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Friday, April 24, 2015

The New Economy Will Be
                 Managed Democratically

                Stimulus Without Debt, A Novel Plan    

       Huge wealth gains while economy declines   
--- $26.4 trillion in added savings has been created during 6 years of a crippled economy, increasing total private wealth to over $83 trillion, or $675,000 per household on average.  
                          
MoneyThe large American economy can serve everyone. That's the objective of this essay. In recent fact it has served just a minority who were already well-off. Stimulus Without Debt is a plan by professor L. Seidman to directly create money without debt or taxation to fund a stimulus, which I have put forth as a direct job creation program, similar to the Congressional Progressive Caucus plans of 2011 to 2015. The economy can employ all workers and create security for all households. It is not impossible. 

Since 2008 private household net worth has risen by $26.4 trillion, or $214,000 per family or household. (see here, page 2) This is a 47% increase in private wealth, or 30% adjusted for inflation and population growth. 
Now the average savings per household is over $675,000
The median savings in 2013 is $81,200. (Source, Fed Reserve Chartbook, see note below.) 
But since 2008 most U.S. citizens experienced job loss and income loss, and perhaps foreclosure. Real median household income according to the Fed has dropped by 8%. Median household savings dropped by 40.2%, from 135,000 to about $81,000.
This enormous $26.4 trillion gain went mostly to the wealthiest 5% who own 75% of all financial assets. 
Most people, 90%, were unaffected by the asset value increase, which reflected the rise of corporate stocks.
A few retirees with savings were rewarded to some extent, as were pension funds.
The source of this gain of $26.4 trillion is two-fold, increased corporate profits due mostly to lowered costs in labor expenses, stock buybacks and corporate dividends (see William Lazonick's article Profits Without Prosperity here), and a limited universe of places where the rich could put their money. The limited range of "investments" (or secure places to park money) meant that the existing finite selection increased their value, as in a bubble situation. The employment to population ratio is at a 31 year low, among age 25 to 54 the E/P ratio is at a 29 year low, and the labor force participation level is at a 37 year low. 

The Stimulus Without Debt Solution
Without creating more debt, Congress could fund a stimulus. As an  example of a stimulus, in 2008 George W. Bush issued tax rebates worth $152 billion that were mailed to all adults ($600) and children ($300) in most households. 
But rebates are scatter shot, not targeted. Better than a rebate, Congress could fund direct job creation. It would employ the one in four (25%) who are un-employed or under-employed, dropped out, or working full-time year round for less than poverty wage income. It would help those most in need of help. And this would also help everyone. 
Congress would authorize it. The Fed would determine how large to make it. This would establish a separation of power. 
This is the sensible plan, rather than the top-down method the Fed chose with the $2.5 trillion quantitative easing program. The Fed created money out of thin air, call it "bank rescue without debt". 
I'm proposing the plan, Stimulus Without Debt, of professor Lawrence Seidman, see here, and read it slowly,
http://www.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2014/UDWP2014-01.pdf

Federal-State Coordination for Direct Job Creation
Another permanent plan for direct government job creation is the Federal Employment Reserve Authority proposed by Princeton University professor Martin Shubik. In each of the 50 states an agency would prioritize projects for emergency employment to avoid unnecessary levels of unemployment. See the proposal here and here (page 23) in a much longer report from the Levy Economics Institute. Sample quote: "(4) Once unemployment goes above a fixed level of, say, 6 or 7 percent (to be adjusted as circumstances warrant), the Authority would put out bids for projects in coordination with federal and state funding authorities involved in financing."
 

A Jobs Program Without Debt
Not mentioned in Seidman's direct money creation plan, is the corollary for the Fed to create out of nothing, out of thin air, and debt free, $300 billion each year (or 1.7% of GDP), and Congress could then create 10 million public jobs at $30,000 per job net cost. The only danger is inflation, and the Fed would monitor for that possible result. Inflation danger is thoroughly discussed in Seidman's paper. 

The cost per job would be $30,000, using the estimate of Philip Harvey’s plan, Back to Work. On page 11 he shows that a cost of $28.6 billion in government outlays would create 1,414,000 jobs. This indicates a net cost of $20,226 per job. "Net" is the key idea. Such a plan is affordable, perhaps indispensable. I am assuming his per job figures are too low. Experts will have to evaluate the costs. 

The Congressional Progressive Caucus promotes a direct job creation plan; it has promoted a variant of this plan for the last 5 years. It proposes $336 billion in direct job creation for the next three years. See the section "Renewed Fiscal Expansion . . ." in their budget. In all they propose $1.6 trillion over a 10 year period, most of it in the first three years. 
Their plan involves borrowing, going into debt. But the enlarged economic output translates into greater tax collection. 
Additional debt or borrowing is politically problematic. Another method would be to increase taxes, also problematic. Direct money creation, Stimulus Without Debt, would neither increase debt or raise taxes, nor would it increase inflation which is the primary danger of such a plan. Inflation fears are fully dealt with in the proposal by Seidman.  
The Fed can create the money without borrowing or taxing — this would be a quantitative easing directed at the low-income sector that would enrich the entire society. 

Wage income has fallen badly since 1970 when non-supervisory employees earned 51.5% of the national income. Today they earn 41.9%, a loss or difference of over $1.3 trillion. 
This represents a loss of about $11,000 a year per employee (non-supervisory worker) among the lower-earning 80% who work. 
On a per household level, incomes would rise by $16,000 if the 20 year average (1950 to 1970) percentage of national income was restored to the level of 50%. See Fed graph: 
http://research.stlouisfed.org/fred2/series/W270RE1A156NBEA

The inflation adjusted, "real", weekly wage, and the annual wage, for 80% of workers has increased by 3% over a 51 year period, 1964 to 2015, (see Fed graph here), while the disposable (after-tax) income per capita has increased by 177%. See the Federal Reserve graph demonstrating this Real Disposable Income Per Capita


                            The Big Picture     
I'm going to leave this essay incomplete. Later --- much later, many years later I'll get back to this --- I'll include topics such as 
    ~ converting to clean energy to combat climate change
NASA scientist comment on the new monthly high of over 400 parts per million of CO2 in the atmosphere. Read here.

Have you heard the news? "The last time there was this much carbon 

dioxide (CO2) in the Earth's atmosphere, modern humans 

didn't exist. Mega-toothed sharks prowled the oceans, the 

world's seas were up to 100 feet higher than they are today, 

and the global average surface temperature was up to 11°F 

warmer than it is now."  




And, "Atmospheric concentrations of 

the greenhouse gas [co2], which helps drive global warming, 

haven’t been this high in somewhere between 800,000 and 

15 million years."    Read some article here and here and 

here and here  Employment in energy system conversion 

can change this.

    ~ increasing the minimum wage together with the Earned Income Tax Credit to eliminate poverty. The median annual income for 155  million workers is $28,031, and it should be closer to the average workers' income, $73,000.  
    ~ imposing mandatory paid vacation rules on all corporations,   
    ~ funding Individual Development Accounts, or IDAs, to increase the typical and low-income household savings. The median household saving, $81,200, should be closer to the average, $675,000. (see Fed Chartbook here. It shows that the median household net worth fell by 40%, from $135,400 to $81,200 between 2007 and 2013. It's difficult to find this chart as the pages are not numbered. It's perhaps chart #40, if you wish to look.) Half of U.S. households own 1.1% of all wealth, see here. About 44% of U.S. households report that they could not survive longer than three months on their "liquid asset" savings, which for a family of four amounts to $5,763. About half the families in the U.S. have less than $6,000 in liquid assets, see here. Pew Trusts issued an excellent report in January, 2015, The Precarious State of Family Balance Sheets, that indicates similar levels of savings as reported by the Fed.  
    ~ democratizing the Federal Reserve Board
    ~ taxing personal savings above $50 million or variants such as the Financial Transaction Tax, FTT, which will effectively repress extreme capital formation and utilize the economy's surplus instead of wasting it in astronomical net worth accumulation, 
    ~ creating tax preferences to small corporations
    ~ establishing state banks and regional development and self-sufficiency programs, 
    ~ creating foreign trade agreements that include labor rights and environmental protections with penalties for violation against them, 
    ~ exploring direct job creation subsidies to corporations

The discussion will also include a reform of the parasitical sectors of the economy --- the financial system, the medical health system, and the military. Somewhere I'll also squeeze in childcare subsidies. And when I finish I'll have also mentioned that we need to take down the telephone poles -- really. Bury the telephone wires  in most neighborhoods. This is a direct jobs program waiting. After that we can paint the classrooms if needed. The American Society of Civil Engineers has a program for all states, see here
Their projects are more important than painting classrooms. But care programs should be mentioned as part of a Jobs Program (see Why Obama Should Care About Care). 

In all, the economy can serve humanity. 
Humanity can save the earth's ecology and still preserve a healthy level of freedom, personal savings and prosperity. Internationally we can create a high quality of life with environmental beauty and health.  

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I wrote a comment on Robert Reich's article "The Political Roots of Widening Inequality", and you can read it here

Saturday, March 21, 2015

The GOP Budget Proposal, March 2015

The Republicans in the House and Senate presented their budget for the next 10 years. I hope here to clarify the main goals.  First you can read my summary and then I explain a second time with a few details about the Progressive Caucus budget, also released this past week. The last deserves more discussion. One commenter said that she searched Google for articles and found five references for it, while the Republican plan got over 1,300. You can read the Progressive Caucus budget at this site.
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               Hold the Presses.
The Best Summary and Advice Essay to Appear in Years 
can be found at the Economic Policy Institute, here, titled
                  "How to Raise Wages". 
Also look here for the rest of the program from EPI. The first one I linked to describes things to do as well as things to avoid; this is foundational to understanding how everything fits together. I found this one day ago, so it is new. It is not difficult reading; it shows the entire economic plight of our nation, in about 15 pages.

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Why the Republican budget plan is objectionable

Because  
1) It cuts the tax burden for the richest 1% of households by about half. (Also see here.) This trickle down magic has not worked in the past. The 2000 to 2010 period brought the slowest growth in 70 years. The top-earning 1% managed to accrue over 50% of all growth during the past 3 decades. See here and here "The top 1 percent of earners saw cumulative gains in annual wages of 153.6 percent between 1979 and 2012—far in excess of economy-wide productivity."

2) It is Robin Hood in reverse. To adjust for the loss of revenue due to the large tax cut to the richest, they eliminate government programs that serve the poorest. Two thirds of programs cuts come from programs that serve the poor. (And see here.) 

3) It doesn’t balance. The revenue cuts are greater than the program cuts, so tax deductions called tax expenditures must be eliminated. But the Republicans refuse to specify which deductions will be abolished. “We’ll show you how later,” is their position. The CBO has stated that the national debt would rise to 150% of GDP by 2050 as no new revenues compensate the net loss derived from the tax cuts. While their main selling point is a balanced budget, their budget does not balance. At the CBPP its president stated last year
" No one should take seriously its claim to balance the budget in ten years."

4) Obamacare is repealed. In the past year 24.4 million American adults between ages 18 and 65 obtained health insurance coverage — either through the expansion of Medicaid or through subsidies towards health insurance or through being connection to their parents’ insurance plan until age 27. (See the facts at Obamacare Facts.) In 2012 47 million such adults had no insurance, so Obamacare has reduced that number in half. The Republican plan would  eliminate that improvement. The revenue funding that pays for the ACA coverage originates mostly from a surtax on high income households, those whose incomes have tripled in the past 30 years. 

5) Social Security and Medicare will be substantially altered. 

6) It doesn’t address the economic needs of the nation. The chronic decline in wage income affecting 80% of workers who are non-supervisory employees would worsen. Their average weekly and annual income has grown by 3% in the 50 years since 1964, while the nation’s per person disposable income and worker productivity have increased by 155%. After-tax income, called disposable income, has increased by 177% since 1964, average wages by 3%. The wealthiest have more than tripled their incomes. Prosperity has left the majority of the nation behind. Rewarding the rich with tax cuts and ignoring the needs of the lower-income majority is bad policy in the era of record high corporate profits and increasing inequality. (See the previous essay for a list of graphs from the Federal Reserve making this point.) 

Some sources I draw upon are the Center for Budget and Policy Priorities, the Center for American Progress, the Campaign for America’s Future (and here), and the Economic Policy Institute that has just released the 2016 budget proposal of the Congressional Progressive Caucus. The last source describes a different vision from the voodoo economics of the Republican plan. 
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Here's a radio interview that summarizes the budget issue, also at  Between the Lines online . org. ---  btlonline.org

An excellent comparison study comes from The National Priorities Project. It compares four budget plans (Obama's, the Republican Senate and House plans, and The People's Budget) with a survey of popular priorities. This link takes you directly to the comparison. For example:
"For example: 67% of Americans say improving the job situation is a key priority. Here's how each of the four major budget proposals tackles job creation:
  • President Obama would invest $478 billion over six years into job creation initiatives.
  • The House Budget includes no new funding for job creation.
  • The Senate Budget includes no new funding for job creation.
  • The Congressional Progressive Caucus would invest $1.3 trillion over 10 years in job creation initiatives."
  • And an inspiring 12 minute video about the national budget, here.
  • ___________________________________
  • ___________________________________

A second explanation: 

The economy generates about $73,000 of income per worker per year. (This $73,000 figure comes from this report, page 2. I converted average income for all households, $93,900 before tax income, into the average for all workers, $73,000.) Yet half of U.S. workers earn less than $28,031 a year according to the Social Security Administration. Half of U.S. workers earn in annual wage income less than 8% of the national income -- you can add the amounts from the SSA report and divide by the national income amount obtained here: BEA.gov (personal income). The $73,000 figure derives from this CBO report on income for 2011

The national debt is not the problemDistribution of income and wealth is our problemWithout healthy growth, the federal debt problem is hopeless, absolutely beyond help. To healthy growth involves re-employment, and the economy must grow employment directly through direct government job creation, and finance that by a Fed/Congress "dual-mandate transfer" as recommended by 
Lawrence Seidman's "Stimulus Without Debt" proposal. (Read the essay that is linked. Sideman is a professor of economics at University of Delaware. I'll write more about this in future posts.) To fund the employment of millions we need not resort to either borrowing (and more government debt) or raising taxes. We may fund the program without risk of higher inflation through a joint process with the Congress and the Federal Reserve of "direct money creation" to fund the program, what Seidman calls a "dual-mandate transfer". This argument in the coming years will reeducate us all on the possibilities of managing the economy. 

This is similar to the Congressional Progressive Caucus budget that would  directly employ the under- and unemployed. Direct job creation has been shown to be 10 to 20 times more effective than a tax cut at getting money into the economy. The Bush era tax cut resulted in the slowest 10 year growth period in 70 years. Direct jobs provides more employment per dollar spending. Since 1964, 51 years ago, non-supervisory workers have increased by 3% their average weekly wage income while the economy has grown by 155% per person. Prosperity has by-passed lower-paid workers. Wages have been frozen while the top 1% of households has tripled its income. The 3% figure comes from the Federal Reserve, http://research.stlouisfed.org/fred2/series/CES0500000030

The GOP budget cuts the highest income tax rate from over 40% to 25%. It also reduces taxes on capital income, and all in all reduces the burden by half. In short, the top-earning one percent minority tripled their incomes and now the GOP reduces their taxes by about half. This GOP budget reduces all federal expenditures (excluding Social Security) by about 20%, and this means that programs serving the poor are reduced by about 25%; two-thirds of the program cuts come out of programs serving the poor according to the CBPP.org. Medicaid will be cut by 26%. But the budget still does not balance, and they plan to cut some tax deductions, but they refuse to specify which will be cut. 

The plan is Robin Hood in Reverse. 
Healing the economy will involve revamping income distribution more equitably. Here's an example of this imperative need, the United Nations' Human Development Index Adjusted for Inequality. Note that the U.S. is ranked #5 before adjusting for inequality, and then drops 23 places to #28 after adjusting. Then look at the Gini Coefficient, 40.8, in comparison with other countries, and look at the "Inequality of Income" column (fifth from the right), and compare, again, with other countries. Iran is the only country among 184 countries that exceeds the drop of 23 places; Iran drops 34 places. 
Another study, by the OECD (page 23), shows that in 33 years, 1995 to 2008, annual income in the U.S. increased by 0.9 overall, but the lowest 10% increased their income by 0.1%, the highest 10% by 1.5%. And comparing (on the final page of the report) the ratio between the 20th percentile and the 80th, the "Inter-quintile share ratio 20/80", shows among 34 nations the U.S. tied with Israel for 3rd worst place, only Turkey and Mexico being more unequal.  

Greater income equality will in turn help re-employ those who want full-time work, about 20 million workers. This assertion is open to argument, but the main issue is whether the economy is meant to serve the society or the other way around, society and humans are meant to serve, fit in, and submit to the capricious demands of the capitalist economy that serves the most avaricious who live in the society; and that wages should be a race to the bottom so as to promote greater profits. It is a subject worthy of debate. 

There are also about 12% (or 18 million) who work full-time and year-round for less than poverty wages. In all, about 25% of the work force are either 1) unemployed, 2) under-employed, 3) dropped-out and discouraged, or 4) working full-time year-round for poverty wages --- 25%, or 40 million out of 160 million. (see the link to njfac.org/employment below) About 80% (or 128 million) are poorly payed. Remember that $73,000 is near the average worker income for all 160 million in the workforce, which includes all unemployed, under-employed, partial year, dropped out and discouraged workers. Half the workers earn less than $28,031 and less than 8% of total income. Multiplying $73,000 by 160 million yields $11.6 trillion, while total national income is almost $13 trillion. (See Joint Committee on Taxation, page 30) So the $73,000 average income figure is likely below actual average income. Full employment, or jobs for all, will raise the wage income of all employees and better achieve fair distribution of total income. 

Healing this economy will take major reforms, and it will require massive citizen involvement, and reconceptualizing basics ideas about how to make the economy the servant not the master will take precedence. It will take decades. The GOP budget is a diversion from real improvements that must be done, and it appears to be fraudulent in that its principal aim is to enrich the wealthiest (who are campaign donors). Make the wealthy even wealthier is the main objective, don't be fooled. Its victims are the poorest who are elderly, disabled and children. It is confusing because they are afraid that you, the citizen, might understand it. 

The National Jobs for All Coalition (njfac.org)identifies the unemployment numbers I cite here, and it proposes full employment plans. 
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The other posts below are helpful to fill out the story of the economy and I recommend them. 

Monday, March 16, 2015

All the Puzzle Pieces Together

My Congressman, a Tea Party person, visited the local community. I handed him this essay because, I told him, he needed to take a closer look at the other side of his argument. This essay is both problem and solution; I hope readers will gather a useful, hopeful, and comprehensive overview.

A  VIEW  OF  THE  FUTURE 

            Inequality Devastates Social Norms
What if the total national income was $100 a year, and $50 went to just 10% of the population? What if  $20 went to only 1% of the population? What if the lower-earning half, 50%, received just 16% of all income? What if every worker, on average, contributed over $70,000 a year to the national income, and that would include all the unemployed, part-time and partial-year workers? What if half of U.S. workers earned in wage income less than 8% of the total national income? As for savings, what if the average household held over $650,000 in assets? And still, what if the lower-saving half of all households owned just 1.1% of total private net worth, about $14,000 per household, not the $650,000 average for all? What if 1 in 7 in the population survived through the charity of food coupons to purchase their food? What if 40% of the richest nation on earth reported their status as “low income or poor”? What if candidates for public office, both national and state, depended almost entirely on the wealthy minority to fund their  election campaigns? What if only 4% of the national income was devoted in charity, through government programs, to the alleviation of poverty afflicting the elderly, the disabled, and poor children? (see here, Table 3, page 10)  Here is the Economic Policy Institute's report on lop-sided income growth. This report states that in the past 33 years, 1979 to 2012, the top-earning 1% increased its income by 180%, the rest by 3%. This graph shows 9% income growth at the median while total economy growth was 72%, 1979 to present; while between 1949 and 1979 all income groups grew at the exact rate.

 

The above describes the U.S.A in 2015. Furthermore, what if much of the great private annual income and most of past savings were mostly diverted into a large international gambling casino with no productive purpose? For instance, JPMorganChase, one of the largest banks, reported that 46% of its assets were “trading assets” or stock brokerage accounts, not loans to business. Loans to business was less than 12%. Reputable  economists (William Lazonick, here) report that between 2001 and 2010 corporate profits were not directed to improve productive facilities or research or to raise workers’ incomes, but that 94% of record profits went to shareholder dividends and stock buy-backs. From Lazonick's article, " For 2001-2010, 459 companies in the S&P 500 Index in January 2011 distributed $1.9 trillion in dividends, equivalent to 40 percent of their combined net income, and $2.6 trillion in buybacks, equal to another 54 percent of their net income. After all that, what was left over for investments in innovation, including upgrading the capabilities of their workforces? Not much.

How, then, can the majority of Americans appropriate the vast surplus, the non-productive gambling funds, and convert these resources into productive uses that would generate employment, create useful services and products, establish financial security for most households, and even provide more leisure and vacation time for the majority of the population?  

“What is an economy for?” is the general question. What is the goal of coordinated economic activity? Should it be coordinated? How? I argue that an economy should organize human talent and potential to serve society while preserving basic rights and freedoms. The economy should serve. It should raise minimum social standards gradually as techniques and tools, often called productivity, improves. Since 1964 the U.S. economy on a per person basis has increased its output by 155% (see here and do your own calculation, from $19,455 to $49,584 per person), yet the weekly and yearly wage income of 80% of its workers, the non-supervisory workers, has actually increased by 3% — this is a Federal Reserve data fact. 
Median usual weekly real earnings: since 1979, wage and salary workers, employed full time
http://research.stlouisfed.org/fred2/series/LES1252881600Q
Median usual weekly nominal earnings, full time, wage and salary workers, since 1979
http://research.stlouisfed.org/fred2/series/LES1252881500Q
Share of National Income going to Employees as wages and salaries
http://research.stlouisfed.org/fred2/series/W270RE1A156NBEA
Per capita disposable income
http://research.stlouisfed.org/fred2/series/A229RX0A048NBEA
This shows that while after-tax, or disposable, income has tripled since 1964, up almost 200%, the average wage income is up 3%, and the share of income going to wages and salaries has dropped from 50% to 42%, a difference of $11,000 or more to each of the 96 million households in the lower-earning 80%, those who are employees. Evenly distributed, this rebalancing would eliminate poverty.

The economy has not shared its prosperity. The Economic Policy Institute reports that in 28 years, 1979 to 2007,  the top one percent increased its income by 200.5% (a tripling) while the average income of the lower-earning 99% increased by 19%. The per capita GDP expanded by 72% in this 28 year period (read the EPI report “The Increasingly Unequal States of America”). Only 5% of households matched the pace of the economy’s growth. There are many scholarly sources supporting this conclusion. 

To right the imbalanced distribution of income and wealth a practical first step would be to tax financial transactions, stocks and bonds, derivatives and futures trading -- (called an FTT). Since 75% of all financial assets are owned by 5% of the population this would not affect 95% of the population. Congressman Chris Van Hollen recently proposed this measure in February 2015 (see link below). Also income from capital and capital gains could be taxed at the nominal personal income tax rate, and the top income tax rate, say on income that exceeds $1 million a year, could be set at the level of all 8 years of the Eisenhower presidency, at 90%. During those Eisenhower years the economy grew rapidly and shared its prosperity. 

Explaining the need for a FTT, the Chicago Political Economy Group recently wrote a reply to an editorial in a local Chicago newspaper. Here's an excerpt: 
The Sun Times endorses the notion that more trading 

is always better, worrying that the LST [the FTT] 

would drive trading volume down and/or away from 

Chicago. 

There is a huge amount of trading occurring on the 

Chicago derivative markets: more than $900 trillion 

in underlying value in 2014. Bear in mind, world GDP 

is $70 trillion and the US GDP is about $17 trillion. It 

is obvious that most of this trading is of the “socially 

useless” type described by Andrew Haldane, the 

leading UK regulator during the Great Recession. 

Further, there is evidence that such misdirection of 

resources hampers growth in the real economy.


Solution

Without increasing the national debt a multifaceted public jobs program could be initiated to end unemployment and under-employment. See the plan "Stimulus Without Debt" by University of Delaware economist Lawrence Seidman. And also see Rutgers University economist Philip Harvey's plan Back to Work to understand how at a price of about $30,000 per job, about 10 million jobs could be created for $300 billion per year. This would employ full-time all the unemployed and about half of those who are involuntarily employed in part-time work. About 20 million jobs are needed, but this $300 billion per year plan coincides with the Congressional Progressive Caucus plan. The Federal Reserve would advise the Congress on the ongoing danger of inflation growth. See the Economic Policy Institute on the the acceptable wage growth and inflation growth target.

Remember, 1 in 4 (or 40 million) American workers are either 1) out of work, 2) working involuntarily at part-time work,  3) dropped out of the labor market, or 4) working full-time and year-round at less than poverty level wage income. This should end. See the National Jobs for All Coalition's report on employment. Just as during the Great Depression, 1933 to 1937, when unemployment dropped from 25% to below 10%, (see the article supporting this finding here) or during the war period 1940 to 1946 when the number employed increased by a near-miraculous 40% and annual output increased by an astounding and record breaking 75%, public employment is effective in spurring an economy. This would tighten the labor market which would raise wage income for over 80% of workers. Presently wage income as a percentage of total income stands at 42%, down 8% from its historical norm between 1950 and 1980. (see Fed. Reserve graph here) This represent an income loss of about $13,000 per year for all employees (non-supervisory workers) in the lower-earning 80% of workers, perhaps $20,000 per household. If this difference were rectified and spread evenly among all households in the lower-earning 80%, 
then poverty would be eliminated

Capitalism must balance the distribution of its economic surplus, which is often called income or profits. Labor cannot receive excess income without destroying necessary corporate profits, and vice versa, excessive corporate profits decreases private purchasing demand, which in turn lowers employment. A balanced distribution is requisite, and presently corporate profits are at a historical high. 

Many sidewalks in San Leandro are clearly marked “WPA, 1937”. Many public bridges, dams, electrical installations, roads, trails, national parks, court houses, airports and seaports, schools and universities that were built in the 1930s are still functioning. Today’s needs are no less than before. We need to convert our transportation system to a renewable energy source, electric or hydrogen. Providing subsidized home energy retrofitting for energy efficiency is needed nationally. Improved childcare, public education, and expanded services to the infirm elderly and disabled are needed. The reestablishment of municipal and local recreational departments would greatly improve the developmental opportunities of the nation’s youth. And if we should find a paucity of work to perform, vacation time could also serve to maintain high employment ratios. Presently the labor force participation ratio is at a 37 year low and the employment to population ratio is at a 31 year low. Today we are about 8 million jobs below the historical 20 year (1989 to 2009) average E/P ratio. The nation needs jobs. And surprisingly, by creating public jobs the demand for products and services increases, and this in turn reduces and removes the need for public jobs. See the Philip Harvey report, below.

These goals are simple, comprehensible and within reach. The national debt need not be increased, either through the FTT or the Stimulus Without Debt approach. All capable adults could find employment, needed public services and infrastructure would be upgraded, financial security for most would cease to be an unobtainable dream, working paycheck to paycheck would disappear, and families would find time for leisure and vacation. This is        the View of the Future.           

Additional reading: 

For public job creation see 
Chicago Political Economy Group, Working Papers, and Reports
“A Better Off  Budget” from the Progressive Caucus of Congress, at EPI.org 
Philip Harvey, Back to Work: A Public Jobs Proposal for Economic Recovery
Nouriel Roubini, et al, The Way Forward

Congressman Chris Van Hollen’s proposal for a Financial Transaction Tax at The Center for American Progress

See also my web page, Economics Without Greed            
Thank you for reading. 

Ben Leet                   
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Here's a recent example of Paul Buchheit's writing, where he states,
1 "138,000 Kids Were Homeless while 115,000 Households Were Each Making $10 Million Per Year.
2. The Average U.S. Household Pays $400 to Feed and Clothe Walmart, McDonalds, and Other Low-Wage Workers
3. As $30 Trillion in New Wealth was being Created, the Number of Kids on Food Stamps Increased 70%
4. Despite the Decline in Food Security, the Food Stamp Program was Cut by $8.6 Billion and the Money Paid to Corporate Agriculture"

Monday, February 16, 2015

Where did $25 Trillion Go?

              Where is that $25 Trillion?

The private wealth of the nation increased by $25 trillion since 2008. Did you get some of it?

OK, it was only $24.8 trillion. Where did it go? See the Federal Reserve report here, page 2.
(How this relates to the Ryan-Republican budget plan follows below this discussion of $25 trillion.) 

How much is $24.8 trillion created over a six year period? It is  $77,500 per citizen or $200,000 per household of new or additional wealth. (Divide $24.8 trillion by 320 million citizens). That's how much more wealth each American has since 2008. Every family of four will have $315,000 more savings since 2008 to add to their previous savings. Now the average family has almost $700,000 in total assets, not bad is it? It is a gain in national wealth of over 44% since 2008 while most families were struggling with declining home values, unemployment, loss of wages, and the worst economic collapse in 75 years. The per capita GDP between 2006 and 2012 increased by all of $3, from $48,905 to $48,908 (see this site to check). The national income, a composite of everyone's income, declined in 2008 for only the second time since 1933. But wealth began to skyrocket -- check the Federal Reserve report cited above. 

Now the average wealth per human being in the U.S. is $254,000, and each household has $676,000 in savings, on average. But, in actual fact, only about 10% are average or above. Most of the $25 trillion went to just 5% of the households. 

The lower-saving 50% -- half of America -- own just 1.1% of all savings (see here) and their average savings is below $14,000, not the average for all of $676,000. Inequality is the structural problem of our nation's economy, and our society. We must ask, does this affect the life opportunities of everyone, including the reader? Are we all poorer as a result of such extreme inequality? Is there an immense and immoral human suffering because many have NO access and many have little access to the immense resources that the nation possesses? Are we ignorant, heedless, or uncaring that we allow this distribution of resources to remain so one-sided. 

I have difficulty explaining the economy. My friends and those I share my concerns with do not get it. The economy's main problem is that the immense "surplus" has not been shared adequately; the poor receive too little for their contributions, and the very wealthy seemingly hog most of the surplus. The result is a horrible distribution of total wealth that is beyond moral justification. Yet the most vociferous among us are silent, as though they must ignore this stupendous inequality. 

Together the economy is a collective effort, but 40% of the workers only receive 4% of the annual income in wage income, check out  the Social Security Administration's report on wage income. The annual surplus, which we call savings, profit, net worth, more-than-we-need-to-use-this-year, mostly goes to waste in excess savings of  the very wealthiest. In order to save $25 trillion over a six year period when total output was around $90 trillion, some 28% of the output had to be saved. How else can one explain a gain of $25 trillion? (25 is 28% of 90) And during this period most were experiencing crushing wage decline, job loss, and housing value collapse. The median family lost 39% of its life savings according to the Federal Reserve (see page 2 and page 17), a drop from $124,000 to $77,000. But the national increase in net worth resulted from a splurge of wealth pouring into capital markets inflating financial assets, creating a bubble condition.    

The new $24.8 trillion of savings increases each household's savings by  $200,000, on average. Or $101,000 per adult. How many readers actually experienced this gain? 

In contrast, about 47 million out of about 320 million Americans (about 1 in 7) cannot buy their food with money, instead they rely on the charity of food stamps (or its equivalent SNAP credits). They get $1.40 per meal, or $30.05 per week or $130 per month. What is a normal food expenditure per household? Let's look to the basic family budget analyzed by the EPI. It is $188.50 per month per person, or $43.50 per week per person, for a family living in Topeka, Kansas, the median expense location in the nation. The SNAP food budget is almost a third less than the basic frugal food budget. Instead of three meals a day, maybe food stamp recipients  eat just two meals daily? 

As a nation are we concerned about those one in seven American citizens, 47 million humans, who must rely on that $30 a week for food? How do we explain this failure in the wealthiest nation on the planet? Are these Americans stuck in a state of dependency on the government? Or is there a structural reason for their poverty, such as perhaps chronically low wages and inadequate job  opportunities? 

Lawrence Mishel published in the New York Times an op-ed that targets low wages as the primary source of the economy's troubles. 
Here's an excerpt:


WASHINGTON — WITH the early stages of the 2016 presidential campaign underway and millions of Americans still hurting financially, both parties are looking for ways to address wage stagnation. That’s the good news. The bad news is that both parties are offering tax cuts as a solution. What has hurt workers’ paychecks is not what the government takes out, but what their employers no longer put in — a dynamic that tax cuts cannot eliminate.
Wage stagnation is a decades-long phenomenon. Between 1979 and 2014, while the gross domestic product grew 150 percent and productivity grew 75 percent, the inflation-adjusted hourly wage of the median worker rose just 5.6 percent — less than 0.2 percent a year. And since 2002, the bottom 80 percent of wage earners, including both male and female college graduates, have actually seen their wages stagnate or fall."

There is an solution, a way to reverse the trend. Briefly, you can go to Bernie Sanders' statement on the 12 proposals to turn the national economy in the correct direction. Or you can read on further in this blog, or review the blog list to the right here, particularly the EPI and its proposal of the Progressive Caucus budget. Sample idea: "
  • Make necessary public investments. The [P C] budget finances roughly $485 billion in job creation and public investment measures in calendar year 2014 alone and roughly $1.35 trillion over calendar years 2014–2016.3 This fiscal expansion is consistent with the amount of fiscal support needed to rapidly shrink the “output gap” and restore the economy to full health.

The economic solution lies in taxing the unused surplus that the wealthiest have coopted and waste in financial speculation and employ at a living wage in public jobs the capable but un-employed and under-employed and under-paid, which is about one in every four adult American workers -- one in four (I explain this 1 in 4 in the most recent posts. It is over 40 million workers.). Yes, we can be proud of our history, our  heritage, our patriots, etc., but surely we can do better. 

I could go on in detail about the means to spread prosperity, to spread the vast resources at hand, to spread the amazing $254,000 per citizen of personal savings or the near $700,000 per household savings, on average. Easily we all could have access to living wage  employment. The CBO shows that the average market income per household is $93,900 per year (see page 2, here), and that translates into $72,000 per worker (on average) including all the unemployed workers. Each worker, even the unemployed and the part-timers, contribute $72,000 to the total national income. Yet 40% of all workers earn less than $20,000 a year  and most of that 40% earn less than half that amount. The average wage income for the 40% (or 62 million workers) is just over $8,000 a year -- not $72,000. We could easily devise a way to share more equally these resources -- a true ownership society. (I explained this in a recent posting.) Figure it out, reader. We have plenty --- $81 trillions in savings, and over $12.7 trillion in annual income, according to the Joint Committee on Taxation, and $14 trillion according to the BEA.gov --- but millions are destitute and suffering, truly suffering. About 44% of citizens live in households where a $1,000 emergency expense is a disaster.  And 40% of the adults self-identify as "lower or lower middle class". Soon the majority will self-identify as poor.  
FT_14.01.24_middleClass_line_420

Most citizens are sleeping. We should be clamoring for real redistribution of resources. But the society is adrift, tragically unconcerned or unperplexed, often caught in a dog-eat-dog mentality, and cannot see its great potential.   

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Wikipedia's article on Income Inequality in the U.S. is an excellent and detailed reference that covers the full scope of the issue. It's an example of the power of "wiki". I highly recommend it.

I looked at the EPI article on international comparisons of "safety net" support for the poor, also an excellent reference. It concludes that the U.S. has a greater differential from low to middle to high incomes, and it also supports low income the least. I'm not convinced the report proves the last statement.

The U.S. Census finds that 48% of citizens are low-income or poor, from an article at Huffington Post.     
Pew Research finds that 69% of Americans believe that government should do more to reduce inequality. 

The Ryan-Republican Budget Plan
The Ryan budget, which is supported by all Republicans, would reduce by half the taxes on the wealthiest who earn more than $400,000 a year, and raise taxes by $788 on households earning $40,000 (see here, page 2 and 5). Tax increases would be served to three out of four Americans. Halving the tax rate on the wealthiest is hare-brained, to say the least, given that research shows that in the 28 years, 1979 to 2007,  the top one percent has increased its income by 200% (a tripling) while the average weekly earnings of the lower 80% of earners has decreased by 2%(see here, Federal Reserve chart and convert for inflation, using this site).The per capita GDP expanded by 72% in this 28 year period, see here. An excerpt from the cited report:

"The average inflation-adjusted income of the bottom 99 percent of taxpayers grew by 18.9 percent between 1979 and 2007. Over the same period, the average income of the top 1 percent of taxpayers grew by 200.5 percent. This lopsided income growth means that the top 1 percent of taxpayers captured 53.9 percent of all income growth over the period."

An updated report shows that between 1979 and 2012 households in the lower 99% had 2.6% income growth and the top 1% had 180.9% growth. Does this mean its time to cut the taxes of the 1%? 
According to Ryan and the Republicans, yes.

Ryan's budget would cut total tax revenues by 22% to 28%, and to compensate for the drop in revenue it would eliminate government programs serving the poor. About 69% of the cuts in program benefits eliminate serves to the poor elderly, the poor disabled, and poor children --- the politically defenseless. Read the report. The Tax Policy Institute predicts that since no new revenues are specified the national debt would climb from around 60% of GDP to 175% by year 2050. Ryan's budget would totally eliminate Medicaid, it would convert Medicare to a poorly funded voucher system, and it would privatize Social Security as well as raise the retirement age to 69. 
I'll write a more detailed analysis someday. References for the above info can be found here, and here and here
Here's an income perspective from the Joint Committee on Taxation, 2014, see page 30:
The wealthiest 5.2% of tax filers, earning over $200,000 yearly, earn 32.3% of all income, pay 70.0% of all income taxes, and 46.7% of all combined income and Social Security taxes. Most of Ryan's tax cuts would benefit the top-earning 5 percent. The fact that they earn almost a third of all income, own 75% of all financial assets, and more than half of all wealth -- that's the status quo that is anti-democratic and harmful. The Ryan Budget is a pay-off to the rich (campaign contributors) who make most of the campaign contributions. Two-thirds of all contributions came in amounts greater than $200 from just 0.5% of all U.S. adults -- see here. The wealthiest exclude, effectively, any candidate who would raise their taxes and reward those who would cut them in half. The Ryan budget is also an insult to intelligence, as it does not balance out as the proponents claim. It is Robin Hood in Reverse. 


Monday, February 9, 2015

What Caused the Recession ? 

          and Are We Still In It in 2015?                

Excessive Private Debt caused the Recession. 
And the employment rate among age 25 to 54 years old has 
recovered by half, so we are half way to recovery --- after 5 and a half years! 
(See here, the February 6, 2015, articles by Elise Gould, with relevant graphs.)
The unemployment rate would be 9.0% she says, if the dropped-out workers
were counted.
9.0% unemployment IS recession.
Not since 1986 has this particular age group showed such low employment.
This age group is not affected by the baby boomer retirement event; their low 
employment rate is solely an effect of the recession. And a perspective on the devastation of long term  unemployment can be found at the CEPR site.  

From 1996 to 2008 outstanding financial debt increased by 162%
and the economy's growth per capita grew by 24%
Creating debt at a rate almost 7 times faster than real growth is disastrous. 
When the median household savings falls by nearly 40%, when 15  million or 11% of the workforce lose their jobs in a two year period, and when the recipients of food stamps increases from 17 million in 2000 to 47 million in 2013, that is a disaster
(see graph here)
Excessive private, not public, debt created the fatal flaw leading to the great recession.
I calculated from the Federal Reserve's Flow of Fund report, Table D3, and then adjusted for inflation. You can also note that government debt grew slower than all other sectors' debt. This Federal Reserve Graph shows the growth of the financial system outstanding debt, numbers unadjusted for inflation. And this one shows the growth of household debt.
Here's another comparing financial debt with non-financial corporate debt.
I also used the Measuring Worth web page where they calculate GDP per capita growth between 1996 and 2008.

Here's a graph of total private debt as a percentage of GDP. We are still around double the historical average. Between 1946 and 1976 the economy grew at a rate of 

Chart- US Private Debt as a Percent of GDP

Here's a video about the drag of private global debt from the Guardian newspaper. 

The U.S. economy grew at half its normal rate between 2000 and 2010. From Wikipedia and BEA.gov:  
"US real GDP grew by an average of 1.7% from 2000 to the first half of 2014, a rate around half the historical average up to 2000.[84]"  There's a chart tucked away in Bailout Nation by Barry Ritholtz showing that GDP growth during the pre-crash 2000s was generated by home loan mortgage borrowing, called 2nd mortgages. 
Christian Weller provides a monthly snapshot of the economy at the Center for American Progress. 
This comes from the January report: "Household debt equaled 102.5 percent of after-tax income in September 2014, down from a peak of 129.7 percent in December 2007." And this graph showing our present recovery vs. other recoveries:


EconSnapshot-Jan15fig1 

The EPI also presents a similar graph (see here) except you can see the performance of the 2007 
recovery is about a third, not a half, of all previous recoveries:
Chart: Real GDP growth, comparison of recessions


Home Mortgage Crisis Still Unfolding

Dan Alpert at Economonitor, March 6, 2015, writes about the wrongly perceived recovery in housing.
It's an important article showing the impending deflationary pressures on the economy.
One must link to his Westwood Capital web page to see the entire presentation. The graph 
on page 12 tells a powerful story of deflation, especially combined with the thesis of his 
analysis.  

Here's an article about the failure of the Obama Administration effort to save homeowners (from a recent American Prospect issue). This is an example paragraph from the article:

                 "The most direct and effective policy solution to stop foreclosures is to allow bankruptcy judges to modify the terms of primary-residence mortgages, just as they can modify other debt contracts. This is known in the trade as “cramdown,” because the judge has the ability to force down the value of the debt. The logic of bankruptcy law reduces debts that cannot be repaid in order to serve a broader economic interest, in this case enabling an underwater homeowner to keep the house. Liberal lawmakers believed the threat of cramdown would force lenders to the table, giving homeowners real opportunities for debt relief. Wall Street banks were so certain they would have to accept cramdown as a condition for the bailouts that they held meetings and conference calls to prepare for it."

Housing Crisis Myths
Here are the Ten Myths from Jennifer Taub's book Other People's Houses from the last chapter :

1. There has been no official bipartisan consensus on the causes of the financial crisis.
                               Carl Levin (D) and Tom Coburn) investigated and agreed on the causes, see here. 

2. The financial crisis was an accident without human causes.
                        Steve Keen explains in his book Debunking Economics that he received 
                        the (Paul) Revere award for his prescient forecast of the economic freefall.
                       There were 94 other economists in the running for the award, and 5,000 who voted 
                       in the award. Read the article.

3. The financial crisis was brought about because the Community Reinvestment Act of 1977 forced banks to lend to people with low incomes who could not afford to pay back their mortgages. 
                       This is the conclusion of most Republicans, and it is fantasy.

4. The giant government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, caused the financial crisis because he government pushed them to guarantee mortgage loans to people with low incomes as part of their public housing mission.
                     Fannie and Freddie were private enterprises selling their stock shares on the NYSE. 
                     The FCIC concluded they were acting out of self-interest, not government pressure

5. Mistakes were made, but there was not widespread fraud and abuse throughout the financial system.
                     Jennifer Taub's book and others will convince you of fraud.

6. The financial crisis was caused by too much government regulation.
                     Most people realize that the system was poorly regulated. 

7. Nobody saw it coming.
                      See note #2 about the Revere Award.

8. The financial crisis was unavoidable. And financial crises of this magnitude are inevitable.
                       The Federal Reserve is charged with oversight sufficient to quell over-speculation.

9. The Dodd-Frank Act has ended "too big to fail". 
                      The six largest banks are larger than before their self-destruction.

10. The bankers are the victims of greedy homeowners who borrowed money and did not pay it back. 
                              When debt increases 7 times faster than growth over a 12 year period, 1996 to 2008; when home price jump by 70% nationally over a four  year period, 2002 to 2006, banks are not ignorant observers, they are perpetrators. They immediately sold most of their loans as 
securitized  assets. 

Taub's book is masterful, I nominate her for the Supreme Court. It is also very complicated and detailed. The last page of her book quotes Bank of America CEO Brian Moynihan testifying to the FCIC, 
"Over the course of this crisis, we as an industry caused a lot of damage. Never has it been clearer how mistakes made by financial companies can affect Main Street, and we need to learn the lessons of the past few years." 
Excessive private debt is a well-known cause of speculative collapse, it is 
surprising that so many ignore this as the main cause. Economist Steve Keen has 
placed his analysis on it in his book Debunking Economics. From page six, ". . . the 
never ending crisis . . . was no 'Black Swan.' Its inevitability was obvious to anyone
who paid attention to the level of debt-financed speculation taking place, and considered what would happen to the economy when the debt-driven party came to an end.

_______________________________________________
POVERTY RAGES
Paul Buchheit has been writing the nation's best journalism. He explains in this February 2015 article the endemic poverty in the wealthiest nation. He cites a study showing that "almost two-thirds of Americans didn't have savings available to cover a $500 repair bill or a $1,000 emergency room visit."
The average household income, pre-tax and pre-transfer, is $93,000 a year (see CBO report here). The average savings per household is around $650,000 (see Federal Reserve report, page 2, here) -- and almost 2 in 3 live in households that cannot pay a $1,000 emergency room visit. !!!
Should it surprise us that the suicide rate among age 40 to 64 group has increased by 40% since 2000?
Read the article here
__________________________________
LOW WAGES
I made this comment on one of Elise Gould's articles about employment, cited above.
"The Social Security Administration report on wages for 2013 says that 40% of workers earn less than $20,000 a year. The National Jobs for All Coalition shows that 12% of all workers work full-time and year round for under $23,500 a year, the poverty level for a family of four. 

40% of Workers Earned Just 4% of all Income in 2013
The combined or collective income of all 61 million workers who earned less than $20,000 in 2013 is about 4% of the total national income. Again 40% of the workers earn only 4% of all the income our economy generated. 
It's not complicated to figure it out. Add the incomes at the SSA report to get the $504 billion in income going to the lowest earning 40%, then go to the BEA.gov / personal income interactive site to find total personal income for 2013, $14.167 trillion. Then divide the numbers for a percent of total. Even if we take the total income recorded by the Joint Committee on Taxation for 2014, $12.7 trillion, the percentage does not really change much (see here for the JCT, page 30). Or look at the EPI table 2.4, see here, and find that wage income amounts to 54% of total income. 
Something should go off in your mind when you read this.