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Monday, June 27, 2011

Deficits, from Clinton and Bush

THIS BLOG: My February 2011 essay, the Six Point Program, is a comprehensive proposal to restore prosperity. I recommend it. Go the the column at the right, click-on February, 2011. Look for the Contents page also, December of 2010. We can do two major things in this nation: we can make sure all jobs pay a decent wage -- they don't, believe me --- and democratically we can create jobs for everyone.

The Federal Budget
Comparing the Clinton years with the Bush years

Data from the Congressional Budget Office, Office of Management and Budget, Historical Budget Data, January 2011.

Basic Facts

Year National Debt

1980 ----- 26.1% of GDP --- before Reagan
1992 ----- 48.1% of GDP --- after Reagan and G.H.W. Bush years, up 22.0%
2000 ----- 34.7% of GDP --- after Clinton, down 13.4%
2009 ----- 53.5% of GDP --- after G. W. Bush, up 18.8%

The publicly held national debt (debt not held by intragovernmental agencies such as Social Security Trust Fund) as a percentage of annual GDP has oscillated up and down and up. For 10 years, 1970 to 1980 the debt had held steady around 26% of GDP.
This graph originates from here, Data 360 web page. 

See the graph at Wikipedia of the national debt levels:

There are fewer private sector jobs today than 11 years ago in 2000. And taxes were higher in 2000 by 6% of GDP, and that would be by $900 billion in today's money. Let me refer you to Hughes and Seneca of Rutgers University (America's Post-Recession Employment Arithmetic) for the first fact. Not since 1930s have there been fewer jobs after 10 years of stagnation. And Robert Borosage at two days ago for the second. In 2000 the portion of GDP converted into federal revenues was 20.4% and today it's 14.2%. And the private sector employed 110 million in 2000, 107 million today, in spite of a larger labor pool. The labor participation rate in 2000 was much higher than today, and if added onto the unemployment rate, today's U3 unemployment would be at 13%. Taxes --- raise them on the top one percent whose pre-tax income is approximately equal to the bottom 60% of households (!! Yes, see UC Berkeley professor Emmanuel Saez, Striking It Richer), and create public jobs with them. Thanks Joshua H. (I left this comment at Alternet, July 16, 2011)

John Miller, November 2009, Dollars and Sense Magazine,
How I Learned to Stop Worrying and Love the Deficit

Robert Borosage, July 15, 2011,

Robert Reich, July 15,

The economy expanded by 76% over the six years between 1939 and 1944, the years of World War II. In 1939 it stood at 100, at the end of 1945 it stood at 176. This is a growth rate of 10% a year compounded. The workforce expanded by 42% (including the expansion of the military and the civilian workforce, "19.2 million additional people were either working or in the Armed Forces"), and even with additional workers, the unemployment rate dropped to 1.2% and below 2% during 1943 and 1944, proving that full employment is possible, not just a dream. This comes from American Economic Development Since 1945 by Samuel Rosenberg, page 20, 21. One can ask, How much of that growth was due to private sector investment and hiring? "Federal government purchases of goods and services, mainly military related, grew from $22.8 billion in 1939 to $269.7 billion in 1944. This increase is virtually identical to the overall increase in real GDP"

Today, 2011, there's a strong case to re-allocate federal resources. Congresswoman Jan Schakowsky has presented an alternative budget that reduces spending by $400 billion and provides for a $200 billion jobs program. The People's Budget also has a similar program. The war period, 1939 to 1945, demonstrates conclusively that government can influence the economy in a positive way. No one in 2011 would advise such huge stimulus spending, but the point is --- stimulus works. Military Keynesianism is the term for the Reagan stimulus of the 1980s. As shown above, he increased the public debt from 26% to 48% of GDP.

Since July, 2009, the depth of the recession, corporate profits have accounted for 92% of the economic rebound in the GDP gross amount, while in contrast aggregate wage income is still what it was in July 2009, and job growth has yet to happen. The private sector is sitting on almost $2 trillion and not hiring. The tax/GDP rate stood at 20.4% in 2000, Clinton's last years, while today -- as the graph shows in the Borosage article --- it stands at 14.2%, a drop of 6% of GDP less, which in today's economy is $900 billion. The entire debt this year is about 9% of GDP. Raising taxes to the 2000 level would almost eliminate the deficit. Creating public jobs would compensate for the private sector's inability to hire during a depression. About 30% of all workers, 45 million, are either unemployed, not fully employed, or working full-time and year-round for below poverty level wages. Two of eight Americans are connected to a family with absolutely no savings, and another one in eight is in a family with less than $12,000 in savings. That is a depression. The upshot would be a self-expanding economy, and corporations would begin to sell to paying customers again and could begin to hire and invest again. That's the case against freezing taxation.


Increase in military spending
Clinton era --- 1994 --- $282 billion or 4.0% of GDP
2001 --- $306 billion or 3.0% of GDP

Bush era: -----2002 --- $349 billion or 3.3% of GDP
2009 --- $657 billion or 4.7% of GDP
Clinton decreases military spending by 25%, Bush increases it by 42%.

I used inclusive dates for my calculations. The years 1994 to 2001 inclusive are 8 full years, as are 2002 to 2009 inclusive. The president’s budget begins October of the year he is sworn in, for Clinton October 1993, for Bush October 2001. Therefore the 1994 budget begins the Clinton years, 2002 begins the Bush years.

Growth in National Debt as a % of GDP
Clinton era: down by 16.7% ---- from 49.2% to 32.5%
Bush era: up by 19.9%% ---- from 33.6% to 53.5%
In 1994 the federal debt stood at $3.433 trillion, or 49.2% of the size of the GDP.
By 2001 it had shrunk from 49.2% to 32.5% of the GDP, a reduction of 16.7%.
Bush’s debt began in 2002 at 33.6% of GDP and ended in 2009 at 53.5% of GDP, which was over $9 trillion.
Clinton knocked the debt down, Bush ran it up. The differential between the two presidents is 36.6% of GDP, that is $5.307 trillion, a very big number. If we had continued the Clinton momentum for another 8 years, instead of $9 trillion in publicly held debt we would have less than $3 trillion, or approximately 20% of GDP as a debt level, instead of 2010’s 60% level. Obama did not run up the debt, he inherited from his predecessor the greatest recession in almost 80 years. The forward momentum of the recession ratcheted up the debt from 53.5% of GDP to 60% in Obama’s first year.

Tax Revenue as a percentage of GDP
Clinton era: 19.2%
Bush era: 17.0%

Bush inherited a short 6 month recession, March 2001 to September 2001. But the tax cuts lasted more than ten years. He used the 2001 recession as a justification for decreasing taxes, a
Keynesian rationale that federal government should borrow money in a recession and run up the debt. Thereby the saved tax dollars are spent as investment or consumer demand, making up for the lost demand due to the economic downturn. But Bush’s taxes were generous to the highest earners and did little to stimulate widespread demand, and job creation was very weak taking four years to return to their former level, and the median household never recovered it’s lost income to pre-recession levels.
Income Tax as a percentage of GDP
Clinton era: 9.05%
Bush era: 7.56%
Economic Policy Institute claims that the Bush tax cuts cost $2.5 trillion in lost tax revenue over ten years. But these data show it to be $2.08 trillion less than the income tax level of the Clinton’s tax level spread over ten years.
Average Budget Deficit as % of GDP
Clinton era: -2.0% per year
Bush era: -4.76% per year
In today’s dollars, 4.76% of GDP comes to $690 billion of federal expenditures. Coincidentally, this is almost
identical to our present military budget. For eight years, this was the Bush II level of deficit spending. The military budget for 2010, which was $689.1 billion, which is also 20% of all federal expenditures. But the true cost of the military is nearly double that amount yearly, $1.2 trillion.

Clinton inherited the legacy of Ronald Reagan and G.H.W. Bush of excessive budget deficits. In 1980 when Ronald Reagan assumed the presidency, the publicly held debt as a % of GDP was 26.1%. Twelve years later after G.H.W. Bush (Bush I) it stood at 48.1%, an 84% jump in the size of the debt. At the last year of Clinton’s term the debt was down to 34.7% of GDP, a decrease of 28%. In 2009 the debt was back up to 53.5%, and increase of 54% relative to the size since 2001.
It was more than double the size of 1980. “Deficits don’t matter,” is the advice of former vice-president Dick Cheney. “Reagan proved it.” Politically they don’t matter if your party is in power, when out of power deficits are the only thing that matters.

Franklin Roosevelt ran up huge debts, fortunately, or else we would still be in the Great Depression. See the
Marshall Auerback essay that demonstrates the effect of the WPA spending that lowered the unemployment rate from 25% to 9.6% in four years, 1933 to 1937. It depends on how you spend or invest the borrowed money. (See this other excellent report by Auerback, February 2009.)
Roosevelt put workers back to work. Reagan and Bush I and Bush II spent it on the military while cutting taxes. Some call this “military Keynesianism”. The principle that Keynes advocated, increasing purchasing demand through government spending on jobs, was observed. Enlarging the military is not a great investment; better is to create things that do not explode, that improve the quality of life for decades to come. Sidewalks on the streets in my town of San Leandro still bear
the inscription, “WPA 1940”.

The Historical Budget Data is non-controversial. The Congressional Budget Office presents basic numbers. It’s without argument that the budget is in deficit. I hope readers will consider the numbers, and draw their own conclusions.

I love being brief, but there is always more in my writing.

***!!!! ---
Back to 1976 ---- !!!!***

I'm going to restore the national income distribution of 1976 by transferring 15% of the nation's income to the lower 90% of households.
It's an exercise in re-distribution of income.
You can reference two sources that show the percentage of all personal income going to the top ten percent, U.C. Berkeley professor Emmanuel Saez' report
"Striking It Richer" page 7, or the Tax Foundation, Table 5 in their report. The share of personal income going to the top ten percent remained below 35% between the years 1940 to 1980, and today it approaches 50%. I've reported this over and over on this blog. That's my central goal for reform: to restore an appropriate income distribution. This morning I calculated that restoring the previous distribution ratios, 1940 to 1980, transferring 15% of all income that the top ten percent now receives, up from 35% between 1942 to 1982 to almost 50% in 2007, would entail a transfer of $1.319.7 trillion from the top ten percent to the lower 90%. In summary, if the distribution ratio of of 1980 remained the same in 2007, then $1.319.7 trillion would go to the lower 90% of households.

Divided evenly between all households in the lower 90%, each household would have an
average increase of annual income of $12,569. The median would rise from around $50,000 to $62,000, and since the average income for the bottom 20% of households is $13,000 according to a Citizens for Tax Justice report, the lower income families would in some instances double their incomes. It's just a fantasy towards which the nation could aspire. I'm not an economist, I'm a dreamer. Dream along with me.

Certain analysts claim that the top income earners pay too much of the federal income tax, which is just 45% of all federal revenue. They never complain about how much more of the nation's income the top income group now receives. To find the overall effective tax rates for all income groups, go to the
Citizens for Tax Justice report here, and discover that most households pay taxes in a close range of their total incomes, contrary to the alarmists for the wealthy group.

(Using the Tax Foundation report, Table 3, we see that the Adjusted Gross Income amount for the bottom 50% of taxpayers came to $1,078 billion in 2007, and the top 50% received $7,720 billion,
roughly a 1 to 8 ratio, arriving at a total AGI for the nation of $8,798 billion. To $8,798 billion I take out 15%, or $1,319.7 billion, and divide that amount among 105 million households or 90% of the nation's households. This yields an income increase of $12,569 for each household.)

Let’s cut to the chase: the federal government needs to raise taxes by about 30%. But before it destroys the economy by raising taxes it should create public jobs and get everyone working as we did in the 1930s and 1940s. Then we, the shapers of government policy, should aim to restore the income distribution to the ratios of 1976 when the top ten percent of households received less than 35% of all income, not the 49% it presently receives.
“Back to 1976” is my radical cry. Then we can raise the taxes by 30% and have a balanced budget.Imagine three large pizza pie plates, because I cannot graphically create them. Or imagine three clock faces. The first contains all the GDP with one slice representing the federal government’s expenses. That one slice is about 14 minutes on the clock face. Most advanced nations have a larger slice. The federal government was 19% during the Clinton years, and then it expanded to 24%.

Now, imagine the second clock face. This represents all federal spending, and the slice portion,
12 minutes (or 20% of spending) of the clock face, represents the portion not paid for, the deficit during the Bush II years. Clinton eliminated this slice.

Now, the third clock face, it is
17 minutes (or 28% of spending) as a slice size। When you take out all the federal expenses that are paid for by payroll taxes, the Social Security and Medicare parts, you have a smaller pie. Instead of $3.5 trillion, the pie is now $2.4 trillion, and the unpaid part, 17 minutes ---which amounts to 28%---is the part that the Bush II government neglected to collect, its real deficit. To balance the budget G.W. Bush would have had to raise income and corporate taxes by 28% for all the eight years of his presidency.

Three clock faces: 14 minutes, 12 minutes, and 17 minutes.
24% ------20% ------------28%

The People’s Budget and the budget proposed by Representative Jan Schakowsky are responsible alternatives to what either the Republican Representative Paul Ryan presents or to what the Obama administration proposes. Both do damage to our nation, in my opinion. We should look for a responsible plan. Opinions of course vary, and intelligent people often disagree. Let’s be intelligent and disagree intelligently.

Tax Policy Center, part of the Urban Institute, has a Briefing Book that explains much of the pie chart business. The President’s Budget and the Congressional Budget Office also explain the various expenses, for those who wish to explore at the source.

June 27, 2011

Sunday, June 19, 2011

Jobs and Recovery

THIS BLOG: My February 2011 essay, the Six Point Program, is a comprehensive proposal to restore prosperity. I recommend it. Go the the column at the right, click-on February, 2011. Look for the Contents page also, around November or December of 2010. We can do two major things in this nation: we can make sure all jobs pay a decent wage -- they don't, believe me --- and democratically we can create jobs for everyone. Today there are not enough jobs, as you should know, and we can create them. About 16% of all jobs are government jobs today, we can create more, we are rich enough to do so. And the lower 80% of workers earn only 28.2% of the national income through their jobs. One dollar in income at the bottom 80% is matched with $6 in income at the top 20%. That is an insane income distribution; no other advanced country is as bad. We can change the wage ratios with taxes, incentives and income credits. The economy generates $47,000 per person, per human being, per infant, child, adult, elder, everyone, $47,000 a year. That's about $141,000 for every family of three, on average. We are rich enough. We have a broken system. We need more jobs, and higher wages. It's your future, your family's future, and your and their happiness.

Jobs and the Recovery

Officially the economy has recovered. How do we know? Economic production, the GDP, has recovered to its pre-recession level, but 7 million jobs were lost in the process. So is it a real recovery? The Great Recession lasted from December 2007 to June 2009 when the GDP declined by 4.2%, it reached its nadir or trough. The economy then began to grow, an 18 month rebound which recaptured its pre-recession level. The drop and recovery had a symmetry to it, 18 months for each. Since the trough, corporate profits have increased by nearly 40%, or $465 billion, accounting for 92% of the growth in national income. The casualty of the rebound was the American worker who saw the elimination of over 7 million jobs. The economy shed 8.750 million jobs according to the Bureau of Labor Statistics (Monthly Labor Review, April 2011). The economy has since recovered 1.3 million jobs, far below the bare minimum rate needed to absorb new workers entering the work force, leaving a 7.45 million job deficit. At the Economic Policy Institute one researcher places the net job deficit at 11 million when one adds on the influx of unemployed new workers to the workforce. Economists estimate that the economy is performing at 10% below of its capacity.

A staggering 45% of the unemployed have been unemployed for over half a year as of May, 2011. Heather Boushey reporting at the Center for American Progress, June 2011, states, "The share of workers who are long-term unemployed — that is, out of work and searching for a job for at least six months — ticked back above 45 percent in May. This share has hovered above 40 percent for 18 months. Those are highs not seen since the Bureau of Labor Statistics began tracking these data in 1948."

Since the recession's trough the aggregate wages and salaries of workers have actually gone downward even further, so the “recovery” has yet to affect wages in the least. The median wage earner has earnings 0.6% below the June 2009 level.
Is the word “recovery” truly apropos in this condition? Recovery for whom? For people who create the economy, or for the economy as a concept? Was there prosperity for most before the Great Recession? The GDP per capita, the amount of economic production per citizen, is over $47,000 a year, therefore would not poverty and income inadequacy be difficult to explain?

Arguably, the largest casualty of the Great Recession was the wealth of the bottom 80% of households. U.C. Berkeley professor Sylvia Allegretto reports, “Average wealth of the bottom 80% was just $62,900 in 2009 --- a dropoff of $40,900 from 2007 and slightly less, in inflation-adjusted terms, than it was more than a quarter-century ago in 1983.” This 39% drop in wealth, from $103,800 to $62,900, resulted from the 32% decline in housing prices; the median family holds 95% of its wealth in home equity. Homeowner equity or “home equity as a percent of home value fell from 59.5% in the first quarter of 2006 to 36.2% in the fourth quarter of 2009. For the first time on record, the percent of home value that homeowners own outright dropped below 50% --- meaning that banks now own more of the nation’s housing stock than people do.” As most people know, the banks are doing much better, they have recovered. Housing prices have not recovered, in fact after a year of stability they have recently been falling. The foreclosure epidemic continues apace, as well --- no recovery there.

Allegretto reports that in 2009, “nearly one in four households had zero or negative net worth, while 37.1% had net worth of less than $12,000. In other words, more than a third of U.S. households have wealth holdings that are so low they are extremely vulnerable to financial distress and insecurity.” My own “other words” are: three out of eight Americans are hanging by a thread in the wealthiest nation on earth where the per capita economic production is over $47,000 a year.
This is the greatest or one of the greatest problems our nation faces.

Corporate profits on the other hand have increased since June 2009 by almost 40%. The Center for Labor Market Studies, May 2011, reports, “Annualized corporate profits in constant 2010 dollars rose very strongly . . . Over the first seven quarters of recovery, this would represent a gain of $465 billion in corporate profits or just under 40%.” From a profit level of $1.203 trillion in the second quarter of 2009 to $1.668 trillion in the first quarter of 2011, profits increased by just under 40%. The S & P 500 Stock Index rose by 44% in this same 21 month period.

The May 2011 report adds that in the 21 months of recovery from the recession’s trough, “corporate profits accounted for 92% of the growth in real national income while aggregate wages and salaries declined by $22 billion and contributed nothing to growth.” “To date,” the report concludes, “through the first quarter of 2011, the nation’s recovery from the 2007-2009 recession is both a jobless and a wageless recovery. Aggregate employment still has not increased above the trough quarter of 2009, and real hourly and weekly wages have been flat to modestly negative. The only major beneficiaries of the recovery have been corporate profits and the stock market and its shareholders.” Allegretto’s wealth report shows that 80% of stock market wealth is owned by 10% of U.S. households.

If the economy had the same labor participation rate as 2007 the unemployment rate would rise from 9.1% to 11.5%. And if the participation rate were equal to 2000, the present U3 unemployment rate would be 13%. An amazing 29.0% of Americans workers --- 45 million adults in all --- fall into the unfortunate categories of either being out of work (11.5%), involuntarily without enough work (5.5%), discouraged from looking for work (1.4%), or working year-round and full-time for less than poverty level wages (10.6%). The purchasing power, which drives the economy, is severely limited by low wages, under-utilization of labor, and very sluggish private-sector job creation. Recovery does not apply to the labor market.

The National Jobs for All Coalition reports, "In April, 2011, the latest month available, the number of job openings was 3.0 million." Thus with an 18.4% unemployment rate, as I have calculated it, or 28 million full-time job seekers, there are more than 9 workers seeking every one job opening. Using only the usual U3 unemployment rate, 9.1% in May 2011, the Economic Policy Institute reports that the ratio has exceeded more than four workers for every job opening for the entire past 28 months. New job hiring has not recovered.

There were more private sector jobs in December of 1999, eleven and a half years ago, than today (110 million versus 107 million); and the economy is barely adding on jobs at the rate of growth of the labor force, according to researchers at Rutgers University. (See September 2009 and July 2010 reports) Not since the 1930s has the nation had a decade of net job loss.

The nation is in a strange policy vacuum. Most people recognize that employment is the central problem, yet the major political parties limit their discussion to the size of cuts in government services and expenditures, indicating they are at a total loss to discuss job creation proposals. The Bush tax cuts of the 2000s cost the government $2.5 trillion over ten years in lost revenue, and the Republican Party insists on extending these cuts for the wealthiest minority whose fortunes have recovered, and who arguably needed recovery less than the poorer majority who lost a greater portion of their savings. The low tax policy after ten years has proved to be a total wash-out; job creation in the 2000s matched the housing bubble.

Running in contrast to this paralysis, on April 14, 2011, 40% of the Democrats in the House voted for a public job creation proposal costing $145 billion a year. This was the “People’s Budget” from the Congressional Progressive Caucus. Other Congress members have proposed direct public job creation: Representative Conyers is sponsoring again the Humphrey-Hawkins full-employment bill; Representative Jan Schakowsky has presented a budget that would devote $200 billion to public jobs. Demos in January 2011 published professor Philip Harvey's plan "Back to Work" that for less than $200 billion a year would create a net of over 8 million jobs; and the Economic Policy Institute, the Chicago Economic Political Group, the National jobs for All Coalition, Jobs for Justice, and many others are putting forward proposals for public job creation.

At the New Deal 2.0 web site, Marshall Auerback wrote (8.30.09) that between 1933 and 1937 Roosevelt’s job creation program reduced the unemployment rate from 25% to 9.6%, indicating the power of the federal government to ameliorate the economic doldrums when the private-sector refuses to hire.

Political power is as unevenly distributed as income and wealth: the top ten percent of households earns nearly 50% of the pre-tax yearly income and owns over 70% of all wealth. The disparity in political power is just insurmountable, and the poor remain powerless and unemployed -- wageless and jobless. The nation seems locked into a depression with lower wages and record rates of long-term unemployment. Simultaneously, the Recovery continues with high corporate profits. Housing prices are again falling, and one wonders how long corporate profits can stay high with a diminishing purchasing base.

But not to worry. The wealthiest 1% has an average wealth holdings 225 times the median household, which ratio has increased from 125 times in 1962, and 131 times in 1983. If you converted the wealth holdings of the nation’s households into piles of $100 bills, you would have a wide circle with half the piles less than one inch high, and an inner circle of piles representing 40% of the households each pile reaching 14 inches, a still inner circle (9%) with piles reaching six feet high, a center of the circle representing 1% rising to over 50 feet high, and in the very center a few piles reaching over 20 miles high. This is our America today.

Comment section:
“Apres moi le deluge” was said by a) Louis XV, or b) George II --- ?

My friend read this essay and replied:
I don't think it's a policy vacuum. I think the analysis works better if you assume that the government is totally controlled by multi-nationals who's purpose is to rob all world-wide populations of any wealth. Eisenhower warned us 60+ years ago. Then don't worry. I could send you more articles that I notice, but not really any point in it. Your own numbers say only 40% of democrats voted for public jobs. That is not contrast - it's a sign of who controls democrats.