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Friday, October 10, 2008

Full Employment

Full Employment
Leads to a World Without Poverty

Our economy does not provide everyone with work, much less good paying work. Thirty percent are either unemployed (6.1%), working part-time but wanting full-time or discouraged from looking for work (6.4%), or receiving wages that place them at a below-poverty income (16.4%). If you add in the number who are imprisoned, you arrive at nearly one in three working adults either not fully producing or not being rewarded adequately. That is a gross waste. We can do better.

In our economy 28.9% of families with children under 12 cannot afford the necessities of food, housing, medical care, and child care. Millions, some 12.5% of population, fall below the poverty line of $20,000 a year income for a family of four, and others place the percentage at 17.7%. It doesn’t have to be this way. It is not an “act of nature,” or an act of God. It is an act of human design.

Full employment uses the power of government to employ the human resources of the nation regardless of the cyclical ups and downs of private and free enterprise. Full employment offers a route out of poverty and unemployment for anyone willing to apply him or herself. Today a child born to a father who earns $16,000 has a 1 in 20 chance of ever earning more than $55,000 a year. There are millions of children who fall into that category. What do you tell them about the American Dream?

Full employment would tighten up the labor market which would slowly raise the wages of the lowest paid workers. Combined with programs such as the Earned Income Tax Credit, the EITC, wages and incomes at the bottom of the scale would be ramped up without damaging small employers with huge payroll expenses.

A full employment policy would function as a ballast to the economy. It would automatically protect against price inflation. Professor L. Randall Wray makes
this argument in his book Understanding Modern Money.

During the Great Depression the unemployment rate was 17.1% on average for ten years. Economists say that half the productive capacity of the nation was wasted during that time. Private enterprise could not save itself. New Deal programs and finally government spending on the war mobilization fully boosted consumer savings and spending during the 1950s. Today, once agian, we need public spending to get the economy going.

Once again the economy is seriously “out of whack.” Wealth and income are out of balance. The top one percent, or 3 million people, in wealth own more than the bottom 91%, or 273,000,000 people, and the top one percent earns each year more than 60% of the people. The lower half of the nation owns only 2.5% of the national wealth. How can we have a healthy economy with a distribution ratio like that?

Full employment funded by federal government programs provides one method of rebalancing our national top heaviness. It has the promise of eliminating poverty.

Documentation, Full Employment Leads to a World without Poverty

30% are unemployed, part-time employed,etc, rates, drawn from Bureau of Labor Statistics, Dept. of Commerce

28.9% of families with children:
Hardships in America, Heather Bouchey, 2001, EPI, page 2

Child born to father who earns less than $16,000:
State of Working America, 2006/2007, Mishel, Bernstein, Allegretto, EPI, page 95

Understanding Modern Money, L.Randall Wray, The Key to Full Employment and Price Stability, Edward Elgar, publisher, 1998

Poverty percentages:
EPI,, Snapshot for July 2, 2008.
Official poverty measure undercounts the nation's poor, by Jared Bernstein

Wealth percentages:
U.S. Federal Reserve Bank, Survey of Consumer Finances, Currents and Undercurrents, 2006, Arthur Kennickell

Income percentages:
SWA, 2006,2007, page 79, from a Brookings/Urban Institute report, Microsimulation Model 0305, 2006

Suggestions for the Meltdown/Bailout

Congressman Stark, Oct.10.2008

Re: Banks, Economic Meltdown

I bet you are busy.
Here are four suggestions that Democrats should bring to the table.

1. Homeowners sacrifice part of future appreciation of home value when they accept reduction in mortgage value. A fair give and take for both sides.

2. Federal government takes a SENIOR claim on failed banks that supersedes bondholder and shareholder claims.

3. Create a central bank with $300 billion, leverage it to $1.8 trillion, take over many insolvent banks. Government operates failed financial institutions until they can be resold to private market. Frank Mankiw’s idea of sharing equity 50 - 50 with private investors in individual banks is not so hot. It’s too slow and piecemeal. Grab them in one fell swoop.

4. Go with Levy Institute and Nouriel Roubini’s plan for public investment in infrastructure.

These are my sources:

1. and 2. John Hussman, Ph.D.

5) To assist homeowners, the bill should allow for a reduction of mortgage principal during foreclosure, but the mortgage lender should also receive a Property Appreciation Right (PAR) that gives the original lender a claim on future property appreciation up to that original mortgage amount. In other words, the homeowner receives a substantially lower mortgage balance and payment burden now, but the lender stands to be made whole over time through property appreciation rather than immediate burdens on the homeowner to make payments.

2) In return for these funds, the government should NOT take equity (which is a subordinate claim and also creates potential conflicts of interest), but instead should take a SENIOR claim that precedes not only the stockholders but also the senior bondholders in the event the company defaults anyway. Congress may need to make some modification to existing bankruptcy law or provide for expedited bondholder approval to do this, but essentially, the government's claim should be subordinate only to customers in the event of default, and senior to both stockholders and bondholders. However, it should also be countable as capital for the purposes of satisfying bank capital requirements.

3. Professor Peter Dorman’s “Plan B” as presented at

4. Nouriel Roubini’s web page -- World Is at Severe Risk