Why We Need Full Employment
Capitalism is in a code-blue emergency in 2009 because the essential balance between consumers and producers has been broken. Consumers lack the purchasing power -- income and savings -- to purchase what they produce. As in the Great Depression of the 1930s, as described by the Chairman of the Federal Reserve during that time, a “giant suction pump” has sucked the profit out of the system. “But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants.” (1)
Now, once again, we need to stimulate the economy at the the lowest level of the workforce, the less affluent. Our economy provides the lower 50% of U.S. households
with 15% of the annual national income, and
2.5% of the national wealth. (2)
This should indicate to any sensible human a gross imbalance of resources and amenities। It should grate against our humanity. Inequality was not this great in 1929.
Hourly wages have risen by 14% in 30 years, while the economy, the per capita Gross Domestic Product, has expanded by 77.5%, and worker productivity has increased by 62%. (3) Family income with only one bread winner has risen 0.4% in 25 years. Eighty percent of the U.S. households receive just 40% of the national income. (4) The book Hardships in America states that 28.9% of families with children younger than 12 cannot afford four essentials: food, medical care, housing, and childcare. Eighty percent of these families work. (5) The U.S. has double the child poverty rate among developed nations. (6) Thirty percent of our workforce, 40.6 million adult workers, are either working for poverty-level wages, working part-time, or are unemployed. (7)
All these statistics are shocking and shameful.
Government must provide jobs to less affluent Americans in projects that will directly improve their lives, and enrich the entire nation. Unlike 1983 when Reagan stimulated the economy with a 2% of GDP public jobs program, mostly directed at military spending, we should enlarge our vision to provide Full Employment as envisioned by Franklin Roosevelt. (8) This will rescue our economy. The less affluent will spend their new income; they will not transfer their government bailout into exorbitant executive pay, golden parachutes, inflated stock markets that resemble gambling casinos, tax havens abroad, or into foreign investment opportunities.
We spend $1.1 trillion annually in defense, more than half the discretionary federal budget. (9) Our military spending is twice what the combined world spends: U.S. -- $1.1 trillion, world -- $500 billion. Therefore we must not enlarge the defense budget.
A good place to begin a sensible search for spending ideas is at sharedprosperity.org and National Jobs for All Coalition (njfac.org) (10) The nation has a new lease on life and hope, let’s not squander it on what we really do not need.
Let’s create Full Employment.
Yours, Ben Leet, San Leandro, CA, http://benL8.blogspot.com
1. Marriner Eccles, Beckoning Horizons, posted on wikipedia/Great Depression and posted on Robert Reich blogspot, July 26, 2008.
2. State of Working America, 2006/2007, Mishel, Bernstein, Allegretto, page 79, (an Economic Policy Institute Book, Ithaca, N.Y., Cornell University Press, 2007) about income from an Urban/Brookings Institute study. Currents and Undercurrents, a Federal Reserve report, U.S. Treasury, 2006, Arthur Kennickel, about wealth.
3. SWA, 2006/2007, pages 115, 55; and Comparative Real Gross Domestic Product per capita and per employed person, 1960-2007, Bureau of Labor Statistics, 2008
4. SWA, 2006/2007, pages 79, 55.
5. Bouchey, Heather, Hardships in America (an Economic Policy Institute Book).
80% work--- Making Work Pay Enough, Gregory Acs, Margery Austin Turner, Urban Institute and Brookings institution, Tax Policy Center, July 2008.
6. SWA, page 351, double child poverty rate
7. njfac.org/unemployment, data sourced from BLS, U.S. Department of Labor
8. A 2% of GDP stimulus, Robert Pollin, The Nation magazine, November 4, 2008.
Franklin Roosevelt, State of the Union Speech, 1944, http://teachingamericanhistory.org/library/index.asp?document=463, and cited in
Cass Sunstein’s FDR’s Unfinished Revolution.
9. Chalmers Johnson, Zcommunications.org, Going Bankrupt, January 24, 2008
10. Sharedprosperity.org, and njfac.org/shared prosperity
Monday, December 29, 2008
Friday, December 5, 2008
Case for a Full Employment Policy
The Case for a Full Employment Policy
We are a very wealthy nation, and we can well afford to employ all unemployed and willing workers through public employment. The social benefits would be revolutionary.
This short article traces the historical government remedies to combat high unemployment, and outlines full employment proposals that would completely eliminate joblessness.
On December 1, 2008, the National Bureau of Economic Research announced to the public that the U.S. economy has been in economic recession since a year ago, December, 2007. We face a possible social breakdown similar to 1932. In October of 2008 6.5% of the workers are unemployed (10,100,000 workers), 7.1% are underemployed or discouraged from looking for work (11,700,000 workers), and still another 16.2% are working full-time for wages that pay less than the poverty rate for a family of four (17,600,000 workers). The combined total is 29.8 % of the workforce, or 39,400,000 workers. Many economists expect additional workers to fall into these categories in the coming months.(1) For every job opening listed there are six unemployed, according to the Bureau of Labor Statistics.
The Conflict
When there are more workers than jobs, or fewer jobs than workers, what should society do? Should society let joblessness skyrocket with all the negative social hardships, or provide jobs through public expenditures? Private business owners downsize their operations during economic downturns. The surplus labor force --- the unemployed --- demand the right to earn a living. The practical interests and property rights of affluent business owners conflict with the human rights of workers and non-owners. Owners cannot be forced to hire unneeded workers. Citizens cannot be left to starve. Public adjustments must be made. A social choice has to be managed.
The History
The Great Depression, 1930 to 1941, brought this conflict to the fore. Approximately 17.1% of all workers were unemployed over the 12 year period.
Half the economic capacity of the nation lay idled over 12 years.(2) “Thus, because of the planlessness of the twenties --- because of the lack of courageous action immediately following the collapse --- the nation lost 105,000,000
man-years of production in the thirties,” concludes the testimony to the Full Employment act of 1945. (3) The American Depression was not caused by a lack of resources or skills, it was a breakdown of social organization.
Franklin Roosevelt’s Second Bill of Rights, 1944
Franklin Roosevelt foresaw this problem in a speech delivered in 1932, and later his State of the Union Speech of 1944 addressed the dilemma.
“We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. ‘Necessitous men are not free men.’ People who are hungry and out of a job are the stuff of which dictatorships are made.
In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race, or creed.
Among these are:
The right to a useful and remunerative job in the industries or shops or farms or
mines of the Nation;
The right to earn enough to provide adequate food and clothing and recreation;
The right of every farmer to raise and sell his products at a return which will give
him and his family a decent living;
The right of every businessman, large and small, to trade in an atmosphere of
freedom from unfair competition and domination by monopolies at home or
abroad;
The right of every family to a decent home;
The right to adequate medical care and the opportunity to achieve and enjoy good
health;
The right to adequate protection from the economic fears of old age, sickness,
accident, and unemployment;
The right to a good education.
All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.” (4)
United Nations Charter, 1945
The United Nations Charter, drafted in 1945 after a severe worldwide depression in the 30s and a worldwide war in the 40s, dealt with the right to work vs. the need of private ownership to layoff workers. Article 23 stated that,
“1. Everyone has the right to work, to free choice of employment, to just and favorable conditions of work and to protection against unemployment. . . .
3. Everyone who works has the right to just and favorable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.” (5)
In effect, when economic conditions demand it, nations must care for citizens just as families care for children. Abandonment, neglect, negligence is not part of the civilizing standard of the U.N. member states.
The Full Employment Bill of 1946
While debating this bill, Congress backed away from a mandate of full employment and substituted “maximum employment.” All of the quantitative markers from the final incarnation of the law were removed. The act instructs the executive branch to "promote maximum employment, production, and purchasing power." (6) Reassuring his Republican colleagues, Senator Robert Taft (R-Ohio) stated, “I do not think any Republican need fear voting for the bill because of any apprehension that there is a victory in the passage of the full employment bill, because there is no full employment bill anymore.” (7)
CETA --- Comprehensive Employment and Training Act, 1973 - 1983
CETA was a federal program administered locally. It was the first jobs creation program since the 1930s. “At its height, CETA had more than 700,000 people in public sector jobs and provided training and assistance to 1.3 million disadvantaged. . . . Almost by accident CETA was becoming a broad program serving both the poor and nonpoor. It could have been a model for what the War on Poverty should have been --- a permanent job-and-training program serving all Americans. But scandals and opposition to the idea of serving the nonpoor led to such severe restrictions that, by 1980, more than 90% of new enrollees were poor. However humane this seemed, it eroded support and opened the door to the elimination of CETA in the first years of the Reagan administration.” (8)
Humphrey-Hawkins Full Employment Act, 1978
In 1978 the Congress passed the Full Employment and Balanced Growth Act. The binding commitment of a job to all job seekers was deleted from the original proposal of 1976, just as in 1948. As such it stands as a lifeless statue to an unrealized goal. (9)
In 2009 Two Stimulus Plans to Restore Economic Growth
Many economists have addressed the need for a federal jobs creation plan. But their advocacy does not go so far as to promote full employment, just restoration of positive growth.
For instance, economist William Grieder proposes a five point plan in The Nation magazine, October 20, 2008. Point three suggests that we
“Get serious about economic stimulus. We need a recovery program five or six times larger than the pitiful $60 billion proposal by Democratic leaders. These billions should go for the familiar list of neglected priorities --- fixing bridges and schools --- but should also jump-start the green agenda for alternative fuels and restoration of ruined ecosystems. The government should subsidize the new industries of our age, just as New Deal spending financed the modern development of aircraft, petrochemicals, steelmaking and other key industries in the 1930s.”
Economist Robert Pollin, in The Nation, November 24, 2008, states,
“This is no time to be timid. The stimulus program last April totaled $150 billion, including $100 billion in household rebates and the rest in business tax breaks. This initiative did encourage some job growth, though as we have seen, the impact would have been larger had the same money been channeled toward a green public-investment stimulus. But any job benefits were negated by the countervailing forces of the collapsed housing bubble, the financial crisis and the spike in oil prices. The resulting recession is now before us. This argues for a significantly larger stimulus than the one enacted in April. But how much larger?” (For the elaboration of his proposal, see the end of this essay.) (10)
Full Employment Plans
The proposals for full employment seek to provide every last potential worker with work. The aforementioned expensive government jobs programs will not eliminate unemployment. Two scholars, Philip Harvey and L. Randall Wray, have elaborated detailed plans for a full employment project.
In his chapbook “Human Rights and Economic Policy Discourse: Taking Economic and Social Rights Seriously” Harvey presents five rationales for a full employment program:
One, “it attacks poverty and other social problems not only by reducing joblessness, but also by increasing the provision of public goods and services.”
Two, “direct job creation programs actually increase national wealth.”
Three, “a large-scale direct job creation program could serve as a powerful automatic stabilizer, flattening the business cycle.”
Four, it is likely to increase “the effectiveness of structuralist and behavioralist policies for combating joblessness.” (The structuralist approach is increased education, training and relief measures, the behavioralist approach is the cultural, moralistic disapproval of free-loaders sponging off public charity.)
Five, the “funds allocated to support the [jobs creation] program otherwise would have been used to pay income transfer [unemployment insurance] benefits to the persons targeted by the program. . . In fact, there is good reason to believe that even a very generous job creation program could be funded from this and other sources, and would not displace any job sustaining expenditures.”
In an argument reminiscent of Roosevelt’s 1944 Inauguration speech, Harvey further emphasizes that the “conflict between majoritarian public preferences for policies that use unemployment to combat inflation and government obligations to strive to secure the right to work constitutes a real-world example of a widely recognized theoretical problem in social choice theory. That problem arises from the possibility that utility-maximization and human rights protection may conflict with one another as public policy goals.” Harvey concludes, “Applying these principles to assess the relative deference owed to right to work claims compared to public preferences for inflation control and other utilitarian policy goals, I conclude that the right to work is entitled to far more deference than it normally receives.” “I argue that unemployed workers constitute just such a minority in need of special protection, particularly in periods of relative prosperity when their interests are likely to conflict with the policy preferences of a majority of the population.” (11)
Government Sponsored Jobs
A national public full employment program is proposed by Professor L. Randall Wray in his book Understanding Modern Money. He calls for the federal government to be the “Employer of Last Resort” and the jobs it creates would pay workers a “Basic Public Service Wage.” The following are job positions that could be created:
1. Companions to the elderly, orphans, physically disabled and mental health patients. Each companion would attend classes or seminars in caregiving, and perhaps also attend group discussions with other ELR companions. This position would serve as a preparation for private sector jobs.
2. Public school classroom assistants who tutor in reading, writing and math. Field trip aides for classes on out-of-school excursions. After-school assistants in academic support and/or art and recreation programs.
3. Child care assistants, and Head Start and preschool assistants.
4. Safety monitors and facilitators assigned to public schools, playgrounds, transit hubs, downtown areas.
5. Neighborhood clean-up crews for abandoned properties, and highway clean-up crews.
6. Auxiliary assistants in low-income housing restoration projects such as home insulation projects.
7. Public library assistants.
8. Environmental safety monitors testing for lead paint contamination, water quality, beach contamination. Aides for restoration of ‘super fund’ clean-up sites and other environmental clean-up projects.
9. National and state park improvement teams.
10. Artists, musicians and performers in community beautification projects, and performing in schools.
11. Community and cultural historians.
12. Public assistants collecting information and monitoring compliance with government regulations.
13. Prison education assistants, and liaisons to juvenile detention facilities.
This list is drawn mostly from L. Randall Wray’s book Understanding Modern Money. Wray concludes that,
“The federal government would simply provide as much funding as necessary to let every state and local government hire as many new employees as they desired, with only two constraints: these jobs could not replace current employment, and the could only pay BPSW[basic public service wages] (or at least the federal government could reimburse wages at BPSW rate). Finally a similar offer could be made to qualifying non-governmental non-profit organizations, such as AmeriCorps, VISTA, the Student Community Service Program, the National Senior Service Corps, the Peace Corps, the National Health Service Corps, school districts, and Meals on Wheels.” (12)
Conclusion
Strong popular support exists for a traditional jobs program. In the fall of 2008 Yes! Magazine published a poll indicating that 67% of Americans favor public works projects to create jobs. (13) While the promulgation of a full, universal employment program may have to wait for a swelling of popular support, the groundwork has been done over the years with full employment Congressional legislation, and through scholarly examination. As Harvey points out, such a program would increase national wealth while combating the sources of poverty and increasing social services to the non-affluent.
__________________________________________________________________
Footnotes
1. See njfac.org/unemployment, taken from
Source: http://www.bls.gov/news.release/pdf/empsit.pdf
2. The American People in the Great Depression, David M. Kennedy, Oxford University Press, 1999, page 166
3. 105,000,000 man-years lost, quote from Full Employment Act of 1945, Hearings, page 1104, as cited in The Employment Act of 1946: Some History Notes, G.J. Santoni, U.S. Federal Reserve report., November, 1986
4. Franklin Roosevelt, http://www.teachingamericanhistory.org/library/index.asp?document
=463; and cited in FDR’s Unfinished Revolution, Cass Sunstein
5. United Nations Charter, cited in “Human Rights and Economic Policy Discourse; Taking Economic and Social Rights Seriously), Columbia Human Rights Law Review, Volume 33, Number 2, Spring 2002, Philip Harvey, page 376
6. Full Employment Bill of 1946
7. Senator Robert Taft, cited in Harvey, ibid, page 374
8. Stricker, Frank, Why America Lost the War on Poverty --- And How to Win It,
University of North Carolina Press, 2007, page 134, 135
9. Ibid, Stricker, page 135, Humphrey-Hawkins Bill of 1978
10. William Grieder, The Nation magazine, October 4, 2008 and Robert Pollin, The Nation, November 24, 2008
11. Philip Harvey, ibid, pages 466 to 471.
12. L. Randall Wray, Understanding Modern Money, Edward Elgar Publishing Limited, 1999, page 141
13. Poll, Fortune Magazine poll conducted by Abt SRBI. Jan. 14-16, 2008. N=1,000 adults nationwide. MoE ± 3. ---- www.pollingreport.com/budget.htm.
_________________________________________________________________
Robert Pollin’s jobs program (continuation)
Pollin in his article, The Nation, November 24, 2008, elaborates his proposal, and brings a historical perspective to today’s proposals. This continues the quoted section:
“One way to approach the question is to consider the last time the economy faced a recession of similar severity, which was in 1980-82, during Ronald Reagan’s first term as president. In 1982 gross domestic product contracted by 1.9 percent, the most severe one-year drop in GDP since World War II. Unemployment rose to 9.7 percent that year, which was, again, the highest figure since the ‘30s.
The Reagan administration responded with a massive stimulus program, even though its alleged free-market devotees never acknowledged as much. They preferred calling their program of military expansion and tax cuts for the rich “supply-side economics.” Whatever the label, this combination generated an increase in the federal deficit of about two percentage points relative to the size of the economy at that time. In 1983 GDP rose sharply by 4.5 percent. In 1984 GDP growth accelerated to 7.2 percent, with Reagan declaring the return to “morning in America.” Unemployment fell back to 7.5 percent.
In today’s economy, an economic stimulus equivalent to the 1983 Reagan program would amount to about $300 billion in spending --- roughly double the size of April’s stimulus program, though in line with the high-end figures being proposed in Congress. A stimulus of this size could create nearly 6 million jobs, offsetting the job-shedding forces of the recession.
Of course, the green public-investment stimulus will be much more effective as a jobs program than the Reagan agenda of militarism and upper-income tax cuts. This suggests that an initiative costing somewhat less than $300 billion could be adequate to fight the job losses. But because the long-term benefits to the economy, there is little danger that we would spend too much. Since all these investments are needed,to fight global warming and improve overall productivity, the sooner we move forward, the better. Moreover, under today’s weak job market conditions, we will not run short of qualified workers.”
We are a very wealthy nation, and we can well afford to employ all unemployed and willing workers through public employment. The social benefits would be revolutionary.
This short article traces the historical government remedies to combat high unemployment, and outlines full employment proposals that would completely eliminate joblessness.
On December 1, 2008, the National Bureau of Economic Research announced to the public that the U.S. economy has been in economic recession since a year ago, December, 2007. We face a possible social breakdown similar to 1932. In October of 2008 6.5% of the workers are unemployed (10,100,000 workers), 7.1% are underemployed or discouraged from looking for work (11,700,000 workers), and still another 16.2% are working full-time for wages that pay less than the poverty rate for a family of four (17,600,000 workers). The combined total is 29.8 % of the workforce, or 39,400,000 workers. Many economists expect additional workers to fall into these categories in the coming months.(1) For every job opening listed there are six unemployed, according to the Bureau of Labor Statistics.
The Conflict
When there are more workers than jobs, or fewer jobs than workers, what should society do? Should society let joblessness skyrocket with all the negative social hardships, or provide jobs through public expenditures? Private business owners downsize their operations during economic downturns. The surplus labor force --- the unemployed --- demand the right to earn a living. The practical interests and property rights of affluent business owners conflict with the human rights of workers and non-owners. Owners cannot be forced to hire unneeded workers. Citizens cannot be left to starve. Public adjustments must be made. A social choice has to be managed.
The History
The Great Depression, 1930 to 1941, brought this conflict to the fore. Approximately 17.1% of all workers were unemployed over the 12 year period.
Half the economic capacity of the nation lay idled over 12 years.(2) “Thus, because of the planlessness of the twenties --- because of the lack of courageous action immediately following the collapse --- the nation lost 105,000,000
man-years of production in the thirties,” concludes the testimony to the Full Employment act of 1945. (3) The American Depression was not caused by a lack of resources or skills, it was a breakdown of social organization.
Franklin Roosevelt’s Second Bill of Rights, 1944
Franklin Roosevelt foresaw this problem in a speech delivered in 1932, and later his State of the Union Speech of 1944 addressed the dilemma.
“We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. ‘Necessitous men are not free men.’ People who are hungry and out of a job are the stuff of which dictatorships are made.
In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race, or creed.
Among these are:
The right to a useful and remunerative job in the industries or shops or farms or
mines of the Nation;
The right to earn enough to provide adequate food and clothing and recreation;
The right of every farmer to raise and sell his products at a return which will give
him and his family a decent living;
The right of every businessman, large and small, to trade in an atmosphere of
freedom from unfair competition and domination by monopolies at home or
abroad;
The right of every family to a decent home;
The right to adequate medical care and the opportunity to achieve and enjoy good
health;
The right to adequate protection from the economic fears of old age, sickness,
accident, and unemployment;
The right to a good education.
All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.” (4)
United Nations Charter, 1945
The United Nations Charter, drafted in 1945 after a severe worldwide depression in the 30s and a worldwide war in the 40s, dealt with the right to work vs. the need of private ownership to layoff workers. Article 23 stated that,
“1. Everyone has the right to work, to free choice of employment, to just and favorable conditions of work and to protection against unemployment. . . .
3. Everyone who works has the right to just and favorable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.” (5)
In effect, when economic conditions demand it, nations must care for citizens just as families care for children. Abandonment, neglect, negligence is not part of the civilizing standard of the U.N. member states.
The Full Employment Bill of 1946
While debating this bill, Congress backed away from a mandate of full employment and substituted “maximum employment.” All of the quantitative markers from the final incarnation of the law were removed. The act instructs the executive branch to "promote maximum employment, production, and purchasing power." (6) Reassuring his Republican colleagues, Senator Robert Taft (R-Ohio) stated, “I do not think any Republican need fear voting for the bill because of any apprehension that there is a victory in the passage of the full employment bill, because there is no full employment bill anymore.” (7)
CETA --- Comprehensive Employment and Training Act, 1973 - 1983
CETA was a federal program administered locally. It was the first jobs creation program since the 1930s. “At its height, CETA had more than 700,000 people in public sector jobs and provided training and assistance to 1.3 million disadvantaged. . . . Almost by accident CETA was becoming a broad program serving both the poor and nonpoor. It could have been a model for what the War on Poverty should have been --- a permanent job-and-training program serving all Americans. But scandals and opposition to the idea of serving the nonpoor led to such severe restrictions that, by 1980, more than 90% of new enrollees were poor. However humane this seemed, it eroded support and opened the door to the elimination of CETA in the first years of the Reagan administration.” (8)
Humphrey-Hawkins Full Employment Act, 1978
In 1978 the Congress passed the Full Employment and Balanced Growth Act. The binding commitment of a job to all job seekers was deleted from the original proposal of 1976, just as in 1948. As such it stands as a lifeless statue to an unrealized goal. (9)
In 2009 Two Stimulus Plans to Restore Economic Growth
Many economists have addressed the need for a federal jobs creation plan. But their advocacy does not go so far as to promote full employment, just restoration of positive growth.
For instance, economist William Grieder proposes a five point plan in The Nation magazine, October 20, 2008. Point three suggests that we
“Get serious about economic stimulus. We need a recovery program five or six times larger than the pitiful $60 billion proposal by Democratic leaders. These billions should go for the familiar list of neglected priorities --- fixing bridges and schools --- but should also jump-start the green agenda for alternative fuels and restoration of ruined ecosystems. The government should subsidize the new industries of our age, just as New Deal spending financed the modern development of aircraft, petrochemicals, steelmaking and other key industries in the 1930s.”
Economist Robert Pollin, in The Nation, November 24, 2008, states,
“This is no time to be timid. The stimulus program last April totaled $150 billion, including $100 billion in household rebates and the rest in business tax breaks. This initiative did encourage some job growth, though as we have seen, the impact would have been larger had the same money been channeled toward a green public-investment stimulus. But any job benefits were negated by the countervailing forces of the collapsed housing bubble, the financial crisis and the spike in oil prices. The resulting recession is now before us. This argues for a significantly larger stimulus than the one enacted in April. But how much larger?” (For the elaboration of his proposal, see the end of this essay.) (10)
Full Employment Plans
The proposals for full employment seek to provide every last potential worker with work. The aforementioned expensive government jobs programs will not eliminate unemployment. Two scholars, Philip Harvey and L. Randall Wray, have elaborated detailed plans for a full employment project.
In his chapbook “Human Rights and Economic Policy Discourse: Taking Economic and Social Rights Seriously” Harvey presents five rationales for a full employment program:
One, “it attacks poverty and other social problems not only by reducing joblessness, but also by increasing the provision of public goods and services.”
Two, “direct job creation programs actually increase national wealth.”
Three, “a large-scale direct job creation program could serve as a powerful automatic stabilizer, flattening the business cycle.”
Four, it is likely to increase “the effectiveness of structuralist and behavioralist policies for combating joblessness.” (The structuralist approach is increased education, training and relief measures, the behavioralist approach is the cultural, moralistic disapproval of free-loaders sponging off public charity.)
Five, the “funds allocated to support the [jobs creation] program otherwise would have been used to pay income transfer [unemployment insurance] benefits to the persons targeted by the program. . . In fact, there is good reason to believe that even a very generous job creation program could be funded from this and other sources, and would not displace any job sustaining expenditures.”
In an argument reminiscent of Roosevelt’s 1944 Inauguration speech, Harvey further emphasizes that the “conflict between majoritarian public preferences for policies that use unemployment to combat inflation and government obligations to strive to secure the right to work constitutes a real-world example of a widely recognized theoretical problem in social choice theory. That problem arises from the possibility that utility-maximization and human rights protection may conflict with one another as public policy goals.” Harvey concludes, “Applying these principles to assess the relative deference owed to right to work claims compared to public preferences for inflation control and other utilitarian policy goals, I conclude that the right to work is entitled to far more deference than it normally receives.” “I argue that unemployed workers constitute just such a minority in need of special protection, particularly in periods of relative prosperity when their interests are likely to conflict with the policy preferences of a majority of the population.” (11)
Government Sponsored Jobs
A national public full employment program is proposed by Professor L. Randall Wray in his book Understanding Modern Money. He calls for the federal government to be the “Employer of Last Resort” and the jobs it creates would pay workers a “Basic Public Service Wage.” The following are job positions that could be created:
1. Companions to the elderly, orphans, physically disabled and mental health patients. Each companion would attend classes or seminars in caregiving, and perhaps also attend group discussions with other ELR companions. This position would serve as a preparation for private sector jobs.
2. Public school classroom assistants who tutor in reading, writing and math. Field trip aides for classes on out-of-school excursions. After-school assistants in academic support and/or art and recreation programs.
3. Child care assistants, and Head Start and preschool assistants.
4. Safety monitors and facilitators assigned to public schools, playgrounds, transit hubs, downtown areas.
5. Neighborhood clean-up crews for abandoned properties, and highway clean-up crews.
6. Auxiliary assistants in low-income housing restoration projects such as home insulation projects.
7. Public library assistants.
8. Environmental safety monitors testing for lead paint contamination, water quality, beach contamination. Aides for restoration of ‘super fund’ clean-up sites and other environmental clean-up projects.
9. National and state park improvement teams.
10. Artists, musicians and performers in community beautification projects, and performing in schools.
11. Community and cultural historians.
12. Public assistants collecting information and monitoring compliance with government regulations.
13. Prison education assistants, and liaisons to juvenile detention facilities.
This list is drawn mostly from L. Randall Wray’s book Understanding Modern Money. Wray concludes that,
“The federal government would simply provide as much funding as necessary to let every state and local government hire as many new employees as they desired, with only two constraints: these jobs could not replace current employment, and the could only pay BPSW[basic public service wages] (or at least the federal government could reimburse wages at BPSW rate). Finally a similar offer could be made to qualifying non-governmental non-profit organizations, such as AmeriCorps, VISTA, the Student Community Service Program, the National Senior Service Corps, the Peace Corps, the National Health Service Corps, school districts, and Meals on Wheels.” (12)
Conclusion
Strong popular support exists for a traditional jobs program. In the fall of 2008 Yes! Magazine published a poll indicating that 67% of Americans favor public works projects to create jobs. (13) While the promulgation of a full, universal employment program may have to wait for a swelling of popular support, the groundwork has been done over the years with full employment Congressional legislation, and through scholarly examination. As Harvey points out, such a program would increase national wealth while combating the sources of poverty and increasing social services to the non-affluent.
__________________________________________________________________
Footnotes
1. See njfac.org/unemployment, taken from
Source: http://www.bls.gov/news.release/pdf/empsit.pdf
2. The American People in the Great Depression, David M. Kennedy, Oxford University Press, 1999, page 166
3. 105,000,000 man-years lost, quote from Full Employment Act of 1945, Hearings, page 1104, as cited in The Employment Act of 1946: Some History Notes, G.J. Santoni, U.S. Federal Reserve report., November, 1986
4. Franklin Roosevelt, http://www.teachingamericanhistory.org/library/index.asp?document
=463; and cited in FDR’s Unfinished Revolution, Cass Sunstein
5. United Nations Charter, cited in “Human Rights and Economic Policy Discourse; Taking Economic and Social Rights Seriously), Columbia Human Rights Law Review, Volume 33, Number 2, Spring 2002, Philip Harvey, page 376
6. Full Employment Bill of 1946
7. Senator Robert Taft, cited in Harvey, ibid, page 374
8. Stricker, Frank, Why America Lost the War on Poverty --- And How to Win It,
University of North Carolina Press, 2007, page 134, 135
9. Ibid, Stricker, page 135, Humphrey-Hawkins Bill of 1978
10. William Grieder, The Nation magazine, October 4, 2008 and Robert Pollin, The Nation, November 24, 2008
11. Philip Harvey, ibid, pages 466 to 471.
12. L. Randall Wray, Understanding Modern Money, Edward Elgar Publishing Limited, 1999, page 141
13. Poll, Fortune Magazine poll conducted by Abt SRBI. Jan. 14-16, 2008. N=1,000 adults nationwide. MoE ± 3. ---- www.pollingreport.com/budget.htm.
_________________________________________________________________
Robert Pollin’s jobs program (continuation)
Pollin in his article, The Nation, November 24, 2008, elaborates his proposal, and brings a historical perspective to today’s proposals. This continues the quoted section:
“One way to approach the question is to consider the last time the economy faced a recession of similar severity, which was in 1980-82, during Ronald Reagan’s first term as president. In 1982 gross domestic product contracted by 1.9 percent, the most severe one-year drop in GDP since World War II. Unemployment rose to 9.7 percent that year, which was, again, the highest figure since the ‘30s.
The Reagan administration responded with a massive stimulus program, even though its alleged free-market devotees never acknowledged as much. They preferred calling their program of military expansion and tax cuts for the rich “supply-side economics.” Whatever the label, this combination generated an increase in the federal deficit of about two percentage points relative to the size of the economy at that time. In 1983 GDP rose sharply by 4.5 percent. In 1984 GDP growth accelerated to 7.2 percent, with Reagan declaring the return to “morning in America.” Unemployment fell back to 7.5 percent.
In today’s economy, an economic stimulus equivalent to the 1983 Reagan program would amount to about $300 billion in spending --- roughly double the size of April’s stimulus program, though in line with the high-end figures being proposed in Congress. A stimulus of this size could create nearly 6 million jobs, offsetting the job-shedding forces of the recession.
Of course, the green public-investment stimulus will be much more effective as a jobs program than the Reagan agenda of militarism and upper-income tax cuts. This suggests that an initiative costing somewhat less than $300 billion could be adequate to fight the job losses. But because the long-term benefits to the economy, there is little danger that we would spend too much. Since all these investments are needed,to fight global warming and improve overall productivity, the sooner we move forward, the better. Moreover, under today’s weak job market conditions, we will not run short of qualified workers.”
Friday, October 10, 2008
Full Employment
Full Employment
Leads to a World Without Poverty
Our economy does not provide everyone with work, much less good paying work. Thirty percent are either unemployed (6.1%), working part-time but wanting full-time or discouraged from looking for work (6.4%), or receiving wages that place them at a below-poverty income (16.4%). If you add in the number who are imprisoned, you arrive at nearly one in three working adults either not fully producing or not being rewarded adequately. That is a gross waste. We can do better.
In our economy 28.9% of families with children under 12 cannot afford the necessities of food, housing, medical care, and child care. Millions, some 12.5% of population, fall below the poverty line of $20,000 a year income for a family of four, and others place the percentage at 17.7%. It doesn’t have to be this way. It is not an “act of nature,” or an act of God. It is an act of human design.
Full employment uses the power of government to employ the human resources of the nation regardless of the cyclical ups and downs of private and free enterprise. Full employment offers a route out of poverty and unemployment for anyone willing to apply him or herself. Today a child born to a father who earns $16,000 has a 1 in 20 chance of ever earning more than $55,000 a year. There are millions of children who fall into that category. What do you tell them about the American Dream?
Full employment would tighten up the labor market which would slowly raise the wages of the lowest paid workers. Combined with programs such as the Earned Income Tax Credit, the EITC, wages and incomes at the bottom of the scale would be ramped up without damaging small employers with huge payroll expenses.
A full employment policy would function as a ballast to the economy. It would automatically protect against price inflation. Professor L. Randall Wray makes
this argument in his book Understanding Modern Money.
During the Great Depression the unemployment rate was 17.1% on average for ten years. Economists say that half the productive capacity of the nation was wasted during that time. Private enterprise could not save itself. New Deal programs and finally government spending on the war mobilization fully boosted consumer savings and spending during the 1950s. Today, once agian, we need public spending to get the economy going.
Once again the economy is seriously “out of whack.” Wealth and income are out of balance. The top one percent, or 3 million people, in wealth own more than the bottom 91%, or 273,000,000 people, and the top one percent earns each year more than 60% of the people. The lower half of the nation owns only 2.5% of the national wealth. How can we have a healthy economy with a distribution ratio like that?
Full employment funded by federal government programs provides one method of rebalancing our national top heaviness. It has the promise of eliminating poverty.
Documentation, Full Employment Leads to a World without Poverty
30% are unemployed, part-time employed,etc,
njfac.org/Unemployment rates, drawn from Bureau of Labor Statistics, Dept. of Commerce
28.9% of families with children:
Hardships in America, Heather Bouchey, 2001, EPI, page 2
Child born to father who earns less than $16,000:
State of Working America, 2006/2007, Mishel, Bernstein, Allegretto, EPI, page 95
Understanding Modern Money, L.Randall Wray, The Key to Full Employment and Price Stability, Edward Elgar, publisher, 1998
Poverty percentages:
EPI, epi.org, Snapshot for July 2, 2008.
Official poverty measure undercounts the nation's poor, by Jared Bernstein
http://www.epi.org/content.cfm/webfeatures_snapshots_20080702
Wealth percentages:
U.S. Federal Reserve Bank, Survey of Consumer Finances, Currents and Undercurrents, 2006, Arthur Kennickell
Income percentages:
SWA, 2006,2007, page 79, from a Brookings/Urban Institute report, Microsimulation Model 0305, 2006
Leads to a World Without Poverty
Our economy does not provide everyone with work, much less good paying work. Thirty percent are either unemployed (6.1%), working part-time but wanting full-time or discouraged from looking for work (6.4%), or receiving wages that place them at a below-poverty income (16.4%). If you add in the number who are imprisoned, you arrive at nearly one in three working adults either not fully producing or not being rewarded adequately. That is a gross waste. We can do better.
In our economy 28.9% of families with children under 12 cannot afford the necessities of food, housing, medical care, and child care. Millions, some 12.5% of population, fall below the poverty line of $20,000 a year income for a family of four, and others place the percentage at 17.7%. It doesn’t have to be this way. It is not an “act of nature,” or an act of God. It is an act of human design.
Full employment uses the power of government to employ the human resources of the nation regardless of the cyclical ups and downs of private and free enterprise. Full employment offers a route out of poverty and unemployment for anyone willing to apply him or herself. Today a child born to a father who earns $16,000 has a 1 in 20 chance of ever earning more than $55,000 a year. There are millions of children who fall into that category. What do you tell them about the American Dream?
Full employment would tighten up the labor market which would slowly raise the wages of the lowest paid workers. Combined with programs such as the Earned Income Tax Credit, the EITC, wages and incomes at the bottom of the scale would be ramped up without damaging small employers with huge payroll expenses.
A full employment policy would function as a ballast to the economy. It would automatically protect against price inflation. Professor L. Randall Wray makes
this argument in his book Understanding Modern Money.
During the Great Depression the unemployment rate was 17.1% on average for ten years. Economists say that half the productive capacity of the nation was wasted during that time. Private enterprise could not save itself. New Deal programs and finally government spending on the war mobilization fully boosted consumer savings and spending during the 1950s. Today, once agian, we need public spending to get the economy going.
Once again the economy is seriously “out of whack.” Wealth and income are out of balance. The top one percent, or 3 million people, in wealth own more than the bottom 91%, or 273,000,000 people, and the top one percent earns each year more than 60% of the people. The lower half of the nation owns only 2.5% of the national wealth. How can we have a healthy economy with a distribution ratio like that?
Full employment funded by federal government programs provides one method of rebalancing our national top heaviness. It has the promise of eliminating poverty.
Documentation, Full Employment Leads to a World without Poverty
30% are unemployed, part-time employed,etc,
njfac.org/Unemployment rates, drawn from Bureau of Labor Statistics, Dept. of Commerce
28.9% of families with children:
Hardships in America, Heather Bouchey, 2001, EPI, page 2
Child born to father who earns less than $16,000:
State of Working America, 2006/2007, Mishel, Bernstein, Allegretto, EPI, page 95
Understanding Modern Money, L.Randall Wray, The Key to Full Employment and Price Stability, Edward Elgar, publisher, 1998
Poverty percentages:
EPI, epi.org, Snapshot for July 2, 2008.
Official poverty measure undercounts the nation's poor, by Jared Bernstein
http://www.epi.org/content.cfm/webfeatures_snapshots_20080702
Wealth percentages:
U.S. Federal Reserve Bank, Survey of Consumer Finances, Currents and Undercurrents, 2006, Arthur Kennickell
Income percentages:
SWA, 2006,2007, page 79, from a Brookings/Urban Institute report, Microsimulation Model 0305, 2006
Suggestions for the Meltdown/Bailout
Congressman Stark, Oct.10.2008
Re: Banks, Economic Meltdown
I bet you are busy.
Here are four suggestions that Democrats should bring to the table.
1. Homeowners sacrifice part of future appreciation of home value when they accept reduction in mortgage value. A fair give and take for both sides.
2. Federal government takes a SENIOR claim on failed banks that supersedes bondholder and shareholder claims.
3. Create a central bank with $300 billion, leverage it to $1.8 trillion, take over many insolvent banks. Government operates failed financial institutions until they can be resold to private market. Frank Mankiw’s idea of sharing equity 50 - 50 with private investors in individual banks is not so hot. It’s too slow and piecemeal. Grab them in one fell swoop.
4. Go with Levy Institute and Nouriel Roubini’s plan for public investment in infrastructure.
These are my sources:
1. and 2. John Hussman, Ph.D.
http://www.hussmanfunds.com/wmc/wmc080922.htm
5) To assist homeowners, the bill should allow for a reduction of mortgage principal during foreclosure, but the mortgage lender should also receive a Property Appreciation Right (PAR) that gives the original lender a claim on future property appreciation up to that original mortgage amount. In other words, the homeowner receives a substantially lower mortgage balance and payment burden now, but the lender stands to be made whole over time through property appreciation rather than immediate burdens on the homeowner to make payments.
2) In return for these funds, the government should NOT take equity (which is a subordinate claim and also creates potential conflicts of interest), but instead should take a SENIOR claim that precedes not only the stockholders but also the senior bondholders in the event the company defaults anyway. Congress may need to make some modification to existing bankruptcy law or provide for expedited bondholder approval to do this, but essentially, the government's claim should be subordinate only to customers in the event of default, and senior to both stockholders and bondholders. However, it should also be countable as capital for the purposes of satisfying bank capital requirements.
3. Professor Peter Dorman’s “Plan B” as presented at EconoSpeak.org
http://econospeak.blogspot.com/2008/09/plan-b-how-to-restore-financial-markets.html
4. Nouriel Roubini’s web page -- World Is at Severe Risk
http://www.rgemonitor.com/roubini-monitor/253973/the_world_is_at_severe_risk_of_a_global_systemic_financial_meltdown_and_a_severe_global_depression
Re: Banks, Economic Meltdown
I bet you are busy.
Here are four suggestions that Democrats should bring to the table.
1. Homeowners sacrifice part of future appreciation of home value when they accept reduction in mortgage value. A fair give and take for both sides.
2. Federal government takes a SENIOR claim on failed banks that supersedes bondholder and shareholder claims.
3. Create a central bank with $300 billion, leverage it to $1.8 trillion, take over many insolvent banks. Government operates failed financial institutions until they can be resold to private market. Frank Mankiw’s idea of sharing equity 50 - 50 with private investors in individual banks is not so hot. It’s too slow and piecemeal. Grab them in one fell swoop.
4. Go with Levy Institute and Nouriel Roubini’s plan for public investment in infrastructure.
These are my sources:
1. and 2. John Hussman, Ph.D.
http://www.hussmanfunds.com/wmc/wmc080922.htm
5) To assist homeowners, the bill should allow for a reduction of mortgage principal during foreclosure, but the mortgage lender should also receive a Property Appreciation Right (PAR) that gives the original lender a claim on future property appreciation up to that original mortgage amount. In other words, the homeowner receives a substantially lower mortgage balance and payment burden now, but the lender stands to be made whole over time through property appreciation rather than immediate burdens on the homeowner to make payments.
2) In return for these funds, the government should NOT take equity (which is a subordinate claim and also creates potential conflicts of interest), but instead should take a SENIOR claim that precedes not only the stockholders but also the senior bondholders in the event the company defaults anyway. Congress may need to make some modification to existing bankruptcy law or provide for expedited bondholder approval to do this, but essentially, the government's claim should be subordinate only to customers in the event of default, and senior to both stockholders and bondholders. However, it should also be countable as capital for the purposes of satisfying bank capital requirements.
3. Professor Peter Dorman’s “Plan B” as presented at EconoSpeak.org
http://econospeak.blogspot.com/2008/09/plan-b-how-to-restore-financial-markets.html
4. Nouriel Roubini’s web page -- World Is at Severe Risk
http://www.rgemonitor.com/roubini-monitor/253973/the_world_is_at_severe_risk_of_a_global_systemic_financial_meltdown_and_a_severe_global_depression
Sunday, September 28, 2008
Nationalize or Bailout?
To Buy or to Bail, that is the question.
We do not have to buy "frozen negative assets." For much less taxpayers could
Nationalize the banks, clean up their accounts, and then sell them back to private enterprise. The taxpayers win. Go to Econospeak, find Peter Dorman’s essay “Plan B,” or go to the Financial Times and Martin Wolf’s article “Paulson’s Plan Was Never a True Solution,” Sept. 23, 2008, or go to Paul Krugman’s New York Times article of September 28, or Brad DeLong’s plan, or Nouriel Roubini’s plan at RGEMonitor.com, or John Hussman’s plan at John Hussman Investments. It is complicated. Hussman's article really helped me. There are many who endorse nationalizing the credit system. Peter Dorman's also has a great idea. On September 28, 2008, the Congressional plan does not look right to me.
Sources of information:
Peter Dorman, Plan B
http://econospeak.blogspot.com/2008/09/plan-b-how-to-restore-financial-markets.html
John Hussman, Open Letter to Congress
http://www.hussmanfunds.com/wmc/wmc080922.htm
This American Life, The Giant Pool of Money
http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1242
Swedish Banks Collapse in 1992
OK, Marjie, my sister, I'm in the mood to try to explain the Swedish bank failure of 1992. There was a real estate bubble in Sweden, it popped, and the banks found themselves with so many bad mortgages on their books that the entire bank system failed. Sounds like today. What the Swedes did is what Ralph Nader is now proposing. Nader uses the example of Chrysler Motors. Chrysler came to Congress for a bailout in about 1992. Congress instead took equity control or ownership of Chrysler. For the cash the government got stock and that means control of decisions. The government ran Chrysler for a while, then sold the stock to private money. Eventually the government pocketed a $400 million dollar profit.
In Sweden the government bought the banks, made the banks open their books with the bad loans in them. Government ran the banks, paid off the bad loans, then resold the bank to new investors.
How Investment Banks Work
Our financial investment banks are 3% owned by owners called shareholders or stockholders, that's the equity amount; 17% owned by creditors or bondholders; and 80% owned by depositors, called customers, who have a legal claim to x amount of interest on their deposits. That x amount are the banks liabilities. So is the interest to bondholders. When 3% leverages 100% that's called a 33 times leverage ratio. It's dangerous. If their investments go bad, then they can't pay the 97% their x amount of interest, a demand on profits, and they are forced to declare bankruptcy. Their emergency default plan is to get Secretary Paulson, former head of a Goldman Sachs investment bank and a man who had to place his $500 million savings in a blind trust before he could be appointed as Secretary of Treasury, to go Bush, Congress, the American public, and demand $700,000,000,000.00, no questions asked, no judicial review ever, no oversight. And do it now.
The John Hussman, Ph.D. Plan for Recovery
Here is the analysis of John Hussman, Ph.D. economist and president Hussman Investment Trust.
“It is difficult to believe that the U.S. government is contemplating taking on the bad assets of these institutions at probable taxpayer loss and effectively immunizing the bondholders (and shareholders) of these companies. . . . They are failing because 5% of the assets have gone bad and they over-stretched their capital. At the heart of the problem is “gross leverage” - the ratio of total assets taken on by the company to its shareholder equity. . . . The appropriate solution is not for the government to replace the bad assets with public money, but rather for the government to execute a receivership of the failed institution and immediately conduct a “whole bank” sale - selling the bank’s assets and liabilities as a package, but ex the debt to bondholders, which preserves the ongoing business without loss to customers and counterparties, wipes out shareholder equity, and gives bondholders partial (perhaps even nearly complete) recovery with the proceeds.
The key is to recognize that for nearly all of the institutions currently at risk of failure, there exists a cushion of bondholder capital sufficient to absorb all probable losses, without any need for the public to bear the cost. . . .
The stockholders and bondholders of the company itself should be the first to bear losses, not the public. That is the essence of what a free and fair market, and a responsible government would enforce. The investors in the companies that produced the losses should be accountable for them, and the customers and counterparties should be protected.”
Peter Dorman's Plan B
In Peter Dorman's "Plan B" (See Econospeak.org) he proposes a federal investment of $300 billion to fund a national central bank that would leverage 6 times to $1.8 trillion. (Morgan Stanley bank has a gross leverage ratio of 23.5, and failed banks had higher ratios.) It would buy failed banking and investment institutions, hedge funds, etc, and reconstitute their portfolios of bad loans, and then sell them back to private investors. Simple and direct. I think it superior to Hussman's "whole bank sale" method in that it would bring more transparency to the value of the bad loans. A bailout just perpetuates ineptitude, incompetence and greed.
Big Numbers in Perspective
That $700 billion bailout amount is equal to 5% of the annual national product, GDP (in Sweden they paid 4% to get out of their mess), and equal to about 22% of the annual federal budget. It is also the amount we have paid for five and a half years of war in Iraq. The war is expected to cost $3 trillion. There are $50 trillion in national assets, $14.2 trillion in annual GDP for 2008, $3.3 trillion in annual federal budget, and soon there will be $11.3 trillion in national debt, up from $6 trillion when Bush came into office. Too many numbers, but maybe you get a picture.
How the Mortgage Market Went Biz-zerk
What I think happened is now the most important part. Capitalism is like a game of chicken. You are looking to float a scheme that looks good on the surface, but is flawed. Such is the case with bundled mortgages, called CDOs, collateralized debt obligations. You sell the idea, people invest, you hold your position until you guess that the last fool has invested, then you jump out.
I'm of the opinion that the "negligence" of bank presidents ran this game, fully aware of the shoddiness of their CDOs. Warren Buffett called CDOs "weapons of mass financial destruction." Everyone knew that. They knew.
I heard a program on KALW from This American Life, and they traced the whole process back and forth. The show’s title is called The Great Pool of Money, and it was aired in May, 2008, available on the web for listening. And I listened to it over again.
Mortgage companies were creating and re-selling crappy mortgage loans. They called them Nina loans, meaning, No Income No Assets. One example on the show I can summarize quickly: "Hey buddy, you want a loan for $540,000? Sure. Have you got a job? Sure. Here's the money." That was on the program. They never checked on mortgage applicants incomes.
Then they aggregated the loans into bundles, slicing and dicing them up so that no one knew who owned the mortgage. One small company in upper Manhattan, small buyer of CDOs, had interest in 16 million different mortgages. If there are 70 million home owners, and three quarters have not paid off their mortgages, then there are 53 million outstanding mortgages. This company had a fractional piece of a 30% of U.S. mortgages. This bubble got bigger as mortgage brokers became more brazenly reckless. The bundles were rated by Moodys and Standard and Poors as AAA, the top-most risk free loans. They discovered later that they were analyzing them wrong, but that came later. Of course, the rating agencies were being paid by the investment banks to rate the CDO bundles.
The mess was insured by AIG, who really went out on a limb, but hey, they wanted to make a profit, and what the hell, and now ......taxpayers nationalized that company for $85 billion.
One year prior to costing the taxpayers $85 billion dollars the CEO of the company stated that under no reasonable scenario could his company fail. !! (See Gretchen Morgenson's article in the New York Times, September 28, 2008)
Poison in the Water Bottles
Now, no one wants to buy the mess. And none of the banks will loan to each other. Paul O'Neil, Bush’s first Secretary of Treasury, made the analogy of having 12 bottles of water on the shelf, and you know that one of them has poison in it. What do you do? You throw them all out. That is the source of the credit freeze up that Bush warns against. Banks will not loan to banks because there is poison in the loan portfolios of all the banks. Also the default rate added to the inflation rate is about 11%, and that’s a high interest charge. The real estate market is down. Perhaps 8%, or 5 million, of U.S. mortgage holders and second mortgage holders in a two year period are going to declare bankruptcy, or give up their loan, foreclose, and there is no one to buy the house at its inflated value. Bankruptcies are slated to double in 2008 from last year.
If you are still here, Sweden, bought out the 3% shareholder stake, kept the 17% bondholders happy, and serviced the 80% customers. Paulson does not want the shareholders to take their consequences. Nor does Bush, McCain, Bernanke. And Obama? We’ll see. Nader of course saw it coming some years ago.
On the other hand economists like Paul Krugman, Martin Wolf, Brad DeLong, Peter Dorman at Econospeak who presented a “Plan B” on that web site, Nouriel Roubini at RGEMonitor.com
have endorsed the plan to nationalize the insolvent companies.
Well, this is my imperfect analysis, but I draw it from an article by John P. Hussman, Ph.D. who runs a financial advisory firm. He posted his solution, I downloaded. Now you have it. It is confusing, isn't it. I know if a professional economist looked at it he would shake his head. But not just at my analysis. There are really creative people working on this, and many other problems. I am optimistic. But enough! Send this to someone if you dare.
Ben.
"Love is its own excuse for being." Meher Baba
We do not have to buy "frozen negative assets." For much less taxpayers could
Nationalize the banks, clean up their accounts, and then sell them back to private enterprise. The taxpayers win. Go to Econospeak, find Peter Dorman’s essay “Plan B,” or go to the Financial Times and Martin Wolf’s article “Paulson’s Plan Was Never a True Solution,” Sept. 23, 2008, or go to Paul Krugman’s New York Times article of September 28, or Brad DeLong’s plan, or Nouriel Roubini’s plan at RGEMonitor.com, or John Hussman’s plan at John Hussman Investments. It is complicated. Hussman's article really helped me. There are many who endorse nationalizing the credit system. Peter Dorman's also has a great idea. On September 28, 2008, the Congressional plan does not look right to me.
Sources of information:
Peter Dorman, Plan B
http://econospeak.blogspot.com/2008/09/plan-b-how-to-restore-financial-markets.html
John Hussman, Open Letter to Congress
http://www.hussmanfunds.com/wmc/wmc080922.htm
This American Life, The Giant Pool of Money
http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1242
Swedish Banks Collapse in 1992
OK, Marjie, my sister, I'm in the mood to try to explain the Swedish bank failure of 1992. There was a real estate bubble in Sweden, it popped, and the banks found themselves with so many bad mortgages on their books that the entire bank system failed. Sounds like today. What the Swedes did is what Ralph Nader is now proposing. Nader uses the example of Chrysler Motors. Chrysler came to Congress for a bailout in about 1992. Congress instead took equity control or ownership of Chrysler. For the cash the government got stock and that means control of decisions. The government ran Chrysler for a while, then sold the stock to private money. Eventually the government pocketed a $400 million dollar profit.
In Sweden the government bought the banks, made the banks open their books with the bad loans in them. Government ran the banks, paid off the bad loans, then resold the bank to new investors.
How Investment Banks Work
Our financial investment banks are 3% owned by owners called shareholders or stockholders, that's the equity amount; 17% owned by creditors or bondholders; and 80% owned by depositors, called customers, who have a legal claim to x amount of interest on their deposits. That x amount are the banks liabilities. So is the interest to bondholders. When 3% leverages 100% that's called a 33 times leverage ratio. It's dangerous. If their investments go bad, then they can't pay the 97% their x amount of interest, a demand on profits, and they are forced to declare bankruptcy. Their emergency default plan is to get Secretary Paulson, former head of a Goldman Sachs investment bank and a man who had to place his $500 million savings in a blind trust before he could be appointed as Secretary of Treasury, to go Bush, Congress, the American public, and demand $700,000,000,000.00, no questions asked, no judicial review ever, no oversight. And do it now.
The John Hussman, Ph.D. Plan for Recovery
Here is the analysis of John Hussman, Ph.D. economist and president Hussman Investment Trust.
“It is difficult to believe that the U.S. government is contemplating taking on the bad assets of these institutions at probable taxpayer loss and effectively immunizing the bondholders (and shareholders) of these companies. . . . They are failing because 5% of the assets have gone bad and they over-stretched their capital. At the heart of the problem is “gross leverage” - the ratio of total assets taken on by the company to its shareholder equity. . . . The appropriate solution is not for the government to replace the bad assets with public money, but rather for the government to execute a receivership of the failed institution and immediately conduct a “whole bank” sale - selling the bank’s assets and liabilities as a package, but ex the debt to bondholders, which preserves the ongoing business without loss to customers and counterparties, wipes out shareholder equity, and gives bondholders partial (perhaps even nearly complete) recovery with the proceeds.
The key is to recognize that for nearly all of the institutions currently at risk of failure, there exists a cushion of bondholder capital sufficient to absorb all probable losses, without any need for the public to bear the cost. . . .
The stockholders and bondholders of the company itself should be the first to bear losses, not the public. That is the essence of what a free and fair market, and a responsible government would enforce. The investors in the companies that produced the losses should be accountable for them, and the customers and counterparties should be protected.”
Peter Dorman's Plan B
In Peter Dorman's "Plan B" (See Econospeak.org) he proposes a federal investment of $300 billion to fund a national central bank that would leverage 6 times to $1.8 trillion. (Morgan Stanley bank has a gross leverage ratio of 23.5, and failed banks had higher ratios.) It would buy failed banking and investment institutions, hedge funds, etc, and reconstitute their portfolios of bad loans, and then sell them back to private investors. Simple and direct. I think it superior to Hussman's "whole bank sale" method in that it would bring more transparency to the value of the bad loans. A bailout just perpetuates ineptitude, incompetence and greed.
Big Numbers in Perspective
That $700 billion bailout amount is equal to 5% of the annual national product, GDP (in Sweden they paid 4% to get out of their mess), and equal to about 22% of the annual federal budget. It is also the amount we have paid for five and a half years of war in Iraq. The war is expected to cost $3 trillion. There are $50 trillion in national assets, $14.2 trillion in annual GDP for 2008, $3.3 trillion in annual federal budget, and soon there will be $11.3 trillion in national debt, up from $6 trillion when Bush came into office. Too many numbers, but maybe you get a picture.
How the Mortgage Market Went Biz-zerk
What I think happened is now the most important part. Capitalism is like a game of chicken. You are looking to float a scheme that looks good on the surface, but is flawed. Such is the case with bundled mortgages, called CDOs, collateralized debt obligations. You sell the idea, people invest, you hold your position until you guess that the last fool has invested, then you jump out.
I'm of the opinion that the "negligence" of bank presidents ran this game, fully aware of the shoddiness of their CDOs. Warren Buffett called CDOs "weapons of mass financial destruction." Everyone knew that. They knew.
I heard a program on KALW from This American Life, and they traced the whole process back and forth. The show’s title is called The Great Pool of Money, and it was aired in May, 2008, available on the web for listening. And I listened to it over again.
Mortgage companies were creating and re-selling crappy mortgage loans. They called them Nina loans, meaning, No Income No Assets. One example on the show I can summarize quickly: "Hey buddy, you want a loan for $540,000? Sure. Have you got a job? Sure. Here's the money." That was on the program. They never checked on mortgage applicants incomes.
Then they aggregated the loans into bundles, slicing and dicing them up so that no one knew who owned the mortgage. One small company in upper Manhattan, small buyer of CDOs, had interest in 16 million different mortgages. If there are 70 million home owners, and three quarters have not paid off their mortgages, then there are 53 million outstanding mortgages. This company had a fractional piece of a 30% of U.S. mortgages. This bubble got bigger as mortgage brokers became more brazenly reckless. The bundles were rated by Moodys and Standard and Poors as AAA, the top-most risk free loans. They discovered later that they were analyzing them wrong, but that came later. Of course, the rating agencies were being paid by the investment banks to rate the CDO bundles.
The mess was insured by AIG, who really went out on a limb, but hey, they wanted to make a profit, and what the hell, and now ......taxpayers nationalized that company for $85 billion.
One year prior to costing the taxpayers $85 billion dollars the CEO of the company stated that under no reasonable scenario could his company fail. !! (See Gretchen Morgenson's article in the New York Times, September 28, 2008)
“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.”
— Joseph J. Cassano, a former A.I.G. executive, August 2007
Poison in the Water Bottles
Now, no one wants to buy the mess. And none of the banks will loan to each other. Paul O'Neil, Bush’s first Secretary of Treasury, made the analogy of having 12 bottles of water on the shelf, and you know that one of them has poison in it. What do you do? You throw them all out. That is the source of the credit freeze up that Bush warns against. Banks will not loan to banks because there is poison in the loan portfolios of all the banks. Also the default rate added to the inflation rate is about 11%, and that’s a high interest charge. The real estate market is down. Perhaps 8%, or 5 million, of U.S. mortgage holders and second mortgage holders in a two year period are going to declare bankruptcy, or give up their loan, foreclose, and there is no one to buy the house at its inflated value. Bankruptcies are slated to double in 2008 from last year.
If you are still here, Sweden, bought out the 3% shareholder stake, kept the 17% bondholders happy, and serviced the 80% customers. Paulson does not want the shareholders to take their consequences. Nor does Bush, McCain, Bernanke. And Obama? We’ll see. Nader of course saw it coming some years ago.
On the other hand economists like Paul Krugman, Martin Wolf, Brad DeLong, Peter Dorman at Econospeak who presented a “Plan B” on that web site, Nouriel Roubini at RGEMonitor.com
have endorsed the plan to nationalize the insolvent companies.
Well, this is my imperfect analysis, but I draw it from an article by John P. Hussman, Ph.D. who runs a financial advisory firm. He posted his solution, I downloaded. Now you have it. It is confusing, isn't it. I know if a professional economist looked at it he would shake his head. But not just at my analysis. There are really creative people working on this, and many other problems. I am optimistic. But enough! Send this to someone if you dare.
Ben.
"Love is its own excuse for being." Meher Baba
Saturday, September 20, 2008
Understanding the Crisis
Once I built a tower up to the sun,
Brick and rivet and lime.
Once I built a tower, now it’s done --
Brother, can you spare a dime?
E.Y. Harburg and Jay Gorney, 1932
Written on September 19, 2008, the week after Fannie Mae, Freddie Mac, Merrill Lynch, AIG, Lehman Brothers failed, coming after the failure of Bear Stearns, IndyMac, and Countrywide Mortgage. Also take into account the $160 billion dollar stimulus rebate tax check of the spring of 2008, and the announcement of a $700 billion bailout of the system, Sept. 20, 2008, and a $200 billion inflow of funds from international central banks! For your info: The Federal Reserve ascribes a value to all assets in the U.S.A. The total net worth is over $50 trillion.
The annual GDP, national yearly product, July, 2008, is $14.2 trillion. The Credit Default Swap market, the AIG bailiwick, is over $62 trillion. That sounds like a Ponzi scheme.
See Why Economies Grow by Jeff Madrick, editor of Challenge Magazine, for a complete description of my argument. Download his summary essay available at Challenge Magazine. I am repeating many of his points in this essay।
***************************************************************************
With the top decile (10%) of households in the U.S. owning 70% of all property and earning 50% of yearly national income, the majority of workers cannot generate enough consumer demand to buy the stuff and services they are producing. It’s not too difficult to understand the Crisis. Income and wealth are polarized, and they must be de-polarized or spread around, nationally and to a certain extent globally. Debt, not income, has become a way of life. The Crisis is of low income and wealth for the majority. The shenanigans of the financial market are symptomatic. Fixing the credit markets is not going to plug the hole in the bucket. It will not restore the mortgage market that depends ultimately on good and stable if not rising wages. Capitalism depends on producers and buyers, owners and workers, and, what is now lacking, a fair distribution of money at all levels, not just the profits-go-to-the-top system we have today. The credit market can work perfectly and still the system is going to collapse.
Go to the essay (google) “Striking It Richer” by Emmanuel Saez, professor of economics at University of California. In March, 2008, he described the distribution of income in the U.S. over the past 81 years, especially the past 15. One goes to the graph on page five describing the portion of national income received by the top decile (10%) of earners from 1917 to 2006. One sees a U curve. Between 1942 to 1982 the earnings of this group hovered around 35% of the national total. Needless to say, the economy never did better. Today it has grown to 49.7%. Before 1942 likewise it was higher.
To me this is the key to understanding a vibrant economy, and why we will not have a vibrant economy any time soon. When you take your product or your labor into a marketplace, you’ll get a better price if all the shoppers have much money or discretionary income to spend. When all do better, it self-supports. Look at the graph if you doubt that all are not doing better. Thirty years ago women worked at a rate of 45%, now it’s 60%. Houses cost 2 times the annual median household income, now they cost 4 times. The median income for workers without the wife in the labor force has risen by 0.4% in 25 years. Education, housing, medical care have all gone up. Where’s the income to afford those essentials? The wife has been the savior, but we have run out of wives.
Capitalism has an inherent self-destructive attribute. By seeking to produce lowest unit production cost employers/owners seek to decrease labor expense, thereby decreasing labor’s income. Owners try to lower prices on their products by lowering labor costs, a critical expense output. In a world with third of the human population, 2 billion humans, living on a $2 a day income, productive enterprises are migrating away from high-cost labor markets. So the downward pressure on high-cost labor markets is becoming unbearable. Robert Reich’s book Supercapitalism describes this process. Alan Blinder, professor of economics at Princeton University, has described the likelihood of up to 20 million U.S. jobs going offshore. There are 145 million actively employed in the present labor force, so that would knock off 1 in 7 jobs. Wages are lowering across the board, worldwide, Textile production has moved to China, auto production to Hermosillo, Mexico, Sony produces products in maquiladoras, Satsung builds its mobile phones and Hitashi builds its flat screen TVs and Dell their computers in China at a $0.30 an hour wage rate. Eventually, no one will have income to buy this stuff.
The U.S. will continue to experience declining economic fortunes until it re-achieves the top decile level of income once achieved between 1942 and 1982। In fact, the nation should consider means to achieve both an income distribution curve and a wealth distribution curve। This sounds somewhat anti-capitalistic. But it is the opposite of that. Only by sustaining a moderately high level of income for the majority of workforce participants can the overall economy thrive. (See Jeff Madrick's book Why Ecoonomies Grow)
This therefore begs a nationalistic policy in a world that has been careening away from national controls on any given country’s economy.
As many have pointed out, the minority owner group sequesters the profits of labor and industry. This is called “The Divine Right of Capital.” Owners take your excess labor value and put it in their bank accounts, according to Marx. The majority of workers have no countervailing power to gain those profits. Labor unions once exercised this countervailing power, but no longer. The wealthiest one percent have received over half the economic gains in the past 35 years. And no one has complained.
Consider that under the best historical conditions the top ten percent received a third of the income. Then ask, how much should the next 40 percent receive, and the bottom 50%? It’s not all that academic. It’s a practical problem that provides stability, hope, and a future of reasonable expectation for all, not just the favored top minority.
Unfortunately this type of thinking requires two attributes currently lacking in our modern world. One is an understanding of the necessity of this fair distribution idea, and the other is desire. Simply, there is not the heart quality to wish to achieve it; our culture has a bad case of greed, exclusivity, and disdain. Not to worry, it must and will change. But not without much hue and cry and grief.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++
****************************************************************************
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
To research this topic thoroughly I suggest:
One
The web site of Nouriel Roubini, professor of economics at NYU, RGEMonitor.com. He predicted the financial meltdown on September 7, 2006.
Also see N.Y. Times article “Dr. Doom”, August 15, 2008.
Two
Robert Kuttner provides an essay in the American Prospect, “The Seven Deadly Sins of Deregulation --- and Three Necessary Reforms,” September 17, 2008.
http://www.prospect.org/cs/articles?article=seven_deadly_sins_of_deregulation_and_three_necessary_reforms
Three
The New York Times article, “The Debt Trap”, July 22, 2008, segment titled
“The American Way of Debt,”.
http://www.nytimes.com/interactive/2008/07/20/business/20debt-trap.html
Between 1920 and 2006, only for four years, 1942 to 1945, did national savings exceed debt spending in the U.S. The ratio of savings to debt in 1950 was -- 1 to 4, in 1960 -- 1 to 7, and in 2006 -- 1 to 341. Debt is King, cash and savings are squeezed out of the picture.
Four
An audio interview with law professor Michael Greenberger on Terry Gross’s NPR radio program Fresh Air, September 17, 2008 http://www.npr.org/templates/story/story.php?storyId=94686428
Five
And for a solution, read the book Understanding Modern Money by L. Randall Wray, professor of economics at University of Missouri, who advocates a national jobs program. The federal government would act as the Employer of Last Resort. This would defy the gravity of unrelenting pressure to lower wages and add more workers to the workforce. For $700 billion you could add a lot of needed jobs. Also read my essays What Government Can Do (a short prescription) and There Are Solutions (a long prescription). (http://benL8.blogspot.com) There you will find plans presented by scholars and organizations to deal with the entrenched low-income, low-wealth problem.
"They used to tell me I was building a dream
And so I followed the mob.
When there was earth to plow or guns to bear,
I was always there, right on the job.
They used to tell me I was building a dream
With peace and glory ahead --
Why should I be standing in line, just waiting for bread?
"Once I built a railroad, I made it run,
Made it race against time.
Once I built a railroad, now it's done --
Brother, can you spare a dime?
"Once I built a tower, up to the sun,
brick and rivet and lime.
Once I built a tower, now it's done --
Brother, can you spare a dime?"
“Buddy Can You Spare A Dime”
By E. Y. Harburg and Jay Gorney, 1932
Once I built a tower up to the sun,
Brick and rivet and lime.
Once I built a tower, now it’s done --
Brother, can you spare a dime?
E.Y. Harburg and Jay Gorney, 1932
Written on September 19, 2008, the week after Fannie Mae, Freddie Mac, Merrill Lynch, AIG, Lehman Brothers failed, coming after the failure of Bear Stearns, IndyMac, and Countrywide Mortgage. Also take into account the $160 billion dollar stimulus rebate tax check of the spring of 2008, and the announcement of a $700 billion bailout of the system, Sept. 20, 2008, and a $200 billion inflow of funds from international central banks! For your info: The Federal Reserve ascribes a value to all assets in the U.S.A. The total net worth is over $50 trillion.
The annual GDP, national yearly product, July, 2008, is $14.2 trillion. The Credit Default Swap market, the AIG bailiwick, is over $62 trillion. That sounds like a Ponzi scheme.
See Why Economies Grow by Jeff Madrick, editor of Challenge Magazine, for a complete description of my argument. Download his summary essay available at Challenge Magazine. I am repeating many of his points in this essay।
***************************************************************************
With the top decile (10%) of households in the U.S. owning 70% of all property and earning 50% of yearly national income, the majority of workers cannot generate enough consumer demand to buy the stuff and services they are producing. It’s not too difficult to understand the Crisis. Income and wealth are polarized, and they must be de-polarized or spread around, nationally and to a certain extent globally. Debt, not income, has become a way of life. The Crisis is of low income and wealth for the majority. The shenanigans of the financial market are symptomatic. Fixing the credit markets is not going to plug the hole in the bucket. It will not restore the mortgage market that depends ultimately on good and stable if not rising wages. Capitalism depends on producers and buyers, owners and workers, and, what is now lacking, a fair distribution of money at all levels, not just the profits-go-to-the-top system we have today. The credit market can work perfectly and still the system is going to collapse.
Go to the essay (google) “Striking It Richer” by Emmanuel Saez, professor of economics at University of California. In March, 2008, he described the distribution of income in the U.S. over the past 81 years, especially the past 15. One goes to the graph on page five describing the portion of national income received by the top decile (10%) of earners from 1917 to 2006. One sees a U curve. Between 1942 to 1982 the earnings of this group hovered around 35% of the national total. Needless to say, the economy never did better. Today it has grown to 49.7%. Before 1942 likewise it was higher.
To me this is the key to understanding a vibrant economy, and why we will not have a vibrant economy any time soon. When you take your product or your labor into a marketplace, you’ll get a better price if all the shoppers have much money or discretionary income to spend. When all do better, it self-supports. Look at the graph if you doubt that all are not doing better. Thirty years ago women worked at a rate of 45%, now it’s 60%. Houses cost 2 times the annual median household income, now they cost 4 times. The median income for workers without the wife in the labor force has risen by 0.4% in 25 years. Education, housing, medical care have all gone up. Where’s the income to afford those essentials? The wife has been the savior, but we have run out of wives.
Capitalism has an inherent self-destructive attribute. By seeking to produce lowest unit production cost employers/owners seek to decrease labor expense, thereby decreasing labor’s income. Owners try to lower prices on their products by lowering labor costs, a critical expense output. In a world with third of the human population, 2 billion humans, living on a $2 a day income, productive enterprises are migrating away from high-cost labor markets. So the downward pressure on high-cost labor markets is becoming unbearable. Robert Reich’s book Supercapitalism describes this process. Alan Blinder, professor of economics at Princeton University, has described the likelihood of up to 20 million U.S. jobs going offshore. There are 145 million actively employed in the present labor force, so that would knock off 1 in 7 jobs. Wages are lowering across the board, worldwide, Textile production has moved to China, auto production to Hermosillo, Mexico, Sony produces products in maquiladoras, Satsung builds its mobile phones and Hitashi builds its flat screen TVs and Dell their computers in China at a $0.30 an hour wage rate. Eventually, no one will have income to buy this stuff.
The U.S. will continue to experience declining economic fortunes until it re-achieves the top decile level of income once achieved between 1942 and 1982। In fact, the nation should consider means to achieve both an income distribution curve and a wealth distribution curve। This sounds somewhat anti-capitalistic. But it is the opposite of that. Only by sustaining a moderately high level of income for the majority of workforce participants can the overall economy thrive. (See Jeff Madrick's book Why Ecoonomies Grow)
This therefore begs a nationalistic policy in a world that has been careening away from national controls on any given country’s economy.
As many have pointed out, the minority owner group sequesters the profits of labor and industry. This is called “The Divine Right of Capital.” Owners take your excess labor value and put it in their bank accounts, according to Marx. The majority of workers have no countervailing power to gain those profits. Labor unions once exercised this countervailing power, but no longer. The wealthiest one percent have received over half the economic gains in the past 35 years. And no one has complained.
Consider that under the best historical conditions the top ten percent received a third of the income. Then ask, how much should the next 40 percent receive, and the bottom 50%? It’s not all that academic. It’s a practical problem that provides stability, hope, and a future of reasonable expectation for all, not just the favored top minority.
Unfortunately this type of thinking requires two attributes currently lacking in our modern world. One is an understanding of the necessity of this fair distribution idea, and the other is desire. Simply, there is not the heart quality to wish to achieve it; our culture has a bad case of greed, exclusivity, and disdain. Not to worry, it must and will change. But not without much hue and cry and grief.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++
****************************************************************************
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
To research this topic thoroughly I suggest:
One
The web site of Nouriel Roubini, professor of economics at NYU, RGEMonitor.com. He predicted the financial meltdown on September 7, 2006.
Also see N.Y. Times article “Dr. Doom”, August 15, 2008.
Two
Robert Kuttner provides an essay in the American Prospect, “The Seven Deadly Sins of Deregulation --- and Three Necessary Reforms,” September 17, 2008.
http://www.prospect.org/cs/articles?article=seven_deadly_sins_of_deregulation_and_three_necessary_reforms
Three
The New York Times article, “The Debt Trap”, July 22, 2008, segment titled
“The American Way of Debt,”.
http://www.nytimes.com/interactive/2008/07/20/business/20debt-trap.html
Between 1920 and 2006, only for four years, 1942 to 1945, did national savings exceed debt spending in the U.S. The ratio of savings to debt in 1950 was -- 1 to 4, in 1960 -- 1 to 7, and in 2006 -- 1 to 341. Debt is King, cash and savings are squeezed out of the picture.
Four
An audio interview with law professor Michael Greenberger on Terry Gross’s NPR radio program Fresh Air, September 17, 2008 http://www.npr.org/templates/story/story.php?storyId=94686428
Five
And for a solution, read the book Understanding Modern Money by L. Randall Wray, professor of economics at University of Missouri, who advocates a national jobs program. The federal government would act as the Employer of Last Resort. This would defy the gravity of unrelenting pressure to lower wages and add more workers to the workforce. For $700 billion you could add a lot of needed jobs. Also read my essays What Government Can Do (a short prescription) and There Are Solutions (a long prescription). (http://benL8.blogspot.com) There you will find plans presented by scholars and organizations to deal with the entrenched low-income, low-wealth problem.
"They used to tell me I was building a dream
And so I followed the mob.
When there was earth to plow or guns to bear,
I was always there, right on the job.
They used to tell me I was building a dream
With peace and glory ahead --
Why should I be standing in line, just waiting for bread?
"Once I built a railroad, I made it run,
Made it race against time.
Once I built a railroad, now it's done --
Brother, can you spare a dime?
"Once I built a tower, up to the sun,
brick and rivet and lime.
Once I built a tower, now it's done --
Brother, can you spare a dime?"
“Buddy Can You Spare A Dime”
By E. Y. Harburg and Jay Gorney, 1932
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