3rd Letter to Congressman Stark

Greetings to Congressman Stark, June 21, 2009

--- from Ben Leet, resident of San Leandro

Re: What if the economy slips into a Depression, have you a plan?

The Recession may not end on January 1, 2010, as many predict. It may get worse. The only author I know of who actually predicted the downturn, Warren Brussee, predicts a worsening of the economy. His book The Second Great Depression, Beginning 2007, Ending 2020, was published in 2005. He has a monthly blog at wordpress.com. which I recommend. Almost all economists failed to see this tidal wave coming, I know of a few: Dean Baker, Jeff Faux, Richard Duncan, Nouriel Roubini, and Robert Schiller, but none of them wrote a detailed book two years prior to the onset. If you know of some other, let me know. Out the tens of thousands of professional economists, Brussee is unique. Naturally I have had his book for several years.

Now, in June, 2009, if the economy continues to shed jobs at half its rate for the last six months, that is at 300,000 jobs a month, we will be above 11% unemployed nationwide by January 2010. The highest unemployment in the 1980s was 9.6%, so we will be in 1930s territory soon for comparison. More women are working than men, and that’s a first. Foreclosures also run at about the same pace, over 300,000 a month.

You can see that we are tracking the Great Depression, see this article, A Tale of Two Depressions at web page: http://www.voxeu.org/index.php?q=node/3421&ref=patrick.net

I suggest that the Progressive Caucus prepare a response that includes (one) a greatly expanded public jobs program; (two) a tax increase on high incomes, either a 2% tax on wealth for only 5 years, or a Eisenhower era income tax rate of 90% on income above $3.2 million; and (three) a Clean Election campaign funding plan. When the bottom 50% of U.S. households own only 2.5% of the national wealth, according to the Federal Reserve report Currents and Undercurrents, 2006, how can real reform compete against all the campaign donations from the wealthy few? (Shame on the Democrats!)

The Democratic Party should recreate their New Deal credentials or pedigree. How bad is the economy today? Consider that 9.4% are unemployed, another 10% are either involuntary part-time workers or are discouraged workers, and 16.2% are working for wages that pay less than the poverty threshold. Add it up, 35.6% --- more than a third of the labor force, over 55 million workers in a workforce of 155 million --- are out of work, working too little, or working for too little. In all, that’s about 1/3 who can’t buy very much stuff, whose low purchasing power is crippling “the economy.” Purchasing power is also called aggregate demand, and it is the driving force of a working economy. (See njfac.org for details on BLS statistics, and see Jeff Madrick’s book Why Economies Grow for an understanding of aggregate demand).

I’ve studied the U.N. Human Development Index and the U.S. ranks down at 75th place among 126 reporting nations in “Inequality of Income and Expenditure” and other inequality measures such as the Gini coefficient. We rank number 15 on the overall composite index, but we are last among developed nations in inequality. This is why I am pessimistic about recovery. “Where will the jobs come from?” ask many economists, without a good answer. Without purchasing power widely distributed there will be no rationale for rehiring workers. It’s not over-production, it’s under-consumption that is dragging down the economy today. I read that one in nine buy their food with food stamps, nationwide, so those are the people who are “under-consuming.” Children in poverty is at 27.3%, up from 17% in just one year; those parents are underconsuming. (data from EPI.org) People don’t have income as before, and they have “blown” their credit. As Marriner Eccles, the Chairman of the Federal Reserve from 1934 to 1948, said, it’s like a poker game, when the losers run out of credit, the game is over. “Game over,” as our Governator likes to say.

My blog is at http://benL8.blogspot.com --- I have cogent and concise essays about economics that argue these points. If you are really interested.

This is my one quote from my latest essay:
For instance, if you were to convert the wealth of Warren Buffett or Bill Gates into $100 dollar bills and make two stacks, the two stacks would rise up 30 miles high, at least they did before the stock market collapse. If you stack the wealth of the wealthiest 1% of households, 1.16 million households, their stacks would reach almost 60 feet high, on average. One percent own 33.4% of all the nation’s wealth. If you stack the average savings of the poorer half of the U.S. households then you would see 58 million stacks that reach one inch high. So imagine a circle of 116,000,000 stacks, half are one inch high and in the middle are those towers going up 30 miles into the stratosphere. This graphically describes a large disparity of savings, and the moral question, “Is this fair?” immediately arises.(1)
One percent own 33.4%, the next 9 percent own 36%, the percentiles 50 to 90 own 28% and the lower 50% of households owns only 2.5% of the net worth or savings of the nation. --- Currents and Undercurrents, Federal Reserve, 2006. This end result of our economic system should be conclusive that something “is rotten in Denmark.”

In 1938 the unemployment held at 19%, and in 1943, ‘44, ‘45, it held below 2%
--- the net result of massive “public jobs.” The effect was the resurgence of widespread purchasing power, aggregate demand, after a transfer of wealth from the rich to the unemployed poor. The lasting effect was several decades of economic vitality instead of a repeat of the 1930s. Our future in 2009 depends on a similar transfer of wealth. You might find that hard to believe. I don’t think it will happen until a certain collective change of heart takes place.

I predict a different reality than recovery. Probably the inertia of ignorance and greed, sorry to say, and political timidity will perpetuate a pitiful economic picture for quite some time. I hate to say. In about 12 months we’ll know, we’ll be able to tell from the unemployment figures.

This is what the Progressive Caucus and Pete Stark might do:
I read Dollars and Sense Magazine, and many contributors are professors at University of Massachusetts, Amherst. I think if you were to request from them a plan, they would create one. The Economic Policy Institute also has a list of public jobs that the nation needs to accomplish. Then the Progressive Caucus could show the world a well thought-out, detailed and persuasive alternative. You might then have the pleasure of an “I-told-you-so” moment.

Here are some details I carry around in my head: 7 million jobs have been lost since January, 2008, durable goods orders in the U.S. are down 35% from one year ago, housing prices have fallen 31% and have another 12% more to fall, children’s poverty rate jumped from 17% to 27.3%; international stocks dropped in value 46% in 12 month period, international trade is off by about 17% and industrial output down 12%, tracking the Great Depression. Economists do not agree about “green shoots” in the economy.

I applaud all your efforts, especially the health care reforms. But I think that we, the public, need to hear a realistic alternative to the bland and even obnoxious proposals that centrist Democrats put forth. For instance, there was no excuse for pouring $700 billion into bankrupt banks, and guaranteeing $12 trillion in their absolutely miscalculated loans. There were far cheaper alternatives that Americans by and large, conservative and liberal, did endorse. If you listen to Air America, you can hear people complain, as today I heard, after 55 years of registering Democrat one lady is switching to “Independent.” With over 70% of the population asking for a “single payer” health system, and the Dems are refusing to talk about it --- what do you expect? It’s like the late ‘60s when people just won’t take it any longer. That’s positive.

Finally, I am a believer in God. When I hear you derided for your agnosticism I am amused. You might tell the critics, “By their fruits ye shall know them.”
Keep up your good works.

Yours, Ben Leet