Archive for April, 2011
The conventional wisdom may well celebrate the private sector for its job creating abilities, but economic trends don’t provide support for this celebration. In fact, private sector job creation has been on the decline for many years now–even during periods of economic expansion.
This development is well illustrated by the chart below taken from Businessweek. Each data point shows the percentage change in private sector job creation over the preceding decade.
The declining trend from the mid-1980s, and especially after 2001, means that, year-by-year, fewer private sector jobs were being created. Michael Mandel sums up the situation as follows:
Between May 1999 and May 2009, employment in the private sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period. It’s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years.
One likely explanation for the especially poor private sector job creation performance over the last decade: the global profit strategy of U.S. multinationals. As the Wall Street Journal explains:
U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers, have been hiring abroad while cutting back at home, sharpening the debate over globalization’s effect on the U.S. economy.
The companies cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million, new data from the U.S. Commerce Department show. That’s a big switch from the 1990s, when they added jobs everywhere: 4.4 million in the U.S. and 2.7 million abroad. . . .
The data also underscore the vulnerability of the U.S. economy, particularly at a time when unemployment is high and wages aren’t rising. Jobs at multinationals tend to pay above-average wages and, for decades, sustained the American middle class.
This employment trend is illustrated below:
General Electric is one of the companies that has led the way in charting this globalization strategy and its corporate leaders are not shy about defending it. Significantly, President Obama recently appointed Jeffery Immelt, GE’s current chief executive, to be head of the President’s Council on Jobs and Competitiveness.
In this light it is well worth watching the 3 minute video interview with the author of the above cited Wall Street Journal article. At the end of the video we learn that Immelt’s advice to the U.S. government for reversing the loss of U.S. jobs is more tax cuts for corporations and better efforts to improve the nation’s education and infrastructure. One can only wonder how he proposes to pay for the latter–there was no mention of slashing the military budget, for example. It is hard to take this kind of advice seriously.
So, what does all of this mean? In broad brush: while continued reliance on profit driven market activity may well boost corporate earnings, it won’t do much for working people. If job creation is important to us, we are going to have to transform our economic system.
The Wall Street Journal reports that Workforce Central Florida, a “labor development agency” that receives federal money and is run by more than 40 central Florida business leaders, is giving out “satiny” superhero capes to boost the moral of the unemployed and encourage them to use the agency’s services. Yes, that’s right, superhero capes to encourage the unemployed to fight and defeat Dr. Evil Unemployment (pictured below).
However, according to the Orlando Sentinel, the idea isnt going over so well , especially with the superheros:
State labor officials asked their inspector general Monday to investigate why a Central Florida agency wants to spend public money to furnish the unemployed with capes.
Dubbed the “Cape-A-Bility Challenge,” a $73,000 public-relations campaign by Workforce Central Florida features a cartoon character named “Dr. Evil Unemployment” and includes handing out about 6,000 red superhero capes to jobless Central Floridians.
The campaign, revealed Saturday in a report in the Orlando Sentinel, was met with derision by many unemployed who questioned spending more than $14,200 on capes and $2,300 on foam cutouts of “Dr. Evil Unemployment.” They said the campaign’s tone risked minimizing the severity of the region’s labor problems. . . .
Workforce is a federally funded labor development agency that last year received almost $24 million in public money. It is a private, nonprofit organization governed by more than 40 Central Florida business leaders.
Here is a link to a picture gallery on the agency’s website of unemployed fighting mean old Dr. Evil Unemployment. One of the superheros (capeless) is pictured below.
Keep your eye on that Florida unemployment rate–we have the makings of a real national strategy.
The big push is on to blame government for holding back economic progress. Slash taxes, cut spending on social programs, and weaken laws that support unions, we are told, and employment and investment will soar. Of course, we already tried this strategy and the results were not good.
Beginning in the 1980s, tax rates were slashed for corporations and the wealthy, regulations were reduced, unions were weakened, corporate mobility was enhanced—and what did we get: slow growth, declining earnings, greater economic insecurity, and fewer social services. Why did we stick with this strategy for so long? The answer is simple: growing income and wealth for those at the very top of the income scale.
One might have thought that the recent economic crisis would have discredited this “free-market” theory of economic progress. Afterall, we escaped a major depression only because of a massive government bailout of corporate America. Yet, ironically, this same corporate America is now claiming that the huge bailout, the very bailout that saved it, is what is keeping us from enjoying future economic growth. Without any hint of embarrassment, leading corporations are arguing for the very same policies that got us into this mess in the first place. I guess given how well they did the first time around, who can blame them.
The fact is that cutting taxes and social spending and weakening unions will produce a new disaster for the great majority of us. We are experiencing economic stagnation. The housing bubble that supported growth last decade–although not a sound economy–is over. If we don’t get serious about raising taxes and using that money to finance new government programs aimed at achieving economic restructuring, putting new restrictions on corporate mobility, and implementing new laws that support unionization, majority living and working conditions will worsen. We have been in an expansion since mid-2009—-these are the “good times.” Imagine what life will be like when the next downturn comes.
One way to appreciate the strength of stagnationist forces is to look at our banking system and its holdings of excess reserves. As the chart below reveals, banks are just piling up money. Excess bank reserves totaled $2 billion as recently as August 2008; they are now almost $1.4 trillion. Banks are not lending because they don’t see any gain in it. And they don’t see any gain because of the depressed economic conditions.
Does anyone really believe that cutting government spending will suddenly spur profitable loan opportunities, that business will suddenly become eager to hire workers, increase their pay, and invest in new plant and equipment? One might think that even the banks would be unhappy with this situation. Well they might have been except for the “subsidy” they get from the government; the Federal Reserve, since October 2008, is paying banks interest on their excess reserves similar to the rates on short-term Treasury securities. Banks pay us almost no interest on the money we deposit in them, and then the Federal Reserve pays them a nice interest rate just for holding our money–such a deal.
No wonder corporate America is happy with the status quo.
I have been highly critical of President Obama for his economic policies. But, to be fair, President Obama does have one significant accomplishment to his credit: restoring the pre-crisis level and distribution of corporate profits.
As the chart above shows financial sector profits are again over 30% of all corporate profits and heading higher. Now, ratios are tricky and this could be due to a massive slump in non-financial corporate profits. It could be, but it isn’t. As the chart below shows, total domestic corporate profits are almost back to their pre-crisis level as well.
As Felix Salmon concludes when examining the chart above:
What this chart says to me is that nothing has changed, and nothing is going to change. . . . Any dreams of seeing a smaller financial sector have now officially been dashed. And the big rebound in corporate profits since the crisis turns out to be largely a function of the one sector which we didn’t want to recover to its former size.
Now, one might want to object that Obama has done little more than recreate what existed under the previous administration and therefore doesn’t deserve much credit. But, we have to remember that in the pre-crisis period we had first a stock market and then a housing bubble driving up financial profits. We don’t have bubbles any more. Thus, government policy is really the main cause of these soaring financial profits and that is why I credit President Obama. For example, the Federal Reserve bought trillions of dollars of bad financial assets from the financial sector. It also aggressively lowered interest rates to near zero, keying a recovery of stock and bond markets and making it possible for banks to obtain new funds at little cost.
In short, one has to give credit where credit is due. Of course, it would have been nice to credit President Obama for policies that helped working people, but . . .
And be prepared for still more bad news. Having generally accepted the destructive Republican line that the federal deficit is the primary cause of our slow economic recovery, President Obama is apparently preparing a budget proposal that includes significant reductions in social spending. Those reductions won’t be as big as those proposed by the Republicans; that way he can say that we really do have a choice. Some choice. What we really need is more spending and more taxes on the rich and corporations, and a restructuring of existing patterns of investment and production, changes that the majority of Americans appear to support.
One can only hope that events are working to shape a coalition of middle-class youth (who face a future with debts and no full time employment), urban poor (who face a future with no jobs and no social programs), and union members (who face a future of low wages and economic insecurity without union rights) that will prove able to transform the political environment.
Understandably, jobs, or the lack of them, is a big topic of conversation. But, times are hard even for those with jobs. Simply put, more and more working people are finding it increasingly difficult to make ends meet.
Thanks to a study commissioned by the non-profit group Wider Opportunities for Women, we now have a new set of income standards that are far more useful than the poverty line or minimum wage for gauging how well working people are faring. The authors of the study created “thresholds for economic stability.” In other words they actually estimated how much different households needed to secure a minimum but meaningful standard of living, one that included some savings for retirement and emergencies. A summary of their work is highlighted in the table below.
As the New York Times explains:
According to the report, a single worker needs an income of $30,012 a year — or just above $14 an hour — to cover basic expenses and save for retirement and emergencies. That is close to three times the 2010 national poverty level of $10,830 for a single person, and nearly twice the federal minimum wage of $7.25 an hour.
A single worker with two young children needs an annual income of $57,756, or just over $27 an hour, to attain economic stability, and a family with two working parents and two young children needs to earn $67,920 a year, or about $16 an hour per worker.
That compares with the national poverty level of $22,050 for a family of four. The most recent data from the Census Bureau found that 14.3 percent of Americans were living below the poverty line in 2009.
To develop its thresholds, the authors of the study used a variety of public data. For example:
For housing, which along with utilities is usually a family’s largest expense, the authors came up with “a decent standard of shelter which is accessible to those with limited income” by averaging data from the Department of Housing and Urban Developmentthat identified a monthly cost equivalent for rent at the fortieth percentile among all rents paid in each metropolitan area across the country.
They chose a “low cost” food plan from the nutritional guidelines of the Department of Agriculture, and calculated commuting costs “assuming the ownership of a small sedan.” For health care, they calculated expenses for workers both with and without employer-based benefits.
Given that the poverty lines fall far short of the thresholds established by the report, and these thresholds are themselves bare-bones, there can be little doubt that the actual U.S. poverty rate far exceeds the official estimate of 14.3 percent.
Faced with this reality, the current moves to cut social programs and break unions seems down right criminal.