Ted McLaughlin : The Unemployment Monster

Political cartoon by Rodrigo / Expresso.
And the recession rages on:
The unemployment monster

By Ted McLaughlin / The Rag Blog / May 9, 2011

The cartoon above may seem funny to a lot of people, but I suspect those would be people who currently have a decent job. For those without jobs the monster of unemployment is all too real (and very frightening). They know that looking for a job is much harder than actually working, and nobody lives large off an unemployment check (if they're lucky enough to receive one).

The Labor Department released it's monthly unemployment figures last week. The headline that most pundits want to talk about is that somewhere around 244,000 jobs were created in April (that fact is trumpeted in the first line of the report). But before you get carried away with celebrating this "good news" you need to know the rest of the story (and it's not a pretty story).

Even though those jobs were created in April, they didn't even make a dent in the unemployment rate. In fact, the unemployment rate actually climbed in April -- from 8.8% to 9.0% according to the government. That means the unemployment situation got worse instead of better.

Consider the following numbers. The Labor Department says the number of unemployed people is currently 13.7 million. But that is just the number of unemployed people that the government could verify looking for a job in the last four weeks. They also admit there are at least 2.5 million people who are out of work, but have virtually given up and it could not be verified that they looked for work in the last four weeks (although that figure is just a guess and is probably much larger).

But just for grins let's take the government figure of 2.5 million people "marginally attached" to the work force. Add that to the 13.7 million still actively seeking work and we get a figure of 16.2 million people who can't find work. Then we have the people who are working part-time because their hours have been cut back or they can't find full-time work (and all of these people would like to get a full-time job). There are 8.6 million of these people.

Add that 8.6 million to the 16.2 million and you get a better picture of the number of Americans who would like to have full-time jobs but can't find any -- and that number is 24.8 million people (between 16% and 17% of the workforce in this country). And there is little doubt that that is a low-ball figure (since the marginally-attached people are pretty invisible and very hard to count).

The truth is that the recession is still raging for working people and it got a little worse last month (in spite of the positive job creation). Now the economists say that an unemployment rate of about 3-4% is considered to be full employment (since there will always be some movement with people quitting jobs or moving and looking for new jobs). At 4% this would be around 6 million people. That means we have 18.8 million Americans (or more) who would be working if the economy was healthy, but are currently unemployed.

To show you how really anemic the creation of 244,000 jobs is, it would take 6.5 years to put those 18.8 million people back to work -- and that is only if no new workers entered the job market in that 6.5 years! But since the unemployment rate went up even though 244,000 jobs were created, we can assume this number of new jobs didn't quite cover the number of new workers entering the job market.

The sad fact is that it will take many, many years to put most of America's unemployed back to work -- and then only if the economy is booming (something we can only dream about right now). And if we continue to follow the Republican economic policies, the current unemployment rate might last far into the future (if it improves any at all) -- because they and their corporate masters like the current situation (because desperate workers will accept very low wages and no benefits).

Some right-wingers will say that there are jobs to be had if a worker is willing to lower his or her expectations. Even that is not true. Consider what happened when McDonald's (a company known for paying low wages with few benefits) announced they would be hiring thousands of new workers. Over a million people applied for those pitiful jobs -- and about 62,000 people were hired. That means over 938,000 people couldn't even get hired for that low-wage company.

And while the politicians talk about abolishing Medicare and Medicaid, cutting Social Security benefits, and slashing social programs (including food stamps and unemployment insurance) -- while giving corporations subsidies and cutting taxes for the rich -- there is absolutely nothing being done by the government to solve the jobs problem. Is it any wonder that ordinary Americans are mad at both political parties?

Don't let the politicians fool you. The rich are doing very well, but the recession is still raging for most Americans -- and it looks like it will be for quite a while.

[Ted McLaughlin also posts at jobsanger. Read more articles by Ted McLaughlin at The Rag Blog.]

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Ted McLaughlin : These Jobs Won't Cut It

We don't just need jobs;
We need good jobs

By Ted McLaughlin / The Rag Blog / August 31, 2010

George Bush, with his policy of accelerated Reaganomics, made a real mess of the United States economy before he left office. It was not bad enough that he presided over a massive outsourcing of good American jobs, but his deregulation, tax cuts for the rich, and deficit spending created the worst income distribution since the 1920s and kicked off a serious recession resulting in the loss of millions more jobs.

In his entire eight years in office Bush only created about a million jobs (while his predecessor, Bill Clinton, created 23 million in his eight-year stint in office), and more than lost those in his recession (which started in the last part of 2007). President Obama is already poised to have created more jobs in his first two years in office than Bush did in eight years. That is a good thing, but not as good as you might believe.

The problem resides in just what kind of jobs are being created. This is not a new problem. Even back in the Bush administration, while good jobs were being sent overseas (where wages could be cut to less than minimum wage levels), the new jobs being created were low-wage jobs that would not allow a man/woman to support a family. Unfortunately, the problem is persisting under the current administration.

The chart above is indicative of the problem. The chart shows the five fastest growing jobs in the United States. Only one of those jobs (registered nurse) is above the median wage in America. The other four (food preparation and serving, home health aide, warehouse stock clerk, medical assistant) are well below the median wage and approaching the minimum wage. The problem is even worse when you consider the median wage has been depressed for the last 20 or more years and won't buy close what it once would.

While the cost of nearly everything has climbed sharply for the last 20 years, the wages of the bottom 80% of Americans have been stagnant. This alone would have accounted for the pain being felt by middle and working class people, but it was made even worse by the millions of jobs lost by the Bush recession. Now the new jobs being created are lower-paying jobs than the ones that were lost. It's hard to rejoice in the creation of these kind of jobs.

President Obama has said he wants to give tax cuts to companies that don't outsource jobs (and hopefully bring good-paying jobs back to the United States). That would be a good start, but much more needs to be done. This recession will not be ended by the creation of minimum-wage jobs (even a lot of them). That would just continue the pain being currently felt by ordinary Americans. And it would set the country up for another, possibly worse, recession or depression.

The vast difference in both accumulated wealth and income distribution between the richest five percent of Americans and the rest of America was the real cause of this recession (while the financial mismanagement by Wall Street was just the trigger). The only real cure for our current economic woes is to find a way to more equitably distribute the nation's income.

The nation's health is not determined by how rich the richest 1-5% can get. No matter how hard they try, this small number of people just don't have the purchasing power to keep an economy as large as ours growing. While the Republicans (and the rich) don't want to admit it, America has always seen its best times when the working and middle class people have had adequate purchasing power to live a decent and comfortable life. When these people have the money to buy, everybody benefits -- even the rich and the corporate interests.

Minimum wage jobs may be fine for high school students, but they won't support a family. And they won't lift this country out of the recession.

[Rag Blog contributor Ted McLaughlin also posts at jobsanger.]

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Distribution of Wealth : Way Out of Whack

Image from OECD / CBS News.
Trickle UP theory:
The recession and its roots

By Ted McLaughlin / The Rag Blog / July 15, 2010

Have you ever wondered just what caused the deep recession that the United States is in? Many people believe it was the meltdown of Wall Street and the financial industry. That was the trigger that began the recession, but was it the true cause of it? Robert Reich has a very good article in The Nation that the folks over at Alternet have reprinted.

Reich agrees that the Wall Street meltdown was the trigger to the recession, just as the Wall Street disaster in 1929 triggered the Great Depression. But the real cause of both the current recession and the Great Depression was the absurdly lopsided distribution of income. In 1928 the income distribution had reached a point where the top 1% of the population was making 23.9% of all income in the United States. With only 76.1% of the country's income left for 99% of the country's people, the situation created was like a loaded gun waiting for something to pull the trigger (and that trigger was pulled with the Wall Street crash of 1929).

Conservatives don't like to admit it, but a capitalist economy such as ours simply cannot function correctly when such a large proportion of the country's income is going to such a small percentage of it's people. The country did not pull out of that depression until the income was redistributed in a more equitable way. This was accomplished by the New Deal programs putting people to work, World War II (which employed even more people), the GI Bill (which educated many soldiers, qualifying them for higher-paying jobs), the Great Society, which decreased the number of people in poverty, and higher income taxes.

By the 1970's the income percentage of the top 1% had been reduced to around 7% or 8% of the nation's total income -- a much more manageable figure. But the Great Depression had taught the Republican Party nothing it seems. In 1980, Ronald Reagan became president and began the process of again redistributing the income toward the top 1%.

The Republicans did this with a really good propaganda campaign which convinced many Americans that a "trickle down" theory of economics would work. This was the idea that if we just let the rich make more and more money, then they would share it with the rest of us -- in other words, it would trickle down and benefit all Americans. Sadly, all it did was fatten the bank accounts of the rich.

The Republicans redistributed the country's income by busting unions, deregulating the stock market and the financial industry, severely cutting social programs, deregulating college tuitions (which priced college out of the budgets of many Americans), and by repeatedly and radically cutting taxes for the richest Americans. By 2007, the top 1% of Americans was again controlling 23.5% of this country's total income.

Once again the country's economic gun was loaded and cocked. The trigger was pulled by the meltdown of the financial industry. Reich says the reason this has not caused another depression was the bailout of the financial industry with the TARP funds. I'm not so sure we have yet escaped that. The bailout saved the financial giants and the rich, but many smaller banks have gone under (and it's still happening), and all but the rich are still mired in a deep depression because of the loss of 12 to 15 million jobs. We may still see a deeper recession (depression?) because the jobs situation has not been adequately addressed and the income distribution is still way out of line.

So what can be done to cure the current recession? Further deregulation or tax cuts will not help. That would only exacerbate the situation and make the income distribution problem even worse (which was the cause of this mess in the first place). The problem must be attacked on a broad front by government targeted at re-distributing the country's income. Conservative's hate the term "income redistribution," but they have been doing just that for the last 30 years. The problem is they have been redistributing the income away from the people who need it and toward the richest among us. This process must be reversed.

The government must spend a lot more money on job creation. Much of this can be directed at the private sector through the building and revamping of our transportation infrastructure (bridges, streets and highways, mass transit, trains, etc.). They could also create government programs to clean up and improve our National Parks, wetlands, monuments, and other things along the lines of the New Deal's WPA and CCC.

Another thing needed is a massive influx of money into low-cost and easy-to-pay-back loans for small businesses (since small businesses provide the bulk of jobs in this country). These small businessmen and -women are hurting too, and they are certainly not among that richest 1% of Americans. Although the government bailed out the financial giants, these financial giants have not repaid Americans by making loans available to small businesses as they should have. They have instead used that money to speculate in the stock market and give themselves enormous bonuses.

A couple of other things that could be done: strengthen worker unions and have the government provide a much larger portion of the money needed for a college education. Strengthening unions would insure workers' wages and benefits and guarantee that those workers receive their fair share of increased production. Paying a much higher portion of the cost of a college education would once again let all Americans take advantage of educational opportunities to create a better and higher-paying future for themselves.

Finally, income taxes should be raised significantly on the richest Americans -- especially that top 1%. I know the right-wingers will whine that this would hurt job creation. That is false. High taxation does not cause job losses and low taxation does not create jobs. Businesses will hire only the number of workers needed to appropriately deliver their goods or services to their customers -- regardless of what the tax rate is.

In fact, there is a good argument to be made that our country prospers the most when the rich are highly taxed (as they were during the boom times of the 1950s). For one thing, it helps to distribute the country's income more evenly and fairly. It also encourages business interests to re-invest their excess income back into their business to save on the taxes they would owe, thus creating new jobs and helping the economy (and creating even more income for the business).

The right wing will scream that much of what I have proposed will increase our already large deficit. That is true. But it must be done if we are to stave off an even deeper recession and eventually pay off that deficit. As the income is redistributed and jobs are created there will be an ever increasing number of people paying taxes. The higher taxes on the rich and the increasing number of tax-paying workers will pay down the deficit as these proposals begin to take effect.

The deficit is important, but just trying to reduce it without creating jobs and redistributing income will not bring the country out of the recession. It will only make it worse. Job creation and income redistribution are much more important -- not only to bring the country out of recession but also to prevent another even worse recession.

[Rag Blog contributor Ted McLaughlin also posts at jobsanger.]

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Legacy of the Neocons : Understanding our Economic Fix

Understanding our economic fix:
The role of neocon economics in damaging the economy and creating unemployment

By Sherman DeBrosse / The Rag Blog / November 29, 2009

If Republicans can blame economic problems on Democratic spending, they will have a leg up in their efforts to launch another attack on entitlements. By next year, our debt will be larger and could be a major political issue. Democrats need to explain how it got so large and to tie some of it to recent military adventures.

There are signs that the Obama administration is “open to reform” as a means of reigning in debt. That term has the same meaning as the IMF’s favorite term, “structural adjustment,” which means making the little guy pay for the mistakes of others farther up the food chain. We may have to swallow some entitlement reduction, but it should not take place without an end to the Bush tax cuts and the institution of excess profits taxes on the energy industry and on any firm’s transactions in hedge funds and derivatives.

Last week, Texas Representative Kevin Brady released the latest Republican trial balloon -- a clever attempt to capitalize on growing middle class rage that government is helping irresponsible bankers while unemployment continues to rise. He blamed it all on Timothy Geithner and demanded that the Secretary of the Treasury resign. Geithner correctly reminded Brady that the economy was bad due to Republican policies.

If the GOP can combine economic populism with their patented right-wing populism, they could turn 2010 from a good Republican election year into a fantastic one. Democrats had better start educating the public by explaining how neoconservative economic policies landed us in this mess. Yes, they need to don some sack cloth and ashes because some of them followed the Republican lead.


Dimensions of the problem

Neoconservative economic policies did so much harm to our economy and financial system, that it would be foolish to expect a healthy recovery anytime soon. New York University economist Nouriel Roubini, who predicted the collapse of our economy, is now saying the worst is yet to come. There will be still more unemployment, and many of the lost jobs will not return.

Randy Zisler, a leading real estate expert, warns that there will be “a crisis of unprecedented proportions” in commercial real estate next year. Federal Reserve Chairman Ben Bernanke took the unusual step of saying that economic recovery is bound to be slow and unspectacular because the banks are doing very little lending and there are serious ongoing problems in the real estate sector. Unemployment would persist.

All of this was to be expected. In 2008, we came very close to a depression, and the financial system was very close to an Armageddon. In the last 12 months, the FDIC has taken over 150 banks, and the Treasury loaned TARP money to 690 financial institutions, 27 of which then had to be seized or faced seizure by federal regulators.

Given these facts, the Obama administration deserves high marks in dealing with the economy. The situation it inherited was so grim that there was widespread speculation that the United States might still face a decade long slump similar to what happened in Japan. But even the conservative Economist is now saying we have dodged that bullet. But it adds that “recovery will be a longer slog than many expect.”

The Great Recession turned out to be the kind of downturn that is marked by extraordinarily high unemployment. Employment is a lagging indicator of recovery, but in this sort of recession it lags a very long time. Of course, the delay in reclaiming jobs means that what recovery there will be is not likely to be strong. Larry Summers covered this sort of recession in his Ph.D. dissertation. Obama knows this, and has not gone to great pains to explain why recovery will be slow and, for a time, relatively jobless.

The stimulus program and the stress tests did help to restore confidence and preserved many jobs. It pulled us back from the precipice of a depression, but it is unlikely Obama will be given credit for this. In the short term, the Republicans will probably be successful in blaming Obama for a jobless recovery.

Obama’s “holy shit” moment

As soon as Obama took office, he had what a close advisor called his “holy shit” moment. His advisors told him the economy was on the verge of sliding far lower and that the financial system was badly damaged. Larry Summers, his senior economic advisor, had long ago proven that the old idea that unemployment usually lasts only three or four months for an individual was dead wrong.

Obama is being very cautions in claiming that the recession is over. The recent upward movement on Wall Street does not reflect a return to health. The averages are going up because low U.S. interest rates and a weak dollar have encouraged people to borrow dollars to speculate in assets and commodities. The current speculative bubble cannot last, and it is not a good development for the world economy.

It is more likely that last quarter’s GDP growth was a fluke and that we may have a few more bad quarters. There was very little increase in industrial production. More than 90% of the growth came from stimulus, much of it from the one-shot cash for clunkers. Some of the increased consumer spending came from a sharp dip in the savings rate. However sales are still slow. Some of the recently reported improvements in earnings came from one-time economies and laying people off.

The economy is a bit like a car battery that has seen better days. In this case, two cells are badly damaged: housing and manufacturing are weak. It will take years for housing values to reach former levels, and continual foreclosures and resales at lower prices will have a negative impact on new home starts. More people are facing foreclosure now than last year. There is about $3 trillion in outstanding mortgages, and $1.4 trillion will come due for maturation in the next four years. Zisler thinks that up to $750 million of that will be in defaults.

We also know that a healthy housing market requires a sound financial system, and our financial system is very fragile, having barely escaped destruction. Recently, an economic observer noted that the fact that so many people are not paying on mortgages might, in the short term, be good because they are spending the money on goods and services. We do not need that kind of optimism. There is some good news. Randy Zisler thinks some improvement in housing values might begin in 2011.

Premature optimism

Recently, the manufacturing sector showed a 9% gain in productivity. That was because industries were doing more with fewer workers. Gains at that level cannot be sustained. The GDP rose by 3.5%, but most of that did not have to do with manufacturing. There are few signs that the manufacturing sector will revive soon, and we note that General Motors, using federal funds, is exporting more jobs. Chrysler, also using federal funds, is bringing in more foreign made engines.

We probably cannot expect to get the manufacturing sector to improve beyond where it was two years ago. The long-term prospect is for exporting more jobs.

A top expert’s view

Robert Shiller of Yale noted that we spent far too little on the stimulus package. Gross national production was projected to have fallen two trillion short, and it was thought necessary to fill the gap with about $1.2 trillion. Given the velocity of money when invested in infrastructure and some other stimuli, the gap could be filled. Unfortunately, politics forced the Obama Administration to settle for less than $800 billion, and much of that was in tax cuts whose multiplier effect is far short of one. The drop in production and the decreased spending rates together added well above six million to the unemployment roles.

Republicans had played the politics of “No!” so well, that Obama could not go back to the well for a second stimulus. It was needed when it became clear that consumption would fall off by one trillion. That is a hole the administration could not fill.

Shiller identified a serious structural problem. Our economic system increases the wealth share of those at the top and diminishes that of almost everyone else. The root problem is that most American workers have not seen an increase in real wages in 20 years, and the ownership share of the vast majority has been declining. The problem is not moral, it is economic. With no increase in real wages, the middle class cannot increase its consumption so a consumer-driven revival is not possible.

Shiller has suggested that if the gap between rich and the rest of us is not narrowed in the next 30 years, there will be such great frustration, resentment, and disillusionment that the viability of our political system could be threatened. His Yale colleague Bruce Judson warns that our current economic problems could lead to the "penny auctions" and other leftist populist outbreaks that occurred in the Great Depression.

He enumerated the problems.

1. High unemployment. It stands at 10.2 %, which amounts to an actual 17.5. Next year, at this time, it is likely to be 8.5 or 9%, somewhere around an actual 15%.
2. A shrinking middle class. Good paying manufacturing jobs seem to be disappearing. This results in "status anxiety," which brings about sharp political change.
3. The average man has not seen an increase in real income since 1980.
4. The top 1% controls 23% of income -- and far more of property. This is the same as in 1929. The lowest reported income, according to flawed census data, in this 1% is 400,000 a year. It is probably much higher.
5. One fourth of mortgages are in danger of being foreclosed on. As long as people saw the value of their homes rising, they had hope for improving their situation and even having enough to help their children. With the collapse of the housing market, Judson thinks, people were forced to come to terms with all the other economic and social threats.

Leaving aside the social and moral implications of these facts, all of this indicates that the vast majority of Americans are not in a position to revive the economy through a new surge in spending. They lack the money, are maxed out on credit, and are worried about their long-term prospects. Economists tell us that the Great Depression was created by under-consumption. Even in terms of the ability to consume food, the data is shocking. The number of households facing food insecurity rose 31% from 2007 to 3008. That comes to 17 million families that are having trouble putting food on the table.

The credit squeeze

Businesses of most sorts have been having problems getting access to capital. One reason why bank money was and is not available to manufacturing firms is that banks expected to consistently enjoy 20% returns on credit cards and large returns on investments in exotic instruments. Caps should be placed on credit card rates, and excess profits taxes gradually phased in on profits from extraordinary returns earned through investments in hedge funds and the derivatives markets. This would apply to big manufacturers and oil companies that are now trading in derivatives and hedge funds. This problem underscores the fact that the problems of the economy and those of the financial system are intertwined.

A mini-stimulus?

Another stimulus package is needed, but President Obama cannot push for one because the Republicans, abetted by the mainstream media, have the voters so worried about the deficit and big government; they have also convinced many that the stimulus is not working. When the last of the stimulus money is spent in 2011, we can expect a 2% drop in the GDP because the stimulus is no longer present. The Democrats might consider a mini-stimulus comprised of elements the Republicans will find difficult to denounce. It would include:

1. Incentivize firms to hire new workers by waiving payroll taxes on new hires by giving a 10% tax credit on new payroll. This should be done in terms of total payroll rather than new hires so that employers will not fire some people so they can hire others. New firms might get a 50% payroll tax credit, following the 1977 pattern. It has been estimated that these steps could add 4% to the active work force.


2. Passage of something approaching universal health care would be a major boost for the industrial sector. But if Congress and the administration continue to avoid serious cost cutting it will turn out that they were practicing bad politics and bad economics.


3. Pass HR 2568, the fairness and Transparency in Contracting Act, which will redirect back to small businesses about $100 billion in stimulus money intended for them but somehow awarded to big firms.


4. We should play to our strengths by providing generous tax breaks for research that will lead to higher end goods. By 2015, China will replace us as the world’s largest manufacturer. We will remain a major manufacturer, specializing in high end-goods.


5. More tax incentives should be created for self-employed business owners.


6. There are at least two impediments to capitalizing new small businesses. Banks charge a 7% commission fee for Initial Public Offerings, while the IPO fee in Europe is 4%. There is less interest in these IPOs because of the surge of on-line brokerage and the tendency of high frequency traders to rely on computer driven strategies and not research new firms. For those reasons new firms should receive tax credits for the IPO fees they pay banks. People who invest in IPOs should receive tax credits for 10% of their investments up to a total of $50,000 invested in IPOs. There should be incentives to carry out the SEC’s suggestion that a new market segment be established for IPOs that would not have automated trading and would have fixed commissions. That might encourage research into new firms.


7. For a 12-month period, reduce federal taxes on profits earned abroad that are repatriated and invested creating jobs in the United States.


8. Some of the breaks for business should be balanced with tax breaks for firms that go to a shorter work week and the enactment of some parts of the Employee Free Choice Act, at least to substitute substantial penalties for existing minor fines for illegal anti-union certification tactics. Speed up elections and mandate card check certification in cases where companies violate worker rights, particularly when a worker is fired for union organizing activities.


9. Create a bipartisan commission to weigh ways of introducing the Value Added Tax. The commission should recommend ways to lower other taxes gradually as the VAT is phased in. This would do much to establish a level playing field with many GAAT countries. This is the method other countries use to indirectly subsidize exports. Unfortunately, it is a regressive tax. Perhaps the commission would reduce taxes on ordinary savings such as bank accounts, CDs, and retirement instruments. The same Commission should look into the repeal of legislation that gives American firms tax advantages for exporting capital or creating jobs abroad. The last effort to do this was the Hartke Bill that was vetoed by Gerald Ford.


10. Careful plans should be drawn up now to create public service jobs if the Bush Great Recession turns out to be like Japan’s long ordeal with a sluggish economy and high unemployment.

In my next column I will examine the near destruction of the financial system.

[Sherman DeBrosse is a retired history teacher. Sherm spent seven years writing an analytical chronicle of what the Republicans have been up to since the 1970s. The New Republican Coalition : Its Rise and Impact, The Seventies to Present (Publish America) can be acquired by calling 301-695-1707. On line, go here.]

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Chicago Sit-In : Courageous Union Making Impressive Statement

United Electrical Union Workers Local President Armando Robles, left, and U.E. Western Regional President Carl Rosen address the media about negotiations with Bank of America and Republic Windows and Doors on the fourth day of a sit-in at the companies factory Monday, Dec. 8, 2008 in Chicago. Photo by M. Spencer Green / AP.
'They refused to walk away from their jobs quietly or to accept the argument that the lay-offs were an inevitable result of the nation's economic hard times.'
By Peter Dreier / December 9, 2008

Since Friday, 240 members of the United Electrical, Radio and Machine Workers of America (UE), a small but feisty union that has always been in the progressive wing of the labor movement, have displayed uncommon courage. They have illegally occupied their Chicago factory after their employer abruptly told them that it was shutting down the plant.

Equally impressive, President-elect Barack Obama, by quickly endorsing the workers' protest, showed the kind of bold leadership that progressives have been hoping for, but didn't expect to see so soon. Indeed, Obama's statement puts him ahead of Franklin Roosevelt, who didn't embrace worried workers' escalating demands until after his inauguration in March 1933, when a quarter of the workforce was unemployed.

The workers began their sit-in on Friday, after their employer, Republic Windows and Doors, closed the factory with only three days notice. The company management told the workers and their union, UE Local 1110, that the Bank of America had canceled Republic's line of credit, making it impossible to stay in business -- or even pay employees the severance and vacation pay they'd earned. The company immediately terminated the workers' health insurance.

The BofA said that the cancellation was routine business practice, caused by Republic's cash flow problem in the wake of declining sales in the nation's housing construction downturn.

"When a company faces such a dire situation, its lender is not empowered to direct the company's management how to manage its affairs and what obligations should be paid," declared the North Carolina-based BofA in a statement. "Such decisions belong to the management and owners of the company."

The BofA's antiseptic statement reflected the kind of cold-blooded market fundamentalism that has led a growing number of Americans to demand more government regulation of big business.

But the Republic workers didn't wait for government action. They refused to walk away from their jobs quietly or to accept the argument that the lay-offs were an inevitable result of the nation's economic hard times. They peacefully took over the plant, where some of them had worked for decades, and demanded that the Bank of America and Republic management find a solution. The workers insist that they won't leave until getting assurances they will receive severance and vacation pay, but they also hope to find a way to keep the plant open.

Although by occupying the factory they are breaking the law, no politician has called for the Chicago Police Department to arrest them -- a sure sign that their action has become a symbol of working families' distress in the unraveling Bush economy. Millions of Americans, watching interviews with the workers on TV during the past few days, can identify with their plight - the loss of their jobs, their health insurance and perhaps their homes - only a few weeks before Christmas.

The sit-in began the same day that President Bush reluctantly acknowledged, for the first time, that the country was in a recession. He released a Department of Labor report revealing that U.S. employers axed 533,000 jobs in November, the biggest monthly cut since 1974. As a result, the official unemployment rate has jumped to 6.7 percent. Now in its twelfth month, the recession is already the longest since a 16-month slump in 1981-82. Some economists predict that this downturn will set a new post-World War 2 record.

"When it comes to the situation here in Chicago with the workers who are asking for their benefits and payments they have earned," Obama said during a press briefing on Sunday, " I think they are absolutely right. What's happening to them is reflective of what's happening across this economy."

With that statement, Obama used his bully pulpit to endorse the workers' protest and to put pressure on the Bank of America and Republic to forge a solution. Representatives of the company, BofA, and the union have been meeting at the bank's office in downtown Chicago. Congressman Luis Gutierrez has been moderating the talks.

The symbolism of the workers' take-over also adds credence to Obama's call for a major government-funded infrastructure program that will stimulate several million jobs -- almost all of them in the private sector -- and help jump-start the ailing economy.

"The workers want Bank of America to keep the plant open and the workers employed," said UE President Carl Rosen. "There is always a demand for windows and doors. But with Barack Obama's stimulus proposal, there will be even greater demand for the products made by Republic's workers. It doesn't make sense to close this plant when the need is so obvious."

"We were cutting out glass for an order for 1,000 new windows last week," 34 year-old Vicente Rangel, a Republic employee for 15 years, told the Los Angeles Times. "There was work to do. Then, the bosses called us to a meeting and said everyone was quitting, whether they wanted to or not." The union workers earned an average of $14 an hour, and received health insurance and retirement benefits as part of their union contract.

"I'm not scared because I'm not alone on this," said Raul Flores, according to the Chicago Tribune. The 25-year old Flores, who had worked at Republic for eight years, added, "We're strong and we're going to stay. This gives us the strength to keep going. This is going to be for everyone."

Americans have rallied to the Republic workers' cause. They've sent money, food, clothing, blankets, and good wishes. (To donate, go here). On Monday, protesters picketed a Bank of America branch on Chicago's West Side, explaining that they support the workers' sit-in. A coalition of unions and community groups, Jobs with Justice, held a rally at Chicago City Hall and threatened to organize a boycott of the Bank of America if the problem isn't resolved.

Union members, politicians, and others have highlighted the irony that Bank of America just got $25 billion of the federal government's bank bail-out funds, designed to push banks to start lending money again. BofA's refusal to extend Republic further credit seems cold-blooded and hypocritical.

The bank's hypocrisy hasn't been lost on elected officials. Illinois Gov. Rod Blagojevich threatened to suspend all state government business dealings with BofA if a reasonable solution is not achieved quickly. He asked the state Department of Labor to investigate if Republic had violated Illinois' plant closure laws. The company may also have violated the federal Worker Adjustment and Retraining Notification Act, a 1988 law that requires employers to provide employees and community 60 days notice in advance of plant closings and large-scale layoffs.

After U.S. Senator Dick Durbin (D-Ill.) visited the plant, he expressed support for the workers, observing, "The taxpayer dollars going into these big banks are not for dividends, they're not for executive salaries," according to the Chicago Tribune (which, ironically, just declared bankruptcy). "They're for loans and credit to businesses just like Republic so they can stay in business and so these workers won't be out on the street unemployed."

Chicago aldermen have called for hearings on Republic, which received over $10 million in city redevelopment funds. They and Cook County officials suggested withdrawing hundreds of millions of dollars of government funds from the Bank of America.

"We never expected this,'' Melvin Maclin, a factory employee and vice-president of the UE local, told the Associated Press about the support they've received. "We expected to go to jail."

Inside the factory's lobby, local residents and workers covered the walls with hand-scrawled signs, according to the Los Angeles Times.

"Thank you for showing us all how to fight back!" wrote one person. "Here's to change, from the bottom up," penned another.

These sentiments will sound familiar to anyone who followed Obama on the presidential campaign trail. "Change comes from the bottom up," the former community organizer said frequently during his stump speeches.

During the past two weeks, as Obama appointed moderates and former Clintonites to high-level positions in his economic brain-trust, some progressives worried that the president-elect was already moving to the center, even as the economy nosedived. But Obama's call for the largest public investment plan since the interstate highway program begun in the 1950s, his support for a major federal loan to the Big 3 auto companies if they retool to become more energy-efficient, and now his embrace of the Republic workers' occupation of their factory has given many progressives assurance that Obama hasn't forgotten his liberal instincts.

Its worth recalling that FDR did not campaign for president in 1932 -- three years into the Great Depression -- as a proponent of government activism or with a clear plan for economic recovery. But in the five months between his election victory and his March 1933 inauguration, Depression conditions had worsened, and grassroots worker and community protests escalated throughout the country. As soon as he took office, Roosevelt became more vocal, using his bully pulpit -- in speeches and radio addresses -- to promote New Deal ideas, pushing banking reform, public works, relief for struggling farmers, and help for homeowners within the first few months of his administration. In June 1933 he signed the National Industrial Recovery Act (NIRA), which for the first time recognized workers' right to collective bargaining.

Immediately, union activists gave speeches and posted signs -- on posters and billboards, and in store windows -- proclaiming, "The President wants you to join the union." Workers responded, and union membership began to climb. When the Supreme Court ruled in May 1935 that NIRA was unconstitutional, FDR and Congress immediately enacted the National Labor Relations Act, often called the Wagner Act, to preserve workers' right to organize. Workers became even bolder in order to protect their jobs and defend their rights. Department store clerks, bakers, hospital laundry workers, longshoremen, meatpackers, steelworkers, tire and auto workers, and others engaged in various forms of protest, including the first wave of "sit-down" strikes demanding recognition of their unions. The combination of government intervention and union activism laid the foundation for the post-World War 2 prosperity that lifted the majority of Americans into the middle class.

That social contract has now been shredded, spurred by two decades of government deregulation of business, widening inequality, increasing job insecurity, and the unraveling of the social safety net, including health insurance. These trends have been compounded during the Bush years -- corrupt crony capitalism, the mortgage meltdown, escalating foreclosures, and large-scale lay-offs.

The bold factory take-over by the Republic workers in Chicago may be a fluke, or it just could be the opening salvo of a new wave of grassroots activism, not only by workers and their unions, but also by community groups, enviros, religious congregations, housing crusaders, and the millions of Americans inspired by Obama's campaign who voted for the first time in November. Clearly the Republic workers' protest has struck a nerve with the American people, including many who don't share their plight but can nevertheless empathize with their predicament.

It would be uplifting and useful to see vigils and rallies in cities around the country on behalf of another New Deal -- a pump-priming infrastructure plan, a "green jobs" investment program, a universal health insurance proposal, a long-overdue reform of corporate-friendly labor laws, a strategy to help Americans afford housing, and a significant federal investment in public schools and college financial aid.

Like FDR, Obama can use his bully pulpit to encourage Americans to organize and raise their voices - as he did Sunday in support of the workers at Republic Windows and Doors, a month before he officially takes office. But if Americans want the country to change direction, as the election results indicated, they'll have to follow Obama's advice, and the Republic workers' example: change happens from the bottom up.

[Peter Dreier teaches politics at Occidental College, where he directs the Urban & Environmental Policy Program.]

Source / The Huffington Post

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Sherman DeBrosse : Big Three Bailout a Must

UAW workers picket GMC plant. Photo by Spencer Platt / Getty Images.
An auto bridge loan is essential to reduce the pain of recession.
By Sherman DeBrosse / The Rag Blog / December 10, 2008

The U.S. economy is so fragile that the Congress must extend a bridge loan to the Big Three automakers. The loan should give the government part ownership in the industry and guarantee that cost-cutting and modernizing measures will be undertaken immediately. To do otherwise is to risk greatly deepening the recession and putting at least three million people out of work. That is a conservative number, when we consider the goods and services purchased by parts manufacturers and their employees. In a very fragile economy, the ripple effects of shutting down the domestic auto industry could be enormous and take years to repair.

Most Americans believe that the Big Three have made many poor decisions, but the matter of a bridge loan should be decided on the basis of whether this is a good time to punish Detroit. The important questions are: Is it safe to risk the collapse of the domestic automobile industry at this time? Is it in the interest of the United States to have a domestic auto industry? Does having a domestic automobile industry have anything to do with national security? (Hint -- think of World War II.) Is its existence key to our “industrial policy?” Some will say we have no industrial policy, but we have one that is clearly written into the tax code and other legislation.

The heads of the Big Three were foolish to come initially to Washington in private jets, and appear so ill-prepared to answer tough questions. These execs came to Washington expecting to be treated like the heads of AIG and CitiCorp -- few questions and an open checkbook. As far as we know, the financiers who received help were not grilled or asked for recovery plans.

As inept as they appeared, there is evidence that these huge firms had finally gotten on the track of improving their companies. They cannot be entirely blamed for the present crisis. It was a result of a recession that has been growing worse since October, 2007 and then a credit lockdown that came about as the financial system almost completely imploded. The financial crisis has driven auto sales down 60% in the United States. The European auto industry is also on the ropes and is about to receive over $50 billion in government bailouts.

Yes, they should have been making more efficient cars and fewer SUVs, but the customers wanted the SUVs. Even recently, SUV sales went up when gas prices declined. We cannot blame the Big Three for having short-sighted customers.

Many of the opponents of a bailout mention the industry’s failure to produce energy-efficient cars as proof that Detroit’s leadership simply come up with products that people want today. There is much merit to this argument, and we all recall what happened to the ill-fated electrical car in 1999. But the Republicans who raise this argument usually were not friendly to raising fuel efficiency standards in the past.

Richard Shelby of Alabama is their main spokesman. Some other Republicans, like Shelby, have an interest in seeing the Big Three go under because their states have invested millions in helping foreign auto producers set up shop here.

The unnoticed elephant in the room is Republican dislike of unions. Republicans often overlook recent UAW concessions and complain about wages and severance and retirement packages. The fact that more than 41 Republican senators have agreed to filibuster a bridge loan is rooted in ideology and dislike of unions. Now some of the Republicans say the UAW should shoulder more of the burden of health benefits for retired workers in return for equity in the companies. And of course, we are told that the UAW would have to accept wage cuts down to the level of workers in Japanese-owned plants here. Truth is that the UAW has already accepted a portion of the burden of retiree benefits and has made concessions that will bring wages to the level of employees in Japanese owned-plants. The UAW claims that its wages are already at the level of one of the Japanese manufacturers in the US.

We are hearing that there could be a compromise package offering considerably less that 20 billion -- just enough to get the companies to March, when the new administration will be able to help. No matter what the package engineered between the execs, White House, and Congressional leadership might be, it will be very difficult to head off a Republican filibuster. This might be the last chance to smite the UAW with a filibuster as we now know that it is legal to use funds from the $700 bailout package to rescue the nation's largest industry. The Obama administration can use that money without dumping on the UAW. Another option would be to use Federal Reserve funds for the bailout; that too is legal. Chairman Ben Bernanke has been absolutely silent on the subject. A FED bailout would move the matter out of the political arena. It would be a judgment made purely on the basis of economics.

If the matter must be resolved in Congress, Democratic supporters of assistance will have to swallow steep wage and benefit cuts. If President-Elect Barack Obama is forced to specifically endorse a short-range plan that inflicts great pain on the workers, he has spent precious political capital and probably hurt himself with those workers. There are still many UAW folks who detest their leadership for previously making concessions that were absolutely unavoidable.

At the moment, 60% of the American public opposes any bail-out. Much of this is bail-out fatigue mixed with anti-union sentiment. Many who work for wages far below union scale resent other workers getting a bigger slice of the American dream, and many traditional Republicans simply cannot understand why any worker should want more than $15 an hour. Then there is the old argument about how best to reignite an economy. Most Democrats believe the depression of 1929 was caused by underconsumption, and think it best to put money in the hands of ordinary working families. On the other side, we are again reading arguments that all of FDR's public works accomplished little. The remedy is to place a still larger share of the money supply in the hands of people at the top of the economic pyramid because they will almost certainly hasten to use it to create new jobs. The former view is informed more by ideology -- economic theology -- than solid analysis.

The fact is that the financial system still needs a great deal of repair; that is why the banks and other credit institutions are not making loans. Many of them are leveraged over 100% and invested in toxic mortgage and other questionable assets. The recession got a lot worse as soon as it was clear that the financial system was cratering. Half a million jobs were lost in November alone, and experts just found that job losses in previous months were far worse than reported. If GM and Chrysler are forced into bankruptcy, unemployment will explode--this is all about the velocity of money. The fear and panic created by the loss of much of the domestic auto industry will send the real economy into an absolute tail spin. Ten percent of the domestic bond and preferred securities market is in the automobile industry. The collapse of much of the auto industry could create a situation on the markets that could take decades to repair.

All of this should boil down to what is best for millions of workers. It’s the old saw about economics being made for people and not visa versa.

Much will depend upon whether Republican senators are guided by pragmatism or ideology and economic theology. This week, we will know if a compromise is possible or if the FED will give all of us a way out of this dangerous situation. Much will depend on whether the GOP can keep in line 41 pro-filibuster Senators. Auto parts suppliers are in many states, and troubled dealerships are everywhere. Should the filibuster strip people of their incomes, it is hard to imagine Republicans not losing more than a few votes among people directly and indirectly tied to the automobile industry. It could even happen that people who see no connection between themselves and the industry will be hurt, and some of them might possibly figure out what happened to them.

If there is no relief, the Big Three would be well advised to take any steps necessary to curtail spending so that they can remain in place for federal assistance next January or February. The new Congress will have larger Democratic majorities, and passage of a suitable bail-out will be more feasible.

[Sherman DeBrosse, the pseudonym for a retired history professor, is a contributor to The Rag Blog and also blogs at Sherm Says and on DailyKos.]

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Roger Baker : Getting a Read on this Economy Business

'We can now observe that the creation of unlimited credit by unregulated investment banks, together with peak/near peak oil causing a steep oil price rise, is together enough to trigger a panicky deflationary spiral that has its own complex dynamics.'

By Roger Baker / The Rag Blog / November 10, 2008

See 'Beijing holds key to prosperity' by Henry C K Liu, Below.

Fossil fuel limits are an important key to insight, but are not sufficient for understanding the current world economic crisis.

Future oil production can be calculated almost with the precision of the laws of physics. The world is now about to decline in the production of the vital fluid that powers almost all world transportation, with no viable replacement available any time soon.

This predictable causal factor is in sharp contrast to its consequences; the impact of fossil fuels limitation in affecting the global economy. Here more traditional economic thinking can still be helpful in filling out the details of how events are likely to play out.

I will list some examples of sources that are both conscious and unconscious of peak oil, but all of which are useful, in my opinion.

We can now observe that the creation of unlimited credit by unregulated investment banks, together with peak/near peak oil causing a steep oil price rise, is together enough to trigger a panicky deflationary spiral (read run on the world's banks) that has its own complex dynamics. The economic results are partly due to mass psychology and are accordingly hard to predict.

A useful source of economic insight from a social impact perspective is Loretta Napoleoni's "Rogue Economics,” which anticipates and documents a global rebirth of decentralized grassroots tribalism as a result of the current unregulated and rapacious corporatism. She may be right, and this is an important concept linking economics, politics and sociology.

One clearly observable economic pattern is that oil now acts as an economic limit to the expansion of the global economy. If and when the global economy recovers, oil prices will soon rise enough to restrain the recovery, much like the automatic governing mechanism of a classic steam engine, when it is set so as to increasingly restrain its top speed.

Wrote Tom Whipple:

...In the three-way struggle among worldwide oil depletion, new oil production projects, and the global recession, we have a pretty good handle on depletion and new projects, but appreciation of the depth and length of the recession is not well understood. What was widely believed last year to be a couple of weak quarters is now generally acknowledged to be the worst economic slump since World War II. Optimists, especially on Wall Street and in Detroit, are saying that by 2010, or 2011, or 2012, the recession should be over and economic growth will return. There is great faith that the world's governments can manage a recovery by lowering interest rates, pumping trillions of government money into the financial system, loaning money to failing corporations, and instituting massive stimulus packages. Some are not so sure...

There are many good economic analysts on the internet, and a growing minority now see the big picture in a way that incorporates peak oil. The Post Carbon Institute is a leader in providing good big picture information.

Check out their "Reality Reports" and the splendid economic lecture series by Chris Martenson. Here is one interview with Martenson.

Check out ASPO-USA . And also the Oil Drum and Energy Bulletin.

Here are a few other fossil-fuel-conscious sources I like: Matt Simmons; Jim Paplava, et al of Financial Sense; and James Howard Kunstler .

That said, it is also important to understand the valid conclusions of the best economists who do not focus much on the economics of peak oil. Some of the best independent reporting and geopolitical and economic analysis is to be found on the Asia Times Online website. It is the first place I turn for good independent reporting on affairs in Asia and the Mideast, although its writers are not always in agreement:

Here for example is a piece explaining the poor ability of classic Keynesian economic stimulation (like that now being advocated by Paul Krugman) to revive the US economy. The economic crisis is global in nature, so US-based remedies are not a good match, but there are other problems. See this and other stuff by David Goldman on the ATO blog.

To my way of thinking, Henry C. K. Liu is one of the keenest economic observers anywhere. Asia Times Online archives much of Liu's writing.

Below Liu says that China and its acceptance of non-market based economics is the key to any potential global economic recovery. To save the global economy and to keep it from getting dragged down into the unregulated quagmire the investment banks have generated, the Chinese will have to dump market capitalism. Here are some details, by Henry C.K. Liu, from the last part of a much longer two part article, typified in its thinking by this snip:

…China's ability to rescue the stalled global economy through reform in trade is extremely limited. The best way for China to contribute to stabilizing the world economy is to develop the country's domestic market and to increase the purchasing power of the population through a progressive income policy with full employment. It fact, China needs to adopt a bottom-up development strategy of direct assistance to people, the opposite of the US top-down development strategy of
assistance to institutions…

China and the Global Crisis:
Beijing holds key to prosperity
By Henry C K Liu / December 6, 2008

[….]

...China needs to recognize that market capitalism with central banking is not the most effective or efficient system to achieve full employment with rising wages. China needs to adopt a full employment policy as a national objective. A socialist system must provide every able citizen who wants to work opportunity for work. China is still grossly underdeveloped economically. With so much to do to bring China into a modern nation, it is hard to imagine a country like China not having a labor shortage. China must create an economic system that puts full employment as a top priority, not allow itself to be trapped by neo-liberal market fundamentalism of using unemployment to keep wages low to protect the value of money.

What China must do

With recurring capitalistic market crashes, the world is beginning to realize that market capitalism can destroy wealth as fast as it can create wealth. While keeping markets as an auxiliary mechanism for efficient allocation of resources, China must rely on central planning to direct investment in an orderly manner in sectors need for national development, such as modernization of food production and distribution. It must rely on planning to direct investment towards physical and social infrastructure, in universal education and universal health care. These investments must be increased and accelerated with much higher targets for each five-year plan.

To do this, China must develop more respect for and reliance on domestic indigenous talent and make more opportunities available to young people. Brain drain is the greatest loss China has suffered in the past century. In recent years, a massive loss to other countries of well-educated people has blighted the Chinese finance sector. Chinamust develop policies to stop further brain drain and to revert the flow of human resources back into China.

China must invest more on domestic development than on exports, particularly on rural development. It must not look for growth through cross-border wage arbitrage by foreign capital. Wage income is the only reliable index of growth for any economy. Export-led growth is unsustainable for meeting the needs of an economy that comprises one fifth of the world's population, particularly when export earning is denominated in fiat dollars that cannot be spent in China domestically.

Modernization is not merely blindly copying the advanced economies. China must avoid excessive faith in market forces while taking care not to ignore them. It must set a framework in which market forces that create benefits for the community are encouraged and those that create costs to community are penalized.

At its root, China is an agricultural economy. Chinese leaders have depicted the new socialist countryside program as having higher productivity, improved livelihood of farming families, a higher-degree civilization with greater socialist ethics, a clean environment and democratic management in the 11th Five-Year Program (2006-2010) period, showing the resolve of China's leadership to spread the fruits of reform to its rural areas, especially poor regions.

The central government allocated 13 billion yuan in 2007 to its poverty reduction program, 13 times that in 1980 and 37.2% of which was earmarked for the autonomous regions of Inner Mongolia, Xinjiang, Ningxia, Guanxi and Tibet, and provinces with large ethnic populations, such as Guishou, Yunan and Qinghai.

While this a good start, it is woefully inadequate. What is needed is 100 times the amount ($160 billion) every year until these regions reach self-sustaining prosperity. After all, a nation that holds close to $2 trillion in foreign exchange reserves, should not tolerate poverty anywhere within its borders.

After more than 30 years of economic reform, the poverty rate in rural areas has dropped to less than 3%. But that still leaves 40 million poor due to China's big (1.3 billion) population. China also has 26 million people who live at subsistence level beyond the reach of the poverty reduction program. The Chinese government has turned more attention on its rural poor by reducing various taxes and promoting free universal compulsory education. The agricultural tax, which has had a history of 2,600 years, was rescinded completely in 2006 and an increasing number of children in rural areas gained access to free compulsory education.

China also has begun to lower the price of medical services by reinstituting a rural cooperative medical service system. Still such a timid anti-poverty program for the world's largest creditor nation is a glaring contradiction. Yet this program is too timid in allowing poverty to continue to be a drag on economic growth.

China has since unveiled ambitious plans to help the 800 million people living in the countryside catch up economically with city dwellers. More rural investment and agricultural subsidies and improved social services are the main planks of a policy to create a "new socialist countryside," which President Hu has declared as a national priority.

The new policy regards constructing a new socialist countryside an important historic task in the process of China's modernization. "The only way to ensure sustainable development of the national economy and continuous expansion of domestic demand is to develop the rural economy and help farmers to become more affluent," the policy asserts. It aims to modernize the countryside, which has fallen behind in China's development in recent decades.

From 2006 until 2010, the government promises sustained increases in farmers' incomes, more industrial support for agriculture and fasterdevelopment of public services. Yet current plans remain timid in relation to the size of the problem and must be redoubled to prevent rural poverty from emerging as a drag on national economic development.

Local governments have been warned that they will be held to account for ineffective administration and misallocation of precious resources on false symbol of prosperity. The new measures promise greater protection and improved democracy in rural areas, and local government bureaucracies will be streamlined to increase cost effectiveness. Instead of gauging progress by GDP growth, attention should be paid to income growth, particularly farm income growth. Income is all; without income, all else is mirage.

In part, the new socialist countryside policy is driven by concerns about China's ability to sustain food self-sufficiency going forward as a global crisis of food is fast building. The past 25 years of rapid urbanization have seen much farmland turned into urbanized development zones, and more than 200 million farmers have migrated to the cities to serve export sector needs.

The new food policy proposes that China should remain "basically self-sufficient" in grain. It promises increased subsidies for farmers growing grain, as well as continued revenue "bonuses" for local governments in the grain belt, and says the government will continue setting minimum prices for grain purchases.

With 800 million people living in the countryside, the only way to ensure sustainable development of the national economy and continuous expansion of domestic demand is to develop the rural economy and help farmers to become more affluent than city dwellers to reverse the migration trend. The program also stressed that construction of the new countryside should focus on practical development and involve democratic consultations. Most of all, ample farm credit must be provided by the central government to help poor rural region to kick start development.

Chinese agriculture is at a crossroads as the benefits of the agricultural changes first ushered in late 1978 have lost momentum. Grain production, which reached record levels in 1984, dropped suddenly in 1985 and is only now beginning to push above 1984 levels. The area under cultivation, already small compared with the population, is steadily declining as new housing, schools, factories and roads nibble away at rice paddies and wheat fields. State investment in agriculture has dropped precipitously over the past two decades.

China's exposure to the international financial crisis is primarily a result of its high dependency on exports, which in turn is the result of high dependency on financial market forces to allocate the use of capital, particularly foreign capital.

Markets seldom direct resources where they are needed, only to where profit is easiest and highest. Market forces when unregulated and undirected always lead to uneven and sometime undesirable development. Much of China's economic dilemma today is the result of blind acceptance of the Hayekian efficacy of market forces. The reliance of a labor market to direct economic development is counterproductive. China needs to understand that labor is not a commodity but a national resource. The value of labor should not be allowed to be set by supply and demand in a labor market. It should be set by national policy around which markets are organized to fulfill it. This is the fundamental flaw of China economic reform for the past three decades.

China's ability to rescue the stalled global economy through reform in trade is extremely limited. The best way for China to contribute to stabilizing the world economy is to develop the country's domestic market and to increase the purchasing power of the population through a progressive income policy with full employment. It fact, China needs to adopt a bottom-up development strategy of direct assistance to people, the opposite of the US top-down development strategy of assistance to institutions.

This means a strategy to set the increase of personal income and social benefits as a goal around which the economic system is organized, rather than letting personal income and social benefits be the outcome of imported dysfunctional economic systems such as predatory neo-liberal cowboy market capitalism.

[Henry C K Liu is chairman of a New York-based private investment group. His website is at http://www.henryckliu.com/.]

Source / Asia Times Online

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Recession: Delusional Politics meets Lewis Carroll

'"It's a poor sort of memory that only works backwards," the Queen remarked.'
By Larry Ray / The Rag Blog / December 4, 2008

"The rule is jam tomorrow and jam yesterday - but never jam today!" Young Alice Bernanke stared at the ranting Queen and mumbled, "I don't understand you. It's dreadfully confusing!"

Monday's top news headline could have been read through Lewis Carroll's Looking Glass: "It's Official: U.S. is in Recession" What a surprise. But even as the National Bureau of Economic Research read its formal pronouncement that, "A US recession began in 2007" the evil royalty and aides in Wonderland's White house still refused to say the word "recession."

“ `And you do Addition?' the White Queen asked. `What's one and one and one and one and one and one and one and one and one and one?'

`I don't know,' said Alice. `I lost count.'"

Instead of fessing up and accepting what has been abundantly clear to most all of us as the economic sky is falling all around, White House spokesman "Foxy Loxy," Tony Fratto, instead, breezily remarked upon the fact that the NBER “determines the start and end dates of business cycles.”

Too late for doublespeak. Bush's last parade had all ready been undone. Hans Christen Anderson wrote about such parades in 1837. And the ending of his tale about another deluded emperor fits the Bush political legacy perfectly:

"The Emperor is naked," the child said.

"Fool!" his father reprimanded, running after him. "Don't talk nonsense!" He grabbed his child and took him away. But the boy's remark, which had been heard by the bystanders, was repeated over and over again until everyone cried:

"The boy is right! The Emperor is naked! It's true!"

The Emperor realized that the people were right but could not admit to that. He thought it better to continue the procession under the illusion that anyone who couldn't see his clothes was either stupid or incompetent. And he stood stiffly on his carriage, while behind him a page held his imaginary mantle."

But hundreds of thousands of Chicken Littles were all ready out of their coop of delusion having heard Bush and company formally described by everyone as being buck naked! A flapping, frantic flock followed including Goosey Loosey, Henny Penny and a Thanksgiving survivor, Turkey Lurkey, all squawking, panic selling and sending the Dow down 680 points, almost 8%.

Lewis Carroll had yet another explanation for things, that also might fit the end of the delusional politics of the Bush era while also acknowledging that no one has a clue about what is happening economically right now:

`It's a poor sort of memory that only works backwards,' the Queen remarked.

`What sort of things do you remember best?' Alice ventured to ask.

`Oh, things that happened the week after next,' the Queen replied in a careless tone. `For instance, now,' she went on,`there's the King's Messenger. He's in prison now, being punished: and the trial doesn't even begin till next Wednesday: and of course the crime comes last of all.'

`Suppose he never commits the crime?' said Alice.

`That would be all the better, wouldn't it?' the Queen said.

With apologies to Mssrs. Carroll and Anderson.

[Retired journalist Larry Ray is a Texas native and former Austin television news anchor. He also posts at The iHandbill.]

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Morici: The Economy Is a Two Wheel Recession

Gone, Baby, Gone: Another 240,000 Jobs Lost
By Peter Morici / November 7, 2008

The Labor Department reported the economy lost 240,000 payroll jobs in October, after losing 284,000 jobs in September. This was much worse than was expected and represents wholesale capitulation.

The economy is a two wheel recession. The banking meltdown and failure of the Treasury bailout to free up credit are choking the housing market and construction industry, and falling retail sales, month after month, is leaving businesses with unsold goods and forcing layoffs in manufacturing and services alike.

The challenges facing President-elect Barack Obama could not be clearer. He must reverse the hemorrhaging of high quality jobs and declining real wages, and set the course to restore high quality growth. In particular, Obama’s policies must instigate growth that is not founded on excess borrowing by American consumers and from foreigners.

The economy has shed 1.2 million jobs since December, as the full weight of the banking crisis, trade deficit with China and burdens imposed by high-priced imported oil are bearing down on manufacturing, construction and the broader economy with unrelenting pressure.

Unemployment increased to 6.5 percent in October; however, factoring in discouraged workers, unemployment is closer to 8.2 percent. Add workers in part time positions that cannot find full time employment and the hidden unemployment rate is about 12 percent.

Reflecting a weaker job market, the wages of most working Americans lagged inflation through the recent economic recovery, and are now likely to decline further as the economy falls into a recession.

The banking crisis, hidden unemployment and wages lagging inflation made the economy the most important issue in the Presidential campaign. President-elect Obama got traction out of his proposals to redistribute income by raising taxes on the top five percent and cutting taxes for many other Americans. However, cutting the typical worker’s taxes by a few hundred dollars will make them feel better off for only a few months, and redistributionist policies won’t do much to create better paying jobs that have been lost in manufacturing, construction and elsewhere in the economy.

To accomplish lasting prosperity, President-elect Obama will have to fix the banks and the trade deficit. Obama must ensure that the banks use the $700 billion in federal bailout assistance to make new loans to homebuyers and businesses, and not squander federal largess by padding executive bonuses, acquiring other banks and pursuing new high-return, high-risk lines of businesses in merger activity, carbon trading and complex derivatives. Industry leaders like Citigroup have announced plans to move in those directions. Many of these bankers enjoyed influence in and contributed generously to the Obama campaign. Now it remains to be seen if a President Obama can stand up to these same bankers and persuade or compel them to reverse course.

In addition, Obama must address the huge cost of imported oil and trade deficit with China or any effort to resurrect the economy is doomed to create massive foreign borrowing, another round of excessive consumer borrowing, and a second banking crisis that the Treasury and Federal Reserve will not be able to reverse.

Ultimately, reducing the oil import bill will require higher mileage standards for automobiles and assistance to automakers to accelerate the build out of alternative, high mileage vehicles. Fixing trade with China will require a tax on dollar-yuan transactions if China continues to refuse to stop subsidizing dollar purchases of yuan to prop up its exports and shift Chinese unemployment to the U.S. manufacturing sector.

Near term, a stimulus package focused on infrastructure is critical for resuscitating growth. The recent round of tax rebate checks ended up in savings accounts or spent at the Wal-Mart on Chinese goods, and did little to create jobs or accelerate growth. Whereas projects to repair roads, rehabilitate schools and refurbish public buildings would create high-paying jobs at home and provide a legacy in capital improvements that assist growth now and in the future.

Wages and Unemployment

In October, wages rose a moderate 0.4 cents per hour, or 0.2 percent, and not enough to keep up with inflation. Moderate wage increases and decent labor productivity growth should help abate Federal Reserve concerns about inflation. Core inflation—nonfood and nonenergy price inflation—should decline over the remainder of 2008 and settle below 2 percent per year in 2009.

The unemployment rate was 6.5 percent in October, up from 6.1 percent in September. However, these numbers belie more fundamental weakness in the job market. Discouraged by a sluggish job market, many more adults are sitting on the sidelines, neither working nor looking for work, than when George Bush took the helm. Factoring in discouraged workers raises, who have left to workforce, and those forced into part time work, the unemployment rate to about to 12 percent.

During the presidential campaign, declining real wages and fewer adults working gave Barack Obama’s proposals to redistribute income through the tax system a lot of traction. However, those policies will do little to correct the fundamental systemic problems that are destroying good jobs and squeezing middle class families, even if they would make them feel better for a little while.

Going forward, solutions that create better jobs will require cutting the trade deficit by at least half to substantially boost domestic manufacturing, solving the problems of the large money center banks to get mortgage money flowing and housing construction going again, and energy policies that more aggressively develop alternative fuel sources, conserve oil, and open up new domestic fields for conventional oil and gas production. Reducing dependence on foreign oil requires doing all things environmentalists want us to do and all things environmentalists don’t want us to do.

Politically correct promises to create millions of new jobs producing alternative fuels makes effective presidential campaign slogans, but realistic policies for governing require aggressive development of more conventional oil and gas, as well as nonconventional energy sources, and efforts to improve the energy efficiency of personal transportation.

If the Democrats are not willing to drill for more oil off shore and take on the automobile industry’s resistance to significantly higher mileage vehicles, the U.S. economy will be even more indenture to Persian Gulf oil exporters at the end of President-elect Obama’s first term than it is today.

Finally, diplomacy has failed to redress the currency issue with China. If President Obama is not willing to take tough steps to redress the trade imbalance with China and reduce oil imports, together the Persian Gulf oil exporters and China’s sovereign wealth funds may be able to buy the New York stock exchange eight years from now. Americans, outside those working for the New York banks that facilitate this sellout, will find their best futures waiting on tables for Middle East and Chinese tourists.

Manufacturing, Construction and the Quality of Jobs

Going forward, the economy will add some jobs for college graduates with technical specialties in finance, health care, education, and engineering. However, for high school graduates without specialized technical skills or training and for college graduates with only liberal arts diplomas, jobs offering good pay and benefits remain tough to find. For those workers, who compose about half the working population, the quality of jobs continues to spiral downward.

Historically, manufacturing and construction offered workers with only a high school education the best pay, benefits and opportunities for skill attainment and advancement. Troubles in these industries push ordinary workers into retailing, hospitality and other industries where pay often lags.

Construction employment fell by 48,000 in October. This is a terrible indicator for future GDP growth. Retailing shed 38,000 thousand jobs, and financial services lost 14,000 jobs.

Manufacturing has lost 90,000 jobs, and over the last 103 months, manufacturing has shed more than four million jobs. The trade deficit with China and other Asia exporters are the major culprits.

The dollar is too strong against the Chinese yuan, Japanese yen and other Asian currencies. The Chinese government intervenes in foreign exchange markets to suppress the value of the yuan to gain competitive advantages for Chinese exports, and the yuan sets the pattern for other Asian currencies. Similarly, Beijing subsidizes fuel prices and increasingly requires U.S. manufacturers to make products in China to sell there.

Ending Chinese currency market manipulation and other mercantilist practices are critical to reducing the non-oil U.S. trade deficit, and instigating a recovery in U.S. employment in manufacturing and technology-intensive services that compete in trade. Neither President Bush nor Congressional leaders like Charles Rangel and Chuck Schumer have been willing to seriously challenge China on this issue, and Senators McCain and Obama appeared comfortable with continuing their approaches during the campaign.

Now President-elect Barack Obama must alter his position, and get behind a policy to reverse the trade imbalance with China, or preside over the wholesale destruction of many more U.S. manufacturing jobs. These losses have little to do with free trade based on comparative advantage. Instead, they deprive Americans of jobs in industries where they are truly internationally competitive.

In the end, without assertive steps to fix trade with China, as well as fix the banks and curtail oil imports, the Bush years will seem like a walk through the park compared to the real income losses Americans will suffer during the Obama years.

Instead, were the trade deficit cut in half and the banks fixed, manufacturing would recoup at least 2 million jobs, U.S. growth would exceed 3.5 percent a year. Real wages and domestic savings would climb, and the federal government would receive more revenues to balance its budget or address other pressing domestic needs.

The choices for the new president are simple. It’s either renaissance or decline. Fix the banks, trade with China and energy policy or become America’s Nero.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.

Source / CounterPunch

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Bleak News on Employment Front : Jobless Rate Soars

Theodore Harmon, left, helps Solomon Boyd with a job application as the two look for work at the New York State Department of Labor office in Harlem. Photo by David Goldman / NYT.
Economist Jared Bernstein: 'Working families are in trouble'
By Michael M. Grynbaum

The unemployment rate jumped to 6.1 percent in August, its highest level in five years, pushing the job troubles of American workers onto the political stage as the presidential campaign enters its final eight weeks.

So far, 605,000 jobs have disappeared since the start of the year, with employers slashing 84,000 jobs in August alone, the Labor Department reported on Friday. And even Americans who are still employed are facing tough times.

Raises have not kept up with the rising cost of living, putting more pressure on workers as high gasoline and food prices curtail their spending power.

The bleak data, which came as the two presidential candidates began a two-month sprint to Election Day, clearly raised the challenge facing Senator John McCain, the Republican candidate. Economic downturns are almost always bad for the incumbent party. In 1980, when unemployment rose more than a percentage point during the year, and several months showed year-over-year declines, the incumbent, Jimmy Carter, lost. In 1992, jobs were down, although the unemployment rate did not rise that much, and President Bush lost his bid for re-election.

In a statement Friday, Mr. McCain said that “Washington has failed to act” to improve the poor economy.

“Americans are hurting and we must act to create jobs,” he said. He vowed to enact a jobs program and help retrain workers for the changing market.

While Mr. McCain has tried to distance himself from President Bush, Senator Barack Obama, the Democratic candidate, tried again Friday to link the Republican candidate to the current administration. Mr. Obama argued that his opponent was “intent on continuing the economic policies that just this year have caused the American economy to lose 605,000 jobs.”

“Today’s jobs report is a reminder of what’s at stake in this election,” Mr. Obama said in a statement.

The Obama campaign called on Congress, which returns next week, to enact another stimulus package, using the senator’s $100 billion proposal as a starting point.

An economic adviser for Mr. McCain, Douglas J. Holtz-Eakin, speaking for the campaign, said Congress should consider another short-term stimulus, but did not specify whether that should be more rebate checks or come in some other form, like tax cuts.

The unemployment rate, which rose from 5.7 percent in July and from 5 percent in April, is at its highest level since September 2003. While teenagers accounted for most of the earlier increase, the job losers in August were mostly over 25 and college educated as well as high school graduates.

“These numbers just cry out to me that the job market is in a recession,” Stuart Hoffman, the chief economist of PNC Bank, said.

Stocks on Wall Street fell after the release of the report, but the Dow Jones industrials recovered and was up slightly in afternoon trading.

Production workers in the manufacturing industry were hit hardest in August, with 61,000 workers losing their jobs. Nearly 60,000 administrative workers, including secretaries and temp workers, were laid off.

Gains came in the education and health care industries, which added a total of 55,000 jobs. But those were offset by broad job cuts at restaurants, auto dealers and factories that make parts for cars and other transportation equipment.

It was the eighth consecutive month that the economy has shed jobs, which is, historically, a symptom of recession.

Layoffs have picked up speed in the last three months, contrary to earlier estimates that they had begun to plateau. The government now says that 100,000 jobs were lost in June, double its original estimate.

“Working families are in trouble,” Jared Bernstein, an economist at the Economics Policy Institute in Washington and an adviser to Senator Obama, said. “This spike in the unemployment rate occurred exclusively among adults who are 25 and older. These are not teens; many of these folks depend on their jobs and their paychecks, and in this climate that means they’re suffering.”

Most workers are effectively earning less than they were a year ago. Hourly wages for rank-and-file workers — those not in supervisory or managerial positions — grew 3.6 percent between last month and August 2007. That was a faster growth rate than July, but below the rate of inflation.

The clear signs of pain in the labor market come as the economy continues to grow; between April and July, the economy expanded at a relatively brisk pace of 3.3 percent, according to the Commerce Department.

Businesses have been benefiting from high foreign demand for American-made goods, which has kept production high. But little of that activity, analysts said, has translated into assistance for the average American worker.

“Whatever is growing the economy, it’s not showing up in the jobs market in any way at all,” Mr. Bernstein said.

Companies may be terminating workers to cut costs in anticipation of tougher times ahead. Many analysts believe the global economy has entered a broad slowdown, which could depress export sales and put a dent into American business activity. Officials at the Federal Reserve believe activity will slow sharply for the rest of the year before returning to a faster growth rate in 2009.

The Labor Department’s jobs report is considered the most reliable snapshot of the nation’s economy in any given month. The unemployment rate is estimated by surveying thousands of households, while the data on job cuts is compiled from reports from employers.

Also on Friday, a new report showed that the outlook for the housing market remained troubling, though there are some early signs of improvement. The number of home loans in foreclosure jumped in the second quarter to another record but the percentage of borrowers who are starting to fall behind declined, according to data from the Mortgage Bankers Association.

[Louis Uchitelle contributed reporting.]

Source / New York Times

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