A Man, A Plan, A Canal Panama ---
Jack Rasmus Presents an Economic Stimulus You Can Believe In
Our economic boat is sinking, and one year from now, March of 2010, we may be taking in water even faster than today. It would be wise --- now, today --- to look for a better bailing mechanism, a real industrial gauge bilge pump. In about ten months, January, 2010, more than one in three workers will be in trouble: 10% will be unemployed, another 10% will be working part-time or will have dropped out of the workforce, and still another 16% will be working for less than the poverty level income. Low income equals low consumption, equals low corporate profits, equals more jobless workers. After Christmas of 2009, people will question if and how Obama’s recovery program has had any effect. That’s fifty million workers, and Obama’s plan is to restore or create only 3.5 million jobs.
A much more aggressive alternative, a bilge pump with capacity, can be found in the plan proposed by Jack Rasmus, Ph.D., economics professor, and writer for Z Magazine. His plan is a comprehensive $2 trillion alternative to the Obama program, it’s been been published by Z Magazine, March, 2009, and is available also at his web site KyklosProductions.com. (There are other plans, but none so large nor as comprehensive. The web pages for extremeinequality.org, EPI.org, sharedprosperity.org, have plans, and of course piece meal proposals have been offered by Demos, Campaign for America’s Future, and Center on Budget and Policy Priorities. All are well and good, but none so thorough as Rasmus’ plan.)
Rasmus says we are between a normal post-World War II recession and something bigger and more damaging. He coins the term Epic Recession। He says that by the end of the year there may be 20 million jobless workers, 12.5% of the workforce. The summary of his plan reads,
“An effective economic recovery and stimulus program must be one that addresses these two primary tasks: jobs creation-retention and housing market stabilization. The recovery proposals that follow require a minimum of $1.5 trillion to fund a comprehensive jobs retention and creation program that will create and retain a minimum of 13 million jobs — i.e., the minimum amount that is needed just to check and contain the economic collapse. The housing program proposals that follow call for an additional $950 billion in spending, necessary to stop the collapse of housing asset prices and to provide a major consumption boost to the economy without reducing taxes and exacerbating budget deficits that will already exceed $1.5 trillion in 2009. The third section includes proposals to finance the $2 trillion program. The fourth section addresses several long-term income restoration elements associated with pensions, health care, and education that are necessary to sustain long-term consumption demand, ensuring the recovery does not falter once again after two years.”
Rasmus divides his plan in four sections, with 20 action points. Part I deals with the housing market stabilization and it is funded with Treasury and Fed funds already at hand, Part II is a jobs creation and retention proposal, Part III is a method to finance the $1 trillion jobs program, and Part IV proposes a long-term consumption stimulus, as the decline of consumption, caused by chronic wage stagnation for 80% of workers over a thirty year period, has been the source cause of the downward spiraling economy.
The problem of the economy is several fold: the bursting housing market asset bubble is sinking home prices and throwing one of ten homeowners out of their homes, and placing one in five mortgage owners “underwater” with their mortgages; the banks and financial system are bankrupt; joblessness is rising rapidly at 600,000 a month or higher; the government is trying to fund a small-sized jobs program through borrowing; and the basic low-income, low-savings problem of 80% of the households must be addressed if this cycle is not to repeat.
Robert Kuttner warns that a Depression is imminent. He, like Rasmus, says we are in the middle of a recession that may grow into a Depression. (“Worse than 1929?” in the American Prospect, March 12, 2009)
“This great collapse doesn't have to be a second Great Depression – if government does nearly everything right, and soon. And when we come out the other side, we could have a more decent and sustainable society.
But if government doesn't do more, and fast, this could be worse than the 1930s.
Why? Three big reasons:” and he goes on to list the failed financial system, the drop in asset value for housing and stocks, and the weakness of the U.S. dollar and what a dollar collapse would mean for the world’s biggest borrower.
“Roosevelt was said to be a big spender, but his biggest peacetime deficit was only about 6 percent of gross domestic product. This year, the deficit will exceed 11 percent, and the recession will deepen all year. It took the truly massive deficits of World War II -- nearly 30 percent of GDP -- to finally end the Great Depression.”
An 11% deficit is $1.5 trillion of red ink. Rasmus’ plan calls for $2 trillion of red ink. It appears that we need something three times greater than Obama’s plan for a minimum of four years. See the article in the Monthly Review, January, 2009, “A New New Deal for Obama?” for details on government spending during the 1930s. In short, FDR’s spending up till the 1940s simply replaced the decline in spending by states that fell precipitously throughout the 30s. Replaced, not supplemented.
I’ll list off the twenty points of Rasmus’ proposal and you can see the scope of his plan.
Part I, Housing Market Stabilization and Consumption Restoration
1. Reset Mortgage Rates for All Loans Originated 2002-2007
2. Reset Principle Loan Balances for All Loans Originated 2002-2007.
3. Create Federal Homeowner-Business Loan Corporation (HSBLC) to Provide Direct lending to the Homeowner-Small Business Property Markets.
4. One Year Moratorium on all Foreclosures and Default Proceedings.
5. Optional Homeowners 40 year Fixed Loan Extension
6. 15% Homeowners’ Investment Tax Credit
7. Restoration of ‘Regulation Q’, dealing with usury laws and interest rate caps.
Part II, $1 Trillion Jobs Creation and Retention Program
8. $300 billion for infrastructure jobs.
9. $100 billion for further stimulating growth-sector jobs.
10. $100 billion for manufacturing industry job retention and creation.
11. $300 billion Government Sector Job Creation-Retention.
12. $125 for bailout and consolidation of the Auto Industry
13. $125 billion for emergency Unemployment Insurance and Special Domestic Assistance Retraining.
Part III, Financing the $1 Trillion Jobs Program
14. Retroactive Windfall Taxes: Oil-Energy Industry Windfall Profits, Executive Compensation, and Corporate Foreign Retained Earnings Taxes.
15. Capital Incomes Tax Rate Rollbacks (“The severe shift and maldistribution in income in the U.S. since Reagan is heavily responsible for the runaway speculative investment contributing to the current financial crisis, as well as to the collapse of consumer spending so abruptly and deeply in recent months. No long term recovery is therefore possible without a basic re-restructuring of the tax system in the U.S., starting with capital incomes taxation.”
16. Repatriation of $2 Trillion from Offshore Tax Havens.
17. 6.25% FICA Tax on all Unearned Incomes above $332,000.
Part IV, Providing a Long-Term Consumption Stimulus,
18. Establish a National 401K Pool
19. De-Privatize the Student Loan Market
20. Single Payer Universal Health Plan.
Placing all the elements of the recovery connects the dots, gives a holistic picture of the danger we face. A Depression is serious non-business. “Income destroys capital,” is the last option that we want to avoid, commented Martin Wolf, economist and writer for the Financial Times in an interview with Doug Henwood in September of 2008. There are three possible outcomes, he said; one, we muddle through slowly, two, the Obama restoration less slowly pulls the economy back to health, and three, “Income destroys capital.” That means the spiral goes on so long and affects such a broad range of businesses and consumers that in the end the capital value, the investments of our society, are destroyed because no one will have income to continue to buy their products or be employed in their production. “Income destroys capital.” I think he was drawing on his knowledge of Keynesian economics. Grave stuff.
While Rasmus may not have all the solutions in perfect order, he at the least gives us a powerful strategy that draws on the immense underutilized wealth of our country to reinvigorate consumer buying power, aggregate demand, after a thirty year wage freeze that has crippled a large portion of Americans. The latest Federal Reserve report on wealth in America, just out, shows that the lowest half of U.S. households still cannot survive independently on their personal savings for more than 6 months. Yet these 50% of U.S. citizens go to work, for the most part, everyday to pay their bills if not to save.
To elucidate just a little further, Rasmus in another of his articles,
“Speculative Capital, Financial Crisis, and Emerging Epic Recession,” recounts the growth of the credit market over the past 30 years. In 1978 the portion of national debt that was financial debt was 11.3%, but by 2007 the financial portion had grown to 33.4%, or it had tripled relative to entire national debt picture. Half of the increase occurred between 2000 and 2007.
“In the U.S. alone, over the past three decades since 1978, total debt --- i.e. finance sector, consumer, government and non-finance business debt --- has risen from $3.6 trillion in 1978 to more than $47.7 trillion! . . . The answer is the orgy of speculative finance and speculative investing. Speculative investment and finance has been the driver of the massive debt run-up. . . . This is not a case of workers and consumers buying too many cars or houses they cannot afford. Workers-consumers debt is the consequence of the increased use of credit cards and housing refinancing in order to maintain standards of living and make up for the essential freeze in pay, adjusted for inflation, since 1982. According to U.S. government Labor Dept. data, the 110 million non-supervisory production and service workers in the U.S. --- the heart of the American working class --- earn less real take home pay in 2008 than they did in 1982 as a group. . . . The massive debt run-up in the U.S. economy is thus clearly financial debt.”
A loan is a gamble on future earnings, but earnings have not kept up with the pace of too many loans. Credit bubble, credit collapse, banks declare bankruptcy (or petition government for bailout funding) and world economy goes south.
In another of his articles, “Epic Recession Revisited”, Rasmus states,
“For example, more than $22 trillion of the current total U.S. $49 trillion debt (i.e. government, consumer, financial institution, and non-financial corporate combined) has been added just since 2001. [27 + 22 = 49] The current financial crisis is due to the ‘unwinding’ of that excess debt, $18 trillion of the $22 of which is corporate (financial and non-financial) debt. The financial crisis has been particularly intractable due to the huge volume of debt unwinding that has yet to be contained despite the Treasury-Fed throwing $4 trillion to date at it. The $4 trillion is likely just half that which will eventually be required.”
As readers of the blog http://benL8.blogspot.com will know already, the solution to our economic woes is to increase wages, savings, and employment for the 50% of households on the lower side of the income and wealth ladder. “Half Own 2.5%, Half Earn 15%” is the title of my favorite essay. This is the only lasting quality of life improvement we can hope for in the U.S.A. These proposals by Rasmus are consistent with my proposition, and are certainly presented with professional expertise and acumen.