Government Has to Work—or Else

Financial FAQs

We can no longer afford to listen to those conservatives who believe government is the problem, since there is no viable recovery from the worst recession since the Great Depression without government investment in sectors that will grow our future economy—particularly in education, infrastructure and the Research and Development of new technologies such as jump-started the Internet.

So say more economists, such as Nobelist and former chief World Bank economist Joseph Stiglitz in his most recent Vanity Fair article, “The Book of Jobs” that details how we recover from the Great Recession, and which sectors will prosper and expand. This means a “wrenching transition” of our whole economy, as happened in the 1930s, which means government has to be part of the solution.

“The problem today is the so-called real economy,” says Dr. Stiglitz. “It’s a problem rooted in the kinds of jobs we have, the kind we need, and the kind we’re losing, and rooted as well in the kind of workers we want and the kind we don’t know what to do with. The real economy has been in a state of wrenching transition for decades, and its dislocations have never been squarely faced. A crisis of the real economy lies behind the Long Slump, just as it lay behind the Great Depression.”

And so just as with the Great Depression, government has to be part of the transition. Those who advocate little or no government—such as Libertarian candidate Ron Paul who would abolish just about all government—do not seem to realize it would be a return to the beginning of the Industrial Revolution so well documented by Charles Dickens—when there were no child labor laws, for instance.

Or a return to the Great Depression (really two, back-to-back) that lasted almost 10 years when there was no social security, unemployment insurance, or government investments that modernized the industrial sector for World War II.

“It is important to grasp this simple truth: it was government spending—a Keynesian stimulus, not any correction of monetary policy or any revival of the banking system—that brought about recovery,” said Stiglitz. “The long-run prospects for the economy would, of course, have been even better if more of the money had been spent on investments in education, technology, and infrastructure rather than munitions, but even so, the strong public spending more than offset the weaknesses in private spending.”

So, surprise-surprise, the Great Recession wasn’t really the fault of anyone in particular but a cascade of events that are driving us hell-bent out of the industrial, blue-collar era of factory jobs into the White Collar Service and Information Age. And we cannot do this without public-sector investments that must ease the transition; otherwise we are doomed for a “much longer long slump than necessary,” in Stiglitz’s words.

It was small government conservatives like Presidents Reagan and GW Bush that had been wasting taxpayers’ monies to pay for foreign wars and tax cuts since 1980, rather than paying down the deficit or even shoring up social security and Medicare. GW Bush wasted 4 consecutive budget surpluses of the Clinton era. And the low interest rates engineered by Fed Chairman Alan Greenspan for that purpose in turn inflated the housing bubble, lending a sense of false prosperity.

The result of such small government policies was the Fed then took away the punch bowl in 2006 and raised interest rates 17 consecutive times that in effect burst the bubble by raising all those teaser and liar loan interest rates too high for borrowers who shouldn’t have qualified for them in the first place. But that only hastened the inevitable rush away from Industrial to the Information Age. Factory jobs and salaries had already begun to decline in the 1970s along with household incomes for most Americans.

“Today we are moving from manufacturing to a service economy,” says Stiglitz. “The decline in manufacturing jobs has been dramatic—from about a third of the workforce 60 years ago to less than a tenth of it today. The pace has quickened markedly during the past decade. There are two reasons for the decline. One is greater productivity—the same dynamic that revolutionized agriculture and forced a majority of American farmers to look for work elsewhere. The other is globalization, which has sent millions of jobs overseas, to low-wage countries or those that have been investing more in infrastructure or technology.”

“What we need to do instead is embark on a massive investment program—as we did, virtually by accident, 80 years ago—that will increase our productivity for years to come, and will also increase employment now. This public investment, and the resultant restoration in G.D.P., increases the returns to private investment. Public investments could be directed at improving the quality of life and real productivity—unlike the private-sector investments in financial innovations, which turned out to be more akin to financial weapons of mass destruction.”

In other words, we need to put public monies where it will do the most good. Corporate profits today are the highest in history as a percentage of GDP—more than 14 percent—yet their CEOs haven’t been investing it wisely. Most of their profits have been either hoarded, invested overseas, or used to buy back stock to increase the stock options held by corporate executives. It has lined their own pockets, rather than that of their employees and therefore the economy as a whole.

And that is where today’s right and far right wing conservatives want even public monies to flow—into their supporters’ already full pockets—when they won’t allow the Bush tax cuts to expire that have bloated the federal deficit. This will only hasten the decline of America already suffering from record high income inequality, low rates of social mobility, record high violent crime rates, and a government they don’t want to work for the future of all Americans.

Government has to work—or else.

Harlan Green © 2011

No ‘Double-Dip’ (In Spite of Republican Efforts)

Financial FAQs

There will be no double-dip recession, in spite of the wild rumors and the S&P downgrade of U.S. debt to AA+. So what are the markets worried about? It is the lack of political leadership, which means government support of jobs’ and other growth programs.With corporations’ record profits over the past 2 years plus a $2 trillion cash hoard, and banks’ $1 trillion in excess reserves, there is no way the U.S. economy can sink back into recession territory. No, but Republicans efforts to stymie further stimulus spending could slow growth enough to upset Obama in 2012.

In other words, Republicans are purposely blocking any new efforts to stimulate growth. They want the economy to fail, so that President Obama will fail. They hate Barack Hussein Obama so much, in other words, they are willing to blatantly lie about the effectiveness of government stimulus spending. Obama’s problem is he doesn’t’ welcome their hate, as did President Roosevelt, and thus hasn’t unmasked their blatant hyprocrisy.

It is not new news, unfortunately, that Republicans’ words have not matched their actions. They love government stimulus when it is spent in their districts, and they even know it creates jobs—in their districts, of course.

Rachel Maddow has been talking about this for some time, and Huffington Post’s Sam Stein reported on leading Tea Partier Michelle Bachman’s many requests for some of the Obama stimulus $$ to be spent in her Minnesota district.

“A Freedom of Information Act request filed by The Huffington Post with three separate federal agencies reveals that on at least 16 separate occasions, Bachmann petitioned the federal government for direct financial help or aid”, says Stein. “A large chunk of those requests were for funds set aside through President Obama's stimulus program, which Bachmann once labeled "fantasy economics." Bachmann made two more of those requests to the Environmental Protection Agency, an institution that she has suggested she would eliminate if she were in the White House.”

Rachel’s ‘They’re Not Embarassed Hall of Fame’ includes 110 Republicans who have touted the success of the Obama stimulus spending in their districts in 2009-10, while saying publicly it wasn’t a success. Her Blog links to research by such as the Center For Public Integrity.

“Individually, over half of the entire Republican caucus has hailed nearly every aspect of the stimulus as a success — from infrastructure funds, to food programs, to education grants,” said the Center in joint research on their past record. “But politically, admitting its success might harm the GOP’s chances in November (2010). So with Republicans fixated on winning politically, they have focused on deceiving the public by calling the stimulus a failure, while pretending successful programs aren’t stimulus funded.”

Then, “Rep. Pete Sessions, the firebrand conservative from Dallas, Texas, who has relentlessly assailed the Democratic-passed stimulus law as a wasteful "trillion dollar spending spree", said the Center For Public Integrity, didn’t prevent him from asking for stimulus funds in 2010 that “…will create jobs, stimulate the economy, improve regional mobility and reduce pollution,” in his district.

In fact, the list is huge. Those asking for money before the 2010 election included “Tea Party favorites like freshman Massachusetts Sen. Scott Brown and Rep. Michele Bachmann, R-Minn., former presidential candidates Ron Paul and John McCain and Republican congressional leaders like Senate Minority Leader Mitch McConnell of Kentucky and Rep. Mike Pence of Indiana,” said the Center for Public Integrity.

But the economy is in fact reviving, as lower initial jobless claims and the Labor Department’s JOLT survey point to more hiring in the second half of 2011. For instance, Bond Trader Wrightson-ICAP said the June report on job openings and labor turnover (JOLTS) was a little less sluggish than expected. Total job openings climbed to 3.11 million, which is just below the March peak of 3.12 million.

“The pace of new hires and separations both fell modestly in June, as expected, but did so from upwardly-revised May levels. While the labor market remains less dynamic in terms of gross worker flows than was the case prior to the recession, the data for May and June were not quite as soft as anticipated.”

Wrightson ICAP has also taken issue, as has this reporter, with the recent downward revisions to GDP growth that were one of the causes for alarm that a double-dip was immanent. (The BEA had released revisions for GDP that showed the recession was significantly worse than originally estimated, mostly because consumers had cut back.) Hiring during the first 3 months of 2011 totaled more then 200,000 per month, with 1.96 million nonfarm private payroll jobs created in just the past 13 months. And 154,000 private payroll jobs were added in July, with expectations it will be revised upward. In fact, quarter GDP growth numbers are notoriously inaccurate. For instance, last year’s Q2 growth was revised upward from 1.8 percent to 3.8 percent, largely due to the government stimulus spending.

But consumers aren’t cutting back, as the Fed’s consumer credit report cited a huge surge in consumer borrowing. Though personal consumption was reported to have contracted in June (a lagging indicator?), you'd never know it from June consumer credit data, which show a $15.5 billion surge for the largest gain in more than four years. This is in part because auto sales are surging again, as well as back to school sales.

The gain is led by a $10.3 billion surge for non-revolving credit, less of a surprise given June's strength in motor vehicle sales, says Econoday. But the best news may be revolving credit which rose $5.2 billion for a second straight solid gain.

The result is that retail sales have surged to more than 8 percent—a number from the boom times. So look for higher GDP growth ahead, and no double-dip. The question is why haven’t Democrats called the ‘They’re Not Embarassed Hall of Famers’ on their incredibly blatant hypocrisy that gained the Republicans so many seats in 2010? Why can’t Democrats welcome the hate of their enemies, as did President Franklin D Roosevelt?

Harlan Green © 2011