Jobs are returning with depressing slowness, and most of the new jobs pay less than the jobs that were lost in the Great Recession.
Economic determinists — fatalists, really — assume that globalization and technological change must now condemn a large portion of the American workforce to under-unemployment and stagnant wages, while rewarding those with the best eductions and connections with ever higher wages and wealth. And therefore that the only way to get good jobs back and avoid widening inequality is to withdraw from the global economy and become neo-Luddites, destroying the new labor-saving technologies.
That’s dead wrong. Economic isolationism and neo-Ludditism would reduce everyone’s living standards. Most importantly, there are many ways to create good jobs and reduce inequality.
Other nations are doing it. Germany was generating higher real median wages until recently, before it was dragged down by austerity it imposed the European Union. Singapore and South Korea continue to do so. Chinese workers have been on a rapidly-rising tide of higher real wages for several decades. These nations are implementing national economic strategies to build good jobs and widespread prosperity. The United States is not.
Any why not? Both because we don’t have the political will to implement them, and we’re trapped in an ideological straightjacket that refuses to acknowledge the importance of such a strategy. The irony is we already have a national economic strategy but it’s been dictated largely by powerful global corporations and Wall Street. And, not surprisingly, rather than increase the jobs and wages of most Americans, that strategy has been increasing the global profits and stock prices of these giant corporations and Wall Street banks.
If we had a strategy designed to increase jobs and wages, what would it look like? For starters, it would focus on raising the productivity of all Americans through better education — including early-childhood education and near-free higher education. That would require a revolution in how we finance public education. It’s insane that half of K-12 budgets still come from local property taxes, for example, especially given that we’re segregating geographically by income. And it makes no sense to pay for the higher education of young people from middle and lower-income families through student debt; that’s resulted in a mountain of debt that can’t or won’t be paid off, and it assumes that higher education is a private investment rather than a public good.
It would also require greater accountability by all schools and universities for better outcomes — but not just better test results. The only sure thing standardized tests measure is the ability to take standardized tests. Yet the new economy demands problem-solving and original thinking, not standardized answers.
Better education would just be a start. We would also unionize low-wage service workers in order to give them bargaining power to get better wages. Such workers — mostly in big-box retailers, fast-food chains, hospitals, and hotel chains — aren’t exposed to global competition or endangered by labor-substituting technologies, yet their wages and working conditions are among the worst in the nation. And they represent among the fastest-growing of all job categories.
We would raise the minimum wage to half the median wage and expand the Earned Income Tax Credit. We’d also eliminate payroll taxes on the first $15,000 of income, making up the shortfall in Social Security by raising the cap on income subject to the payroll tax.
We’d also restructure the relationships between management and labor. We would require, for example, that companies give their workers shares of stock, and more voice in corporate decision making. And that companies spend at least 2% of their earnings upgrading the skills of their lower-wage workers.
We’d also condition government largesse to corporations on their agreement to help create more and better jobs. For example, we’d require that companies receiving government R&D funding do their R&D in the U.S.
We would prohibit companies from deducting the cost of executive compensation in excess of more than 100 times the median compensation of their employees or the employees of their contractors. And bar them from providing tax-free benefits to executives without providing such benefits to all their employees.
And we would turn the financial system back into a means for investing the nation’s savings rather than a casino for placing huge and risky bets that, when they go wrong, impose huge costs on everyone else.
There’s no magic bullet for regaining good jobs and no precise contours to what such a national economic strategy might be, but at the very least we should be having a robust discussion about it. Instead, economic determinists seem to have joined up with the free-market ideologues in preventing such a conversation from even beginning.
By: Robert Reich, The Robert Reich Blog, June 11, 2013
As a culture, we seem to be in an apocalyptic moment. Judging from the movie trailers, it looks like the human race is basically screwed this summer in After Earth, World War Z, and This Is the End—a comedy!—while Washington (and its black president) will be besieged by cyber-terrorists in White House Down. In the real world, we’re bombarded with warnings about our debt crisis, our economic crisis, and of course our political crisis, which is to say, our government’s inability to deal with all its other crises. Republicans in particular have become perennial prophets of doom, warning that President Obama’s foreign policies will destroy our standing in the world, that Obamacare will destroy our health care system, that out-of-control spending, growth-killing taxes, and loose monetary policy will turn us into a dystopia of inflation, high interest rates and economic paralysis.
Things are OK. And while you can’t tell from following the news—the press doesn’t like to report on planes that land safely, or seemingly obvious stuff that didn’t happen yesterday—things are getting better. The apocalypse is not nigh.
We are now in the fourth year of a slow but steady recovery. The economy is adding about 200,000 jobs a month, and has added 6.8 million private-sector jobs since the end of the Great Recession. The stock market is at an all-time high, and has almost doubled since Obama took office. The housing market is rebounding. It’s true that 7.5% unemployment is way too high, but it’s better than the double-digit unemployment we had in the wake of the financial meltdown, when the apocalypse really was nigh. The government has even turned a profit on the reviled Wall Street bailouts that ended the meltdown.
Yes, the economy would be doing even better if it weren’t being dragged down by the “sequester,” $85 billion worth of haphazard spending cuts resulting from Republican demands for government austerity. Those were misguided demands after a financial crisis, the kind of demands that have turned Europe into an economic basket case. But so far, at least, fears that the sequester could scuttle the U.S. recovery have proven to be overblown. Consumer confidence just hit a six-year high.
What about the fears that inspired the sequester and the rest of the austerity push, the fears that spiraling deficits would turn us into Greece? Well, the Congressional Budget Office now estimates the deficit at $642 billion, the lowest since the crisis; it’s been cut in half since Obama took office, the fastest reduction since World War 2. We’re not Greece. The bond markets certainly don’t think so; interest rates are at historic lows. And the runaway inflation that Paul Ryan and other loose-money critics keep predicting has yet to materialize; inflation is actually below the official Federal Reserve target of just 2 percent.
In fairness, while America’s short-term deficit is shrinking fast, our long-term deficit is still a concern, because soaring health care costs have threatened the future of Medicare and Medicaid. But there’s good news there, too. According to the nonpartisan Kaiser Foundation, health care spending is now growing at the slowest rate in five decades, which is why Medicare’s trustees just upgraded the program’s budget outlook. And there is strong evidence that Obamacare’s efforts to reorient the medical system to reward providers who keep their patients healthy instead of providers who perform more services are working. For example, Obamacare imposes financial penalties on hospitals with high rates of readmissions and central-line infections; predictably, hospitals have improved their performance in both areas. The health information technology revolution—launched by Obama’s 2009 stimulus—is also bending the cost curve, dragging a pen-and-paper system into digital age.
Meanwhile, U.S. combat forces are out of Iraq, and they’ll be out of Afghanistan next year. U.S. carbon emissions are at their lowest level in two decades, and so are U.S. oil imports. By historical standards, taxes are very low and spending is very modest. General Motors and Chrysler, wards of the state four years ago, are posting their best sales numbers in years. Gays are serving openly in the military, solar installations have increased over 1,000% in four years, a cool robot is taking cool pictures of Mars, and Tesla just paid back its government loan with interest. Things are getting better, and better is better than worse.
But the headlines are all about supposed scandals—stupid IRS agents in Cincinnati, overzealous leak investigations at the Justice Department, a dopey dispute over Benghazi talking points. These are the kind of things that politicians can obsess about when there’s no crisis on the horizon; the last time the national outlook was this bright, Republicans impeached the president for sexing up an intern. It’s unfortunate, but it’s not as if the latest wannabe-scandals are distracting official Washington from any important work it might be doing. Sure, Congress ought to do something about climate change, but as long as Republicans control the House, Congress isn’t going to do anything about climate change.
I guess that qualifies as a crisis. But one of the lessons of the Obama era, along with the general advisability of DOING STUFF regardless of the political implications, is that positive change can happen in spite of a dysfunctional system. You couldn’t build a summer movie around that—”In a world where complex legislation is implemented effectively…”—but it’s still a feel-good idea, even if it seems to have limited box-office appeal.
By: Michael Grunwald, Time Magazine, June 9, 2013
“A Failure To Hold Congress Accountable”: Economic Policy Is Largely Being Driven By Obstructionism, Not Economic Advisers
President Obama is reportedly planning to nominate economist Jason Furman to replace Alan Krueger as the head of the Council of Economic Advisers. Like Krueger and, for that matter, Austan Goolsbee and Christina Romer who previously served this administration in the same capacity, Furman boasts an impressive resume, with a Harvard economics doctorate as well as stints at the Brooking Institution, the Center on Budget and Policy Priorities (CBPP), and the CEA under President Clinton, among others. If you’re still of the incorrect belief that tax cuts largely pay for themselves (looking at you, Senate Minority Leader Mitch McConnell), do yourself a favor and read his CBPP report explaining the mechanics and empirics of “dynamic scoring” (pdf) and why invoking it as a talisman doesn’t mean one can claim anything one finds politically expedient.
The Beltway coverage of this news is overly focused on the inside baseball politics between the CEA and the National Economic Council, where Furman has been serving as Deputy Director since January 2009. But it’s important to step back and remember that economic policy in recent years has been principally driven not by well-qualified economists with the CEA, NEC, or elsewhere in the executive branch, but instead by conservative congressional obstructionism. Jason Furman’s appointment to the CEA will not alter the troubling reality that the United States is on an autopilot course of premature, excessive austerity and intentionally poorly designed sequestration spending cuts. But even if the ghost of conservative saint Milton Friedman rose up and warned the GOP against such austerity, today’s conservatives in Congress would declare him an apostate and continue their destructive course.
Consequently, the U.S. economy will almost certainly continue muddling through an adverse equilibrium of anemic growth, severely depressed output, massive underemployment, large cyclical budget deficits, subdued price inflation, widespread real wage deflation and low interest rates. It’s really quite simple: a steep aggregate demand shortfall continues to keep the economy’s performance well below potential, and the Federal Reserve has been and will continue to be incapable of fully ameliorating this shortfall so long as contractionary fiscal policy is being pursued. (See this paper for a thorough treatment.)
In short, the intellectual debate over austerity vs. stimulus has been totally decoupled from the policy debate and, more importantly, policy outcomes in Washington—despite having been resolved in a virtual TKO by those opposed to foisting austerity on depressed economies. The United States doesn’t face, or, perhaps more accurately, no longer faces a deficit of economists capable of opening up an intermediate macroeconomics textbook and relearning liquidity trap/depression economics. But the U.S. Congress faces a depressing deficit of members who seem to care about empiricism or evidence-based policy, never mind their unemployed constituents.
My colleague Josh Bivens and I have chronicled the ways the GOP has routinely and frequently obstructed economic recovery since 2009—much of which should inform any debate this summer regarding much needed reform of the Senate’s filibuster rules, as well as the inevitable political fight over the debt ceiling. Conservatives, particularly the Tea Party caucus, are to blame for exploiting every piece of leverage available (including the nation’s credit worthiness) to extract premature spending cuts, filibustering just about anything that would boost aggregate demand, watering down the Recovery Act, hamstringing monetary policy and demanding counterproductive legislative ‘pay fors’—stipulated to never, ever include revenue increases. The frequently espoused pox-on-both houses punditry is not just off-base, but is also somewhat complicit in this sad state of affairs.
Does it matter who advises the president? Absolutely. But the distressing state of the U.S. economy is, at root, a failure of our representative democracy and institutions to hold Congress accountable for its decisions preventing economic recovery, not a failure of technical advice given to the president. Realistically, the Constitution and budgetary process outlook afford the administration scant leverage to force more deficit-financed government spending, the most effective policy lever for digging out of this Lesser Depression. Under this backdrop, the United States needs more than qualified economic advisers to the president—a majority of representatives and (barring meaningful filibuster reform) super-majority of senators who heed evidence, as well as a press corps holding them accountable, jump to mind.
By: Andrew Fieldhouse, Economic Policy Institute, May 29, 2013
“The Story Of Our Time”: The Most Crucial Thing To Understand Is The Economy Is Not Like An Individual Family.
Those of us who have spent years arguing against premature fiscal austerity have just had a good two weeks. Academic studies that supposedly justified austerity have lost credibility; hard-liners in the European Commission and elsewhere have softened their rhetoric. The tone of the conversation has definitely changed.
My sense, however, is that many people still don’t understand what this is all about. So this seems like a good time to offer a sort of refresher on the nature of our economic woes, and why this remains a very bad time for spending cuts.
Let’s start with what may be the most crucial thing to understand: the economy is not like an individual family.
Families earn what they can, and spend as much as they think prudent; spending and earning opportunities are two different things. In the economy as a whole, however, income and spending are interdependent: my spending is your income, and your spending is my income. If both of us slash spending at the same time, both of our incomes will fall too.
And that’s what happened after the financial crisis of 2008. Many people suddenly cut spending, either because they chose to or because their creditors forced them to; meanwhile, not many people were able or willing to spend more. The result was a plunge in incomes that also caused a plunge in employment, creating the depression that persists to this day.
Why did spending plunge? Mainly because of a burst housing bubble and an overhang of private-sector debt — but if you ask me, people talk too much about what went wrong during the boom years and not enough about what we should be doing now. For no matter how lurid the excesses of the past, there’s no good reason that we should pay for them with year after year of mass unemployment.
So what could we do to reduce unemployment? The answer is, this is a time for above-normal government spending, to sustain the economy until the private sector is willing to spend again. The crucial point is that under current conditions, the government is not, repeat not, in competition with the private sector. Government spending doesn’t divert resources away from private uses; it puts unemployed resources to work. Government borrowing doesn’t crowd out private investment; it mobilizes funds that would otherwise go unused.
Now, just to be clear, this is not a case for more government spending and larger budget deficits under all circumstances — and the claim that people like me always want bigger deficits is just false. For the economy isn’t always like this — in fact, situations like the one we’re in are fairly rare. By all means let’s try to reduce deficits and bring down government indebtedness once normal conditions return and the economy is no longer depressed. But right now we’re still dealing with the aftermath of a once-in-three-generations financial crisis. This is no time for austerity.
O.K., I’ve just given you a story, but why should you believe it? There are, after all, people who insist that the real problem is on the economy’s supply side: that workers lack the skills they need, or that unemployment insurance has destroyed the incentive to work, or that the looming menace of universal health care is preventing hiring, or whatever. How do we know that they’re wrong?
Well, I could go on at length on this topic, but just look at the predictions the two sides in this debate have made. People like me predicted right from the start that large budget deficits would have little effect on interest rates, that large-scale “money printing” by the Fed (not a good description of actual Fed policy, but never mind) wouldn’t be inflationary, that austerity policies would lead to terrible economic downturns. The other side jeered, insisting that interest rates would skyrocket and that austerity would actually lead to economic expansion. Ask bond traders, or the suffering populations of Spain, Portugal and so on, how it actually turned out.
Is the story really that simple, and would it really be that easy to end the scourge of unemployment? Yes — but powerful people don’t want to believe it. Some of them have a visceral sense that suffering is good, that we must pay a price for past sins (even if the sinners then and the sufferers now are very different groups of people). Some of them see the crisis as an opportunity to dismantle the social safety net. And just about everyone in the policy elite takes cues from a wealthy minority that isn’t actually feeling much pain.
What has happened now, however, is that the drive for austerity has lost its intellectual fig leaf, and stands exposed as the expression of prejudice, opportunism and class interest it always was. And maybe, just maybe, that sudden exposure will give us a chance to start doing something about the depression we’re in.
By: Paul Krugman, Op-Ed Columnist, The New York Times, April 28, 2013
“Wait, The Sequester Thing Is Still Happening?”: Well-Off People Soon To Finally Be Inconvenienced By Sequestration
This week, the FAA began keeping 10 percent of America’s air-traffic controllers home every day, because of a stupid federal budget argument that turned into a purposefully bad law. Furloughing a bunch of air traffic controllers has a pretty easy-to-predict effect on air travel: It causes delays. Airlines have been sending out automated emails warning travelers to expect as much. The Washington Post yesterday reported on how the first day of furloughs turned out: The New York airports had delays of “one to three hours.” By later in the day, those delays had rippled out to airports in the middle of the country. By late Monday night, LAX was still dealing with delays of more than an hour.
I am guessing that over the next few days a lot of Americans are going to hear about these delays, or be personally inconvenienced by them, and think to themselves, wait, the sequester thing is still happening? Well, yes, it is, because so far it hasn’t been that bad, for certain Americans. Other Americans, though, have been aware of the cuts since they went into effect.
Thus far, many of the people directly affected by sequestration cuts have been the sort of people whose desires and policy preferences are easily ignored by our political institutions. Larry Bartels has shown that politicians are quite responsive to the views of their rich constituents, but not particularly concerned with anyone else. “The views of middle-class constituents matter rather less, while the views of constituents in the bottom third of the income distribution have no apparent effect on their senators’ roll call votes.” Martin Gilens has found basically the same thing.
So far, the sequestration cuts have been particularly hard on people who rely on food pantries and Head Start and Meals on Wheels and unemployment benefits, along with more middle-income government employees and contractors. (And a bunch of scientists, but no one listens to scientists unless they’re building death rays or something.) For rich people, the most inconvenient thing about the sequestration thus far has been trying to figure out why it caused the president to threaten to drone Bob Woodward that one time.
That is going to change, once flights everywhere — but especially out of the Northeast — are suddenly being delayed and canceled all the time, for no good reason. For a really dumb, easily fixable reason, in fact. (And no, we don’t need to “fix” this with a “balance” of cuts and tax hikes, we just need to not do the sequestration. Just repeal it! Super-simple. Then have your idiotic Grand Bargain Budget Showdown.)
“Shuttle flights between Washington and New York were running 60 to 90 minutes late,” the Times reports. Do you know who takes weekday shuttle flights between Washington and New York? People who think they are too important for the train, let alone the bus. People Congress listens to. (People Congress is, also.)
Members of Congress are more likely to fly commercial than attend school on an Indian reservation. Their rich constituents, the only ones they listen to, are more likely to fly often than their constituents who, say, rely on federal housing vouchers.
So Congress may feel a bit more urgency, then, about addressing the sequestration cuts. (Pundits and journalists, too, may start treating them more seriously.) The DCA-LGA shuttle is at risk.
Not that the inconveniencing of the usually convenienced will cause an immediate sensible end to sequestration cuts. The defense cuts were supposed to ensure that right-wingers hated this, and that didn’t work. A lot of people are pretty committed to this weird showdown between the president and House Republicans. And delays and flight cancellations may make a certain type of conservative more committed to mass austerity.
There are certain Simpsony-Bowlesy people who believe quite strongly that the United States will — must — pay for the sin of Debt, by self-imposed austerity or by “becoming Greece.” Plenty of right-wingers already believe a sort of millenarism-via-Drudge in which the United States is already Greece, or some other failed state on the verge of collapse. Mass airport congestion will only nurture that pleasant feeling of inevitable, deserved decline. (This is related to the common elite opinion that mass unemployment is a sign of a country “taking its medicine.”) For some, the worse things get in America, the more evidence it is that we need to make things worse.
So, if your flight gets canceled sometime soon because a bunch of knuckleheads in Congress don’t know how sovereign debt works, just be grateful you’re not a Medicare cancer patient. (Unless you are one, too.)
By: Alex, Pareene, Salon, April 23, 2013