Archive for January, 2010
The strong support Oregon voters gave to Measures 66 and 67 (which raised taxes on the very wealthy and corporations) was a welcome development. Of course, it is important to remember that the money they will generate just helps fill the spending gap AFTER the legislature had already been forced to slash billions from the state budget. That said—the vote was a real victory and with potential national significance.
State and local governments all over the country are in trouble as a result of the recession and the enormous tax breaks they have been giving business. As the Economic Policy Institute explains:
states face a two-year $357 billion budget shortfall for the fiscal years 2010 (which began in July) and 2011, while local governments face an additional $80 billion shortfall. The American Recovery and Reinvestment Act passed last February has provided much-needed relief, but its $106 billion in aid to states totals only about 25% of the $437 billion state and local shortfall. The rest of the $331 billion has to be met by spending cuts and tax increases.
State and local governments cannot run deficits (unlike the federal government). Therefore they can only balance their budgets in two ways: cut spending or raise taxes. The reality is that cutting public spending will do far more harm to state and local economies (in terms of employment and quality of life) than will an increase in taxes on the wealthy and corporations.
So, what can we learn from the Oregon experience. One is that people may finally be prepared to defend their interests in what has been a rather lopsided class war to this point. Hopefully the victory in Oregon will encourage legislatures in other states to take a similar (and even stronger) stand against more giveaways at popular expense.
Another lesson that must be learned from the Oregon experience is that those with power are well aware of what is at stake. According to the Oregonian, “Tuesday’s tax vote left business leaders frustrated across Oregon, lamenting the bitter tone of the campaign and damage they perceive to the state’s economic climate.”
Lamenting the bitter tone? Who are they kidding? It was the campaign against the measures (led by “Oregonians Against Job Killing Taxes”) that falsely claimed public workers were going to enjoy huge raises and the state had enormous reserves hidden away, and refused to change its claims regardless of the evidence presented.
Among those business leaders most upset with the outcome are some of Oregon’s most well known (and beloved) corporate heads, for example Phil Knight (Nike) and Tim Boyle (Columbia Sportswear). Knight gave some $100,000 to the anti-Measures campaign, Boyle approximately $75,000.
Here is what Phil Knight had to say about Measures 66 and 67 in an article he wrote for the Oregonian:
Measures 66 and 67 should be labeled Oregon’s Assisted Suicide Law II.
They will allow us to watch a state slowly killing itself.
They are anti-business, anti-success, anti-inspirational, anti-humanitarian, and most ironically, in the long run, they will deprive the state of tax revenue, not increase it.
The current state tax codes are all of those things as well. Measures 66 and 67 just take it up and over the top.
According to the Oregonian, Intel, the state’s largest employer, “tried to steer clear of the tax fight.” Why? “One of the reasons we chose to remain neutral was to be in a position after the election to participate in discussions with business, government and labor leaders who want to shape the state’s future,” said Jill Eiland, Intel’s Oregon public affairs manager”.
One can only wonder as to what kind of future corporations have in mind for us. Lets be clear—corporate taxes have been falling for some time in Oregon and nationally, in terms of rates and shares of tax revenue. And profits have been rising. And the great majority of us have suffered as a consequence of the policies that underpinned those trends. A little push back is all Measures 66 and 67 represent—but as corporate responses make clear, those on top are determined to defend their gains regardless of the costs to the rest of us.
The chart above comes from an Oregonian story by Jeff Manning.
It shows that average annual wages for Oregon’s top 2 percent of earners grew by 29.5 percent (adjusted for inflation) over the period 1990 to 2008. By comparison, average annual earnings for those at the 50th percentile grew by only 2.5 percent over the same period.
And of course earnings inequality is far greater than these numbers suggest since they only include wage earnings. The richer the person the more their earnings typically come from investment income.
The significance of these trends: our economy is structured so that only a very few enjoy the benefits of growth. Our challenge then is not to renew existing economic patterns and relations (which is what current government policy seems designed to achieve, even if not very effectively), but rather to create a new economy. And this will have to be an intentional restructuring. Relying on market forces means relying on those who already dominate our economic lives, and it is pretty clear where their interests lie.
The U.S. is not the only country struggling with jobless growth. It is also a problem in South Korea. Sadly, governments in both countries seem to be thinking along similar lines.
This cartoon appeared in the South Korean newpaper Hankyoreh. It is entitled “Insufficient remedy for growth without employment.”
The people at the bottom represent the more than 3.3 million South Korean workers who, effectively unemployed, are left with no option but to eat mud cakes — they are among the victims of the country’s economic strategy that produces “growth without employment.”
The person speaking at the top is the conservative South Korean President Lee Myung-bak, who says, “I will put some nutrients into these mud cakes for you.”
Business Week recently published an article on “The Disposable Worker.” It is well worth reading.
It highlights the ways in which corporations have used their international mobility and the recession to restructure work relations. As a consequence we are getting a bigger and bigger disconnect between what corporations want and what working people need. This means that our crisis is not a corporate crisis and there is no reason to expect that those with power will be responsive to majority interests. Said differently, if we don’t like existing trends we will have to marshal our collective power to change them.
Here are a few quotes from the article:
Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School, says the brutal recession has prompted more companies to create just-in-time labor forces that can be turned on and off like a spigot. “Employers are trying to get rid of all fixed costs,” Cappelli says. “First they did it with employment benefits. Now they’re doing it with the jobs themselves. Everything is variable.” That means companies hold all the power, and “all the risks are pushed on to employees.” . . .
In a typical downturn, the percentage decline in payrolls is about the same as the percentage decline in gross domestic product. But in the recessions that began in 2001 and 2007, the decline for payrolls was much steeper—1.8 percentage points more during the latest downturn. Worse yet, only about 10% of the layoffs are considered temporary, vs. 20% in the recession of the early 1980s.
All that cutting [of workers] has been good for corporate profits. Earnings rebounded smartly as companies kept payrolls down after the 2001 recession; by 2006 profits had hit a 40-year high as a share of national income, at 10.2%, according to Bureau of Economic Analysis data. The credit bust sent that figure plunging to 5.6% during the final quarter of 2008. But over the past year corporate profits’ share has rebounded to 7.4% of national income, equaling the 40-year average. . . .
The Iowa Policy Project, a nonpartisan think tank, estimates that 26% of the U.S. workforce had jobs in 2005 that were in one way or another “nonstandard.” That includes independent contractors, temps, part-timers, and freelancers. Of those, 73% had no access to a retirement plan from their employer and 61% had no health insurance from their employer, the Iowa group said. . . .
When employment in the U.S. eventually recovers, it’s likely to be because American workers swallow hard and accept lower pay. That has been the pattern for decades now: Shockingly, pay for production and nonsupervisory workers—80% of the private workforce—is 9% lower than it was in 1973, adjusted for inflation.
Check out this Business Week page; it includes charts illustrating the growing length of time it takes employment to recover from a recession.
What kind of jobs is our economy likely to create? Every two years the Bureau of Labor Statistics (BLS) publishes a report which includes projections of how many jobs there will be in ten years and in which occupations.
The most recent one came out late last year. Here is one interesting observation:
In 2008, only 21% of jobs required at least a bachelor’s degree. In 2018, it will be 22%. Not a big change. There will be 51 million new jobs created over the next ten years; fewer than 12 million will require at least a bachelor’s degree. We are actually producing more college educated workers each year than jobs requiring a college education.
The report includes a list of the 30 occupations with the largest projected growth over the next decade as well as their expected pay and training/educational requirements. These top 30 occupations include about one half of all net new expected jobs. What do these jobs look like? Well:
24% are rated very high earnings jobs–which means earnings of $51,540 or more (in 2008 dollars).
21% are rated high earnings jobs–which means earnings between $32,390-$51,530.
29% are rated low earnings jobs–which means earnings between $21,590-$32,380.
26% are rated very low earnings jobs–which means earnings of less than $21,590.
Thus, 55% of the jobs in the top 30 will likely be quite low paying. If that is the kind of job creation we can expect, there is no way we can hope to effectively fight poverty. Said differently, faster job creation is no answer to poverty if our economy creates poverty level jobs.
According to the U.S. Department of Labor, the December unemployment rate remained unchanged from November–10%.
Some analysts argue that this “stability” is a hopeful sign, pointing to economic recovery.
If only it were so. In reality, the unemployment rate remained at 10% only because more than half a million (661,000) workers dropped out of the labor force in December. If those people had remained in the labor force and been counted as unemployed the rate would have risen to 10.4%.
Adding to the concern is the fact that long term unemployment also continues to rise; almost 40 percent of currently unemployed workers have been unemployed for more than six months. The average duration of unemployment hit 29 weeks in December, the longest since the government began tracking such data in 1948.
Perhaps not surprisingly in-light of the above, the broadest measure of unemployment [U6], which includes discouraged workers and those working part-time for economic reasons, rose from 17.2% in November to 17.3% in December.
How concentrated is wealth in the US? In 2007, America’s top 1 percent held nearly $3.3 trillion more wealth than the entire bottom 90 percent, according to Federal Reserve Survey of Consumer Finances data released early in 2009.
To make matters worse, as the web site “Too Much: A Commentary on Excess and Inequality” explains:
these figures actually understate the wealth of America’s richest because each Federal Reserve wealth survey ‘specifically excludes’ individuals who appear in the survey year’s Forbes magazine list of America’s 400 richest. In 2007, the Forbes 400 held over $1.5 trillion in wealth, over 2 percent of the nation’s total wealth — and nearly as much as the entire bottom 50 percent of Americans combined.
Ben Bernanke has recently been reappointed chair of the Federal Reserve Board. Time Magazine has proclaimed him 2009 Person of the Year. He has received almost universal praise for his aggressive actions to halt the collapse of our credit system.
But conveniently overlooked in all hoopla is the fact that Bernanke long denied the existence much less the danger of a housing bubble (while his policies were blowing it up) and then was slow to acknowledge the seriousness of the crisis that resulted from the bubble’s collapse.
Thus, Bernanke’s actions (or lack of them) played a critical role in creating the crisis that he finally was forced to confront. Is that a record worthy of Person of the Year honors much less reappointment?
Here are a few quotes that help set the record straight (see the full list compiled by the Center for Economic and Policy Research here):
7/1/05 – Interview on CNBC
INTERVIEWER: Ben, there’s been a lot of talk about a housing bubble, particularly, you know [inaudible] from all sorts of places. Can you give us your view as to whether or not there is a housing bubble out there?
BERNANKE: Well, unquestionably, housing prices are up quite a bit; I think it’s important to note that fundamentals are also very strong. We’ve got a growing economy, jobs, incomes. We’ve got very low mortgage rates. We’ve got demographics supporting housing growth. We’ve got restricted supply in some places. So it’s certainly understandable that prices would go up some. I don’t know whether prices are exactly where they should be, but I think it’s fair to say that much of what’s happened is supported by the strength of the economy.
7/1/05 – Interview on CNBC
INTERVIEWER: Tell me, what is the worst-case scenario? We have so many economists coming on our air saying ‘Oh, this is a bubble, and it’s going to burst, and this is going to be a real issue for the economy.’ Some say it could even cause a recession at some point. What is the worst-case scenario if in fact we were to see prices come down substantially across the country?
BERNANKE: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.
1/10/08 – Response to a Question after Speech in Washington, D.C.
The Federal Reserve is not currently forecasting a recession.
2/27/08 – Testimony before the Senate Banking Committee
I expect there will be some failures [among smaller regional banks]… Among the largest banks, the capital ratios remain good and I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.
6/10/08 – Remarks before a bankers’ conference in Chatham, Massachusetts
The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.