. Americans also owe some $826.5 billion in revolving credit, mostly on credit cards (credit card debt was $975.7 billion in September 2008, so they still have a long way to go). On top of that, outstanding student loans (both federal and private) total some $829.7 billion.

So instead of boosting corporate profits, let Americans reorganize their mortgage debt in personal bankruptcy, protect them from credit card companies that charge gargantuan interest on credit card debt, and give their kids more direct aid for college.

The second reason consumers aren’t buying is their nest eggs have shrunk down to the size of peas. Homes are still worth 20 to 40 percent less than in 2007, and 401(k)s are down 20 percent. Baby boomers now have to save for retirement big time.

So instead of a giving corporations a tax break on their incomes, and giving investors tax breaks on dividends and capital-gains, cut the payroll tax for ordinary Americans. 80 percent of Americans pay more in payroll taxes than in income taxes, and it’s a regressive tax. Eliminate payroll taxes on the first $20K of income and make up the difference by raising the cap on income subject to payroll taxes (now about $106,000).

The third reason consumers aren’t buying is they’ve lost their jobs or are scared of losing them, or can only find part-time jobs that pay less. And because most families rely on two wage earners, the chance that at least one of them has lost or is in danger of losing a paycheck is double. That means families have no choice but to economize.

So instead of giving tax breaks to companies for buying more machines to replace their workers, make big profitable companies pay severance to any worker they lay off, equal to a month’s salary times the number of years worked. And require that any corporations receiving government contracts and subsidies (including defense contractors) use the money to create jobs in the United States.

Mitt Romney is the most credible of all the likely Republican presidential candidates. He’s right to focus on the economy, and he’s to be commended for coming up with specifics. But his specifics are loony. Romney’s wet-noodle economics won’t create American jobs.

Why Growth is Good

Tue, 17 Aug 2010 15:33:00 -0400

Economic growth is slowing in the United States. It’s also slowing in Japan, France, Britain, Italy, Spain, and Canada. It’s even slowing in China. And it’s likely to be slowing soon in Germany.

If governments keep hacking away at their budgets while consumers almost everywhere are becoming more cautious about spending, global demand will shrink to the point where a worldwide dip is inevitable.

You might ask yourself: So what? Why do we need more economic growth anyway? Aren’t we ruining the planet with all this growth — destroying forests, polluting oceans and rivers, and spewing carbon into the atmosphere at a rate that’s already causing climate chaos? Let’s just stop filling our homes with so much stuff.

The answer is economic growth isn’t just about more stuff. Growth is different from consumerism. Growth is really about the capacity of a nation to produce everything that’s wanted and needed by its inhabitants. That includes better stewardship of the environment as well as improved public health and better schools. (The Gross Domestic Product is a crude way of gauging this but it’s a guide. Nations with high and growing GDPs have more overall capacity; those with low or slowing GDPs have less.)

Poorer countries tend to be more polluted than richer ones because they don’t have the capacity both to keep their people fed and clothed and also to keep their land, air and water clean. Infant mortality is higher and life spans shorter because they don’t have enough to immunize against diseases, prevent them from spreading, and cure the sick.

In their quest for resources rich nations (and corporations) have too often devastated poor ones – destroying their forests, eroding their land, and fouling their water. This is intolerable, but it isn’t an indictment of growth itself. Growth doesn’t depend on plunder. Rich nations have the capacity to extract resources responsibly. That they don’t is a measure of their irresponsibility and the weakness of international law.

How a nation chooses to use its productive capacity – how it defines its needs and wants — is a different matter. As China becomes a richer nation it can devote more of its capacity to its environment and to its own consumers, for example.

The United States has the largest capacity in the world. But relative to other rich nations it chooses to devote a larger proportion of that capacity to consumer goods, health care, and the military. And it uses comparatively less to support people who are unemployed or destitute, pay for non-carbon fuels, keep people healthy, and provide aid to the rest of the world. Slower growth will mean even more competition among these goals.

Faster growth greases the way toward more equal opportunity and a wider distribution of gains. The wealthy more easily accept a smaller share of the gains because they can still come out ahead of where they were before. Simultaneously, the middle class more willingly pays taxes to support public improvements like a cleaner environment and stronger safety nets. It’s a virtuous cycle. We had one during the Great Prosperity the lasted from 1947 to the early 1970s.

Slower growth has the reverse effect. Because economic gains are small, the wealthy fight harder to maintain their share. The middle class, already burdened by high unemployment and flat or dropping wages, fights ever more furiously against any additional burdens, including tax increases to support public improvements. The poor are left worse off than before. It’s a vicious cycle. We’ve been in one most of the last thirty years.

No one should celebrate slow growth. If we’re entering into a period of even slower growth, the consequences could be worse.

The Truth About China As #2

Mon, 16 Aug 2010 15:35:00 -0400

It’s official. China is now #2. Its economy (measured in nominal GDP for the second quarter) is now bigger than Japan’s (according to numbers released today from the Japanese government). And at the rate it’s growing, China could be the world’s biggest economy in a little more than a decade (Goldman Sachs says by 2027, PricewaterhouseCoopers says by 2020).

Don’t be misled by these numbers. The important thing isn’t China’s ranking, nor the total value of China’s production, nor even the extraordinary speed by which China has reached #2.

What’s most important is the share China’s production received and consumed by the Chinese themselves. The problem is it continues to drop.

China has dozens of billionaires but the vast majority of the Chinese are still extremely poor. The typical Chinese lives off the equivalent of about $3,600 a year. That puts him behind workers in 126 other countries. (The typical Japanese earns the equivalent of about $39,000; the typical American, $46,400.)

Yes, Chinese employers are starting to respond to new-found demands of Chinese workers for higher wages. But Chinese wages are so meager relative to China’s productive capacity that it would take a tsunami of labor agitation to push pay up to where it should be.

China is now the world’s largest market for everything from cars to cell phones – but that’s not because these items are within easy reach of the average Chinese. It’s because, out of 1.3 billion people, a couple of hundred million can save enough to buy them.

If the wages and purchasing power of Chinese households continues to rise more slowly than China’s capacity to produce goods and services — more slowly than China’s corporate profits and the government’s share of national income — we’re all in trouble.

Think of China as a giant production machine that’s growing 10 percent a year (this year, somewhat less). The machine sucks in more and more raw materials and components from rest of world – it’s now the world’s #1 buyer of iron ore and copper, and close to the #1 importer of crude oil – and spews out a growing mountain of stuff, along with huge environmental problems.

But because the Chinese consume a smaller and smaller proportion of this stuff, it has to be exported to consumers elsewhere (Europe, North America, Japan) to keep the Chinese working. Much of the money China earns by selling it around the world is reinvested in factories, roads, trains, and power plants that enlarge China’s capacity to produce far more. Another big portion is lent to or invested in the rest of the world (helping to finance America’s budget deficit at very low cost).

But this can’t go on. China’s workers won’t allow it. Workers in other nations who are losing their jobs won’t allow it, either.

The answer is not simply more labor agitation in China or an upward revaluation of China’s currency relative to the dollar. The problem is bigger. All over the world, we’re witnessing a growing gap between production and consumption, while the environment continues to degrade. The Chinese machine is fast heading for a breakdown only because it’s growing fastest.

Forget a Double Dip. We're Still in One Long Big Dipper.

Sat, 14 Aug 2010 17:17:00 -0400

It’s nonsense to think of the economy heading downward again into a double dip when most Americans never emerged from the first dip. We’re still in one long Big Dipper.

More people are out of work today than they were last year, counting everyone too discouraged even to look for work. The number of workers filing new claims for jobless benefits rose last week to highest level since February. Not counting temporary census workers, a total of only 12,000 net new private and public jobs were created in July — when 125,000 are needed each month just to keep up with growth in the population of people who want and need to work.

Not since the government began to measure the ups and downs of the busines cycle has such a deep recession been followed by such anemic job growth. Jobs came back at a faster pace even in March 1933 after the economy started to “recover” from the depths of the Great Depression. Of course, that job growth didn’t last long. That recovery wasn’t really a recovery at all. The Great Depression continued. And that’s exactly my point. The Great Recession continues.

Even investors are beginning to see reality. Starting in February the stock market rallied because corporate profits were rising briskly. Investors didn’t mind that profits were coming from payroll cuts, foreign sales, and gimmicks like share buy-backs — none of which could be sustained over the long term. But the rally died in April when investors began to see how paper-thin these profits actually were. And now the stock market is back to where it was at the start of the year.

What to do? First, don’t listen to Wall Street and the right.

Forget the Neo-Hoover deficit hawks who day we have to cut government spending and trim upcoming deficits. We didn’t get into this mess and aren’t remaining in it because of budget deficits. In fact, the only way to reduce long-term deficits is to restore jobs and growth so government revenues rise and expenses like unemployment insurance drop.

Ignore the government haters who say we have to void or delay upcoming regulations of Wall Street and big business. We got here because Wall Street went bonkers, the housing bubble burst, and the middle class couldn’t continue to spend becuase their health-care bills were soaring and their pay was stagnating. New regulations of Wall Street and big business are necessary to avoid a repeat.

And don’t believe the supply-siders who say we have to extend the Bush tax cuts for the wealthy. Because the wealthy save rather than spend most of their incomes, extending their tax cut won’t do squat. And restoring their marginal tax rate to what it was under Bill Clinton won’t harm the economy. The Clinton years had the best sustained economy in American history.

The central problem is lack of demand — and that’s what has to be tackled.

Three of the four sources of demand have stopped working. (1) Consumers can’t and won’t buy because they’re still under a huge debt load, can’t get more credit, are afraid of losing their jobs (or already have), depend on two wage earners at least one of whom is working part-time and pulling in less, or have to save. (2) Businesses won’t invest and spend on creating more jobs if they don’t see consumers willing to buy more. (3) Exports are stalled because the dollar is so high they cost too much, much of the rest of the world is still struggling with recession, and American firms can make things for sale abroad more cheaply abroad.

That leaves only one remaining source of demand — government. We need a giant jobs program to hire people and put money in their pockets that they’ll spend and thereby create more jobs. Put ideology aside and recognize this fact. If it makes you more comfortable call it the National Defense Jobs Act. Call it the WPA. Call it Chopped Liver. Whatever, we have to get the great army of the unemployed and underemployed working again.

Also: Put more money in consumer’s wallets by eliminating payroll taxes on the first $20K of income (and make it up by applying payroll taxes to incomes over $250K.)

Also: Get more hiring by giving the states and locales interest-free loans — so they can rehire all the teachers, fire fighters, police officers, and sanitation workers they’ve fired — to be repaid when their state employment rates hit 5 percent or below.

Also: Get more credit by having the Fed return to “quantitative easing” — expanding the money supply by purchasing mortgage-backed and other types of securities.

If we let the deficit hawks and government haters dominate this debate, as they have, the Big Dipper will continue for years. The Great Depression lasted twelve.

America's Biggest Jobs Program -- the U.S. Military

Wed, 11 Aug 2010 18:08:00 -0400

America’s biggest — and only major — jobs program is the U.S. military.

Over 1,400,000 Americans are now on active duty; another 833,000 are in the reserves, many full time. Another 1,600,000 Americans work in companies that supply the military with everything from weapons to utensils. (I’m not even including all the foreign contractors employing non-US citizens.)

If we didn’t have this giant military jobs program, the U.S. unemployment rate would be over 11.5 percent today instead of 9.5 percent.

And without our military jobs program personal incomes would be dropping faster. The Commerce Department reported Monday the only major metro areas where both net earnings and personal incomes rose last year were San Antonio, Texas, Virginia Beach, Virginia, and Washington, D.C. — because all three have high concentrations of military and federal jobs.

This isn’t an argument for more military spending. Just the opposite. Having a giant undercover military jobs program is an insane way to keep Americans employed. It creates jobs we don’t need but we keep anyway because there’s no honest alternative. We don’t have an overt jobs program based on what’s really needed.

For example, when Defense Secretary Robert Gates announced Monday his plan to cut spending on military contractors by more than a quarter over three years, congressional leaders balked. Military contractors are major sources of jobs back in members’ states and districts. California’s Howard P. “Buck” McKeon, the top Republican on the House Armed Services Committee, demanded that the move “not weaken the nation’s defense.” That’s congress-speak for “over my dead body.”

Gates simultaneously announced closing the Joint Force Command in Norfolk, Virginia, that employs 6,324 people and relies on 3,300 private contractors. This prompted Virginia Democratic Senator Jim Webb, a member of the Senate Armed Services Committee, to warn that the closure “would be a step backward.” Translated: “No chance in hell.”

Gates can’t even end useless weapons programs. That’s because they’re covert jobs programs that employ thousands.

He wants to stop production of the C-17 cargo jet he says is no longer needed. But it keeps 4,000 people working at Boeing’s Long Beach assembly plant and 30,000 others at Boeing suppliers strategically located in 40 states. So despite Gates’s protests the Senate has approved ten new orders.

That’s still not enough to keep all those C-17 workers employed, so the Pentagon and Boeing have been hunting for foreign purchasers. The Indian Air Force is now negotiating to buy ten, and talks are underway with several other nations, including Oman and Saudi Arabia.

Ever wonder why military equipment is one of America’s biggest exports? It’s our giant military jobs program in action.

Gates has also been trying to stop production of a duplicate engine for the F-25 joint Strike Fighter jet. He says it isn’t needed and doesn’t justify the $2.9 billion slated merely to develop it.

But the unnecessary duplicate engine would bring thousands of jobs to Indiana and Ohio. Cunningly, its potential manufacturers Rolls-Royce and General Electric created a media blitz (mostly aimed at Washington, D.C. where lawmakers wold see it) featuring an engine worker wearing a “Support Our Troops” T-shirt and arguing the duplicate engine will create 4,000 American jobs. Presto. Despite a veto threat from the White House, a House panel has just approved funding the duplicate.

By the way, Gates isn’t trying to cut the overall Pentagon budget. He just wants to trim certain programs to make room for more military spending with a higher priority.

The Pentagon’s budget — and its giant undercover jobs program — keeps expanding. The President has asked Congress to hike total defense spending next year 2.2 percent, to $708 billion. That’s 6.1 percent higher than peak defense spending during the Bush administration.

This sum doesn’t even include Homeland Security, Veterans Affairs, nuclear weapons management, and intelligence. Add these, and next year’s national security budget totals about $950 billion.

That’s a major chunk of the entire federal budget. But most deficit hawks don’t dare cut it. National security is sacrosanct.

Yet what’s really sacrosanct is the giant jobs program that’s justified by national security. National security is a cover for job security.

This is nuts.

Wouldn’t it be better to have a jobs program that created things we really need — like light-rail trains, better school facilities, public parks, water and sewer systems, and non-carbon energy sources — than things we don’t, like obsolete weapons systems?

Historically some of America’s biggest jobs programs that were critical to the nation’s future have been justified by national defense, although they’ve borne almost no relation to it. The National Defense Education Act of the late 1950s trained a generation of math and science teachers. The National Defense Highway Act created millions of construction jobs turning the nation’s two-lane highways into four- and six-lane Interstates.

Maybe this is the way to convince Republicans and blue-dog Democrats to spend more federal dollars putting Americans back, and working on things we genuinely need: Call it the National Defense Full Employment Act.

Confessions of a Class Worrier

Tue, 10 Aug 2010 12:53:00 -0400

The decline of America’s middle class can be charted directly. In the three decades after World War II, the median wage (smack in the middle) grew rapidly, right along with productivity gains. Even as late as 1980, the richest 1 percent of Americans received only about 9 percent of the nation’s total income.

But starting in the 1980s — and increasingly since then — the economy has made the rich far richer without doing squat for the vast middle. The median hourly wage has barely grown, if you take inflation into account. Indeed, it dropped in the last so-called “recovery” between 2001 and 2007. And health-care and pension benefits have declined; we’ve gone from defined-benefit pensions to do-it-yourself pensions, while health insurance premiums, deductibles, and co-payments have skyrocketed.

Meanwhile, the rich have been getting a larger and larger portion of total income. From 9 percent in 1980, the top 1 percent’s take has increased to 23.5 percent in 2007. CEOs who in the 1970s took home 40 times the compensation of average workers now rake in 350 times. Financiers who forty years ago made only modest fortunes today, even after the Great Recession they helped bring on, routinely earn seven and eight-figures. In 2009, when most of the nation’s middle class was deep in recession, the 25 best-paid hedge-fund managers took in an average of $1 billion each. (Their marginal income tax, by the way, was barely over 17 percent, while the typical family paid a marginal tax far higher.)

What happened? It wasn’t just greed. It was also the systematic and ever cleverer manipulation of laws and rules by those able to pay lobbyists, legislators, lawyers, accountants to do their bidding. As income and wealth have risen to the top, so has the power to manipulate the system in order to acquire even more money and more influence.

To be sure, globalization and technological change have bestowed gains disproportionately on those with the education and connections to benefit most from them, while burdening Americans without the education and connections most needed.

But instead of enlarging the circle of prosperity so that the vast middle class could come out winners as well — instead of strengthening trade unions, improving public education, deepening public investments, enlarging safety nets, and making the tax system more progressive — the nation took direction from those at the top, and did the opposite.

It is not surprising America’s middle class is increasingly frustrated and are venting their anger — at politicians, the leaders of big business and Wall Street, as well as global traders, immigrants, and others who are easy targets of resentment.

A politics of audacious hope has turned into a politics of fear — meaner spirited than at any time in recent memory.

I’m not a class warrior. Call me a class worrier.

Our choice in the years ahead is either demagoguery that turns Americans further against one another and the rest of the world, or genuine reform that enlarges shared prosperity. It is the responsibility of all of us to fight the former and work toward the latter. (Pause for commercial announcement: In my forthcoming book, “Aftershock: The Next Economy and America’s Future,” I discuss this choice in detail.)

The Jobs Emergency

Mon, 09 Aug 2010 13:51:04 -0400

Washington’s latest answer to the worst jobs crisis since the Great Depression is $26 billion in aid to state and local governments. This still leaves the states and locales more than $62 billion in the hole this fiscal year. And because every state except Vermont has to balance its budget, the likely result is 600,000 to 700,000 more state and local jobs vanishing over the next 12 months (including private contractors and other businesses that depend on state and local governments) according to the Center on Budget and Policy Priorities. Say goodbye to even more of the teachers, firefighters, sanitary workers, and police officers we depend on.

In July alone, state and local employment dropped 48,000. Not counting temporary census workers, the federal government shed 11,000. So with private payrolls increasing a paltry 71,000, July’s overall increase in payrolls was just 12,000.

12,000 new jobs in July — when 125,000 are needed monthly just to keep up with population growth, when more than 15 million Americans are out of work, and when more than a half million more state and local jobs are on the chopping block.

With the worst jobs crisis since the Great Depression worsening, you might expect emergency action out of Washington. But the biggest upcoming debate there is whether to extend the Bush tax cuts for the richest 2 percent, or for everyone, or for no one. This is like debating whether to get a mousetrap when your home is sinking in quicksand.

We need a response proportional to the crisis. Obama, Pelosi, and Reed should summon Congress back to Washington for action on the jobs emergency.

First item on the agenda: establishing a federal bank that will provide states and locales zero-interest loans, to be repaid when their unemployment rates drop to 5 percent or below.

Second item: eliminating payroll taxes on the first $20,000 of all incomes and make up the difference by subjecting all income above $250,000 to the payroll tax. (Remember, the wealthy save most of their after-tax income, lower-income Americans spend it.)

Third item: recreating the WPA to hire Americans directly. The Works Progress Administration put Americans back to work during the Depression rebuilding the nation’s infrastructure.

The jobs emergency requires no less.

Greenspan, Rubin, and Herbert Hoover

Sun, 08 Aug 2010 19:21:00 -0400

Herbert Hoover’s disciples are making noises even as America moves closer towards a double dip recession

Fed Chair Alan Greenspan tells the New York Times all the Bush tax cuts should expire as scheduled, even those that benefit the middle class and not the rich. His reason: the nation’s looming deficit requires it.

On Sunday, former Treasury Secretary Robert Rubin, appearing on CNN, says any further effort to stimulus the economy would be “counter productive,” and that policy makers instead should craft a deficit-reduction plan.

Greenspan is only partly wrong. The Bush tax cuts should expire for the top 2 percent of filers (those earning over $250,000) because they save rather than spend a large portion of their incomes, and we need all the spending we can get. The cuts should be extended for everyone else because they’ll spend them. The top 2 percent now receive almost a quarter of total national income, which is one reason why the middle class doesn’t have the purchasing power to lift the economy on its own. The best way to give them even more purchasing power would be to give the middle class a larger tax cut — say, a payroll tax holiday on the first $20,000 of income.

Rubin is entirely wrong. As Friday’s jobs report shows, the gap between total private spending (consumers plus business plus net exports), on the one side, and the nation’s capacity to produce goods and services at or near full employment, on the other, is still a chasm. So government needs to do more spending now, in the short term, in order to get people back to work and the economy back on track.

In 1999, both Greenspan and Rubin urged Congress to repeal the Glass-Steagall Act that had safely separated commercial from investment banking. In 2000 they argued against allowing the Commodity Futures Trading Corporation to regulate derivates. Until recently, Rubin ran the executive committee at Citigroup, whose excesses required a massive taxpayer bailout. In 2001 Greenspan supported the Bush tax cuts that blew a gigantic hole in the federal deficit and mostly benefited the wealthy. In 2002 he lowered interest rates to near zero but refused to oversee how banks were using their almost-free borrowings.

Both Greenspan and Rubin are deficit hawks. So was Herbert Hoover and so was Hoover’s Treasury Secretary Andrew Mellon. And look what Hoover and Mellon got us into. When we least need him, Hoover is being exhumed.

Why the Views of the Wall Street Journal's Letter Writers Are Far From This World

Fri, 06 Aug 2010 21:09:56 -0400

Thoughtful debate is to be found in places other than Letters to the Editor of the Wall Street Journal where, in Friday’s edition, under the ad hominem heading “Mr. Reich’s View Seems to Be Far From This World,” the editor gathers what the Journal apparently considers insightful responses to my Tuesday column (posted below on August 3 as “The Origins of the Enthusiasm Gap.”)

Mr. Don Schoen from Northbrook, Illinois, says the Administration’s initiatives “are not too bold or too small,” as I suggest. Rather, they have had “little to do with our actual problems” and have been used instead “as cover for unrelated and sometimes significantly redistributionist actions.”

Mr. Schoen never states what he considers the nation’s “actual problems” nor what he believes to be Obama’s “significantly redistributionist actions.” This is rhetorical vacuity.

Chris Gray of St. Augustine, Florida, calls the President “arguably the most liberal White House occupant in history,” and believes my ulterior motive is to paint him “as a middle-of-the-road compromiser bracketed between progressives on the left and conservatives on the right.” Mr. Gray says “positioning President Obama as the midway point in that ideological battle probably is the best that the left can hope for, given the continued center-right temperament of the electorate” and that “the majority of Americans want Washington to shift back toward the center.”

Mr. Gray never defines what he means by “liberal,” “progressive,” “left,” “conservative,” “right,” “center-right,” or “center.” This is ideology masked as argument.

J. P. Ruggio, of Bonita Springs, Florida, writes that I fail to emphasize the importance of “consumer confidence and consumer spending as a major force in diving our economy,” both of which are low because of “uncertainty of the intended or unintended consequences caused by recent or proposed legislation.”

Ruggio couldn’t have read my column because my whole argument for why Obama’s stimulus package was too small is based on the dramatic falloff in consumer spending starting in 2008 and continuing through 2009. That drop, by the way, couldn’t have occurred because of uncertainties about the consequences of Obama’s legislation because that legislation hadn’t been enacted by then; much hadn’t even been proposed. There’s a much simpler explanation for the drop in consumer spending: consumers lost their credit, their savings, and in many cases their jobs and their homes. J.P. Ruggio offers the same right-wing claptrap the Journal’s editorial page and congressional Republicans have been peddling for months.

One letter raises a fair point. Mr. Carter Evans, of Washington, D.C., takes issue with my assertion that when Congress approved the stimulus in February 2009 no one knew how sick the economy really was. That can’t have been entirely true because at that time I, among others, argued for a larger stimulus. So at least a few of us knew.

We're Even Deeper in the Hole

Fri, 06 Aug 2010 10:41:49 -0400

The economy is still in a deep hole, and we’re not climbing out.

Remember, we need 125,000 new jobs per month simply to keep up with the growth of the American population seeking jobs. But according to this morning’s job’s report, private-sector employers added just 71,000 jobs in July. (According to the Bureau of Labor Statistics’ revised report for June, private employers added only 31,000 jobs in June.)

In other words, the hole keeps getting deeper.

(Government Census workers who had been hired in the spring have been let go over the last two months, and shouldn’t really be included in the trend-line calculation. But for the record, 143,000 lost their jobs in July. That leaves about 200,000 Census workers still knocking on doors. Most of them will lose their jobs in August and September.)

The only slightly bright news is that manufacturing payrolls increased by 36,000 in July, but those gains are almost surely going to evaporate in August. Manufacturing expanded in July at the slowest pace of the year as orders and production decelerated.

All this blur of numbers means two things: An extraordinary number of Americans are still hurting. And it’s more important than ever for the US government to step in with a larger stimulus that puts more people to work (a WPA, for example), and tax cuts for people who will spend them (a two-year payroll tax holiday on the first $20K of income).

We cannot get out of this hole without major federal action.

The Rich and the Rest of Us

Wed, 04 Aug 2010 20:28:00 -0400

Forty of America’s richest families or individuals – almost all billionaires – have pledged to donate at least half their fortunes to charity. The total is a whopping $125 billion. Warren Buffett and Bill and Melinda Gates reached out to some 80 members of the Forbes billionaires list, seeking their pledges.

I think it’s admirable that Bill and Melinda Gates and Warren Buffett give so much to charity and have corralled other billionaires to do the same.

But I’m also appalled at what this reveals about how much money is now concentrated in so few hands. It’s more evidence we’re back in the late nineteenth century when robber barons lorded over the economy and almost everyone else lost ground. The Vanderbilts, Carnegies, Rockefellers made so much money they too could give away large chunks to charity and still maintain their outsized fortunes and their power and influence.

Most telling is how much wealthier the richest have become over the past year. Forbes Magazine’s list of the world’s billionaires (40 percent of them Americans), show them with an average net worth of $3.5 billion – and an average increase of $500 million in the last 12 months.

America’s median hourly wage, meanwhile, dropped last year, and it continues to drop. That’s not even counting the 15 million Americans still out of work.

Most Americans don’t need charity. They need good jobs.