A Man, A Plan, A Canal Panama ---
Jack Rasmus Presents an Economic Stimulus You Can Believe In
Our economic boat is sinking, and one year from now, March of 2010, we may be taking in water even faster than today. It would be wise --- now, today --- to look for a better bailing mechanism, a real industrial gauge bilge pump. In about ten months, January, 2010, more than one in three workers will be in trouble: 10% will be unemployed, another 10% will be working part-time or will have dropped out of the workforce, and still another 16% will be working for less than the poverty level income. Low income equals low consumption, equals low corporate profits, equals more jobless workers. After Christmas of 2009, people will question if and how Obama’s recovery program has had any effect. That’s fifty million workers, and Obama’s plan is to restore or create only 3.5 million jobs.
A much more aggressive alternative, a bilge pump with capacity, can be found in the plan proposed by Jack Rasmus, Ph.D., economics professor, and writer for Z Magazine. His plan is a comprehensive $2 trillion alternative to the Obama program, it’s been been published by Z Magazine, March, 2009, and is available also at his web site KyklosProductions.com. (There are other plans, but none so large nor as comprehensive. The web pages for extremeinequality.org, EPI.org, sharedprosperity.org, have plans, and of course piece meal proposals have been offered by Demos, Campaign for America’s Future, and Center on Budget and Policy Priorities. All are well and good, but none so thorough as Rasmus’ plan.)
Rasmus says we are between a normal post-World War II recession and something bigger and more damaging. He coins the term Epic Recession। He says that by the end of the year there may be 20 million jobless workers, 12.5% of the workforce. The summary of his plan reads,
“An effective economic recovery and stimulus program must be one that addresses these two primary tasks: jobs creation-retention and housing market stabilization. The recovery proposals that follow require a minimum of $1.5 trillion to fund a comprehensive jobs retention and creation program that will create and retain a minimum of 13 million jobs — i.e., the minimum amount that is needed just to check and contain the economic collapse. The housing program proposals that follow call for an additional $950 billion in spending, necessary to stop the collapse of housing asset prices and to provide a major consumption boost to the economy without reducing taxes and exacerbating budget deficits that will already exceed $1.5 trillion in 2009. The third section includes proposals to finance the $2 trillion program. The fourth section addresses several long-term income restoration elements associated with pensions, health care, and education that are necessary to sustain long-term consumption demand, ensuring the recovery does not falter once again after two years.”
Rasmus divides his plan in four sections, with 20 action points. Part I deals with the housing market stabilization and it is funded with Treasury and Fed funds already at hand, Part II is a jobs creation and retention proposal, Part III is a method to finance the $1 trillion jobs program, and Part IV proposes a long-term consumption stimulus, as the decline of consumption, caused by chronic wage stagnation for 80% of workers over a thirty year period, has been the source cause of the downward spiraling economy.
The problem of the economy is several fold: the bursting housing market asset bubble is sinking home prices and throwing one of ten homeowners out of their homes, and placing one in five mortgage owners “underwater” with their mortgages; the banks and financial system are bankrupt; joblessness is rising rapidly at 600,000 a month or higher; the government is trying to fund a small-sized jobs program through borrowing; and the basic low-income, low-savings problem of 80% of the households must be addressed if this cycle is not to repeat.
Robert Kuttner warns that a Depression is imminent. He, like Rasmus, says we are in the middle of a recession that may grow into a Depression. (“Worse than 1929?” in the American Prospect, March 12, 2009)
“This great collapse doesn't have to be a second Great Depression – if government does nearly everything right, and soon. And when we come out the other side, we could have a more decent and sustainable society.
But if government doesn't do more, and fast, this could be worse than the 1930s.
Why? Three big reasons:” and he goes on to list the failed financial system, the drop in asset value for housing and stocks, and the weakness of the U.S. dollar and what a dollar collapse would mean for the world’s biggest borrower.
“Roosevelt was said to be a big spender, but his biggest peacetime deficit was only about 6 percent of gross domestic product. This year, the deficit will exceed 11 percent, and the recession will deepen all year. It took the truly massive deficits of World War II -- nearly 30 percent of GDP -- to finally end the Great Depression.”
An 11% deficit is $1.5 trillion of red ink. Rasmus’ plan calls for $2 trillion of red ink. It appears that we need something three times greater than Obama’s plan for a minimum of four years. See the article in the Monthly Review, January, 2009, “A New New Deal for Obama?” for details on government spending during the 1930s. In short, FDR’s spending up till the 1940s simply replaced the decline in spending by states that fell precipitously throughout the 30s. Replaced, not supplemented.
I’ll list off the twenty points of Rasmus’ proposal and you can see the scope of his plan.
Part I, Housing Market Stabilization and Consumption Restoration
1. Reset Mortgage Rates for All Loans Originated 2002-2007
2. Reset Principle Loan Balances for All Loans Originated 2002-2007.
3. Create Federal Homeowner-Business Loan Corporation (HSBLC) to Provide Direct lending to the Homeowner-Small Business Property Markets.
4. One Year Moratorium on all Foreclosures and Default Proceedings.
5. Optional Homeowners 40 year Fixed Loan Extension
6. 15% Homeowners’ Investment Tax Credit
7. Restoration of ‘Regulation Q’, dealing with usury laws and interest rate caps.
Part II, $1 Trillion Jobs Creation and Retention Program
8. $300 billion for infrastructure jobs.
9. $100 billion for further stimulating growth-sector jobs.
10. $100 billion for manufacturing industry job retention and creation.
11. $300 billion Government Sector Job Creation-Retention.
12. $125 for bailout and consolidation of the Auto Industry
13. $125 billion for emergency Unemployment Insurance and Special Domestic Assistance Retraining.
Part III, Financing the $1 Trillion Jobs Program
14. Retroactive Windfall Taxes: Oil-Energy Industry Windfall Profits, Executive Compensation, and Corporate Foreign Retained Earnings Taxes.
15. Capital Incomes Tax Rate Rollbacks (“The severe shift and maldistribution in income in the U.S. since Reagan is heavily responsible for the runaway speculative investment contributing to the current financial crisis, as well as to the collapse of consumer spending so abruptly and deeply in recent months. No long term recovery is therefore possible without a basic re-restructuring of the tax system in the U.S., starting with capital incomes taxation.”
16. Repatriation of $2 Trillion from Offshore Tax Havens.
17. 6.25% FICA Tax on all Unearned Incomes above $332,000.
Part IV, Providing a Long-Term Consumption Stimulus,
18. Establish a National 401K Pool
19. De-Privatize the Student Loan Market
20. Single Payer Universal Health Plan.
Placing all the elements of the recovery connects the dots, gives a holistic picture of the danger we face. A Depression is serious non-business. “Income destroys capital,” is the last option that we want to avoid, commented Martin Wolf, economist and writer for the Financial Times in an interview with Doug Henwood in September of 2008. There are three possible outcomes, he said; one, we muddle through slowly, two, the Obama restoration less slowly pulls the economy back to health, and three, “Income destroys capital.” That means the spiral goes on so long and affects such a broad range of businesses and consumers that in the end the capital value, the investments of our society, are destroyed because no one will have income to continue to buy their products or be employed in their production. “Income destroys capital.” I think he was drawing on his knowledge of Keynesian economics. Grave stuff.
While Rasmus may not have all the solutions in perfect order, he at the least gives us a powerful strategy that draws on the immense underutilized wealth of our country to reinvigorate consumer buying power, aggregate demand, after a thirty year wage freeze that has crippled a large portion of Americans. The latest Federal Reserve report on wealth in America, just out, shows that the lowest half of U.S. households still cannot survive independently on their personal savings for more than 6 months. Yet these 50% of U.S. citizens go to work, for the most part, everyday to pay their bills if not to save.
To elucidate just a little further, Rasmus in another of his articles,
“Speculative Capital, Financial Crisis, and Emerging Epic Recession,” recounts the growth of the credit market over the past 30 years. In 1978 the portion of national debt that was financial debt was 11.3%, but by 2007 the financial portion had grown to 33.4%, or it had tripled relative to entire national debt picture. Half of the increase occurred between 2000 and 2007.
“In the U.S. alone, over the past three decades since 1978, total debt --- i.e. finance sector, consumer, government and non-finance business debt --- has risen from $3.6 trillion in 1978 to more than $47.7 trillion! . . . The answer is the orgy of speculative finance and speculative investing. Speculative investment and finance has been the driver of the massive debt run-up. . . . This is not a case of workers and consumers buying too many cars or houses they cannot afford. Workers-consumers debt is the consequence of the increased use of credit cards and housing refinancing in order to maintain standards of living and make up for the essential freeze in pay, adjusted for inflation, since 1982. According to U.S. government Labor Dept. data, the 110 million non-supervisory production and service workers in the U.S. --- the heart of the American working class --- earn less real take home pay in 2008 than they did in 1982 as a group. . . . The massive debt run-up in the U.S. economy is thus clearly financial debt.”
A loan is a gamble on future earnings, but earnings have not kept up with the pace of too many loans. Credit bubble, credit collapse, banks declare bankruptcy (or petition government for bailout funding) and world economy goes south.
In another of his articles, “Epic Recession Revisited”, Rasmus states,
“For example, more than $22 trillion of the current total U.S. $49 trillion debt (i.e. government, consumer, financial institution, and non-financial corporate combined) has been added just since 2001. [27 + 22 = 49] The current financial crisis is due to the ‘unwinding’ of that excess debt, $18 trillion of the $22 of which is corporate (financial and non-financial) debt. The financial crisis has been particularly intractable due to the huge volume of debt unwinding that has yet to be contained despite the Treasury-Fed throwing $4 trillion to date at it. The $4 trillion is likely just half that which will eventually be required.”
As readers of the blog http://benL8.blogspot.com will know already, the solution to our economic woes is to increase wages, savings, and employment for the 50% of households on the lower side of the income and wealth ladder. “Half Own 2.5%, Half Earn 15%” is the title of my favorite essay. This is the only lasting quality of life improvement we can hope for in the U.S.A. These proposals by Rasmus are consistent with my proposition, and are certainly presented with professional expertise and acumen.
Wednesday, March 18, 2009
Thursday, March 5, 2009
Tax Wealth, Create Public Jobs
The U.S. Ranks 75th out of 126 Nations
The United Nations’ Human Development Index ranks the United States at 15th place, in 2009, out of 177 nations in its composite of rankings for human development, but in the category of “Income or Expenditure Inequality” the U.S. ranks down at 75th place. The inequality measure compares the incomes of the top 20% of households with the bottom 20%. All of the advanced economies rank higher than the U.S. In the top 50 nations only Hong Kong, Singapore, Argentina, Chile, Uruguay, and Costa Rica rank below the U.S. When the comparison is the top 10% vs. the bottom 10% the U.S. ranks at 81st place among 126 nations.
Using the Gini index, used by economists to determine inequality, the U.S. also ranks high on the inequality scale, 40.8, compared to western Europe and Japan, nations that score in the mid 20s. Here is a select listing of scores among a wide group of nations to compare inequality.
Nation Gini 20% vs 20% 10% vs 10% GDP/capita
Japan २४.9 ३.4 ६.1 35,484
Norway २५.8 ३.9 ४.5 63,918
France ३२.7 ५.6 ९.1 34,936
Germany २८.3 ४.3 ६.9 26,893
U.S. 40.8 ८.4 १५.9 41,890
Hong Kong ४३.4 ९.7 १७.8 25,592
Singapore 42.8 ९.7 १७.7 26,893
Mexico ४६.1 १२.8 २४.6 7,454
Brazil ५७.0 २४.8 ५१.3 4,271
China ४६.7 १२.3 24.6 1,713
Bolivia ६०.1 ४२.3 १६८.1 1,017
Naturally Japan scores high in the HDI, 8th in quality of life score, because it is an advanced economy and the wealth and income are shared more so than all other countries. Comparing Denmark (14th) with Singapore (25th), while their GDP per capita is roughly the same, their Gini scores and inequality scores are widely different. The benefit of high income is not shared in Singapore, it is sequestered by the ownership class and quality of life lags behind Denmark. Perhaps Singapore’s long-term strategy will change that, but perhaps not. (See Robert Kuttner’s article in Foreign Affairs, October 2008 for a review of the Danish economy as an example of economic justice and progress.)
The U.S. also ranks 2nd in GDP per capita but 13 places lower in overall HDI. In contrast Cuba ranks at 93rd in GDP per capita but 42 places higher in HDI, indicating that Cuba does a lot with a little.
Turgor pressure we learn in school biology is the opposite of the word “wilting.” In a metaphor, aggregate demand is to an economy what turgor pressure is to a plant. That is the crux of my argument here. An economy with high inequality will not respond quickly to slumps or wilting since a major portion of its population base is bereft, short, and lacking in economic pressure, and the entire system has to depend on the purchasing demand of the small wealthiest portion to keep the least wealthy section employed. The U.S. GDP, July 2008, was $14.2 trillion, with 141 million workers, each producing on average $100,000 per worker. At that, half of the workers were earning less than $33,000, and a good portion of the lower half much less than $33,000. This is inequality of income. Also, of course, the wealth of the bottom 50% is a paltry 2.5% of the total national wealth (2006 report of the Federal Reserve, Currents and Undercurrents).
The major portion of the U.S. population that is lacking in purchasing demand is the lower 60% whose combined annual earnings amounts to 20% of the GDP, and whose combined wealth is, approximately, less than 5% of the national wealth. The article “Striking It Richer” by Emmanuel Saez, professor of economics at U.C. Berkeley, indicates that the top ten percent of annual earners now receive about 50% of the total earnings, compared to 28 years ago when they received only 35%. The top 10% also own about 70% of everything that has a price tag.
Take also into consideration that 16.2% of the labor force earns less than the poverty threshold for a four person family, and that The Economic Policy Institute predicts that the underemployed sector, involuntary part-time workers, will rise to 17.7% of workers in 2010, and unemployment will reach 10.2%. Then in a matter of months you will have 44.1% of the labor force earning very little. The turgor pressure for the economy will be low, to say the least. Let’s see, out of work, not working enough, not earning enough --- what does that equal for 44% of the population?
I’ve recently read (March 2009) the predictions of Warren Brussee about the stock market, how it depends on the ratio of dividends to prices, and the conclusion is that the value of stocks will continue to languish. Brussee wrote the book The Second Great Depression, published in 2005. The economic commentator John Mauldin also predicts the same in his newsletter of March 4, 2009, titled “While Rome Burns.” And, also consider that the European banks are facing a blow-up owing to the collapse of the economy in eastern Europe. Multiple signs of a very weak and slow world economy. A few years ago I read in a Charles Schwab Company report that about 53% of China’s economy was devoted to export production, and now massive layoffs are occurring in China.
Wealth Tax and Public Jobs
To counter all this bad news we all need to consider the power of public job creation and a tax on wealth. We have had both these policies for over 100 years, so it’s nothing new. The military is a public jobs program, and that dates back to George Washington. We spend $1.1 trillion on the military today, that’s about 8% of the GDP. (See Chalmers Johnson’s Going Bankrupt at Zmagazine.) FDR put public jobs creation on the map, and the Second World War made it the savior of the rotten Depression Era, along with pro-union policies and other factors. A tax on wealth is as old as the property tax and the estate tax. (See Gar Alperovitz for an article on a wealth tax in Dollars and Sense magazine.) Warren Brussee calculates that Obama’s job creation policy, his stimulus of nearly $800 billion, will employ 2.3% of the workforce over a three year period. (Remember that 40% of that amount goes to tax cuts, not job creation.) We can surmise that the Obama program reduces unemployment by 2.3% from 12.5%, holding it at 10.2%. Brussee says the program will have to be renewed after three years for another huge amount. This is starting to sound like professor Jack Rasmus’ prediction of an Epic Recession, something between a depression and a recession.
I wish I knew of someone who like me sees inequality as a structural impediment to a vibrant economy. I think Paul Krugman does, but I’m not that sure. It seems clear that we will flounder around for a few years and slowly come out of it, or we create those public jobs at a living wage. See the National Jobs for All Coalition for more argumentation along the lines of public job creation. They report, from BLS statistics, that 15.7% or 25 million people are un- and underemployed in January, 2009. That’s almost one out of six. And there are 9 unemployed for every 1 job opening. Unemployment among African-Americans is 12.6%, almost depression levels. The Economic Policy Institute carries similar data about unemployment; that in 24 months, January 2011, there will be LESS jobs than today. And the Republicans are promoting their same panacea, “free” markets and lower taxes, if you still have income to pay taxes on, and if any market still has customers.
And don’t forget, the U.S. ranks at 75th place in inequality or expenditures according to the U.N. Human Development Report. In other words, there is still plenty of money at the top to tax that will pay for public jobs, which will create aggregate demand, which is the equivalent of turgor pressure for our wilting economy, which will restore prosperity to not just a few.
The United Nations’ Human Development Index ranks the United States at 15th place, in 2009, out of 177 nations in its composite of rankings for human development, but in the category of “Income or Expenditure Inequality” the U.S. ranks down at 75th place. The inequality measure compares the incomes of the top 20% of households with the bottom 20%. All of the advanced economies rank higher than the U.S. In the top 50 nations only Hong Kong, Singapore, Argentina, Chile, Uruguay, and Costa Rica rank below the U.S. When the comparison is the top 10% vs. the bottom 10% the U.S. ranks at 81st place among 126 nations.
Using the Gini index, used by economists to determine inequality, the U.S. also ranks high on the inequality scale, 40.8, compared to western Europe and Japan, nations that score in the mid 20s. Here is a select listing of scores among a wide group of nations to compare inequality.
Nation Gini 20% vs 20% 10% vs 10% GDP/capita
Japan २४.9 ३.4 ६.1 35,484
Norway २५.8 ३.9 ४.5 63,918
France ३२.7 ५.6 ९.1 34,936
Germany २८.3 ४.3 ६.9 26,893
U.S. 40.8 ८.4 १५.9 41,890
Hong Kong ४३.4 ९.7 १७.8 25,592
Singapore 42.8 ९.7 १७.7 26,893
Mexico ४६.1 १२.8 २४.6 7,454
Brazil ५७.0 २४.8 ५१.3 4,271
China ४६.7 १२.3 24.6 1,713
Bolivia ६०.1 ४२.3 १६८.1 1,017
Naturally Japan scores high in the HDI, 8th in quality of life score, because it is an advanced economy and the wealth and income are shared more so than all other countries. Comparing Denmark (14th) with Singapore (25th), while their GDP per capita is roughly the same, their Gini scores and inequality scores are widely different. The benefit of high income is not shared in Singapore, it is sequestered by the ownership class and quality of life lags behind Denmark. Perhaps Singapore’s long-term strategy will change that, but perhaps not. (See Robert Kuttner’s article in Foreign Affairs, October 2008 for a review of the Danish economy as an example of economic justice and progress.)
The U.S. also ranks 2nd in GDP per capita but 13 places lower in overall HDI. In contrast Cuba ranks at 93rd in GDP per capita but 42 places higher in HDI, indicating that Cuba does a lot with a little.
Turgor pressure we learn in school biology is the opposite of the word “wilting.” In a metaphor, aggregate demand is to an economy what turgor pressure is to a plant. That is the crux of my argument here. An economy with high inequality will not respond quickly to slumps or wilting since a major portion of its population base is bereft, short, and lacking in economic pressure, and the entire system has to depend on the purchasing demand of the small wealthiest portion to keep the least wealthy section employed. The U.S. GDP, July 2008, was $14.2 trillion, with 141 million workers, each producing on average $100,000 per worker. At that, half of the workers were earning less than $33,000, and a good portion of the lower half much less than $33,000. This is inequality of income. Also, of course, the wealth of the bottom 50% is a paltry 2.5% of the total national wealth (2006 report of the Federal Reserve, Currents and Undercurrents).
The major portion of the U.S. population that is lacking in purchasing demand is the lower 60% whose combined annual earnings amounts to 20% of the GDP, and whose combined wealth is, approximately, less than 5% of the national wealth. The article “Striking It Richer” by Emmanuel Saez, professor of economics at U.C. Berkeley, indicates that the top ten percent of annual earners now receive about 50% of the total earnings, compared to 28 years ago when they received only 35%. The top 10% also own about 70% of everything that has a price tag.
Take also into consideration that 16.2% of the labor force earns less than the poverty threshold for a four person family, and that The Economic Policy Institute predicts that the underemployed sector, involuntary part-time workers, will rise to 17.7% of workers in 2010, and unemployment will reach 10.2%. Then in a matter of months you will have 44.1% of the labor force earning very little. The turgor pressure for the economy will be low, to say the least. Let’s see, out of work, not working enough, not earning enough --- what does that equal for 44% of the population?
I’ve recently read (March 2009) the predictions of Warren Brussee about the stock market, how it depends on the ratio of dividends to prices, and the conclusion is that the value of stocks will continue to languish. Brussee wrote the book The Second Great Depression, published in 2005. The economic commentator John Mauldin also predicts the same in his newsletter of March 4, 2009, titled “While Rome Burns.” And, also consider that the European banks are facing a blow-up owing to the collapse of the economy in eastern Europe. Multiple signs of a very weak and slow world economy. A few years ago I read in a Charles Schwab Company report that about 53% of China’s economy was devoted to export production, and now massive layoffs are occurring in China.
Wealth Tax and Public Jobs
To counter all this bad news we all need to consider the power of public job creation and a tax on wealth. We have had both these policies for over 100 years, so it’s nothing new. The military is a public jobs program, and that dates back to George Washington. We spend $1.1 trillion on the military today, that’s about 8% of the GDP. (See Chalmers Johnson’s Going Bankrupt at Zmagazine.) FDR put public jobs creation on the map, and the Second World War made it the savior of the rotten Depression Era, along with pro-union policies and other factors. A tax on wealth is as old as the property tax and the estate tax. (See Gar Alperovitz for an article on a wealth tax in Dollars and Sense magazine.) Warren Brussee calculates that Obama’s job creation policy, his stimulus of nearly $800 billion, will employ 2.3% of the workforce over a three year period. (Remember that 40% of that amount goes to tax cuts, not job creation.) We can surmise that the Obama program reduces unemployment by 2.3% from 12.5%, holding it at 10.2%. Brussee says the program will have to be renewed after three years for another huge amount. This is starting to sound like professor Jack Rasmus’ prediction of an Epic Recession, something between a depression and a recession.
I wish I knew of someone who like me sees inequality as a structural impediment to a vibrant economy. I think Paul Krugman does, but I’m not that sure. It seems clear that we will flounder around for a few years and slowly come out of it, or we create those public jobs at a living wage. See the National Jobs for All Coalition for more argumentation along the lines of public job creation. They report, from BLS statistics, that 15.7% or 25 million people are un- and underemployed in January, 2009. That’s almost one out of six. And there are 9 unemployed for every 1 job opening. Unemployment among African-Americans is 12.6%, almost depression levels. The Economic Policy Institute carries similar data about unemployment; that in 24 months, January 2011, there will be LESS jobs than today. And the Republicans are promoting their same panacea, “free” markets and lower taxes, if you still have income to pay taxes on, and if any market still has customers.
And don’t forget, the U.S. ranks at 75th place in inequality or expenditures according to the U.N. Human Development Report. In other words, there is still plenty of money at the top to tax that will pay for public jobs, which will create aggregate demand, which is the equivalent of turgor pressure for our wilting economy, which will restore prosperity to not just a few.
Monday, December 29, 2008
Blog Contents
Dear Reader,
Contents of this web site:
I write essays on economics.
The most recent essays are at the top, oldest at the bottom.
If you read only one essay, choose
August, 2008, Half Own 2.5%, Half Earn 15%.
That will get you going.
December, 2008, has me writing The Case for Full Employment.
Click the ? in the Contents area to open the month and see the essays for any month.
23. Why We Need Full Employment
This is my shortest, a one page effort full of facts well documented.
December 29, 2008
22. The Case for Full Employment
Both a historical overview of previous government actions, and a review
two scholars’ approach to solving paucity of jobs in our economy.
I think this is sound policy and a good, brief look at the employment problem.
21. Full Employment
Basic logic on full employment.
20. Meltdown/Bailout Suggestions
Two suggestions about nationalizing banks and reworking underwater
home mortgages.
19. Nationalize the Banks or Bail Them Out
I quote a professor, Peter Dorman, and a financial consultant, John Hussman. Both offer plans radically different than Treasury Secretary Paulson’s. I review radio program This American Life, to explain the subprime mess. I wrote it for my sister.
18. Understanding the Financial Crisis
William Springer, head of the economics department at Howard University
made the same comments on the radio the week after I wrote this.
I claim that the financial part of the crisis is phase one. Much more bad news will unfold.
17. Justice Revolution
A longer essay with a little more documentation, but basically the same essay as the last.
It is better in some ways. I trace international methods to create global economic justice.
16. Half Own 2.5%, Half Earn 15%
Read this one if you read no other.
15. Celebrate $100,000 a year as the average U.S. income
Hard to believe, but that’s correct. Read it to believe it.
14. Infectious Greed Overwhelms the U.S. Economy
I quote Marriner Eccles about the Great Depression. I tried to simplify
the previous essay for a friend who has no background.
13. Economic Rights for the Two Out of Seven Who Are Not Making It
July 22, 2008
Inequality, weak purchasing power, Roosevelt’s State of the Union, ‘44,
and much more. Not too pessimistic. About 3,000 words.
Really interesting says the author.
12. What the Government Can Do
May 1, 2008
A two page reduction of the essay There Are Solutions. A quick read on
ways to increase employment and incomes without stalling the economy.
Maybe my ‘Best.’ Short, to the point.
11. Three Short Pieces
June 15, 2008. To the KPFA Morning Show, The Next Wave of Political Reform, and another review of Robin Hahnel’s book Economic Justice and Democracy.
10. My Second Letter to Pete Stark, Congressman
A little note about shrinking aggregate demand, how to grow an economy,
and why worldwide depression is possible. I had just read Jeff Madrick’s
Why Economies Grow.
9. There Are Solutions
This 4,000 word essay details and reviews three plans for revitalizing the American economy.
First, I take a look at Frank Stricker’s book Why America Lost the War on Poverty --- and How to Win It, and his 17 point plan called What Needs to Be Done.
Second I look at the Center for American Progress’ plan “From Poverty to
Prosperity.”
Finally, I review “Decent Work and Public Investment,” a plan authored by members of the National Jobs for All Coalition, Helen Lachs Ginsburg and Gertrude Shaffner Goldberg.
8. White Birds --- a poem not about economics. About love.
7. A Wealth Tax to Eliminate Poverty
This may be my best effort. It is a reduction of my original essay A Modest Proposal to Tax Wealth Annually in the U.S.A.
6. The Art of Living Together
A short vagrancy, a fissure, an errant meander, a lunacy. Something burst.
5. A Letter to My Congressman, Pete Stark. February 5, 2008
I break down wealth and income distribution, and suggest sources for
the Congressman to pursue.
4. A book review of Robin Hahnel’s Economic Justice and Democracy
This essay was published in the Alameda County Green Party News in
October, 2007.
3. Odd, Very Odd. March, 2008. A recapitulation of old ideas. Nothing special.
2. Is There a Middle Class?
The 40 to 1 ratio between two halves of the U.S. population impressed me. I was listening to Michael Krasny on KQED FM radio talk about the middle class. He did not take my e-mail, so I wrote this essay and sent it to him.
1. Progressive Economic Reform, 2008
January, 2008
This essay presents an array of eleven different sources that argue that our economy does not serve the American people.
The people at Econo-atrocity, the commentary site at Center for
Popular Economics, posted it. It’s my third favorite after What Government Can Do, and
A Wealth Tax to Eliminate Poverty, second best.
Contents of this web site:
I write essays on economics.
The most recent essays are at the top, oldest at the bottom.
If you read only one essay, choose
August, 2008, Half Own 2.5%, Half Earn 15%.
That will get you going.
December, 2008, has me writing The Case for Full Employment.
Click the ? in the Contents area to open the month and see the essays for any month.
23. Why We Need Full Employment
This is my shortest, a one page effort full of facts well documented.
December 29, 2008
22. The Case for Full Employment
Both a historical overview of previous government actions, and a review
two scholars’ approach to solving paucity of jobs in our economy.
I think this is sound policy and a good, brief look at the employment problem.
21. Full Employment
Basic logic on full employment.
20. Meltdown/Bailout Suggestions
Two suggestions about nationalizing banks and reworking underwater
home mortgages.
19. Nationalize the Banks or Bail Them Out
I quote a professor, Peter Dorman, and a financial consultant, John Hussman. Both offer plans radically different than Treasury Secretary Paulson’s. I review radio program This American Life, to explain the subprime mess. I wrote it for my sister.
18. Understanding the Financial Crisis
William Springer, head of the economics department at Howard University
made the same comments on the radio the week after I wrote this.
I claim that the financial part of the crisis is phase one. Much more bad news will unfold.
17. Justice Revolution
A longer essay with a little more documentation, but basically the same essay as the last.
It is better in some ways. I trace international methods to create global economic justice.
16. Half Own 2.5%, Half Earn 15%
Read this one if you read no other.
15. Celebrate $100,000 a year as the average U.S. income
Hard to believe, but that’s correct. Read it to believe it.
14. Infectious Greed Overwhelms the U.S. Economy
I quote Marriner Eccles about the Great Depression. I tried to simplify
the previous essay for a friend who has no background.
13. Economic Rights for the Two Out of Seven Who Are Not Making It
July 22, 2008
Inequality, weak purchasing power, Roosevelt’s State of the Union, ‘44,
and much more. Not too pessimistic. About 3,000 words.
Really interesting says the author.
12. What the Government Can Do
May 1, 2008
A two page reduction of the essay There Are Solutions. A quick read on
ways to increase employment and incomes without stalling the economy.
Maybe my ‘Best.’ Short, to the point.
11. Three Short Pieces
June 15, 2008. To the KPFA Morning Show, The Next Wave of Political Reform, and another review of Robin Hahnel’s book Economic Justice and Democracy.
10. My Second Letter to Pete Stark, Congressman
A little note about shrinking aggregate demand, how to grow an economy,
and why worldwide depression is possible. I had just read Jeff Madrick’s
Why Economies Grow.
9. There Are Solutions
This 4,000 word essay details and reviews three plans for revitalizing the American economy.
First, I take a look at Frank Stricker’s book Why America Lost the War on Poverty --- and How to Win It, and his 17 point plan called What Needs to Be Done.
Second I look at the Center for American Progress’ plan “From Poverty to
Prosperity.”
Finally, I review “Decent Work and Public Investment,” a plan authored by members of the National Jobs for All Coalition, Helen Lachs Ginsburg and Gertrude Shaffner Goldberg.
8. White Birds --- a poem not about economics. About love.
7. A Wealth Tax to Eliminate Poverty
This may be my best effort. It is a reduction of my original essay A Modest Proposal to Tax Wealth Annually in the U.S.A.
6. The Art of Living Together
A short vagrancy, a fissure, an errant meander, a lunacy. Something burst.
5. A Letter to My Congressman, Pete Stark. February 5, 2008
I break down wealth and income distribution, and suggest sources for
the Congressman to pursue.
4. A book review of Robin Hahnel’s Economic Justice and Democracy
This essay was published in the Alameda County Green Party News in
October, 2007.
3. Odd, Very Odd. March, 2008. A recapitulation of old ideas. Nothing special.
2. Is There a Middle Class?
The 40 to 1 ratio between two halves of the U.S. population impressed me. I was listening to Michael Krasny on KQED FM radio talk about the middle class. He did not take my e-mail, so I wrote this essay and sent it to him.
1. Progressive Economic Reform, 2008
January, 2008
This essay presents an array of eleven different sources that argue that our economy does not serve the American people.
The people at Econo-atrocity, the commentary site at Center for
Popular Economics, posted it. It’s my third favorite after What Government Can Do, and
A Wealth Tax to Eliminate Poverty, second best.
Why Full Employment
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
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
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
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