13.6%, More Realistic Unemployment Rate

The Real Unemployment Rate Is 13.6%,

not 9.1%, in July 2011

see Section One

and

Less Than One Job Was Created, 2000 to 2010,

for every Ten Who Increased

the Potential Work Force


Here's a graph from Paul Krugman's blog, December 2, 2011. Note that the drop from 2001 to 2012 is about 6%, and that six percent represents over 7.5 million potential workers sitting idle. The BLS states 8.75 million jobs were lost 2007-2010. 

_____________________

Between 1990-2000 total jobs increased by 15.2%. In contrast, between 2000-2010 total jobs increased by only 1.6%. And the number of private sector jobs decreased. The potential working population increased roughly by the same rate in both decades, but during 1990-2000 77.5% found jobs, and 2000-2010 only 8.6% found jobs.

See Section Two

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With the same labor participation rate as in January 2000 (67.3% in January 2000 vs. 63.9% July 2011) today's pool of labor would enlarge from 153.2 million to 161.3 million. But the number of jobs would not increase. The unemployment rate, U3, would be higher. An additional 8.1 million workers would join the unemployed. There then would be 22 million unemployed in a labor force of 161.3 million, and an unemployment rate of 13.6%.

There are 239.7 million in the July 2011 civilian non-institutional population. Of that 239.7 million only 63.9% participate in the labor force, much lower than the 67.3% participation rate of January 2000. With the 2000 participation rate today's labor force would increase to 161.3 million, not 153.2 million as reported. With only 139.3 million working in July 2011, that would leave 22.0 million unemployed. 22.0 divided by 161.3 equals 13.6. That's the unemployment rate today if the participation rate of January 2000 were in effect. The workforce pool would swell by 8.1 million additional unemployed workers, but the number of jobs would stay the same. Today's 13.9 million unemployed would have 8.1 million added to their number. The unemployment rate would rise from 9.1% to 13.6%.

For twenty years, 1988 to 2008 the labor participation rate rarely dipped below 66%, and for almost 4 years was above 67%, but today it stands at 63.9%. One has to wonder, what is the true labor participation rate? Does it oscillate according to workers' whim, or is it decreased by poor economic conditions? Is it just a measure of how well or poorly the economy is performing? Discouraged workers are statistically relevant for only 12 months, and then they are dropped out of the workforce. Stating a smaller workforce makes the unemployment rate appear smaller. My point is, the same portion of the population would be willing to work, over 67%; the U3 unemployment measure is misleading.

The year 2000 had a high participation rate, as high as 67.3%, and low unemployment, 4%, proving that a large portion are willing and ready to work. What does a drop in participation indicate? It shows the attraction of the economy to draw workers to work. But today it appears to serve only as a disguise of the severity of the actual unemployment rate. Read Section Two below to see how poorly job creation has served the growing labor force over the past decade. Private sector employment stood at 110 million in 2000, and today it stands at 109 million despite a growth of the civilian non-institutional population by 25 million adults (from 212,557,000 in 2000 to 237,830,000 in 2010).

The labor participation remained above 66% for 20 years, 1988 - 2008. See labor participation rate (or shall I call it the "labor willingness rate") From 1997 - 2001 the unemployment rate was below 5%. But in 1992 unemployment hit 7.5% and still maintained a participation rate of 66.4%.

To this adjusted 13.6% unemployment rate, add 5.5% who work part-time but are looking for full-time. The combined unemployed and under-employed rises to 19.1%. Add to 19.1% some 10.7% who work full-time and year-round for below poverty level wages and you arrive at 29.8% who constitute the misery rate. Over 48 million (nearly 1/3rd) workers or would-be workers are struggling in the country whose economy generates over $47,000 a year per human being, and over $100,000 per worker.

The misery rate stands at 29.8% --- that is 48 million out of work, not enough work, or poverty level work.

A look at the rate of and composition of under-utilized workers shows that low income workers suffer most from under-utilization. The higher one's income the less probable the problem of unemployment or under-utilization; the lower half of the earners are approximately 3 to 4 times more likely to be under-utilized. (See Center for Labor Market Studies, Northeastern University, report on Labor Under-utilization Problems, page 4 --- http://iris.lib.neu.edu/cgi/viewcontent.cgi?article=1025&context=clms_pub ----)

____________________________________________________

SECTION TWO --- Number of New Jobs

Falls through the Floor

Here's an added depressing look at the labor force and unemployment.

Let's take a close look at the labor force growth between 2000 and 2010.

I summarized this section much later, on September 12, 2011, when I commented on an article by Dean Baker. This section is so very complicated the summary is helpful. Here's a summary:

I looked at the figures about increase in labor force. Comparing the decade 1990- 2000 with 2000- 2010 you see a stark shift. During both decades the expansion of the civilian non-institutional population was about the same, around 12% (12.3% and 11.9%). But how many entered the labor force is a much different picture (13.2% vs 7.9%). And by how much did the number employed increase? Answer: 15.2% in 1990-2000, and 1.6% in 2000-2010. You (Baker) say that the reason for the fall off in the increase in the labor force has to do with the baby-boomers. Not so. Private sector employment growth 2000-2010 is a negative number, 110 million vs 109 million. Conclusion: the drop-off in the growth of the labor force is a function of job availability. The private sector has not created enough jobs. During 1990-2010, 71% who came of age (net increase) joined the labor force, 2000-2010 only 44% joined the labor force. Obviously I worked on these details one day, and I wrote about it at http://benL8.blogspot.com, August 2011. We have been in a sort of recession since January 2000 when the labor participation rate was much higher and employment was below 4%. The real unemployment number is 13.6%, not 9.1%. Thanks

Now, for the part I wrote in August: It's so complicated the summary is helpful.

Between the years 2000 - 2010 the civilian non-institutional population grew by 11.9%

(some 25,253,000 added, from 212 million to 237 million).

The civilian labor force grew by 7.9% (some 11,306,000, from 142 million to 153 million).

This says that of the increase in the population of potential workers (25 million), 44.8% entered the labor force (11 million), and 55.2% (14 million) did not enter the labor force.

The employed civilian labor force grew by 1.6% (some 2,173,000, from 136,891,000 to 139,064,000). (My confusion here has to do with the ages of those who decided not to participate in the labor force. I imagine that most of the missing participation occurred with older workers, a slow discouragement led to a persistent leakage out of the work force -- that's my guess.)

Out of the 25 million increase in civilian non-institutional population, 8.6% found jobs. 25 million were added to the first (population), 2.2 million were added to the second (jobs). Restated: For every 12 people added to the population of potential workers, 1 job was added to the total employed!

Of the 44.8% who entered the labor force, a low percentage of total civilian population growth, (44.8% amounts to a total of 11,306,000 entering the labor force), only 2,173,000 jobs were created for those 11 million. For 9 million there was no job available. Heidi Sheriholz at epi.org states that the job deficit is 11.2 million, not the labor department's 8.8 million who lost their jobs 2007-2009. She probably believes that more than 11 million would have entered the labor force, but how many more? Those additional would swell the numbers of workers who could not find work.

Immediately it is apparent that job growth was insufficient. The job creation

number (2,173,000) was 8.6% of the population growth number (25,253,000), and 19.2% of the growth of number joining the labor force (11,306,000). If the economy can only provide jobs for an additional 19.2% of those who enter the labor force, and 8.6% for the total increase of population, what hope have we for maintaining our present standard of living?

This looks pretty bleak.

Let's compare, from the same BLS table, the growth numbers for 1990 to 2000.

The civilian non-institutional population increased by 12.3% (23,353,000).

The labor force increased by 13.2% (16,737,000). (71% joined the labor force, not 44% during 2000-2010)

The number employed increased by 15.2% (18,098,000).

Out of the increase in the population, 77.5% found jobs.

In comparison, to repeat, the figures for 2000 to 2010 are:

The civilian non-institutional population increased by 11.9% (25,253,000).

The labor force increased by 7.9% (11,306,000).

The number employed increased by 1.6% (2,173,000). As I previously stated, private sector employment decreased by 3.4% during the decade.

Comparing the two decades, 1990 -  2000 to 2000 - 2010:

--- population increase: 12.3% to 11.9%,

--- work force increase: 13.2% to 7.9%,

---- number employed increase: 15.2% to 1.6%.

___________________

Most striking, the number employed between 1990-2000 increased by 15.2%, but 2000-2010 the number employed increased by 1.6%. And, of the increase in population, 1990 - 2000, 77.5% found jobs, but 2000-2010 only 8.6% found jobs.

___________________

(A reader told me he hated how I changed colors and size. I hope the last paragraph doesn't bother you. I should make it twice its size and enclose it in flames, if I could, but I'm controlling myself. Yes, I understand, too many numbers, very confusing. That's why I highlight some details.)

__________________________________________________________

Section Three --- Rutgers University Employment Report

Here are two highlights from two Rutgers University professors,Seneca and Hughes, report, Economic Soft Patch 2, August 2011.

But, at the very same time—the end of the fourth quarter December 2010—total private-sector employment in the United States remained 7.6 million jobs, or 6.6 percent, below its pre-recession peak. Consequently, as 2010 came to a close, the nation was producing the same economic output with 6.6 percent fewer private-sector jobs—i.e., with 7.6 million fewer private-sector jobs.

and

Prolonged and subdued recoveries follow deep financial crises. The current situation is no different. The United States is still feeling the effects of the worst financial crisis since the Great Depression. The nation lost an unprecedented 8.8 million private- sector jobs during the Great Recession. Through June 2011, 2.2 million jobs (rounded) have been recovered, or about 24 percent—leaving a deficit of 6.7 million jobs. There is still a very long road to traverse before achieving full job recovery, but the employment recovery process is under way.

I think one should read Jack Rasmus' August 7,2011 article on employment before concluding that the employment problem is actually improving. I find some fault in the Hughes and Seneca report, which I won't bother any readers with. But the report adds another dimension to understanding.

________________________________________________________

Section Four

How Inequality Screws Up the Entire Economy

I seem to repeat this argument in every blog entry I make, so here it is again.

The Great Depression was caused by inequality of income. This is the conclusion of Marriner Eccles, Chairman of the Federal Reserve from 1934 to 1948. Writing in his 1951 memoir, he elaborates on the role of inequality as the cause: "Instead of achieving that kind of [fair] distribution of current produced wealth [meaning current income], a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. 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. . . . Had there been a better distribution of the current income from the national product -- in other words, had there been less savings by business and the higher-income groups and more income in the lower groups -- we should have had far greater stability in our economy.”

Today our nation's economy suffers from maldistribution of income.

John Maynard Keynes also advised Franklin Roosevelt before he took office in a public letter to create public jobs. He stated that of three options for creating additional purchasing demand, only one could be relied upon, and the government must play that role, saying, ". . . public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money... It is, therefore, only from the third factor that we can expect the initial major impulse.”

Purchasing power, or consumer spending amounts to 70% of economic activity in the nation's economy. Who has the money to spend today? Purchasing power is dried up. In the almost fair years of 2006 the bottom 80% of workers received just 28.2% of the nation's total personal income through their labor. In fact with pensions, government pensions, social transfer payments, and alimony payments, the total portion of income received by the lower 80% totals 40%. The top 20% receive 60%. See the Tax Policy Center's 2006 report on source of income and distribution by income percentile.

The real rate of unemployment is not 9.1% but about 14.7%. Yet, with under-employment it's actually closer to 20%, and adding those who work for poverty wages in year-round full-time work, the Misery Rate is over 30%.

The nation's income is infirm, weak, debilitated by the very low purchasing power of the vast majority. And this rebounds in low employment.

Between 1940 and 1980 the top 10% of households never received more than 35% of all personal income, today the portion received by the top 10% reaches close to 50%, and as I've said above, the top 20% receives 60% of all income while the bottom 80% receives 40% (with 28.2% deriving from wages and salaries). (See Professor Emmanuel Saez' study "Striking It Richer" August 2010 Update)

Sources:

Unemployment rate over the years, BLS figures

http://data.bls.gov/timeseries/LNS14000000

BLS, labor force participation rate

http://data.bls.gov/timeseries/LNS11300000

BLS, unemployment rate July 2011

http://www.bls.gov/opub/ted/2011/ted_20110810.htm

Status of civilian non-institutionalized population

http://www.bls.gov/cps/cpsaat1.pdf

The best article I've read on employment comes from professor Jack Rasmus' recent article of August 7, 2011. http://jackrasmus.com/

Tax Policy Center for Sources of Cash Income by Cash Income Percentile, All Tax Units, 2006

http://www.taxpolicycenter.org/numbers/displayatab.cfm?Simid=85

August 28, 2011, B. L.

______________________________________________

THIS BLOG: My February 2011 essay, the Six Point Program, is a comprehensive proposal to restore prosperity. I recommend it. Go the the column at the right, click-on February, 2011. Look for the Contents page also, December of 2010. We can do two major things in this nation: we can make sure all jobs pay a decent wage -- they don't, believe me --- and democratically we can create jobs for everyone.

180 foot monster

The Distribution of Wealth in America

--- July 22, 2011 ---

If we could magically transfer just 5% of the nation's total assets ($2.7 trillion) from the wealthiest 10% of households (who own over $37.8 trillion) to the lowest 40% of households --- this would reduce the share of the top 10% of households from 70% to 65% of all assets --- then the lowest 40% of households (47 million households or 125 million Americans) would increase their average net worth from $2,200 to $60,000 per household. Is that dreaming irrationally? Is that being un-American? Why do the least wealthy 40% own only 0.3% of the nation's total wealth? Would that improve the quality of life? What prevents such a wealth distribution?

You may read the following as a facetious story, but no, not on this blog. It's only too true. True Detective True. I draw my facts from the report "State of Working America's Wealth" by Sylvia Allegretto, published March 2011 by the Economic Policy Institute. (more on her research below)

I'm dreaming. In the middle of the night I dream a friend invites me to his house; I agree. He says, "Let me introduce you to my housemates." I agree. I walk in the door of his house, and the first thing he says is, "The median height of everyone living here, all 20 people in this house, is 6 feet tall." That's a little odd. "The median height? What is he talking about?" I remember, the scale from shortest to tallest, the guy in the middle is the median, and he is 6 feet tall, half shorter and half taller. Why does he bring this up. I nod, OK. It's a tall group. I don't ask a lot of questions because I'm dreaming. That's my height, too.

Then he says, "But the average height is a lot taller, something like 21 feet tall." I wonder, "What the hell is he talking about?" (The median is 6, the average 21 feet???) "Let me introduce you to the other 19 men and women who live here," he says, and I agree. He takes me to a room and opens the door and I see 8 little mice-like human beings running around on the floor, shouting and yelling. He closes the door abruptly. He says, "The average height in there is 1.4 inches high. Those 8 roommates are really short. We don't know exactly what to do about it." I nod and gulp. I noticed how fast he shut the door. How odd, what were those things? They could all stand on the handle-bars of my bicycle.

Then we go to the living room where he introduces me to 10 other residents, and they range from 5 foot four to 6 foot 6, normal looking adults, all pleasant and well adjusted -- except one is really tall, about 10 feet I guess. He shares the name of each one. I start to forget about the other room with the excited little 8 shrimp-anoids running around and shouting. I am happy to meet these ten people, they are all friendly. I say, "Larry told me he really enjoys living here and the company of his housemates, it's an interesting place to live. It' nice to meet you all." Or something like that. And I add, "Now I've met you and 17 of your housemates, where are the two other housemates?" He points outside. I gaze out the open door where I see two huge buildings that resemble airplane hangers or maybe where the blimps sleep at night. There are two giants in the two buildings. He says, "That's Oscar over there, the short giant, only 50 feet tall, and Horace, can you see him? He's enormous, 300 feet tall! He rests in that house pretty much all day long. Oscar is 50 feet tall, Horace is 300 feet tall."

"My God! How could that be? But I thought you said the median height here was 6 feet tall," I say somewhat stupefied. My friend replies, "Yes, that's true, the median height is 6 feet, but I did say the average height is 21 feet tall. The average went way up because of those two giants, Oscar and Horace, who you see out there resting in the shade of the dirigible hangers. Because one of them is 50 feet tall and another 300 feet tall, it brings the average to 21 feet tall." My head is swimming, I can't do all this math in a dream.

There are 20 people in this house. Total height of everyone: add up, 8 times 1.4 inches is about 1 foot; 9 times 6 feet = 54 feet, plus one whose is 10feet tall; plus one 50 feet, plus the 300 footer = 415 total feet. Divide by 20 equals almost 21 feet, the average. The median height (the middle guy in a scale from shortest to tallest) of all the 20 people is 6 feet tall. Eight of the people are midgets, 1.4 inches in height. Ten are normal looking, and the other two, 50 feet and 300 feet tall. Then I start thinking, maybe I should try to wake up from this dream. Time to awaken old sport, this is getting too weird.

But, this dream image accords with the distribution of wealth in America.

But if I convert these 20 dream images from height into weight, then we will see 8 tiny people weighing about 4 pounds, 10 people weighing about 200 pounds (some are obese to be sure), one huge guy at 1,560 pounds and another weighing 9,360 pounds. Still we preserve the essential ratio of wealth distribution. Imagine what a nightmare. But let's not be unpatriotic. "God bless America" and all that. The greatest place on earth. It has its virtues.

We would be a far better nation if we distributed income and wealth in a more equitable fashion. As far as income distribution, see the United Nations Human Development Index, the U.S. is the most unequal among developed nations, and ranks about 72nd among all nations on Earth, behind Egypt, Russian, Bulgaria and others. The link above is more interesting, placing the U.S. 24th in a list of the top 30 most developed countries, showing the quality of life for the lowest is still much higher than many nations. Inequality studies are very complicated.

See Sylvia Allegretto's report if you think I invented this dream. She reports that the "average" net worth is just below $500,000, the white household median $97,000, the fortieth percentile stands at $65,200, the African American median $2,200. The top 5% owns 60% of all assets, and about 72% of all financial assets (stocks and bonds). And the next top-most 5% owns 10% of all assets (from Edward Wolff's report at Levy Economics Institute). The average net worth of the bottom 40% is $2,200, and they own 0.3% of all assets. With those details one can determine the ratios as I did.

Page 2 is an eye-opener, a summation of fallout from 2007 to 2009. The nation lost 16% of its net worth, the bottom 90% lost 25% of their worth, the bottom 80% lost 40% of their worth. The bottom 80% own 12.8% of all net worth. The ratio of median household net worth (the 50th percentile) to the top 1% is 1 to 225, a new record. Almost 1 in 4 households have no net worth, 3 out of 8 have less than $12,000. House prices dropped 32% since 2006. Home equity as a percent of home value dropped from almost 60% to 36.2%, "meaning that banks now own more of the nation's housing stock than people do," for the first time on record.

___________________________________________________________

Our U.S. society has problems. Our incarceration rate is about 12 times the rate of Japan, and the homicide rate is 6 times the rate of Japan, Germany and much of Europe, to name two important metrics. Thoughtful and caring people ask themselves "why?'" Do our rules of organization (economics) and the opportunities available to some but not to all contribute? Why such alarming disparities between other advanced countries? Certainly avoiding human suffering is common sense. Personally, I worked at an elementary school in a poor and violent neighborhood, and I got sick of the conditions there. Poverty neighborhoods and criminal behavior are inseparable and ineradicable. But other advanced countries do not have it as bad. Why? Unfortunately we do not recognize our blatant problems, and a "What me worry?" ("or care?") attitude is normal. Or "America is the best, beyond question (ing)." Let's not be bothered with murder and mayhem, unless it's on the TV happening to some unfortunate poor soul. And when misfortune is reported, it serves more as an alarmist message that increases general fear and paranoia, not compassion or constructive thinking.

Recently a survey report originating from the National Bureau of Economic Research, the organization that announces the official beginning and end of recessions in the U.S., noted that half the population in the U.S. would not be able to come up with $2,000 within 30 days without selling something or borrowing from a relative or friend. Half. See CNN Money, May 14, 2011, "Half of Americans Don't Have $2,000 for a Rainy Day". Only one in four were certain they could handle the emergency.

The Credit Suisse Bank released "Global Wealth Report" in October, 2010. By my rough calculation, if the U.S. had the same wealth distribution as Japan almost all families would have over $100,000 in savings. Perhaps that is why people are not killing each other in Japan, at least not a the rate people kill one another in the U.S.. (See page 16 and 28) You might be surprised to learn that even poor communist China does better than the U.S. Though they have billionaires, by and large their distribution is more equal than most countries.

If we could magically transfer just 5% of the nation's assets from the wealthiest 10% of households to the lowest 40% --- reduce the share of the top 10% from 70% to 65% ---, then the lowest 40% of households (47 million households or 125 million Americans) would hold on average $60,000 instead of $2,200. Is that dreaming irrationally? Is that being un-American?

Scholars at Washington University in Saint Louis, at the Center for Social Development, Mark Schreiner and Michael Sherraden have proposed methods of asset accumulation for low-earning households. The "Individual Development Account" is the primary focus of their proposal and research. Their book "Can the Poor Save?" describes their research. A social program in San Francisco, SF Earns, see www.earn.org, provides incentives to low-earning families to save for education, housing, or business creation. I recommend that readers review the successful and encouraging personal stories on their web page. These programs are marvelous, but grossly under-funded.

In Germany, 40% of the banking system is publicly owned. See German Public Banks, a Wikipedia article. Assets do not have to be held privately, and accumulation beyond the sky's limit does not have to be the social norm. Such a norm contributes to mis-allocation of human and natural and especially financial resources.

This is just a beginning of a look at a very large and neglected problem, the 300 foot giant -- or is he a monster?

Ben Leet

Deficits, from Clinton and Bush

THIS BLOG: My February 2011 essay, the Six Point Program, is a comprehensive proposal to restore prosperity. I recommend it. Go the the column at the right, click-on February, 2011. Look for the Contents page also, December of 2010. We can do two major things in this nation: we can make sure all jobs pay a decent wage -- they don't, believe me --- and democratically we can create jobs for everyone.

The Federal Budget
Comparing the Clinton years with the Bush years

Data from the Congressional Budget Office, Office of Management and Budget, Historical Budget Data, January 2011.

Basic Facts

Year National Debt

1980 ----- 26.1% of GDP --- before Reagan

1992 ----- 48.1% of GDP --- after Reagan and G.H.W. Bush years, up 22.0%

2000 ----- 34.7% of GDP --- after Clinton, down 13.4%

2009 ----- 53.5% of GDP --- after G. W. Bush, up 18.8%

The publicly held national debt (debt not held by intragovernmental agencies such as Social Security Trust Fund) as a percentage of annual GDP has oscillated up and down and up. For 10 years, 1970 to 1980 the debt had held steady around 26% of GDP.

This graph originates from here, Data 360 web page. 

See the graph at Wikipedia of the national debt levels:

http://en.wikipedia.org/wiki/File:USDebt.png

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There are fewer private sector jobs today than 11 years ago in 2000. And taxes were higher in 2000 by 6% of GDP, and that would be by $900 billion in today's money. Let me refer you to Hughes and Seneca of Rutgers University (America's Post-Recession Employment Arithmetic) for the first fact. Not since 1930s have there been fewer jobs after 10 years of stagnation. And Robert Borosage at Truthout.com two days ago for the second. In 2000 the portion of GDP converted into federal revenues was 20.4% and today it's 14.2%. And the private sector employed 110 million in 2000, 107 million today, in spite of a larger labor pool. The labor participation rate in 2000 was much higher than today, and if added onto the unemployment rate, today's U3 unemployment would be at 13%. Taxes --- raise them on the top one percent whose pre-tax income is approximately equal to the bottom 60% of households (!! Yes, see UC Berkeley professor Emmanuel Saez, Striking It Richer), and create public jobs with them. Thanks Joshua H. (I left this comment at Alternet, July 16, 2011)

John Miller, November 2009, Dollars and Sense Magazine,

How I Learned to Stop Worrying and Love the Deficit

http://www.dollarsandsense.org/archives/2009/1109miller.html

Robert Borosage, July 15, 2011, Truthout.com

http://www.truth-out.org/gop-dogma-taxes-spending-andrevenue-vs-facts/1310649524

Robert Reich, July 15, Truthout.com

http://www.truth-out.org/presidents-jobs-plan-not/1310666366

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The economy expanded by 76% over the six years between 1939 and 1944, the years of World War II. In 1939 it stood at 100, at the end of 1945 it stood at 176. This is a growth rate of 10% a year compounded. The workforce expanded by 42% (including the expansion of the military and the civilian workforce, "19.2 million additional people were either working or in the Armed Forces"), and even with additional workers, the unemployment rate dropped to 1.2% and below 2% during 1943 and 1944, proving that full employment is possible, not just a dream. This comes from American Economic Development Since 1945 by Samuel Rosenberg, page 20, 21. One can ask, How much of that growth was due to private sector investment and hiring? "Federal government purchases of goods and services, mainly military related, grew from $22.8 billion in 1939 to $269.7 billion in 1944. This increase is virtually identical to the overall increase in real GDP"

Today, 2011, there's a strong case to re-allocate federal resources. Congresswoman Jan Schakowsky has presented an alternative budget that reduces spending by $400 billion and provides for a $200 billion jobs program. The People's Budget also has a similar program. The war period, 1939 to 1945, demonstrates conclusively that government can influence the economy in a positive way. No one in 2011 would advise such huge stimulus spending, but the point is --- stimulus works. Military Keynesianism is the term for the Reagan stimulus of the 1980s. As shown above, he increased the public debt from 26% to 48% of GDP.

Since July, 2009, the depth of the recession, corporate profits have accounted for 92% of the economic rebound in the GDP gross amount, while in contrast aggregate wage income is still what it was in July 2009, and job growth has yet to happen. The private sector is sitting on almost $2 trillion and not hiring. The tax/GDP rate stood at 20.4% in 2000, Clinton's last years, while today -- as the graph shows in the Borosage article --- it stands at 14.2%, a drop of 6% of GDP less, which in today's economy is $900 billion. The entire debt this year is about 9% of GDP. Raising taxes to the 2000 level would almost eliminate the deficit. Creating public jobs would compensate for the private sector's inability to hire during a depression. About 30% of all workers, 45 million, are either unemployed, not fully employed, or working full-time and year-round for below poverty level wages. Two of eight Americans are connected to a family with absolutely no savings, and another one in eight is in a family with less than $12,000 in savings. That is a depression. The upshot would be a self-expanding economy, and corporations would begin to sell to paying customers again and could begin to hire and invest again. That's the case against freezing taxation.

__________________________________________

Increase in military spending
Clinton era --- 1994 --- $282 billion or 4.0% of GDP
2001 --- $306 billion or 3.0% of GDP

Bush era: -----2002 --- $349 billion or 3.3% of GDP
2009 --- $657 billion or 4.7% of GDP Clinton decreases military spending by 25%, Bush increases it by 42%.

I used inclusive dates for my calculations. The years 1994 to 2001 inclusive are 8 full years, as are 2002 to 2009 inclusive. The president’s budget begins October of the year he is sworn in, for Clinton October 1993, for Bush October 2001. Therefore the 1994 budget begins the Clinton years, 2002 begins the Bush years.

________________________________________________________________Growth in National Debt as a % of GDP
Clinton era: down by 16.7% ---- from 49.2% to 32.5%
Bush era: up by 19.9%% ---- from 33.6% to 53.5%
In 1994 the federal debt stood at $3.433 trillion, or 49.2% of the size of the GDP.
By 2001 it had shrunk from 49.2% to 32.5% of the GDP, a reduction of 16.7%.
Bush’s debt began in 2002 at 33.6% of GDP and ended in 2009 at 53.5% of GDP, which was over $9 trillion.Clinton knocked the debt down, Bush ran it up. The differential between the two presidents is 36.6% of GDP, that is $5.307 trillion, a very big number. If we had continued the Clinton momentum for another 8 years, instead of $9 trillion in publicly held debt we would have less than $3 trillion, or approximately 20% of GDP as a debt level, instead of 2010’s 60% level. Obama did not run up the debt, he inherited from his predecessor the greatest recession in almost 80 years. The forward momentum of the recession ratcheted up the debt from 53.5% of GDP to 60% in Obama’s first year.

_______________________________________________________________Tax Revenue as a percentage of GDP
Clinton era: 19.2%
Bush era: 17.0%

Bush inherited a short 6 month recession, March 2001 to September 2001. But the tax cuts lasted more than ten years. He used the 2001 recession as a justification for decreasing taxes, a Keynesian rationale that federal government should borrow money in a recession and run up the debt. Thereby the saved tax dollars are spent as investment or consumer demand, making up for the lost demand due to the economic downturn. But Bush’s taxes were generous to the highest earners and did little to stimulate widespread demand, and job creation was very weak taking four years to return to their former level, and the median household never recovered it’s lost income to pre-recession levels.
________________________________________________________________Income Tax as a percentage of GDP
Clinton era: 9.05%
Bush era: 7.56%
The Economic Policy Institute claims that the Bush tax cuts cost $2.5 trillion in lost tax revenue over ten years. But these data show it to be $2.08 trillion less than the income tax level of the Clinton’s tax level spread over ten years.
_______________________________________________________________Average Budget Deficit as % of GDP
Clinton era: -2.0% per year
Bush era: -4.76% per year
In today’s dollars, 4.76% of GDP comes to $690 billion of federal expenditures. Coincidentally, this is almost identical to our present military budget. For eight years, this was the Bush II level of deficit spending. The military budget for 2010, which was $689.1 billion, which is also 20% of all federal expenditures. But the true cost of the military is nearly double that amount yearly, $1.2 trillion.

Clinton inherited the legacy of Ronald Reagan and G.H.W. Bush of excessive budget deficits. In 1980 when Ronald Reagan assumed the presidency, the publicly held debt as a % of GDP was 26.1%. Twelve years later after G.H.W. Bush (Bush I) it stood at 48.1%, an 84% jump in the size of the debt. At the last year of Clinton’s term the debt was down to 34.7% of GDP, a decrease of 28%. In 2009 the debt was back up to 53.5%, and increase of 54% relative to the size since 2001. It was more than double the size of 1980. “Deficits don’t matter,” is the advice of former vice-president Dick Cheney. “Reagan proved it.” Politically they don’t matter if your party is in power, when out of power deficits are the only thing that matters.

Franklin Roosevelt ran up huge debts, fortunately, or else we would still be in the Great Depression. See the Marshall Auerback essay that demonstrates the effect of the WPA spending that lowered the unemployment rate from 25% to 9.6% in four years, 1933 to 1937. It depends on how you spend or invest the borrowed money. (See this other excellent report by Auerback, February 2009.)
Roosevelt put workers back to work. Reagan and Bush I and Bush II spent it on the military while cutting taxes. Some call this “military Keynesianism”. The principle that Keynes advocated, increasing purchasing demand through government spending on jobs, was observed. Enlarging the military is not a great investment; better is to create things that do not explode, that improve the quality of life for decades to come. Sidewalks on the streets in my town of San Leandro still bear the inscription, “WPA 1940”.

The Historical Budget Data is non-controversial. The Congressional Budget Office presents basic numbers. It’s without argument that the budget is in deficit. I hope readers will consider the numbers, and draw their own conclusions.
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I love being brief, but there is always more in my writing.

***!!!! --- Back to 1976 ---- !!!!***

I'm going to restore the national income distribution of 1976 by transferring 15% of the nation's income to the lower 90% of households. It's an exercise in re-distribution of income.
You can reference two sources that show the percentage of all personal income going to the top ten percent, U.C. Berkeley professor Emmanuel Saez' report "Striking It Richer" page 7, or the Tax Foundation, Table 5 in their report. The share of personal income going to the top ten percent remained below 35% between the years 1940 to 1980, and today it approaches 50%. I've reported this over and over on this blog. That's my central goal for reform: to restore an appropriate income distribution. This morning I calculated that restoring the previous distribution ratios, 1940 to 1980, transferring 15% of all income that the top ten percent now receives, up from 35% between 1942 to 1982 to almost 50% in 2007, would entail a transfer of $1.319.7 trillion from the top ten percent to the lower 90%. In summary, if the distribution ratio of of 1980 remained the same in 2007, then $1.319.7 trillion would go to the lower 90% of households.

Divided evenly between all households in the lower 90%, each household would have an average increase of annual income of $12,569. The median would rise from around $50,000 to $62,000, and since the average income for the bottom 20% of households is $13,000 according to a Citizens for Tax Justice report, the lower income families would in some instances double their incomes. It's just a fantasy towards which the nation could aspire. I'm not an economist, I'm a dreamer. Dream along with me.

Certain analysts claim that the top income earners pay too much of the federal income tax, which is just 45% of all federal revenue. They never complain about how much more of the nation's income the top income group now receives. To find the overall effective tax rates for all income groups, go to the Citizens for Tax Justice report here, and discover that most households pay taxes in a close range of their total incomes, contrary to the alarmists for the wealthy group.

(Using the Tax Foundation report, Table 3, we see that the Adjusted Gross Income amount for the bottom 50% of taxpayers came to $1,078 billion in 2007, and the top 50% received $7,720 billion, roughly a 1 to 8 ratio, arriving at a total AGI for the nation of $8,798 billion. To $8,798 billion I take out 15%, or $1,319.7 billion, and divide that amount among 105 million households or 90% of the nation's households. This yields an income increase of $12,569 for each household.)

________________________________________________________________
Let’s cut to the chase: the federal government needs to raise taxes by about 30%. But before it destroys the economy by raising taxes it should create public jobs and get everyone working as we did in the 1930s and 1940s. Then we, the shapers of government policy, should aim to restore the income distribution to the ratios of 1976 when the top ten percent of households received less than 35% of all income, not the 49% it presently receives. “Back to 1976” is my radical cry. Then we can raise the taxes by 30% and have a balanced budget.Imagine three large pizza pie plates, because I cannot graphically create them. Or imagine three clock faces. The first contains all the GDP with one slice representing the federal government’s expenses. That one slice is about 14 minutes on the clock face. Most advanced nations have a larger slice. The federal government was 19% during the Clinton years, and then it expanded to 24%.

Now, imagine the second clock face. This represents all federal spending, and the slice portion, 12 minutes (or 20% of spending) of the clock face, represents the portion not paid for, the deficit during the Bush II years. Clinton eliminated this slice.

Now, the third clock face, it is 17 minutes (or 28% of spending) as a slice size। When you take out all the federal expenses that are paid for by payroll taxes, the Social Security and Medicare parts, you have a smaller pie. Instead of $3.5 trillion, the pie is now $2.4 trillion, and the unpaid part, 17 minutes ---which amounts to 28%---is the part that the Bush II government neglected to collect, its real deficit. To balance the budget G.W. Bush would have had to raise income and corporate taxes by 28% for all the eight years of his presidency.

Three clock faces: 14 minutes, 12 minutes, and 17 minutes.
24% ------20% ------------28%

The People’s Budget and the budget proposed by Representative Jan Schakowsky are responsible alternatives to what either the Republican Representative Paul Ryan presents or to what the Obama administration proposes. Both do damage to our nation, in my opinion. We should look for a responsible plan. Opinions of course vary, and intelligent people often disagree. Let’s be intelligent and disagree intelligently.

The Tax Policy Center, part of the Urban Institute, has a Briefing Book that explains much of the pie chart business. The President’s Budget and the Congressional Budget Office also explain the various expenses, for those who wish to explore at the source.

June 27, 2011

Jobs and Recovery

THIS BLOG: My February 2011 essay, the Six Point Program, is a comprehensive proposal to restore prosperity. I recommend it. Go the the column at the right, click-on February, 2011. Look for the Contents page also, around November or December of 2010. We can do two major things in this nation: we can make sure all jobs pay a decent wage -- they don't, believe me --- and democratically we can create jobs for everyone. Today there are not enough jobs, as you should know, and we can create them. About 16% of all jobs are government jobs today, we can create more, we are rich enough to do so. And the lower 80% of workers earn only 28.2% of the national income through their jobs. One dollar in income at the bottom 80% is matched with $6 in income at the top 20%. That is an insane income distribution; no other advanced country is as bad. We can change the wage ratios with taxes, incentives and income credits. The economy generates $47,000 per person, per human being, per infant, child, adult, elder, everyone, $47,000 a year. That's about $141,000 for every family of three, on average. We are rich enough. We have a broken system. We need more jobs, and higher wages. It's your future, your family's future, and your and their happiness.


Jobs and the Recovery

Officially the economy has recovered. How do we know? Economic production, the GDP, has recovered to its pre-recession level, but 7 million jobs were lost in the process. So is it a real recovery? The Great Recession lasted from December 2007 to June 2009 when the GDP declined by 4.2%, it reached its nadir or trough. The economy then began to grow, an 18 month rebound which recaptured its pre-recession level. The drop and recovery had a symmetry to it, 18 months for each. Since the trough, corporate profits have increased by nearly 40%, or $465 billion, accounting for 92% of the growth in national income. The casualty of the rebound was the American worker who saw the elimination of over 7 million jobs. The economy shed 8.750 million jobs according to the Bureau of Labor Statistics (Monthly Labor Review, April 2011). The economy has since recovered 1.3 million jobs, far below the bare minimum rate needed to absorb new workers entering the work force, leaving a 7.45 million job deficit. At the Economic Policy Institute one researcher places the net job deficit at 11 million when one adds on the influx of unemployed new workers to the workforce. Economists estimate that the economy is performing at 10% below of its capacity.

A staggering 45% of the unemployed have been unemployed for over half a year as of May, 2011. Heather Boushey reporting at the Center for American Progress, June 2011, states, "The share of workers who are long-term unemployed — that is, out of work and searching for a job for at least six months — ticked back above 45 percent in May. This share has hovered above 40 percent for 18 months. Those are highs not seen since the Bureau of Labor Statistics began tracking these data in 1948."

Since the recession's trough the aggregate wages and salaries of workers have actually gone downward even further, so the “recovery” has yet to affect wages in the least. The median wage earner has earnings 0.6% below the June 2009 level.
Is the word “recovery” truly apropos in this condition? Recovery for whom? For people who create the economy, or for the economy as a concept? Was there prosperity for most before the Great Recession? The GDP per capita, the amount of economic production per citizen, is over $47,000 a year, therefore would not poverty and income inadequacy be difficult to explain?

Arguably, the largest casualty of the Great Recession was the wealth of the bottom 80% of households. U.C. Berkeley professor Sylvia Allegretto reports, “Average wealth of the bottom 80% was just $62,900 in 2009 --- a dropoff of $40,900 from 2007 and slightly less, in inflation-adjusted terms, than it was more than a quarter-century ago in 1983.” This 39% drop in wealth, from $103,800 to $62,900, resulted from the 32% decline in housing prices; the median family holds 95% of its wealth in home equity. Homeowner equity or “home equity as a percent of home value fell from 59.5% in the first quarter of 2006 to 36.2% in the fourth quarter of 2009. For the first time on record, the percent of home value that homeowners own outright dropped below 50% --- meaning that banks now own more of the nation’s housing stock than people do.” As most people know, the banks are doing much better, they have recovered. Housing prices have not recovered, in fact after a year of stability they have recently been falling. The foreclosure epidemic continues apace, as well --- no recovery there.

Allegretto reports that in 2009, “nearly one in four households had zero or negative net worth, while 37.1% had net worth of less than $12,000. In other words, more than a third of U.S. households have wealth holdings that are so low they are extremely vulnerable to financial distress and insecurity.” My own “other words” are: three out of eight Americans are hanging by a thread in the wealthiest nation on earth where the per capita economic production is over $47,000 a year.
This is the greatest or one of the greatest problems our nation faces.

Corporate profits on the other hand have increased since June 2009 by almost 40%. The Center for Labor Market Studies, May 2011, reports, “Annualized corporate profits in constant 2010 dollars rose very strongly . . . Over the first seven quarters of recovery, this would represent a gain of $465 billion in corporate profits or just under 40%.” From a profit level of $1.203 trillion in the second quarter of 2009 to $1.668 trillion in the first quarter of 2011, profits increased by just under 40%. The S & P 500 Stock Index rose by 44% in this same 21 month period.

The May 2011 report adds that in the 21 months of recovery from the recession’s trough, “corporate profits accounted for 92% of the growth in real national income while aggregate wages and salaries declined by $22 billion and contributed nothing to growth.” “To date,” the report concludes, “through the first quarter of 2011, the nation’s recovery from the 2007-2009 recession is both a jobless and a wageless recovery. Aggregate employment still has not increased above the trough quarter of 2009, and real hourly and weekly wages have been flat to modestly negative. The only major beneficiaries of the recovery have been corporate profits and the stock market and its shareholders.” Allegretto’s wealth report shows that 80% of stock market wealth is owned by 10% of U.S. households.

If the economy had the same labor participation rate as 2007 the unemployment rate would rise from 9.1% to 11.5%. And if the participation rate were equal to 2000, the present U3 unemployment rate would be 13%. An amazing 29.0% of Americans workers --- 45 million adults in all --- fall into the unfortunate categories of either being out of work (11.5%), involuntarily without enough work (5.5%), discouraged from looking for work (1.4%), or working year-round and full-time for less than poverty level wages (10.6%). The purchasing power, which drives the economy, is severely limited by low wages, under-utilization of labor, and very sluggish private-sector job creation. Recovery does not apply to the labor market.

The National Jobs for All Coalition reports, "In April, 2011, the latest month available, the number of job openings was 3.0 million." Thus with an 18.4% unemployment rate, as I have calculated it, or 28 million full-time job seekers, there are more than 9 workers seeking every one job opening. Using only the usual U3 unemployment rate, 9.1% in May 2011, the Economic Policy Institute reports that the ratio has exceeded more than four workers for every job opening for the entire past 28 months. New job hiring has not recovered.

There were more private sector jobs in December of 1999, eleven and a half years ago, than today (110 million versus 107 million); and the economy is barely adding on jobs at the rate of growth of the labor force, according to researchers at Rutgers University. (See September 2009 and July 2010 reports) Not since the 1930s has the nation had a decade of net job loss.

The nation is in a strange policy vacuum. Most people recognize that employment is the central problem, yet the major political parties limit their discussion to the size of cuts in government services and expenditures, indicating they are at a total loss to discuss job creation proposals. The Bush tax cuts of the 2000s cost the government $2.5 trillion over ten years in lost revenue, and the Republican Party insists on extending these cuts for the wealthiest minority whose fortunes have recovered, and who arguably needed recovery less than the poorer majority who lost a greater portion of their savings. The low tax policy after ten years has proved to be a total wash-out; job creation in the 2000s matched the housing bubble.

Running in contrast to this paralysis, on April 14, 2011, 40% of the Democrats in the House voted for a public job creation proposal costing $145 billion a year. This was the “People’s Budget” from the Congressional Progressive Caucus. Other Congress members have proposed direct public job creation: Representative Conyers is sponsoring again the Humphrey-Hawkins full-employment bill; Representative Jan Schakowsky has presented a budget that would devote $200 billion to public jobs. Demos in January 2011 published professor Philip Harvey's plan "Back to Work" that for less than $200 billion a year would create a net of over 8 million jobs; and the Economic Policy Institute, the Chicago Economic Political Group, the National jobs for All Coalition, Jobs for Justice, and many others are putting forward proposals for public job creation.

At the New Deal 2.0 web site, Marshall Auerback wrote (8.30.09) that between 1933 and 1937 Roosevelt’s job creation program reduced the unemployment rate from 25% to 9.6%, indicating the power of the federal government to ameliorate the economic doldrums when the private-sector refuses to hire.

Political power is as unevenly distributed as income and wealth: the top ten percent of households earns nearly 50% of the pre-tax yearly income and owns over 70% of all wealth. The disparity in political power is just insurmountable, and the poor remain powerless and unemployed -- wageless and jobless. The nation seems locked into a depression with lower wages and record rates of long-term unemployment. Simultaneously, the Recovery continues with high corporate profits. Housing prices are again falling, and one wonders how long corporate profits can stay high with a diminishing purchasing base.

But not to worry. The wealthiest 1% has an average wealth holdings 225 times the median household, which ratio has increased from 125 times in 1962, and 131 times in 1983. If you converted the wealth holdings of the nation’s households into piles of $100 bills, you would have a wide circle with half the piles less than one inch high, and an inner circle of piles representing 40% of the households each pile reaching 14 inches, a still inner circle (9%) with piles reaching six feet high, a center of the circle representing 1% rising to over 50 feet high, and in the very center a few piles reaching over 20 miles high. This is our America today.


Comment section:
“Apres moi le deluge” was said by a) Louis XV, or b) George II --- ?

My friend read this essay and replied:
I don't think it's a policy vacuum. I think the analysis works better if you assume that the government is totally controlled by multi-nationals who's purpose is to rob all world-wide populations of any wealth. Eisenhower warned us 60+ years ago. Then don't worry. I could send you more articles that I notice, but not really any point in it. Your own numbers say only 40% of democrats voted for public jobs. That is not contrast - it's a sign of who controls democrats.