Cuts and Consequences – How Budget Cuts Hurt The Economy

Is smaller government really better for the economy? Conservatives chant that taxes and government “take money out of the economy” and we need to “cut and grow,” meaning if government spending is cut way back the economy will grow as a result. Europe’s conservatives are also forcing cuts in the things their governments do for regular people, claiming “austerity” will bring “confidence” that grows their economies. How is this experiment working out? What are we learning about the effect on the larger economy when government is cut?
What Does Government Do?
Almost everything the government does is because it needs to be done. We need roads, bridges, schools & colleges, dams, courts, police & fire departments, water management, etc. (We can discuss the need for military spending another time.)
These are all needed and contribute to the functioning of the economy. So if government is cut back and doesn’t do something that is needed, then how does it get done? Or does it just not get done? Either way, the real question we should be asking is what is the effect on the larger economy when our government cuts back on or stops doing needed things? If you save the “government” a bit of money but cost the economy a lot of money, are you saving money? Or are cuts in government really just shifting and even increasing the costs in the larger economy of doing these things?
Who Is Our Government For?
In the United States, our Constitution says that government is supposed to be of, by and for We, the People. The country was established after the colonists rebelled against the aristocracy of England — a few people who had all of the wealth and power and would not let the colonists have a say in how things were run and who would benefit. So they fought the Revolutionary War and established a country where “We, the People” all have an equal say, and to “promote the general welfare.” In other words, a country that aspires to be of, by and for the good of all of us.
So cutting back on government means cutting back on We, the People doing things for the good of all of us. It means cutting back on the things we have a say over. It means relinquishing the wealth and power that we hold in common to … well, just where does our common wealth and power go if our government is cut back?
Medicare, For Example
Republicans say we need to cut back on what the government spends on Medicare. But if you cut Medicare the health problems of elderly people and the larger problem of fast-rising health care costs in the larger economy don’t disappear. In fact, both problems just get worse.
The “Ryan Budget” that Congressional Republicans voted to approve actually converts Medicare into a program that gives seniors a voucher that pays for part of a private medical insurance policy that seniors have to shop for. The Center for Economic and Policy Research (CEPR), in Cost of Medicare Equivalent Insurance Skyrockets under Ryan Plan, took a look at that plan and explains what happens to the cost of health care. Summary: it shifts the costs to us, except each of us ends up paying as much as seven times as much as the same care costs under Medicare. From the CEPR explanation:

[The Republican] plan to revamp Medicare has been described as shifting costs from the government to beneficiaries. A new report from the Center for Economic and Policy Research (CEPR), however, shows that the [Republican] proposal will increase health care costs for seniors by more than seven dollars for every dollar it saves the government, a point missing from much of the debate over the plan.
… In addition to comparing the costs of Medicare to the government under the current system and under the [Republican] plan, the authors also show the effects of raising the age of Medicare eligibility. The paper also demonstrates that while [the Republican plan] shifts $4.9 trillion in health care costs from the government to Medicare beneficiaries, this number is dwarfed by a $34 trillion increase in overall costs to beneficiaries that is projected …

Repeat, the Republican plan to cut Medicare would cost the larger economy seven times as much as it cuts government spending.
Social Security, For Example
Conservatives have been trying to cut or gut Social Security for decades. While this might mean government has to pay out less of what is owed to seniors, such cuts would have a negative effect on the larger economy.
Social Security allows working people to retire with at least a minimal income. If this is cut many could not retire for many more years (if ever), which would increase the unemployment rate because their jobs would not open up. The same is true as the retirement age is increased – fewer job openings. If it is cut, the spending (on cat food) at local grocery stores and other necessities is reduced by the same amount. And the effect on children of retirees is increased, if they contribute to make up the difference.
This is why cutting Social Security or raising the retirement age only shifts costs onto the larger economy, dragging it down (and cruelly hurting our elderly).
Cutting Disease Control, For Example
One of the clearest examples of the way government helps us all, rich and poor, is the government’s Center for Disease Control (CDC). One of the jobs of the CDC is to help prevent the spread of infectious diseases. If an epidemic is spreading and killing people it doesn’t matter if those people are rich or poor. And if a serious outbreak spreads this can damage the economy as people are too sick to, or decide not to show up for work. So of course cutting back the budget of the CDC could cause damage to the economy in any given year and is certain to cause damage eventually. (The CDC budget was cut back 11% last year.)
Budget Cuts Hurt The Economy
The above are only a few examples.
A government budget cut is like a huge tax increase on regular people because it increases what each of us pays for the things government does — or forces us to go without. This is because cuts in government spending don’t actually cut the cost or the need for those things, they just shift those costs onto the larger economy. But because these shifts attack the economy-of-scale, transparency, integrity and public-good management that government provides, they almost always increase the costs and harms to the larger economy.

  • As government health care is cut (or not provided in the first place) each of us must take on those costs on our own, and as demonstrated, pay up to seven times what the same care would/could have cost.
  • As infrastructure maintenance and modernization is cut, our economy becomes less competitive, unemployment increases and our wages and spending power fall.
  • As spending on education is cut, our costs of educating ourselves and our kids increase. College costs soar. And the overall education level of our people will decrease, making our country less competitive in the world.
  • As environmental regulation and enforcement is cut the costs of the resulting health problems and cleanups increase and our quality-of-life will decrease.
  • As enforcement of labor laws is cut, our wages and protections fall.
  • As etc. is cut, the costs of etc. are shifted to the larger economy, and the total costs of accomplishing etc. actually increase.

As budgets are cut, the costs are increased and shifted to the larger economy.
Austerity In Europe
Several countries in Europe are severely cutting budgets. The result is that the economies in those countries are slowing. Reuters: Euro zone’s slump in late 2011 points to recession.

A collapse in household spending, exports and manufacturing sucked the life out of the euro zone’s economy in the final months of 2011, the EU said on Tuesday, showing the scope of the downturn that looks set to become a fully fledged recession.
… The European Commission forecasts a recession of the same magnitude this year. That would be the euro zone’s second contraction in just three years as the bloc’s debt crisis drags on a region that generates around 16 percent of the world’s economic output.
[. . .] The battle between austerity and growth was already evident in the fourth quarter. Euro zone government expenditure fell 0.2 percent, while industry contracted 2 percent and imports were down 1.2 percent, making for some of the worst readings since the world was dragged into the 2008/2009 financial crisis.

The austerity experiment is making the case: cutting government budgets just shifts costs and hurts the larger economy.
Who Benefits From Cuts?
Governments dance with the ones that brung ‘em. Whoever controls government is naturally going to direct government to benefit them – and only them. We-the-People democracies do things for We, the People; plutocracies do things for plutocrats. So when, as now, plutocrats are running government, you will get a government that only does things that benefit plutocrats. And when We, the People were running government, we did things that benefit We, the People — all of us.
The plutocrats now demanding government budget cuts obviously understand that this will result in slowing economies, but don’t care — they are already fabulously wealthy. What they want is reduced taxes and increased power. They say that cuts will bring growth, in order to persuade people to accept cuts. Blocking governments from providing things that don’t directly benefit them and only them is a means to that end. And cutting government cuts government’s ability to reign them in.
What We, the People Want
When We, the People are running government we insist that government increases overall prosperity. We demand laws and regulations that bring us good wages, benefits and safe working conditions. We demand good public schools & colleges, parks, safety and opportunities for our smaller businesses to fairly compete. We insist on a clean environment, consumer protections, regulations on business behavior, rules against monopolies and (after learning the hard way) rules that keep banks from taking risks that threaten the economy. And we want controls and limits on the use of wealth and power by the 1%ers.
Plutocrats — the 1%ers — of course see all of these protections of regular people as hindering their power and ability to make as much for themselves as they can grab. Plutocrats just don’t see how public parks benefit them. They just don’t see why they should have to pay for public schools. What good do public schools do them, today? Plutocrats don’t see why it should be anyone else’s problem if old people don’t have health care — health care for seniors certainly isn’t their problem.
They explain that things for anyone other than themselves and their interests just “wastes money.” Things for regular people are not their problem. And when plutocrats run government, it isn’t their problem.
The fact is a public park “costs money.” Schools and infrastructure are just more “government spending.” Things like that just “redistribute income” because taxes on the income of plutocrats is used to build that park or school that anyone can use. The basic message of the plutocrat is, “Why should I pay for anything that benefits you?”
You and I might argue that this kind of austerity, cutting schools, Medicare, infrastructure, etc. slows the larger economy, hurting the plutocrats, too. But that doesn’t hurt the ones who are already rich, which is the definition of plutocrat. It puts more in their pockets, today, by lowering their taxes. They want out of taxes and they don’t want government (We, the People) interfering with their power.
What We, The People Need
Democracies where We, the People make decisions demand things that are good for regular people and their small businesses: pensions, health care, modernized infrastructure, good schools & colleges, child care, regulations on the behavior of giant corporations… This is why strong democracies have proven to be more prosperous for regular people and for longer than other forms of government that leave people on their own against the wealthy and powerful and drive all of the income and wealth to a few at the top. This is why so many regular working people in our country were so much more prosperous in the decades before the plutocratic 1%-favoring policies of Reagan steered us toward plutocracy.
Understand what is going on here. Demands for budget cuts and austerity are really about shifting from democracy to a system where regular people — the 99% — are on their own, up against the wealthy and powerful. This is about shifting from a system where regular people can be prosperous together, to a system where a few — the 1% — have all the wealth and power.
We, the People need democracy restored. We need to be in charge again, before the economy can improve.
This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
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Debt-Ceiling Deal’s Cuts Could Crash Economy

Negotiating with crazy people is always a bad idea and negotiating with hostage-takers is dangerous. But negotiating with crazy hostage-takers is worse than dangerously bad. The “debt-ceiling” deal being negotiated to keep the economy from being crashed could crash the economy anyway. Making draconian cuts could throw us into another recession — one that would be much, much harder to get out of because we have used up many of our recession-fighting tools.
Withdrawing government spending literally “takes money out of the economy.” Democrats should instead offer the country a plan to invest in We, the People by modernizing our infrastructure, improving our schools, making us energy self-sufficient, improving our social safety net and restoring our manufacturing and key industries thereby making American businesses more competitive in the world economy. Propose this instead of painful cuts the benefit only the rich and take it to the country.
From Paying Off Debt To Massive Debt In Ten Years
Ten years ago the government had huge surpluses and was on a path to paying off the entire debt. What changed? Ten years ago last week the Bush tax cuts passed. Republicans promised the tax cuts would create jobs and grow the economy. Instead the economy had one of the slowest periods in our history, creating very few new jobs and causing stagnant wages, leading to huge personal debt. (But the rich got dramatically richer.) And those cuts, along with huge military increases, two wars all leading up to an economic crash caused by deregulation and mismanagement, caused the country’s debt to exploded. Taking office with a surplus of more than $250 billion, Bush left office with a $1.4 trillion budget deficit for his final budget year.

5-12-11bud2

Debt Limit Reached
Now the United States has reached the Congressionally-authorized borrowing limit and is heading towards default. The White House is negotiating an increase in this limit with the very people who exploded the debt, people who have a vested interest in killing the economy so they can win the next election, and their budget-cut proposals would do just that. It is suddenly dawning on lots of people that this whole enterprise of austerity, taking trillions out of the budget – and therefore out of the economy – is a very, very dangerous proposition.
Cuts Make Economy Worse
Withdrawing government spending literally “takes money out of the economy.” We have a crisis because of lack of demand. Republican solutions of giving the wealthy and corporations even more money and tax cuts obviously will not work because the rich don’t create jobs, we do. The rich are already richer than ever, with a greater share of the income and wealth than ever, and giant corporations are already sitting on tons of cash.
So with the stimulus winding down, and state and local budget cuts causing layoffs of teachers, firefighters and other government employees, Republicans are demanding even more layoffs from federal budget cuts as a “cure.” But cutting government as a prescription for creating jobs sounds a lot like their claim that cutting taxes increases revenue. The problem is a lack of demand, and budget cuts taking hundreds of billions out of the economy only makes that worse.
In a front-page story last week, Economy’s Woes Shift the Focus of Budget Talks, the NY Times sounded the alarm that things are not going well,

Recent signs that the economic recovery is flagging have introduced a new tension into the bipartisan budget negotiations, giving rise to calls especially from liberals to limit the size of immediate spending cuts or even to provide an additional fiscal stimulus.
… More broadly, however, the signs of an economic slowdown in past weeks — not least Friday’s report showing weak job growth in May — have altered the climate for those talks. Amid the emphasis in Washington on significant deficit reductions, … some Democrats, economists and financial market analysts are raising concerns that too much fiscal restraint this year and next could further undermine the recovery.

Democrats are also noticing that agreeing to cuts demanded by Republicans could well have an effect on their chances in the next election.

“I think Obama himself is going to have to move or he’s going to risk losing the next election,” said Mark Weisbrot, a liberal economist and a co-director of the Center for Economic and Policy Research. “He’s going to have to say clearly that the federal government has to step in when the economy is so weak,” regardless of whether his proposals can pass in the Republican-controlled House.

Republican economist Martin Feldstein’s recent op-ed in the Wall Street Journal, The Economy Is Worse Than You Think, also warned how bleak the economy looks and what the prospects are. (Of course, Feldstein argues for Republican plutocratic solutions: cut taxes, Social Security and Medicare.) From the op-ed:

The drop in GDP growth to just 1.8% in the first quarter of 2011, from 3.1% in the final quarter of last year, understates the extent of the decline. Two-thirds of that 1.8% went into business inventories rather than sales to consumers or other final buyers. This means that final sales growth was at an annual rate of just 0.6% and the actual quarterly increase was just 0.15%—dangerously close to no rise at all. A sustained expansion cannot be built on inventory investment. It takes final sales to induce businesses to hire and to invest.
The picture is even gloomier if we look in more detail. Estimates of monthly GDP indicate that the only growth in the first quarter of 2011 was from February to March. After a temporary rise in March, the economy began sliding again in April, with declines in real wages, in durable-goods orders and manufacturing production, in existing home sales, and in real per-capita disposable incomes. It is not surprising that the index of leading indicators fell in April, only the second decline since it began to rise in the spring of 2009.
The data for May are beginning to arrive and are even worse than April’s. They are marked by a collapse in payroll-employment gains; a higher unemployment rate; manufacturers’ reports of slower orders and production; weak chain-store sales; and a sharp drop in consumer confidence.

Feldstein even agreed that the stimulus was not enough,

As for the “stimulus” package, both its size and structure were inadequate to offset the enormous decline in aggregate demand. The fall in household wealth by the end of 2008 reduced the annual level of consumer spending by more than $500 billion. The drop in home building subtracted another $200 billion from GDP. The total GDP shortfall was therefore more than $700 billion. The Obama stimulus package that started at less than $300 billion in 2009 and reached a maximum of $400 billion in 2010 wouldn’t have been big enough to fill the $700 billion annual GDP gap even if every dollar of the stimulus raised GDP by a dollar.

The investment community is taking notice, too. From Reuters: Deficit cut would trim growth: BlackRock’s Fink,

A $4 trillion reduction of the U.S. budget deficit, if enacted by Congress, would trim economic growth by one percentage point a year for the next decade, BlackRock (BLK.N) Chief Executive Laurence Fink said.
With analysts already forecasting modest growth of 2 percent to 3 percent annually, that would leave the United States with an economy expanding at only about 1 percent a year, Fink said at the Morningstar investment conference on Friday.

Fink, however, argues that the government should do it anyway, along with cutting corporate taxes.
Cuts Make Deficit Worse
In a blog post, Thoughts on Voodoo, Paul Krugman explains (with some math) why austerity right now doesn’t help, and only makes deficits worse,

There’s a quite good case to be made that austerity in the face of a depressed economy is, literally, a false economy — that it actually makes long-run budget problems worse.
[. . .]How big do these negative effects have to be to turn austerity into a net negative for the budget? Not very big. In my example, the real interest payments saved by a 1 percent of GDP austerity move are less than .02 percent of GDP; if the marginal tax effect of GDP is 0.25, that means that a reduction of future GDP by .08 percent is enough to swamp the alleged fiscal benefits. It’s not at all hard to imagine that happening.
In short, there’s a very good case to be made that austerity now isn’t just a bad idea because of its impact on the economy and the unemployed; it may well fail even at the task of helping the budget balance.

My recent post, See WHY Austerity Can’t Reduce The Deficit links to the equations that explain the background of Krugman’s (and others’) concusion,

OK, so we have a $100 GDP with $10 deficits and we want to cut that to $5. Kash explains that a $5 spending cut means (by definition) that GDP immediately drops $5, and this (by definition) $5 drop in consumer income makes tax revenue drop as well (as well as a further drop in GDP). After some calculations (go to the post) Kash shows that a $5 cut makes deficits drop to 7.4%, not 5%, but GDP also drops quite a bit – maybe 7 or 8%. Seriously, go see the calculations, they are not difficult.

Just cutting people out of the economy doesn’t fix the problem, it shifts the problem and eventually will kill the economy.
Stimulus Worked — But Was Not Enough

Private Sector Jobs - May 2011

Here is the timeline you see on this chart:

  • First, there is the Bush freefall, from the policies Republicans want to return to
  • then the effect of the stimulus spending reverses the decline, bringing back job growth
  • then the stimulus winds down, and job growth levels out
  • and combined with state & local budget cutbacks — spending cuts, which Republicans want more of — job growth stalls. (Note that this chart is private sector only doesn’t show effect of government job losses.)

Jobs Fix Deficits
Jobs fix deficits. Restoring good-paying jobs starts to restore the tax base and stops the emergency spending on the unemployed. The increased demand as people find work and paychecks revives retail and manufacturing. Housing recovery, for example, depends on more jobs. But with unemployment high and wages are low, so many people just can’t afford to buy — or keep — a house.
Only The “Pain Caucus” Benefits From Cuts
In the recent op-ed, Rule by Rentiers, Krugman explains that these budget-cut austerity policies help a small, select group. He calls them “the pain caucus.”

The latest economic data have dashed any hope of a quick end to America’s job drought, which has already gone on so long that the average unemployed American has been out of work for almost 40 weeks. Yet there is no political will to do anything about the situation. Far from being ready to spend more on job creation, both parties agree that it’s time to slash spending — destroying jobs in the process — with the only difference being one of degree.
. . . Consciously or not, policy makers are catering almost exclusively to the interests of rentiers — those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else’s expense.
. . . While the ostensible reasons for inflicting pain keep changing, however, the policy prescriptions of the Pain Caucus all have one thing in common: They protect the interests of creditors, no matter the cost. Deficit spending could put the unemployed to work — but it might hurt the interests of existing bondholders. More aggressive action by the Fed could help boost us out of this slump — in fact, even Republican economists have argued that a bit of inflation might be exactly what the doctor ordered — but deflation, not inflation, serves the interests of creditors.
[. . .] No, the only real beneficiaries of Pain Caucus policies (aside from the Chinese government) are the rentiers: bankers and wealthy individuals with lots of bonds in their portfolios.

Cuts Cold Cost Election
Policies of austerity cause large-scale suffering — done now to avoid restoring tax rates at the top. Budget cuts are asking the public to take the hit, through cuts in programs for us, for among other things the cost of bailing out Wall Street.
Republicans understand that the public will blame Obama for the cuts and are certainly planning on using the resulting lack of jobs in the next election. Remember, in the 2010 midterms they campaigned and won using a theme that Democrats were to blame for “$500 billion in Cuts to Medicare”.
The conservative noise machine is already claiming that Obama is harming Social Security. For example, see last week’s Obama busting Social Security by conservative Don Surber,

Having cut employee contributions by one-third, the president now wants to cut employer contributions in a desperate CYA to cover up the Obamess Economy.

Public Wants A Different Solution
The American Majority wants the same solutions that economists agree work better for more people. The public wants tax increases on the rich. They want direct job creation by government. They want a revival of American manufacturing. They want a national industrial/economic policy. They understand that growing the economy reduces the deficits.
Austerity is about intentionally causing suffering, so a wealthy few benefit. But investing in our country to create jobs, modernize our infrastructure, improve our schools, make us more energy self-sufficient will not only make our country more competitive in the world economy will improve the lives of We, the People. Obviously this is the better choice, and a significant percentage of the public will have Democrats’ back if they offer this plan.
The Congressional Progressive Caucus’ People’s Budget is the template for a job-creating deficit solution. The Progressive Caucus is a group of progressives in the Congress who have put together a budget that fixes the deficit and grows the economy, providing jobs. It is called The PEOPLE’S Budget Plan. You can read the plan at: Congressional Progressive Caucus : FY2012 Progressive Budget,

The CPC proposal:
• Eliminates the deficits and creates a surplus by 2021
• Puts America back to work with a “Make it in America” jobs program
• Protects the social safety net
• Ends the wars in Afghanistan and Iraq
• Is FAIR (Fixing America’s Inequality Responsibly)
What the proposal accomplishes:
• Primary budget balance by 2014.
• Budget surplus by 2021.
• Reduces public debt as a share of GDP to 64.1% by 2021, down 16.5 percentage points from a baseline fully adjusted for both the doc fix and the AMT patch.
• Reduces deficits by $5.6 trillion over 2012-21, relative to this adjusted baseline.
• Outlays equal to 22.2% of GDP and revenue equal 22.3% of GDP by 2021.

Beyond the people’s budget we need a massive investment in infrastructure modernization. This infrastructure work has to be done anyway, no matter what. The longer we delay it the more our country falls behind. It is millions of jobs that need doing at a time when millions need jobs! (And by the way the government can borrow at nearly zero interest rates right now — one more reason to do it now.)
The Republicans are demanding that we cut and gut our government and therefore our economy in exchange for keeping the country from defaulting on its debts. The deal they are demanding will do just as much harm as default. Instead we need to invest in We, the People with jobs and infrastructure that enable us to grow our way out of this mess.
Actions
Tell President Obama to put the People’s Budget on the table.
10 years of Bush tax cuts is enough! Click here to demand your representative supports the Fairness in Taxation Act so the rich contribute their fair share.
This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
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Royal Wedding Of Austerity And Trade Deficits Is Killing Our Economy

Sometimes you can just see glimmers of something through the DC brain fog, other times it becomes so clear that you can’t ignore it. The current DC brain-fog motto is, “if it doesn’t work, do it more.” Today’s GDP-growth report shows that austerity isn’t working, so the geniuses in DC want to do it more. And they say, “government just gets in the way of business” so we send our businesses out on their own to compete with governments, and the resulting trade deficits eat our jobs.
Cutbacks Cut Growth
How long ago was it that DC was all about cutting taxes for the rich even more? And how many minutes after that was DC all about cutting budgets – “austerity” – because of the resulting budget deficits? So instead of the jobs that will fix the deficits the government gives us cutbacks — cutbacks in taxes on the rich, cutbacks in construction projects, cutbacks in teachers and police and other government functions, cutbacks in the things We, the People do for each other.
We watch as England, Greece, Ireland and other countries try cutbacks – austerity – to get out of slow growth and their growth gets slower as a result. The US tries it, too, and our growth gets slower, too.
The first quarter growth figures are out: 1.8% for the first three months of the year,

Total output grew at an annual pace of 1.8 percent from January through March, the Commerce Department said Thursday, after having expanded at an annual rate of 3.1 percent in the fourth quarter of 2010.

But the DC fog machine blames the weather, not austerity.

Higher commodity prices and winter blizzards that shuttered businesses and delayed construction were among the main causes of the slowdown.

Our growth slows because of austerity. So they blame the weather and insist on more austerity. Because austerity “gets government out of the way” of the wealthy few and their accumulation of the rest.
Trade Deficit
As the economy recovered a bit and people started to buy a few more things , the things came from elsewhere, and the money and jobs just left the economy. Without government policies to deal with it, our trade deficit will continue to get even worse, costing us even more jobs and growth and draining even more money out of the country.
Germany runs a trade surplus, so German unemployment is at its lowest level in 19 years. Headline: German Unemployment Declines to 19-Year Low as Export Boom Drives Demand,

German companies are hiring as they increase production to meet booming export orders, fueling domestic demand. … German factory orders and industrial production rose more than economists predicted in February. … More than a third of Germany’s medium-sized companies plan to take on staff in the second quarter …

Germany also pays workers more than we do, gives them lots and lots of vacation time, health care, pensions, rights on the job — all the things that our leaders say hurt our businesses.
Our leadership is making every effort to return to the old economy that caused the crisis. This is because those who benefited from that economy are still in control of the system, still using their great wealth to get what they want, damn the consequences for the rest of us. (Hint, the first link is to a post titled, Nine Pictures Of The Extreme Income/Wealth Gap, and the second is a post titled, Corporate Propaganda Response To Town Hall Medicare Anger.)
Contractionary Policies Cause Contraction
Conservatives say so many silly things that are proven wrong by the simplest fact-checking — cutting taxes increases revenue, taxes take money out of the economy, tax cuts grow the economy — and the silly thing they say that is hitting us now: cutting back causes expansion.
Huh?
Here is what really happens in the real world. Following are a few charts showing the effect of the “stimulus” and what has happened since the stimulus ran out.
First, manufacturing. See the plunge through 2008? That’s the collapse. See the sharp change to an upward direction through 209? That’s the stimulus. See the leveling off since? That’s the end of the stimulus.
ISMFedApril2011
Now look at the following chart of job growth. See the downward slope, when we were losing more and more jobs every month? That’s the collapse. See the upward slope, when we were losing fewer jobs every month, up to where we were actually gaining a bit? That’s the stimulus. See the leveling off, standing still through 2010, going into 2011. That’s the end of the stimulus.
chart_jobs2
You can see in front of your face what works and what doesn’t. We should be doing what works, not what doesn’t. Why did I even have to write that sentence?
Solutions
As I wrote the other day, we have to invest in rebuilding our infrastructure if we want to continue to be competitive in the world, so right there are millions of jobs that need doing. And the payoff from doing that pays for doing that.
We need to retrofit our economy to be energy efficient, so right there are millions of jobs that need doing. And the payoff from doing that pays for doing that.
We need more teachers, more police, more firefighters, more judges, more scientists, more social workers, more park rangers, more noise abatement and met and safety and environmental and other kinds of inspectors and so many other things that We, the People do for each other — so right there are millions of jobs that need doing. And the payoff from doing that pays for doing that.
So right there are millions of jobs that need doing. And the payoff from doing that pays for doing that.
But wait, there’s more:
National Manufacturing Strategy

The idea of a manufacturing strategy or industrial policy is hardly a radical concept. Alexander Hamilton constructed America’s first industrial policy in 1791. Setbacks during the War of 1812 due to a lack of domestic capacity to build naval vessels and military equipment cemented the determination of the federal government to grow manufacturing, a policy that continued until the end of World War II.

To solve the trade deficit and create millions of good-paying jobs (like in Germany) we need a national manufacturing strategy — a government-sanctioned plan to ensure that U.S. manufacturers remain competitive in the global marketplace. Click this link for a few examples of countries that have national manufacturing strategies.
Following is the Alliance for American Manufacturing’s plan:

Expand American Production, Hiring, and Capital Expenditures

  • Establish a manufacturing investment facility to leverage private capital for domestic manufacturing
  • Expand and make permanent clean energy manufacturing tax credits and industrial energy efficiency grants to allow America to lead on green job creation
  • Link federal loan guarantees for new energy infrastructure projects, including nuclear, wind, solar, other renewable energy sources, as well as the smart grid, with expanding domestic supply chains
  • Adopt immediate, up-front expensing rules for plant and equipment to spur capital expenditures
  • Enforce our trade-legal Buy America and other domestic procurement requirements to prevent leakage of tax dollars overseas
  • Invest in America’s Infrastructure

  • Create a National Infrastructure Bank to finance high-value, long-term infrastructure projects, such as roads, bridges, high-speed rail, and other needs
  • Enact a robust, multi-year surface transportation infrastructure program of at least $500 billion financed exclusively by fuel taxes
  • Enhance Our Workforce

  • Refocus on technical and vocational education, providing a seamless program that bridges high school and post-secondary education to produce the next generation of highly skilled manufacturing workers
  • Reward companies that are investing in effective skills and training programs for their workers
  • Make Trade Work for America

  • Keep America’s trade laws strong and strictly enforced to provide a level playing field for our workers and businesses
  • Penalize and deter mercantilist nations such as China that manipulate their exchange rates and implement non-tariff barriers to gain an unfair trade advantage
  • As the Administration works to double exports, expand the goal to include balancing our trade account so that gains in exports are not overwhelmed by increased imports
  • Rebuild America’s Innovation Base

  • Make permanent the research and development tax credit and enhance it to incentivize commercialization and production in America
  • Focus federal investments in new technology and workforce training on promoting regional clusters of innovation, learning and production
  • And finally,
    It Never Hurts To Quote The Boss
    Press release

    WASHINGTON’S FIXATION WITH AUSTERITY IS HURTING THE ECONOMY
    Campaign for America’s Future Urges Lawmakers to Put Job Creation First
    Washington, DC – Campaign for America’s Future’s co-director Robert Borosage commented on today’s economic indicators. Borosage said:
    “The first quarter growth figures — 1.8% for the first three months of the year — are an ominous reminder of the reality that Washington has forgotten.
    “This economy is in trouble. For most Americans, the recession has not ended. Growth is painfully slow. Unemployment remains high. Home values are dropping; gas prices are rising; wages are not keeping up.
    “Despite this — and despite the warnings of economists — Washington, driven by the new House Republican majority, has turned prematurely to austerity. Contractionary policies cause contraction. They will impede any recovery, and slow an economy that is barely moving.
    “Washington offers no answer because it is fixated on the wrong question. The question is how do we get the economy going and put people back to work — not simply how do we balance our books? Every deficit reduction plan — from the President’s to the House Republican’s to the Congressional Budget Office projections — assumes faster growth than we saw in the first quarter.
    “The most powerful deficit reduction measure is to put people to work, turning them into consumers and taxpayers. If growth and unemployment stay at this level, deficits will rise, not fall. The White House and the Congress should turn to measures to put people to work, to stave off debilitating layoffs of teachers and police at the state and local level, instead of ignoring the reality that Americans are struggling with every day.”

    Sobotka, from The Wire:

    This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
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    It’s (Still) The Economic Paradigm, Stupid!

    This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
    Yesterday I wrote that the President may have sacrificed his long-term vision on trade and economic/industrial policy to day-to-day concerns and politics. The tax-cut deal is another indicator that a big-picture vision has been sacrificed. But however much smoke gets thrown up to mask the real problem it’s still all about the economic paradigm.
    There is still a lot of forward-thinking work to do on our economy. The big picture is, of course, jobs. It is balance of trade, a coherent and especially comprehensive economic/industrial policy, education, infrastructure. But even more than those, fixing the real economic mess is about finding a sustainable and equitable formula, and changing the equations of who gets what for what. It is a bigger picture.
    But now we are totally caught in the day-to-day fights over tax cuts for the rich, giving forever more and more to the big financial institutions, letting the big corporations get away with more and more while delivering less and less and making us work harder and harder. It seems that all we do now is just react to corporate/conservative assaults. We are trying to fight off attacks on everything, everything and on every, every front.
    Instead of job-creation programs we are fighting over just giving unemployed people the same unemployment benefits that American workers have always gotten. Instead of doing something about climate change we are fighting to keep the big oil companies from killing rail projects and green energy initiatives.
    The corporate/conservatives are using their “Overton Window” tactics to push the discourse ever further to the right and away from addressing the real problems. (I don’t mean Glenn Beck’s book. More info here and here.) And we are now living the result.
    Step back, remember how we got here. Thirty years ago the corporate conservatives launched their assault on We, the People. They elected Ronald Reagan, who declared that “We, the People are the problem,” and that decision-making by We the People (government) had gotten too big. Now the Reagan Revolution has come home to roost and we are living in the conservative dream. The rich ever richer with more and more power, the rest of us are “the help,” just trying to get by, and our minds are under continual assault from a sophisticated propaganda barrage designed to keep us from doing something about it.
    The basics have not changed. The fundamental changes we need are still needed. The corporate conservatives have all the money in the world and are so well organized but they can’t fight off reality forever. The planet really is warming and the climate really is changing and it really is because of carbon. The conservative economic model really does not work and is draining the people and the planet for the benefit of just a few.
    In my first post for the Campaign for America’s Future, It’s The Economic Paradigm, Stupid!, I wrote,

    It is not just the economy out of whack. The business practices that brought us here — overextraction, overextension, overleveraging, overconsumption — have also whacked the planet’s resources. The fisheries are increasingly depleted. The aquifers are increasingly drained. The forests are increasingly logged. The landfills are increasingly full. And, of course, the planet is increasingly hotter.
    Our economic system has also taken a toll on the people. Too many hours at a stressful workplace with too little sleep have burned many of us out. Our thinking and identity are about our jobs, not our spirit and character. Our values are devoted to markets with many of us placing making money over loving and caring for families and others. And there’s no time for that stuff anyway. We have become consumers instead of citizens and humans. Decades of falling wages, decreasing savings and increasing debt have tapped us out. Consumption has used us up. And we’re fed up.

    The problems are still the problems, only more so. And we’re still fed up, only more so.
    (*Please click the links)
    (*Please click the links)
    Previous: It’s The Economic Paradigm, Stupid!
    Overton Windows links: Here, here and here.
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    The Great American Credit Catastrophe

    The 911 of the Middle Class is the consumer credit debacle. It is the gift that keeps on giving. The reality is that the housing crisis is just one piece of this really big, ugly mess. It seems to me that our President MUST call for immediate reform and take action through executive order. Call me politically naïve, but we need action. Unemployment continues to hover close to 10%, and higher in badly hit areas. Interest paid by the banks on savings ranges from less than 1% to maybe 2.5% on a good day. The consumer credit card companies, though regulated now sort of, ran naked through the streets jacking up everyone’s interest rates to over 15 to 30%. Yes they have to notify the poor, irresponsible slobs now before they do things, but the banks still get to burn kerosene in the town square with no permits. And we haven’t even gotten to the health insurance yahoos that have four more years for their trickery. Oh Nelly, bar the door! It’s the Wild West again as the cattle are corralled – only this time it’s the American people being herded to ruin by the giddy-up bankers and health insurance companies, not just the mortgage guys.
    People are getting sick from worry. Their backs hurt, their necks are out, and they are grinding their pearly whites. Few sleep well at night. Pharmaceutical sales are up. The banks we saved are savaging us. They are bulldozing the Middle Class under mountains of debt. People are losing their homes, divorces are up, businesses are closing, and unemployment is rampant. The consumer credit world and their FICO scores are broken. They are based on a world that no longer exists. In two short years, many consumers have watched their scores collapse under an avalanche of debt. The FICO scores were calibrated for a different time when consumer credit cards were not the only source of money available, mortgages were not under water, and unemployment was not soaring. If we are ever to unwind this situation, these algorithms must be reset. Otherwise the banks will never lend again. The Middle Class needs a do-over, just like the banks got.
    Yes sir, Obama stood up against the broad sweeping foreclosure legislation, and Bank of America seized the moment halting foreclosures nationwide. But we’re all holding our breath waiting for the other shoe to fall as even Progressive strategist Mike Lux gens up the netroots to re-engage with the President and Congress. It is inconceivable that people have not taken to streets in protest over their lost pensions, and the absence of any kind of interest bearing bank account — except on consumer credit cards. In fact, this week Robert Sheer wrote brilliantly about Obama’s “No Banker Left Behind” — while every normal person has been thrown under the bank bus. How did we allow the bail-out of every financial institution, while abandoning the common folk? Why are Democrats — whether conservative, moderate or netroots – not able to channel this collective anger, rage and disappointment other than to take aim at one another? Given the data, there is no way out for the once resilient Middle Class without a do-over. Instead of “No Banker Left Behind” let us heal the Middle Class by fixing the credit industry; restricting the health care industry now, not in four years; and making those banks lend the money we gave them and not hide behind FICO scores. All of the Democrats are writing, but no one is demanding change now. The Tea Party has successfully harnessed the anger and rage, but has no plan. Frankly, they are just another distraction taking our attention away from the gravity of the problems.
    Mr. President, come back to us as Mike Lux laments. We need you. We, in the Middle Class, are living this nightmare everyday of our lives. Figure it out, and get the Middle Class out from under. The numbers do not lie. This is our emergency, our call to action, our 911. Friends and neighbors are collapsing from the stress when they can ill afford it. Unemployment is not going away. Consumer debt is skyrocketing. Mr. Obama, Americans are not being frivolous and irresponsible as Dr. Summers would like you to believe. They are boxed in with no escape hatch. Consider enacting a nationwide job core like the WPA, putting the banks on real notice, corralling those nasty health insurance folks, redoing the credit industry, and loosening up cash. No one is sleeping at night. People are nervous and cannot see a future.
    Please, inspire us again, show emotion, get messy, and let the wrinkles show. Mr. President raise your voice in outrage. Give us voice. Come back to us. The time is now.
    This was originally published on the Huffington Post earlier today.
    See the pearltree below for the references for this article.
    US Economy

    Rebuilding America. Is Bill Clinton Up for the Fight?

    The US and the economy were for the first time a big focus at the Clinton Global Initiative meeting last week in New York City. Hallelujah! The former President hinted at an effort to get the unemployed back to work and retrained for the new and emerging jobs. Of course, Tom Friedman from the New York Times showed up with a lofty panel of experts, and there were sessions on new market-based solutions, worldwide manufacturing and clean tech. Admittedly, there was a discussion on “Robust Job Creation in the United States.” The former President did address the issues of small business, manufacturing and clean energy. There was a panel where players such as Wal-Mart, Timberlake and others discussed the in overhauling their operations to reduce carbon emissions and create jobs. And there was the tireless work of Laurene Powell Jobs together with her co-founder Carlos Watson at College Track that has been working for over a decade to change the lives of under privileged youth by keeping them in school and preparing them for college.
    So why not have Bill Clinton turn his full attention to rebuilding America? Obama’s not doing it so what the heck? Call it whatever you want to, but just do it. Bring together all of the Laurene Powell Jobs with those like Mark Zuckerberg of Facebook. Mark put his money where it mattered – the City of Newark, New Jersey’s inner city public schools, a place close to my heart. Consider the results, if the Clinton Global Initiative took a year or two to turn their full force to rebuild this country, not some third world country. We need the likes of Clinton to mobilize, incentivize and give us comfort as the Tea Party rains empty sound and fury rhetoric down on our heads. Who better? To heck with those who do not believe it is politically expedient!.
    Bill Clinton gets it because if the US is broken, it will derail all of his global initiatives and we would not want that. If we can’t get it done in Congress (and we cannot), then we must forge new public/private partnerships. The former President hinted at an effort, like the WPA (Works Progress Administration), in which people went back to work to rebuild the infrastructure of this country. In fact, the WPA was the largest agency of the New Deal employing and feeding millions. Who knows why the White House isn’t using an Executive Order to start such a public works program instead of fighting about extending unemployment benefits.
    I like my fellow blogger Yotta Point believe that there is work to be done on the domestic front that could leverage the infrastructure of a CGI-like effort. It will take a village to start the hard work of rebuilding this country, and it must be done brick by brick. Indeed we are falling behind the world in terms of education, math and science, and qualified job applicants for the next generation of jobs. The call to action is to make this happen. Instead of being one of the many threads at the annual convening of CGI – this could become the sole focus, or at least an independent focus, to repair America for the next few years. We might make it happen if Clinton and his mighty Foundation marshal their forces to rebuild this country’s economy, and heal the social fabric. Instead of rage rallies and tea, the best and brightest could come together for public discourse, and problem solving in CGI-like forums. CNN and the other broadcasters cannot do, and there are few other outlets capable of something of this magnitude.
    Mr. Clinton, we need your global initiative to become local. After all, we’ve got Madame Secretary watching over the world from the State Department for the next few years. The people of this country are in big trouble. Help us think globally and act locally.
    Note: originally posted on the Huffington Post, “Clinton’s Global Initiative Gets Local.”

    Pelosi: Congress’ Coming ‘Making It In America’ Initiative

    This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
    At the Netroots Nation convention today in Las Vegas, Speaker Nancy Pelosi talked about an upcoming Congressional initiative to help restore American manufacturing. The initiative, called “Making It In America” will include a series of bills to be introduced after the summer recess.

    A few days ago Politico wrote about the upcoming initiative,

    Democrats are priming the House floor for a manufacturing agenda they hope will bolster the economy, produce easy bipartisan votes and boost their chances in the midterm elections — at least if the polls they’re using are on target.
    Speaker Nancy Pelosi (D-Calif.) teased the plan — sometimes dubbed “Making It in America” — after a White House meeting with President Barack Obama last week. The agenda appears to be the Democrats’ final pre-election push to clear the deck of jobs-related bills that have been sitting around for months.
    Democrats plan to present the agenda as a means of creating jobs, promoting green manufacturing through tax credits and grants and enhancing national security by rebuilding the domestic manufacturing sector at a time when many Americans are worried about China’s strength, according to aides.

    The Politico story referred to the impact made on members of Congress by a new poll from the Alliance for American Manufacturing. According to the poll,

  • A majority believe the U.S. no longer has the world’s strongest economy—a title they want to regain
  • Voters are anxious about the economy—specifically China debt, spending and loss of manufacturing
  • 86% of voters want Washington to focus on manufacturing, and 63% feel working people who make things are being forgotten while Wall Street and banks get bailouts
  • Two-thirds of voters believe manufacturing is central to our economic strength, and 57% believe manufacturing is more central to our economic strength than high-tech, knowledge or financial service sectors
  • Across all demographics, voters’ economic solutions center on trade enforcement, clean energy, tax credits for U.S. manufacturing and replacing aging infrastructure using American materials, a surprising overlap between Tea Party supporters, independents, non-union households and union households.
  • Wednesday the House passed the first bill of the initiative, H.R. 4380, the U.S. Manufacturing Enhancement Act, to help American manufacturers by temporarily suspending or reducing duties on materials these companies use that are made abroad or opposed by domestic producers.
    California Rep. John Garamendi has introduced three bills to close corporate tax loopholes that reward the off-shoring of jobs and end taxpayer subsidies for foreign-produced clean energy technology, buses, railcars, and ferries.
    Garamendi says “I want to walk into Target and see “Made in America” throughout the store. We can make it in America,”
    At Netroots Nation Speaker Pelosi also said that Congress is looking at addressing the China currency problem, where China is manipulating its currency to give goods made there a huge pricing advantage. She also pointed out that China imposes many other barriers to free trade, including not allowing American companies to bid on government procurement, even when the goods are made in China.
    I will be writing more on this, but it is a breaking story and I want to get the news out.
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    Reaching The Wrongest Conclusion About Unions!

    This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
    A letter-writer in my local paper today reaches the wrongest possible conclusion:

    Public, private workers live in different worlds
    The current issue of Time magazine includes a cover story on the increasing numbers of nearly bankrupt states and municipalities across the country. An important point made in the story is that public and private workers increasingly live in separate economies. Private-sector employees face frequent job change, relentless layoffs, flat wages and rising health care premiums, and they fund their retirement with 401(k) contributions. If they’re lucky, their employers will match a portion. Many do not. Contrast that reality to public-sector employees, who enjoy relative job security, defined benefit pensions with guaranteed cost-of-living increases, and competitive wages that rise every year. Public employee unions have had a stranglehold on state and local elected officials for decades. This has to end, as the taxpayers are fed up and tapped out. Nancy Pyle needs to get a clue, as do others on the San Jose City Council.
    A.S.
    San Jose

    Summary: Workers in the private sector have it harder and harder. They are increasingly losing benefits, pensions and jobs. Forced to work ever-harder in increasingly degrading work environments their wages stay flat and are starting to fall.
    Meanwhile public sector workers have stong unions so they have good jobs with good working conditions, job security, pensions and raises.
    Therefore … we should get rid of public-employee unions? Wow! Talk about coming to a grossly wrong conclusion, and working against your own interests! Just wow!
    It is a psychological truth that people would rather see others brought down than see themselves brought up, but come on! How hard is it to see that this person should be for strong private-sector unions instead of against public-sector unions.
    And the letter-writer demonstrates the core of the conservative ideological argument: All the benefits of our economy to the top few at the expense of the rest of us.
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    Deficit Deception Risks Depression

    This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
    The deficit problem can be summed up very simply: the public thinks Obama’s policies created a huge deficit. Never mind that it was Bush’s deficit — the public doesn’t know that. This misunderstanding is leading Washington to take steps that will throw the economy into depression.
    According to Greenberg Quinlan Rosner | NPR Congressional Battleground Poll,

    By 57 to 37 percent, voters in these 60 Democratic seats believe that President Obama’s economic policies have produced record deficits while failing to slow job losses — and not averted a crisis or laid a foundation for future growth.

    The public believes the record deficits were caused by Obama’s policies because:
    1) Conservatives have pursued a strategic propaganda campaign to make the public believe this. They have used charts that show Bush’s 2009 budget as Obama’s, headlines that say this, repeatedly said it over the radio and conservative TV networks, etc.
    2) The administration and supporters haven’t responded to this campaign in any way, didn’t seem to understand there even was a campaign to blame Obama for Bush’s deficits, and now appear to believe it themselves.
    Isn’t this the story of the last few decades? Conservatives wage a strategic propaganda campaign to convince the public of XXX. Democrats don’t respond, don’t even understand there is a propaganda campaign being waged, and in time begin to support the conservative narrative.
    But this time it is absolutely dead serious. The correct understanding of the cause of this deficit is absolutely crucial because doing the wrong thing now will throw the economy into depression.
    The economy is on a precipice. Unemployment remains close to 10% with no help in sight and help for the unemployed running out. Economists are trying to tell Washington that more stimulus is needed, that it is crucial to directly create jobs, that the unemployed must receive checks and health care, and that cutting back now is exactly the wrong thing to do. Paul Krugman and others are becoming more and more alarmed about this. But with the public believing that the government is about to go broke, the political will can not form for doing the right thing.
    But there are perceptions and then there are facts. It is just a fact that the huge $1.4 trillion deficit was Bush’s 2009 budget, and that “Obama spending” contributed very little to that deficit. It is just a fact that the cause of current economic trouble is that the “stimulus bill” was inadequate, and its focus on tax cuts was a wasted effort. It is just a fact that letting unemployment benefits expire and refusing to pass job-creation programs will force the economy to turn back down. This is a mistake in policy caused by an intentional engineering of false perceptions.
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    Fixing Jobs: Normal Isn’t An Option

    This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
    The “Jobs Summit” is Thursday. Are they going to try to get things back to normal? I hope not!
    “Normal” isn’t an option anymore, because it is what led to where we are.
    The financial sector bailout is based on the idea that things will get back to “normal” if the credit machine is restarted and consumers and businesses are able to borrow more. The stimulus is based on the idea that the economy is an engine that runs smoothly and just needs to be restarted and things will get back to “normal.” While we wait for “normal” to return the government is stepping in to make up the slack in demand, and to help those hit hardest by the downturn. (Never mind that COBRA subsidies start expiring as you read this and unemployment has been extended and extended.)
    The idea that you can get the financial sector and the economy back to “normal” desperately assumes that a sustainable “normal” existed in the structure of the 20th-century western economy. It assumes that there really is an “invisible hand” that takes care of things without human intervention. It assumes that perpetual growth of consumers and their incomes and of consumables could just go on and on.
    This all assumes that “normal” was OK. This is such a nice, comforting idea. It is wrong.
    What if that “normal” system really was unsustainable and that is what led to its collapse? What if there was a limit to how many jobs can be outsourced, wages cut, factories closed, people born, trees cut down, fish taken from the sea, nutrients taken from the soil, water taken from the aquifers? And, of course, the big one: what if there is a limit to how much carbon can be put into the atmosphere?
    If people and nature and markets finally reached a limit, and things broke down — what then? What then is we need to give up on returning to that “comfortable” dream and get to work designing a sustainable system that benefits and respects all of us and the planet we rode in on.
    We need a restructuring, a redesign, a new direction. Our “normal” system has turned into a low-wage, everything-to-the-top economy and this must be restructured.
    The Restructuring
    The core of what needs to be restructured is that we have a system where people with power and wealth benefit when they figure out how to cause other people to receive lower pay and benefits — or just lose their jobs. The incentives come down to this: if someone can figure out how to cut your pay and benefits or just get rid of you (“eliminate your position”) they get to pocket what you were making, and you get nothing. If you don’t own the company you’re out of luck.
    Now that is a perverse incentive if there ever was one. (Another perverse incentive: People with power and wealth benefit when they “externalize” costs like environmental or health damages. If they figure out how to hurt you or the planet without having to pay the costs of healing those harms, they get to pocket the savings.)
    In the past this perverse incentive was mitigated by people banding together in governments and/or unions and forcing the wealthy and powerful to share. But modern marketing science has been successful at making people believe that government and unions are bad for them.
    This was also mitigated by the ongoing need to find people to do the jobs that needed to get done. But with continual improvements in technology this need is reduced. For example, here is a story about a factory that builds large-screen TVs without any employees.
    Also, this perverse incentive assumes an infinite pool of customers to sell to, ignoring that the transaction of benefiting from eliminating a job also eliminates a customer. But modern business has become so efficient at job elimination that this comes into play. Who will be able to buy theTVs that the employee-eliminating factory makes, if all the employees are eliminated and have no income?
    Three decades ago productivity and wages decoupled. Where wages used to always increase along with productivity Reagan initiated an era where that increase was no longer shared, and the benefits of our economy now increasingly flow to the few at the top. Now they have all the money, and everyone else is loaded with debt from just trying to keep things “normal.”
    You might be lucky enough to still have a job today but you probably haven’t had a raise for a long time. And if you did rising costs of health care, etc. took it back. But even if you are ahead, what about tomorrow? Do you have a job that absolutely can’t be outsourced or replaced by technology? If you think so I have news for you, millions of newly-unemployed can see that you have a rare necessary job, and they’re all going to try to get it from you.
    So good luck with the Jobs Summit. But if we don’t hear about a fundamental restructuring that involves changing basic ideas of what work means and who “owns” the companies and shares the wealth in a technologically advanced, overpopulated and overproducing world, well, I won’t think we’re hearing the answers we need to hear. Put more simply, my example of the employee-eliminating TV factory is becoming more and more real. But certainly something can be done with a situation where there are plenty of TVs being made, and everyone has a lot of free time because there aren’t enough jobs. How obvious is the answer to that?
    Yes, I’ll be posting ideas so check back for future posts on this. In the meantime please leave a comment with your ideas.

    The Problem With A Jobs Bill – And With Everything Else

    This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
    The country needs a jobs program and needs it right now. Cash for Caulkers would be a good start. A new Civilian Conservation Corps would be another. But let’s not allow a jobs program to cover over the need for real changes in the structure and core principles of our economy.
    Yes, an effective jobs program can help people hold out a while longer – until necessary changes are made. It can make the unemployment rate will look better, for a while, and maybe the GDP will climb a little bit. But our low-wage, everything-to-the-top economy is not sustainable and needs to be redesigned and reregulated. The economy has to be changed so that it works for all of us, instead of just a few.
    What if the government passes a jobs bill, and these new jobs follow the current American job model of paying too little with no benefits? What if the government uses contractors, as they now do for so many government functions, and the contractors “reduce costs” by paying very low wages and no benefits, sending the rest of the cash to a few at the top? Does it really help the economy and the country to provide a bunch of low-paying jobs with no benefits, and make a few wealthy executives even wealthier? Or suppose the government starts a massive infrastructure modernization project? Does it help the economy if they hire construction firms that pay as little as possible or use Chinese steel?
    Even if a government jobs effort provides good-paying jobs with good benefits, this still won’t change the need to restructure the rest of our economy so that it, too, provides good pay and benefits to all of us instead of concentrating all wealth and income at the top.
    As long as our economy is structured to pass everything up to a few at the top, stimulus can’t work well, jobs bills can’t work well. Either can anything else. In the end things will just revert to the old ways and we’ll need more bailouts, stimulus and jobs programs.
    The problem is that there are two economies now. There is an economy for the top few and an economy for the rest of us. And this problem is global. The world’s economy is structured to send almost everything to a global top few.
    Everything just goes to the top now. Companies are structured that way, jobs are structured that way, taxes are structured that way and now even our government is structured that way. Our economy has been turned into a machine that sends every dollar to an already-wealthy few. So efforts to stimulate economic recovery using traditional methods cannot work. It will just make a few at the top even richer.
    We need a jobs bill because the economic system has broken down. We needed a stimulus package because the economic system has broken down. All the bailouts and jobs bills and stimulus are just one more stopgap effort to keep a broken system going, for the continued benfit of the few at the top. Changes must be made.
    One barrier to fixing our broken economy problem is the structural corruption of our Congress. Every effort to help the people seems to get hijacked – and never mind working on the needed reregulating and restructuring. The recent extension of unemployment insurance, for example, included only $2.4 billion for the unemployed, but had more than $20 billion tacked on, going directly or indirectly to (owners of) big homebuilding companies. Another example, the health care reform bill is turning into a law ordering people to buy insurance from the big insurance companies. This year’s big stimulus package was watered down with even more tax cuts for the few, like getting rid of the Alternative Minimum Tax.
    The biggest example, of course, was last year’s financial sector bailout. Taxpayer dollars saved the asses of the companies that caused the collapse and are now serving up $140 billion for financial-sector bonuses but 10% unemployment for the rest of us!
    If we want to get out of this mess we have to restructure and reregulate the whole system. We have to change the structure of our economy so that regular people receive the benefits. It is time. There is no more getting around it.
    Next post: some of the structural problems that must be changed.

    Free-Market Conservatives Are Just Wrong

    This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
    There are things you can see in front of your face, and then there are things that conservative “free market” ideologues tell you.
    One example is when they talk about the minimum wage. (An increase in the national minimum wage goes into effect today.) Conservative “free market” ideologues tell you that raising the minimum wage “costs jobs.” They say that if employers have to pay a few cents more per hour they won’t employ as many people.
    But then there is something you can see in front of your face: whenever the minimum wage is raised, things get better. Things obviously get a little better for the people who work at the minimum wage, and for their families. As this works its way up the food chain things get a little better for the people and stores these workers rent and buy from. But also, studies looking into the effect of what actually happens after the minimum wage is raised show that the net effect is no loss of jobs.
    Here is why. Employers hire the number of people they need to get done what needs to get done, according to demand. Ideally they employ the correct number of people to fill orders, run checkouts, stock shelves, etc. They don’t just have extra people sitting around for the heck of it. Of course there are some tasks where a calculation of a few cents in wages can make someone “not worth it,” but in the aggregate any jobs lost from this are offset by the new people hired to meet the increased demand created by people spending the higher wages. More people with more money to spend increases demand, which is good for business. Profits for some employers may be reduced a bit by the increase in labor cost, but these are also offset by increased profits for others due to increased demand.
    Even so, conservative free-market conservative ideologues continue to make the claim that increasing the minimum wage “costs jobs” anyway. It’s what they do. They make a bad thing out of paying American workers good wages and benefits. They complain about workers getting pensions and health care. They just don’t seem to like it when regular people are better off. But here is a warning: never, ever dare suggest to a free-market conservative that a CEO or a trust fund child should pay some taxes – you’ll get an earful about how this would just ruin the economy.
    The free-market conservatives are just wrong.
    A second thing a free-market conservative ideologue wills tell you is that it is good for more and more of the things that used to be made here to be made in other countries instead. They say that by moving factories to other countries we all benefit because “we pay lower prices.” They say we benefit because “foreign competition encourages greater productivity” (even though we are talking about moving our factories from here to there.) They say that moving factories to other countries, “unites people in peaceful cooperation and mutual prosperity.”*
    They say that moving factories to other countries, to make the same things that the factories were making here, should be called “trade.”
    But we can all see right in front of our faces that none of this is so. Moving jobs out of the country to make the same things that were made here is not “trade” and it certainly hasn’t brought us prosperity. It is just moving our jobs out of the country to make the same things that were made here, so a few people can pocket what was being paid to the American workers, while they stick the taxpayers with their unemployment pay and the costs of trying to keep their devastated communities alive.
    Free-market conservative ideologues seem to believe that society works better when a few people get paid a lot, while the rest of us have very little, and advocate policies that bring that about. They have been the dominant force in our country’s policymaking for many years, and we can see in front of our faces that the result is that a few people are getting paid more and more and the rest of us less and less. (Bailed-out Citigroup is paying one person a $100 million bonus, 738 others bonuses of $1 million or more, and Merril Lynch paid 696 people bonuses of $1 million or more.) They have put in place policies that stick the taxpayers with the costs and the wealthy few with the benefits.
    We can all see that moving factories out of the country has destroyed lives, torn apart communities, created massive debt, created a very few massively rich people at the expense of the rest of us … oh, and ruined the economy. That, too.
    It is time for us to realize that these free-market conservatives are just wrong. They get paid to say that stuff, but it is just wrong. Moving a factory out of the country to make the same things it made here is not “trade.” It does not benefit anyone except a few, and when the purchasing power inevitably dries up it doesn’t even benefit those few either. They made a short-term profit and now we all suffer a long-term loss.
    it is time for us to come up with new policies, new plans, new strategies and new rules of the game.
    *Actual claims at Cato Institute’s Center for Trade Policy Studies