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Wednesday, April 24, 2013

An Uphill Battle to Full Employment 

A letter to my Congressman, 
To Congressman Tom McClintock
From Ben Leet
April 20, 2013

Rebuttal to McClintock on the National Debt Issue

Mr. Congressman, why would 92% of U.S. adults prefer to live in Sweden? A 2011 survey about wealth distribution revealed that among the 5,522 Americans asked which distribution of wealth pattern they would personally prefer to live in, that of Sweden or that of the U.S., 92% chose Sweden. The Atlantic Monthly published in August, 2012, the results of Norton and Ariely’s study originally titled “Building a Better America -- One Wealth Quintile at a Time”. Instead of having 84% of all household wealth held by just 20% of households, Americans (93.5% of Democrats and 90.2% of Republicans) prefer to live where the top 20% own only 36% of all wealth. You can read the article in the Atlantic Monthly. (See the six minute video here.)The point I bring to your attention is central to our economic malaise and its solution. You and I are at loggerheads, at the two extremes of political approaches, but I think it’s in your interest to give my suggestions a good perusal and see if they provoke a re-examination of your views.  The Congressional Progressive Caucus calls for a robust fiscal stimulus in their "Back to Work" 2014 budget, as they declare in a summation by Andrew Fieldhouse and Rebecca Thiess (page 2): "Financing job creation and public investments. The budget finances roughly $700 billion in job creation and public investment measures in 2013 alone and $2.1 trillion over 2013–2015.3 This fiscal expansion is consistent with Economic Policy Institute estimates of the fiscal support needed to rapidly restore the economy to full health (Bivens, Fieldhouse, and Shierholz 2013)."

Yours,  Ben Leet 

You quoted a retired military officer who stated in 2009 that the national debt was and is the "nation's biggest national security threat." This is the core of your speech and argument, which I thoroughly disagree with. The nation's debt is a reflection of an economy that has tanked, shrunk in terms of the portion of working adults it employs. Only if we repair the economy will we repair national government finances.

       -----  The Ratio of Employed to Total Population
There are several points to look at. The employment to population ratio shows how many employees private enterprise needs to function, and in 2000 this ratio  reached a historical high at 64.7% of the working age population. By the end of the Great Recession, June 2009, it had dropped to 58.4% where it remains today in March 2013 (58.5% to be exact), a drop of  6.2%, equal to over 15 million workers who would be employed in year 2013 if we had the same ratio as 2000. This has been the killer effect of the GR on the economy. Today 143 million workers have jobs and work on a daily basis, according to the BLS, but if we had the employment to population ratio of year 2000 we would have over 158 million at daily work. That is, 11% of all workers are sitting idle (and more like 19% if you count involuntarily working part-time but want full-time and those who have dropped from participation, and 30% if you count those working full-time year-round at poverty level annual incomes, and only 56% of workers -- 87 million out of 155 million workers -- have full-time year-round employment paying more than poverty level wages), and your policies focusing on the national debt are misplaced and will never correct this central defect. This is where Admiral Mullins and you have it wrong about security threats. Lowering incomes today, declining living standards and opportunities, and idle workers are a greater threat by far than a hypothetically high national debt in the year 2022. 

      ------  Government Job Creation 
I can say hypothetically high national debt because it is that, pure myth and projection. With proper investment through fiscal expansion, which is a phrase that could possibly draw tremors and shivers to debt scolds as yourself, the nation's economy could be humming along by 2022. We can expand employment through proper investment in government jobs and industrial and infrastructure  policy and re-capture a vibrant economy. Instead of worrying about robbing our grandchildren's resources today, we should worry about handing them a crippled economy tomorrow. 

     -----  Private Employment Drops 
A key understanding to the employment problem is to understand private sector employment which employs about 80% of all workers (113 million out of 143 million total). Between January 2000 and November 2011, a period of 11 years and 10 months, there were no additional new jobs in private employment despite the fact that 30 million additional citizens entered the population called the "working age population". No new jobs, zero, but perhaps 20 million of the additional 30 million would normally be looking for work. Private sector employment increaed by 0% while the working population increased by 15%. This is the magnitude of our economic crisis which your analysis ignores. (My blog has a lengthy essay about this crisis,, February 2013.) 

     ----  Inequality Rises Over 33 Year Period 
Another central point, besides the employment to population ratio and the annihilation of private sector job growth, is the amount of the national income going to the majority of workers. Since 1979 the lower-earning 80% of households have lost 10% of their share of annual national personal income, a drop from 57% to 47%. The highest quintile (20% of households) has seen its share grow from 43% to 53%, and the highest 1% took 90% of this 10% gain. This is post-taxes and post-government-transfers. 

Here is a quote from the CBO report, Trends in the Distribution of Household Income Between 1979 and 2007, page xiii: 
"As a result of those changes, the share of household income after transfers and federal taxes going to the highest income quintile grew from 43 percent in 1979 to 53 percent in 2007 (see Summary Figure 3). The share of after-tax household income for the 1 percent of the population with the highest income more than doubled,climbing from nearly 8 percent in 1979 to 17 percent in 2007. 

The population in the lowest income quintile received about 7 percent of after-tax income in 1979; by 2007, their share of after-tax income had fallen to about 5 percent. The middle three income quintiles all saw their shares of after-tax income decline by 2 to 3 percentage points between 1979 and 2007."

     -----  Wealth Disappears in the Great Recession 
After the GR the household savings of the lower-saving 80% also took a major fall. The median-saving family or household saw their life savings shrink by 39%, collapsing from $126,400 to $77,300 according to the Federal Reserve’s study Survey of Consumer Finances. Professor Edward Wolff analyzed this wealth destruction a little differently. He places the median household collapse at 47% of life savings, decreasing from $107,800 to $57,000, a level not seen since 1969, meaning they lost over 40 years of savings. And the lower-saving 50% of households today own just 1.1% of all savings, which naturally means that 98.9% of all household wealth is owned by the other half. The average savings in the lower half is $11,000 per family, the average for the higher half is about $1 million. The average for all families is $498,000, and only 11% of all families reach that threshold. The wealthiest 400 American households have more savings that the lower-saving half, more than 57 million households and 159 million Americans. 

The economy will not recover its vibrancy until income and wealth are more equitably distributed, and that is the greatest threat to our country's well-being. 

      -----  Wage and Salary Income Drops 
The annual wage and salary income make up now a smaller portion of the nation's annual personal income than ever before, a historical record. Wage and salary income are less than 50% of the nation's income, while other incomes such as capital gains, dividend, interest, and business income make up more than half of the nation's personal income, and generally are taxed at a lower rate than wage income. 

While the highest-earning 1% doubled their large share of the national income, from 8 to 17%, the lower-earning 80% of households, who are generally non-supervisory workers, or employees, have seen their hourly wage incomes held stagnant while their productivity has doubled. Economist Robert Pollin states that the average hourly wage in 1972 was $20.99, and in 2011 is was $19.47, about a 7% drop. In the same 39 year period worker productivity in inflation adjusted dollar terms has doubled. This surplus profit went into the hands of wealthy owners who invested it in a very risky financial market that self-destructed in 2008 when approximately 20% of all private wealth disappeared into thin air.  

An article in the American Prospect states that in 2013's first three months corporate profits of the S&P 500, the largest corporations, rose by 5% while sales rose by 1%. How is that possible, and where did the extra profit come from? The author concludes, "The answer is that profits are increasing because corporations are getting by with fewer workers than they employed before the crash of 2008, and they’re paying those workers less." And this has been the pattern, he states, since year 2000. The U.S. is on the path to becoming Mexico in inequality -- see this May 20, 2013 report at  
OECD income gaps
This growing inequality is our greatest threat, logically it brought about the Great Recession which threw out of work 11% or 15 million workers. The employment to population level between 2009 and 2013 has not increased whatsoever, it is keeping exactly even with new population growth, it has been stalled at a level not seen since 1983. 

About the National Debt
The nation's annual debt payment is much lower today in 2013 than during the Reagan years. Your alarms about its size clearly are misplaced alarms. Today's  annual interest payment on the U.S. national debt is 1.4% of GDP, which compares to 3.25% of GDP in 1992, George H. W. Bush's last year. In today's dollars that translates to $498 billion vs $1.16 trillion. Yearly interest payments have not been this low since 1973. The Reagan era almost doubled the size of the national debt in comparison to the GDP: the publicly owned national debt increased from 25.8% of GDP in 1981 to 49.3% in 1993. 

Clinton lowered the ratio to 32.5% of GDP, and Bush 2 raised it to 54% by 2009. Obama has raised it to 72.6% by the end of 2012. Obama inherited the greatest economy catastrophe in 75 years, that is his excuse for increasing government spending which ameliorated the effect of the economic disaster, according to most economists, brought about by Bush's mismanagement. 
(Source: Office of Management and Budget, Fiscal Year 2014, Historical Tables,, page 143)   See also this article about the annual cost of the U.S. national debt.

You state that one can understand the debt problem best by understanding 3 numbers: 39, 37, and 64. 39 is the sum of inflation increase and population increase. 37 is the percent increase in federal revenue, and 64 is the increase in federal spending, and the years of comparison are 2002 to 2012. You conclude we have a spending problem, obviously. 

This analysis is flawed and not representational of the economic history between 2002 and 2012; it ignores the greatest economic disaster in 75 years. For one thing, the level of tax revenues in 2000, not 2002, was over 20% of GDP; while today revenue has fallen to around 15% of GDP, a drop of 5.1% of GDP equal to about $900 billion dollars. This clearly is a problem of too little revenue, not too much spending. With that additional revenue there would be no talk about deficits and debt. While the revenues have dropped by 5.1% of GDP since 2000, spending has increased by 5.9% of GDP. This spending has been in reaction to the permanent dislocation from work of 11% of all workers (half of whom regained employment but at lower income levels) and the drop in nearly 40% of median household savings, to place the GR in perspective, which your analysis refuses to do. Intellectually misleading and dishonest is my characterization of your analysis.   

This is not to say you are not personally charming, responsible and earnestly trying your best. But you have extraordinary blinders on, and I believe it is due to the wealthy people who finance your election efforts, another topic that deserves  to have great scorn heaped on it. One third of all campaign donations in the 2012 Presidential contest were over $10,000. In 2012 a third of campaign donations came in amounts greater than $10,000, another third were above $200, and last third below $200. See Open Secrets to confirm.  When politicians take campaign money, where does more than half of it come from? Only 0.5%, half of one percent, of adults gave over $200. How does that corrupt the policy positions of normal politicians? What a democracy!  -- the best that money can buy? But the corrupting influence of money in politics is an entirely different, albeit related, topic. 

    ------   Solutions 
Various policy proposals will improve our present economic and federal budget problems. I recommend the following: The Back to Work Budget  put forward by the Congressional Progressive Caucus is the clearest document. Andrew Fieldhouse and Rebecca Thiess’ report “The ‘Back to Work’ Budget, Analysis of the Congressional Progressive Caucus Budget” (published at the Economic Policy Institute), and Robert Pollin’s book Back to Full Employment and his published article “U.S. Government Deficits and Debt amid the Great Recession: What the Evidence Shows” Cambridge Journal of Economics, 36. And to read how between 1933 to 1937 the unemployment rate decreased from 25% to 9.6% I point you to Marshall Auerback’s article “The Real Lesson from the Great Depression -- Fiscal Policy Works!” 

Thank you for reading this letter. I live in Mariposa. If you have any questions you may call or write. I’d be glad to help you re-organize your thinking. Yours, sincerely,  

Ben Leet

Radio/audio interview: Tune in to the Progressive Radio Show with Matt Rothchild who interviews author Gar Alperovitz about his new book What Then Must We Do? It's a positive, intelligence alternative to chronic malaise that is the likeliest American future.
Nor should the reader miss the Robert Pollin presentation on C-Span Book TV introducing his book Back to Full Employment

Who Pays Taxes in America, 2013 ?
Every year Citizens for Tax Justice publishes a unique report on the overall effective tax rates for all households. It reveals that the lower-earning 60% of households (almost 71 million U.S. households) earn less than the top 1% (1.18 million households), and each receive about 21% to 22% of all income. The average effective overall tax rates are 22.6% and 33.0%, respectively, and the difference in average income is a factor of 52. The average income for the top 1% is 52 times greater than the average income for the lower-earning 60%. 
(And for a history lesson, read about year when the top earning CEO in the U.S., the head of General Motors, earned equivalent to $5.6 million and paid 73% in total taxes, receiving an after-tax income of $1.5 million. Last year the CEO of Apple made $378 million, and billionaire investors still received annual income in the billions -- average tax rate? Take a look.)

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