November 12, 2009
Our economy is in serious trouble. Public officials have to make a case for federal job creation. The National Jobs for All Coalition this weekend sponsored in New York City a jobs conference on this proposal. (See jobsconference.org, http://fullemployment.blogspot.com, or njfac.org) You should contact the sponsors and implement their plans. The economy runs on purchasing power, or aggregate demand, and that has been dangerously injured. I am sorry to bedevil you with implied criticism, but there is a wave of criticism coming, I’m afraid.
The private sector market is not going to rescue the economy. In 1939 unemployment still held at 19%, but due to public employment it dropped to below 2% in 1943, ‘44, ‘45. This is the positive legacy of Keynesian economic policy. Aggregate demand and the U.S. economy was restored by massive public jobs, a transfer of wealth to workers, a suppression of consumer goods manufacture, and a moratorium on household debt financing because of the war effort. This cannot be repeated, but emulated. Aggregate demand drives the economy, as Marriner Eccles, the Chairman of the Federal Reserve, explained in his 1952 memoirs, Beckoning Horizons.
Contents of Letter:
This letter will offer you two astonishing facts you need to know, then a thumbnail sketch of miserable facts you should know, then two authors’ proposals for remedying the status quo, and then an apology for being so glum.
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Distressing Economic Facts, November, 2009
Number One:
University of California economics professor Emmanuel Saez reports in “Striking It Richer”, updated August, 2009, that during the period 2001-2007 the top earning 1% of households received 65% of the economic gains that the U.S. economy achieved. The lower 99% received the remaining 35%. Combining the report of Edward Wolff with Emmanuel Saez, the top 1% of households received from 1979 to 2001 50% of the economic growth of the nation. Ask yourself what does this do to purchasing power of the U.S. consumer? It squeezes it to zero.
Number Two:
Rutgers University report, “America’s New Post Recession Employment Arithmetic,” by J. Seneca and J. Hughes. (October, 2009, from the Executive Summary):
**"To put this new millennium experience into perspective, during the final two decades of the twentieth century [1980 - 2000], the nation gained a total of 35.5 million private-sector Jobs. During the current decade, America appears destined to lose more than 1.7 million
private-sector jobs."
**"Erasing this deficit will require substantial and sustained employment growth. Even if the nation could add 2.15 million private-sector jobs per year starting in January 2010, it would need to maintain this pace for more than 7 straight years (7.63 years), or until August 2017, to eliminate the jobs deficit!" [The 2.15 million per year growth would equal the 1992-2000 growth rate.]
The Recession beginning in December, 2007, wiped out all the private sector job growth of the past 7 years. That growth was approximately 1 million private sector jobs per year, which was half the rate of the 1992-2001 period, and less than half the rate 1982-1990. Perhaps 40% of new job creation was driven by the exploding housing market, which is now has a 10 month inventory of unsold houses. The Rutgers report is too optimistic, it will take longer than 7 plus years to get back to 5% unemployment. Ask yourself what does this do to the purchasing power of the U.S. consumer?
Eighty-four percent of U.S. jobs are private sector jobs. We end the decade, January, 2010, with fewer private sector jobs than at the beginning, January, 2000. Ask yourself what does this do to purchasing power in our economy?
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This is a thumbnail sketch of the weakness of the U.S. economy:
Unemployment -- October, 2009 -- १५.7 million, 10.2% of the workforce. (If it follows past recessions it will not be before July, 2011, that private sector employment hits the bottom of the trough, or highest unemployment. That is 20 months after the official end of the recession, according to the Rutgers report. Unfortunately the recession is probably just on pause. The ARRA contributed most of the recent positive GDP gain, not the private sector. See Dean Baker’s report.)
Under-employment -- १५.3 million, 9.2% of the workforce. 12 job-wanters for every official new job opening! (See njfac.org for BLS statistics)
Working full-time for below poverty level income, 25 million, 17.1% of workforce. Total of 36.5% of all workers (56 million workers out of 155 million total workforce) either have no job, not enough job, or not enough pay from job! (njfac.org lays out these figures drawn from the BLS data)
Ask yourself what effect that has on purchasing power।
Foreclosures on home mortgages --- about 5 million already foreclosed, 10% of total, and predicted to approach 20% of all mortgages or ten million homes.
Underwater with mortgages --- currrently 27 to 30%, approaching 50% of mortgages, 26 million homes.
Household debt vs. Disposable Income --- 127%, which is still near record high of 132% in 2007. Average 1990-2000 was between 80% to 90%.
State of largest 19 banks that do 2/3rds of all loans (too big to fail banks) ---
still technically bankrupt, propped up by taxpayer dollars. Still not lending.
State of other 8,300 smaller banks -- 500 are facing bankruptcy according to the FDIC, but perhaps up to 800 will go bankrupt.
The top earning 1% of households earn annually more than the bottom earning 60% of households -- 23.5% vs. 20.3%. (See E. Saez, and Survey of Consumer Finances, Federal Reserve, and State of Working America, 2006/2007, p. 79)
The wealth of the top 1% of households is greater than the bottom 90% of households --- 34% vs. 31%.
The bottom half own only 2.5% of the nation’s net worth, which averages out to less than $25,000 for 58 million households. Not much to fall back on during a recession. The Forbes 400 own more assets than the Non-Forbes 150 million Americans, half the U.S. population, with the lowest net worth.
Children: According to an article in the AMA Archives of Pediatric and Adolescent Medicine, about 50% of U.S. children will live in families that buy their food with food stamps, and among African-American children the rate rises to 90%. This comes from a 32 year study involving 4,800 families. To qualify for food stamps the family has to have virtually no discernible assets. Another study (Hardships in America by H. Boushey, 2001) states that 28.7% of U.S. children under 12 years old live in families that cannot afford four necessities of food, housing, health care or child care.
Any additional hard shock to the economy, from national or foreign sources, could bring on a Depression.
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I have been reading and listening to Professor Jack Rasmus, St. Mary’s College in Moraga, California and contributor to Z Magazine (see KyklosProductions.com).
He offers two short term remedies:
1. Put $1 trillion directly into federal jobs creation.
2। Put $1 trillion into nationalizing the dead banks.
His long term remedies are:
1. Health care: create a single payer system, reduce total expenditure on health care from 17% of GDP to 10% by eliminating the insurance companies.
2. Banking: nationalize the banking functions by creating a utility banking system that would localize its function.
3. Create a national retirement pool, replacing the 401(K) system. Average 401(K) savings now is about $20,000 per accountee.
4। Restore unionization. This would transfer income to the non-managerial portion of the workforce, increasing purchasing power.
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I have also been reading Jeff Madrick, editor of Challenge Magazine, author of The Case for Big Government. He advocates increasing federal expenditures from 21% of GDP to 24% annually (a 14% increase in federal spending). He proposes spending an additional $432 billion annually for ten years minimum
$150 billion -- on pre-school to Kindergarten,
$120 billion -- restoring solvency to Social Security,
$50 billion -- Infrastructure, highways, bridges, ports, airports, energy conservation, renewable energy sources;
$35 billion -- College subsidies;
$25 billion -- K-12 educational services;
$25 billion -- Caregiver support;
$25 billion -- Unemployment expansion/Trade Assistance job retraining;
$2.5 billion -- Election financing.
He does not include changing to a single payer healthcare system because it will pay for itself in reduced expenses.
Again, ask yourself what these proposals will do for purchasing power or aggregate demand.
Ravi Batra, in The New Golden Age, The Coming Revolution against Political Corruption and Economic Chaos also contributes a list of reforms. David Korten in Agenda for a New Economy contributes a list too. I could make one up. Better for you would be to look to the National Jobs for All Coalition, and follow some of Rasmus’ recommendations.
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President Obama should sponsor and attend a large and prominent conference to publicize the need for a new approach. Change the public debate.
I sound a little alarmist with my prose. I tend to think that the imbalances of income and wealth are the last measure of economic health. I discovered by looking at the United Nations Human Development Index, comparisons of Inequality of Household Income and Expenditures, the U.S. ranks 75th among all nations. That’s dismal. Among all nations we are 37th in “Probability at birth to live to age 60.” Functional illiteracy is at 20% also. Even though our GDP/capita rate is above $45,000, we rank 13th in the composite ranking in 2009, and even worse we rank 75th in inequality. Our child poverty is about double other developed nations. I am long on grief, and short on praise. I hope you’ll understand.
Thanks for reading, best of luck to you all, and may you find the courage to do the right thing --- soon.
Ben Leet
San Leandro, California
http://benL8.blogspot.com --- I’ve posted this letter at this blog site.
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