A Ted Cruz Presidency?

Financial FAQs

Texas Senator Ted Cruz is about to announce his candidacy for the 2016 presidential campaign. What would his presidency look like, if he were elected? “Mr. Cruz has also begun championing a message of economic populism,” said the NYTimes on his announcement of candidacy, “denouncing income inequality and borrowing the “two Americas” metaphor used most famously by former Senator John Edwards in two unsuccessful campaigns for the Democratic presidential nomination.”

Let’s start with his silliest proposal to abolish the IRS. It tells us how he really views income inequality. There would then be no means to collect the taxes that pay his Senator salary. So he would have to work for nothing. Is that how he will tackle the scourge of income inequality afflicting those Americans that work for little or nothing?

We also know what his presidency might look like from another far right Tea Party favorite and potential candidate’s agenda; Wisconsin Governor Scott Walker. Walker’s first priority has been to downgrade union organizing and education funding in Wisconsin, in order to deprive Democrats of union support, as well as dumb down his own electorate. The result has been the lowest job creation and growth rates of all neighboring states.

Senator Cruz’s programs would have a similar result—would in fact increase income inequality—as he has opposed every economic program that would better ordinary Americans’ lives, including raising the minimum wage. “If you raise the minimum wage, the inevitable effect will be, number one, young people will lose their jobs or not be able to get their first jobs,” he said in 2013 in reaction to President Obama’s inauguration speech that included a call to raise the national minimum wage to $9 per hour.

But history has shown just the opposite effect. Where ever the minimum wage has been raised—such as in Seattle, Washington where it is $15/hr., or the state of Minnesota, where it will be $9.50/hour for large employers in 2016, employment is thriving. Seattle’s unemployment rate is now under 5 percent, and Minnesota’s unemployment rate has dropped to 3.6 percent, the lowest in 13 years.

He also opposes any climate change legislation that would reduce our dependence on carbon-creating fossil fuels, including his support of the Keystone XL Pipeline, and more offshore oil drilling. Yet even the Pentagon has documented the extreme economic costs, including future wars, of ignoring the effects of Global Warming.

And how about his call for greater liberty? He also opposes all forms of amnesty for Illegals, or ‘undocumented’ immigrants, though he’s the son of a Cuban-born immigrant. This would greatly restrict the freedom of those immigrants to become American citizens, of course.

Cruz has particularly stressed his opposition to President Obama’s executive actions on immigration, said the PBS Newshour. The Texas senator filed a bill blocking the president’s actions, which allow more undocumented residents to gain legal status, including the administration’s waivers for young people brought to the U.S. as children. Cruz argues that those actions encouraged increased illegal immigration.

And how about his call to dissolve the Affordable Care Act? Killing Obamacare would increase the poverty of the poorest and sickest among US that cannot afford, or would be ineligible for private health care insurance.

No, Senator Cruz’s presidency would neither create more liberty, nor better the lives of the poorest that suffer most from income inequality. Those liberties have been under steady assault by Tea Party members, in particular, with their no compromise positions on even the most basic poverty alleviating programs.

So his words don’t match his actions. Isn’t that called pandering, when a politician will say anything to win votes?

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Celebrating Our Great Society

Popular Economics Weekly

We are in the midst of celebrating the 50^th anniversary of President Johnson’s Great Society, enacted for the most part from 1964-66, perhaps the greatest legislative achievement of any president since FDR and the New Deal.

We know how FDR’s New Deal improved the lives of millions, literally preventing tens of thousands from starving to death during the Great Depression, and giving millions more a useful and productive public service job when there were none to be had in the private sector.

But the results of the Great Society are perhaps more mixed. That’s only if we wonder what might have happened if the U.S. economy was an ideological utopia, which didn’t go through its cycles of boom and bust, or the Vietnam War, or an Arab Oil Embargo, or 5 recession since 1980—the housing bubble and Great Recession being the latest examples.

Many of the programs were stymied by those events that took money away from social programs; in particular the Office of Economic Opportunity that funded many public programs similar to the Depression’s WPA. Conservatives’ ire is particularly directed at the spending for anti-poverty programs that were supposed to eliminate poverty, but were in fact meant to give the poorest a ‘leg up’ in their race to escape poverty.

Spending to help the poor doubled from 1965-68, and within 10 years the percentage of Americans living below the poverty line declined to 12 percent from 20 percent. Those were also the years of highest economic growth of the middle class. The rate has fluctuated greatly in the past 50 years. According to the census, 15.9 percent of Americans lived in poverty in 2012, which is just a couple of points lower than where the Census estimates it stood in 1965.

We really don’t know, for instance, how many jobs were created by the Office of Economic Opportunity. Those were also boom years when President Johnson dropped the top marginal tax rate from 91 to 71 percent. More than 4 years of 6 and 7 percent Gross National Product growth followed, employing anyone that wanted a job. The U.S. Gross National Product (Since 1991 the U.S. has used Gross Domestic Product as a more accurate measure of US output.) rose 10 percent in the first year of the tax cut, and economic growth averaged a rate of 4.5 percent from 1961 to 1968, says Wikipedia.

Johnson's tax cut measure triggered what one historian described as "the greatest prosperity of the postwar years," according to the Washington Post. GNP increased by 7, 8 and 9 percent in 1964 to 1966, respectively. The unemployment rate fell below 5 percent. But the OEO did much more, as did most of the Great Society programs.

Do we really have to be reminded of the Clear Air and Water Acts that have kept our water and air cleaner than they would have been otherwise?  Or the Civil and Voting Rights Acts that banned discrimination and abolished the blatant ban on African Americans voting in the South?  Or the enactment of Medicare and Medicaid that has reduced the poverty rate of seniors from 1 in 7 living below the poverty line in 1965 to 1 out of 3 in 2013? 

We also now have consumer protection laws such as the Cigarette Labeling and Advertising Act requiring labeling of dangerous chemicals in cigarettes, and the National Highway Safety Administration setting safety standards for our highways.  Almost all of the Great Society programs have saved or improved the lives of millions of Americans.

That is something that can only be measured in non-economic ways. Head Start, for instance, has served more than 31 million children from birth to age 5 since 1965. In 2012-13, 1.13 million children and pregnant women were served by Head Start, according to the program. The vast majority – 82 percent – were children ages 3 and 4.

And how do we measure the value of its cultural contributions, such as PBS, the Public Broadcasting System that has 987 stations nationwide – most locally owned and operated – that broadcast NPR programming?

The Great Society also led to the fruition of the John F. Kennedy Center for the Performing Arts in Washington and created the National Endowment for the Humanities, which is one of the largest arts and culture funders in the United States.

These institutions and programs of the Great Society have in fact given a national voice to our hopes and dreams, because a nation that doesn’t care for its citizens’ hopes and dreams is a nation that has no future.

Harlan Green © 2015

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Europe on Verge of Recession

Popular Economics Weekly

Oil prices are plunging below $50 per barrel, and the European Central Bank is about to announce whether it will begin its own Quantitative Easing program, similar to the Fed’s purchase of government securities that is designed to pump more money into Europe’s lagging economies. So economists are wondering whether this will have a net plus effect on growth, since the oil industry and countries like Norway that depend on oil revenues will lose profits, while the EU is slipping into outright recession.

A Saudi oil Prince has said oil prices will stay down for a long period—years, of necessary to support their market share. “If supply stays where it is, and demand remains weak, you better believe [the price of oil] is gonna go down more. But if some supply is taken off the market, and there’s some growth in demand, prices may go up. But I’m sure we’re never going to see $100 anymore,” said Prince Alwaleed bin Talal, the billionaire Saudi businessman, in an interview with Maria Bartiromo of Fox Business News published in USA Today.

The initial result seems to be that U.S. consumer confidence is soaring as gas prices have fallen more than $1 per gallon in a year, even below $2 per gallon in many regions. But other prices are falling as well, which is worrying economists, who see it as a sign of weakening demand. Weak demand may be elsewhere in the world, such as Europe, but it affects the U.S. economy as well.

Graph: Econoday

Such weakness is difficult to reverse as the Japan’s two decade example of outright deflation proved. It knocked them down from second to fourth largest world economy.

Europe is having the same problem, mainly due to its austerity policies that have cut back government spending, and so demand for its goods and services. Switzerland just rang the alarm bells when it very suddenly removed its 1.2 euros to Swiss Franc exchange rate cap, thus causing the SF value to skyrocket. Why did it take the cap off? There is lots of conjecture. The Swiss had been protecting their currency exchange value from rising too rapidly by buying euros, in order to protect their export industry.

But allowing the Swiss Franc to rise as much as 20 percent against the euro also raised the danger of a deflationary spiral such as happened in Japan. Why? A more expensive SF will counteract the upcoming QE purchases of the European Central Bank that are designed to put more euros into circulation in order to ease credit conditions! .

Nobelist Paul Krugman said in a recent blog, “By throwing in the towel on the peg to the euro, the SNB (Swiss National Bank) immediately convinced markets that its previous apparent commitment to do whatever it takes to avoid deflation is null and void. And this expectations effect trumped the concrete, immediate policy of drastically negative interest rates on reserves. It will continue to feed the deflationary trap Europe is falling into.”

European deflation is happening in a big way. Eurozone annual inflation rate was recorded at -0.2 percent in December, matching preliminary estimates. It is the first fall in consumer prices since September of 2009, due to a drop in energy costs.

Graph: Trading Economics

In December 2014, negative annual rates were observed in sixteen Member States. The lowest annual rates were registered in Greece (-2.5 percent), Bulgaria (-2.0 percent), Spain (-1.1 percent) and Cyprus (-1.0 percent). The highest annual rates were recorded in Romania (1.0 percent), Austria (0.8 percent) and Finland (0.6 percent). Compared with November 2014, annual inflation fell in twenty-six Member States, remained stable in Sweden and rose in Estonia.

The U.S. inflation rate is still 1.3 percent, but this month’s Consumer Price Index for retail prices was unchanged, which is hovering very close to deflation. Oil prices are the main culprit here as well.

There is a counterbalancing effect from lower energy costs, of course. Consumers have more to spend and production costs are reduced. So prices could begin to rise again as more jobs are created. But that means no more austerity that has damaged growth in the U.S. as well, and congressional opposition to spending measures that will create more jobs. Who is willing to bet that will happen?

Paul Krugman had the last word yesterday. “So the (EU) market is saying both that there are very few good investment opportunities out there — few enough that paying the German government to protect the real value of your wealth is a good move — and that inflation over the next five years will be around 0.4 percent, not the target of 2 percent.”

Look out below for more falling prices and slowing growth, if Draghi and the ECB can’t stimulate some EU growth with its upcoming QE purchases of sovereign debt.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

The Economic Consequences of Too Much Inequality

Financial FAQs

A new report released by the World Economic Forum, ranks rising inequality as the top trend facing the globe in 2015, according to a survey of 1,767 global leaders from business, academia, government and non-profits, many of whom convened recently in Dubai.

Its effects are barely known to economists, much less politicians. The U.S. has far and above the greatest income inequality in the developed world, as well as the highest crime and prison incarceration rates. Yet even economists such as Nobelist Paul Krugman can’t agree that this has had a measurable effect on economic growth!

Graph: The Spirit Level

Then what economic growth are we discussing when so many working age men (and women) are in prison, 2,300,000 at last count, the minimum wage is still $7.25 in most states, and we have had 5 recessions since 1980? Economists can’t be looking at the 90 percent of Americans that haven’t experienced any economic growth since 2009, and the recovery from the Great Recession.

The soaring inequality today matches that of 1928 before the Great Depression, and it is causing irreparable damage to our economy. Yet very little has been done about it, other than the American Recovery and Reinvestment Act’s $835 billion stimulus package of 2009 that saved or created some 3 million jobs according to the Congressional Budget Office, but whose effect petered out quickly in 2010 and reduced GDP growth to 2 percent until recently.

Economic growth has resumed with 321,000 nonfarm payroll jobs created in November, but 8 million jobs and at least $6 trillion in economic output were lost during the Great Recession, and . And with a Republican congress taking over in January, economic forecasters such as Macroeconomic Advisors are not optimistic about more job creating programs in the works due to a resumption of the budget battles soon to come, in spite of Republican protestations from new Senate Majority Leader Mitch McConnell that there will be no more government shutdowns.

Joel Prakken, a Macroeconomic Advisors co-founder, cited the effect further budget battles could have on growth in the New York Times. Past fights and the ensuing downgrade of U.S. government debt has cost approximately 1 percent in economic growth, which means instead of the 2.15 GDP growth average since Republicans took over the House in 2011, we could have had 3 percent plus growth and many more jobs.

How does inequality most affect growth? The classic answer is that since consumers power some 70 percent of economic activity, their spending power must be the driver of growth, and they cannot spend or save more with declining incomes, as the graph should make abundantly clear.

But it must be a quality of life issue, as well. How can we continue to live well in the most violent society in the developed world, with outmoded public infrastructure and educational facilities?

Richard Wilkinson and Kate Pickett’s The Spirit Level, a 30-year study of the effects of inequality, has said it best.

“Research has shown that greater inequality leads to shorter spells of economic expansion and more frequent and severe boom-and-bust cycles that make economies more vulnerable to crisis,” say Wilkinson and Pickett. “The International Monetary Fund suggests that reducing inequality and bolstering longer-term economic growth may be "two sides of the same coin". And development experts point out how inequality compromises poverty reduction.”

The consequences of growing inequality are too great to ignore.  We now know from history what they are—two great economic downturns that can only be corrected with a return to the values that have made the U.S. great—economic justice for all.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Republicans Just Don’t Get It--II

Financial FAQs

Why don't Republicans get it? The 11 million illegal immigrants who have lived and raised families in the U.S. is the latest millstone around their necks that derails any hope of a Republican presidency. Last year a bi-partisan Senate passed a bill on a 68 to 32 vote that would eventually allow them citizenship, but John Boehner refused to bring it up to a House vote.

And so President Obama just issued a directive that will defer 5 million illegals from any legal action, which polls show 85 percent of Hispanics support. And we are a country founded by immigrants with every ethnic and racial group protected by our constitution.

Republicans haven’t really gotten it since the 1970s, when they supported policies to maximize profits at the expense of jobs and household incomes by weakening government oversight and regulations. It is a well-documented story of poor job creation and middle class income reductions that enabled the massive transfer of wealth (and power) to business owners and corporate CEOs—the investor class—and away from their employees that has continued today.

Forbes.com

Yet a country is only as strong and able to care for and protect its citizens as its government. That’s been the history lesson that today’s Republican leaders have forgotten—the lessons that earlier Republicans knew. It was Republican Presidents, such as Eisenhower that built our freeway system (when the maximum income tax rate was 92 percent), and President Nixon signed the Clean Air Act with a unanimous Senate.

The 1970s soon changed such cooperation. Republicans and their business interests began creating policies that made government more business friendly and less middle class friendly. Maybe it was the Arab Oil Embargo and the realization of how vulnerable we were to a disruption of energy supplies. It was also the era of so-called stagflation that lasted until 1980 with its sky high inflation and devalued assets.

We saw the growth business friendly lobbies, such as the Business Roundtable that began to spend heavily to influence elections and ease trade restrictions. That’s when President Reagan sounded the death knoll for unions (and collective bargaining) with the firing of Air Traffic Controllers in the PATCO strike. Corporations suddenly found it easier to terminate their employees and export those jobs and manufacturing plants overseas.

Household incomes began to shrink forever after, as President Reagan pushed through cuts in the maximum income tax rates for the wealthiest that had enabled Presidents Eisenhower to build our public infrastructure (when the maximum income tax rate was 92 percent), and Johnson to finance the Great Society that lowered poverty rates.

It was the beginning of President Reagan’s Trickle Down economic policies that his Budget Director David Stockman (in The Triumph of Politics) soon realized created horrendous budget deficits, with very little trickling down to the middle classes and below.

It made the conservatives credo of self-sufficiency a lie, as Republicans now blocked any attempt to raise the minimum wage. For how could families be self-sufficient and live on a minimum wage, unless they held two and three jobs, thus harming their families, and children of any chance for a good education?

Republicans have continued their all-out assault on government with their attempts to defund Obamacare that how insures tens of millions for the first time at lower costs, while continuing their efforts to privatize social security and Medicare.

Even public safety has been compromised with their refusal to help states rebalance their budgets that resulted in the loss of so many public employees during the Great Recession, such as police and teachers.

There is in fact no area that Republicans haven’t weakened the public commonweal. Every one of the Democrats’ infrastructure and job creation bills since 2011 have been blocked by either Senate or House Republicans in the name of paying down the public debt. Yet the productivity improvements and increased tax revenues generated by those jobs and an upgraded infrastructure are the only way to pay down that debt. And Republicans backed by their conservative lobbyists will no doubt continue to do so, until our road and bridges are no longer drivable.

It is a sad state of affairs when Republicans are no longer the wealth creators, but have become the party of no. Instead of finding ways to increase our productive capacity and boost household incomes, which are the real wealth creators, they continue to benefit the few at the top of the food chain, most of whom are only interested in enriching themselves.

PS—In an update of the 2012 jobs chart shown above, more net jobs have been created under Obama — 5,142,000 as of the August jobs report — than under George H.W. Bush — 2,637,000 — and George W. Bush — 1,282,000 — combined, according to the Federal Reserve Bank of St. Louis.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Republicans Just Don’t Get It

Financial FAQs

There is a reason why it has taken so long to emerge from the Great Recession. And the Republican leaders of the House and Senate with their new majorities exemplify why we have barely emerged from it.

They continue to attempt to downsize government and regulations of any kind, including Dodd-Frank, when it was the lack of adequate regulation during Republican GW Bush’s term that caused the financial meltdown and Great Recession. This is while the lack of government spending on basic public works projects has been a major drag on economic growth.

There was a consequent output decline of more than 6 percent of GDP from the Great Recession—that’s 6 percent of the now $16 trillion in goods and services that were never produced, while some 8 million workers lost their jobs causing incalculable damage to families and communities.

Yet Republicans still intone the same rote messages that regulation of any kind is harmful.

"The administration's biggest hit on the economy has been the aggressive over-regulation that has descended on virtually all of American private enterprise and that's the reason we've had such a slow recovery after the Great Recession of 2008," said new Senate Majority Leader Mitch McConnell. "It's reasonable to assume that we'll be pushing back against this bureaucratic excess across the board."

And House Speaker John Boehner quickly listed his major priorities--“Fix our broken Tax Code, address the debt that’s hurting our economy and imprisoning the future of our kids and grandkids, reform our legal system, reshape our regulatory policy to make bureaucrats more accountable, and give parents more choices in a system that isn’t educating enough of America’s children.”

But Republicans haven’t helped. They have fought almost every growth stimulus program, and tanked the economy to boot, with the debt ceiling debacle that shut down government and downgraded the government debt.

Now they want to do it again with their new majorities. In an attempt to keep their diminishing power base, they restrict voters’ right, collective bargaining and oppose minimum wage programs of any kind that would increase household incomes.

They believe supply stimulates demand, which is supply-side economics, when it is exactly the opposite. Producing ever more things without the means to buy them depresses prices, which depresses profits.

Whereas boosting incomes increases the demand for goods and services that stimulates supply and profits, which comes from increased household incomes. So when they oppose raising the minimum wages and collective bargaining, they are literally restricting the growth of household incomes, and so growth.

And the result is a very deflationary environment that becomes a vicious circle. Falling prices that in turn mean falling incomes and rising unemployment. It’s as simple as that, yet Republicans don’t seem to get it.

It has also led to the greatest income and wealth inequality since 1928--the last time we had a Great Depression.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

IMF Report—Europe Is Becoming Japan

Financial FAQs

The International Monetary Fund doesn’t want to say it outright, but its latest World Economic Outlook shows more stagnation of the European and Japanese economies, and the possibility of a third EU recession since 2008.

Could the EU become another Japan with its 20 years of downward spiraling deflation and slow economic growth that caused its economy to fall from second to forth in size, behind the U.S., Euro area, and China? We think so, if its austerity policies aren’t reversed. Instead of reducing deficits, more public spending should be allowed when private sector businesses and households are saving more and spending less.

EU GDP growth shrank -0.7 and -0.4 percent in 2012, 2013 respectively and the Euro Area is projected to grow just 0.8 percent in 2014. IMF chief economist Olivier Blanchard said in his blog that “Growth in the euro area nearly stalled earlier this year, even in the core.  While this reflects in part temporary factors, both legacies (ie, debt), primarily in the south, and low potential growth, nearly everywhere, are playing a role in slowing down the recovery.”

Trading Economics

And “Japan is growing, but high public debt inherited from the past, together with very low potential growth going forward, raise major macroeconomic and fiscal challenges,” said Blanchard. Japan’s economy grew 1.5 percent in 2012 and 2013, and is projected to grow 0.9 percent in 2014, according to the IMF. This is when U.S. GDP is projected to grow 2.2 percent in 2014 and 3.1 percent in 2015, according to the IMF.

Why the stagnation when Europe and Japan are now the second and fourth largest economies in the world, as we said? Much of it has to do with their own economic policies that underestimated the depth of their respective asset bubbles causing major recessions when they burst. And so both economies suffered in their own way from misplaced austerity policies.

Japan’s malaise has been ongoing since 1995, due in large part to its kieretsu system of interlocking industry ownerships that kept policymakers from writing down bad debts in a timely manner. Good money was thrown after bad debt in an attempt to rescue ailing companies and industries. This resulted in decades of downward spiraling deflation that only now is being addressed by their new Prime Minister Abe with massive public spending that is finally curing the deflation, at least.

Yet the EU has still not reversed their austerity policies of public spending cuts, though EU Central Bank head Mario Draghi has announced a program of Quantitative Easing, much like the Fed’s QE programs.

As Nobelist Paul Krugman said on the Bill Moyers Show ( and many other times),“ “The only obstacles to putting people to work, to having those lives restored, to producing hundreds of billions, probably 900 billion a year or so of extra valuable stuff in our economy, is in our minds. If I could somehow convince the members of Congress and the usual suspects that deficit spending, for the time being, is okay, and that what we really need is a big job creation program, and let’s worry about the deficit after we’ve had a solid recovery, it would all be over. It would be no problem at all… All the productive capacity is there. All that’s lacking is the intellectual clarity and the political will.”

That is of course what happened with the New Deal, though it took World War II to put everyone back to work. But European policymakers seem to have ignored the lessons of the Great Depression, and the truths in Thomas Piketty’s Capital in the Twenty-First Century, in which he opines that the wholesale transfer of wealth to the wealthiest that has been ongoing over the past 30 years is a major reason for the slow recoveries. The top 1 percent spend very little of their record earnings, and wealth taxes have been severely reduced, limiting governments’ ability to spend on public necessities and create more jobs.

The U.S. Federal Reserve is doing the right thing in staying the accommodative path, according to just released FOMC minutes of last month’s meeting. It agreed to keep the wording that interest rates would stay low “for a considerable time” as forward guidance, and sure enough, stocks had a huge rally after the announcement.

As if to echo the IMF report, the Guardian’s Economics Blog also announced that the experiment – German designed, German engineered and German exported – with austerity has failed. “The eurozone is not cutting its way back to prosperity. It is cutting its way towards being the new Japan.”

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Employment Report Won’t Cause Fed to Raise Rates

Financial FAQs

Unemployment falls below 6% for first time since 2008 as U.S. adds 248,000 jobs said today’s MarketWatch headline at the release of the Labor Department’s September unemployment report. But it won’t be enough to push Janet Yellen’s Federal Reserve to begin to raise interest rates sooner until next year, even though the bond vigilantes will be screaming for higher rates sooner.

Graph: Calculated Risk

Why? Because wages aren’t rising at all. The Bureau of Labor Statistics said, "Average hourly earnings for all employees on private nonfarm payrolls, at $24.53, changed little in September (-1 cent). Over the year, average hourly earnings have risen by 2.0 percent. In September, average hourly earnings of private-sector production and nonsupervisory employees were unchanged at $20.67.”

Chairperson Yellen has said that stagnant wages are a sign that there are still too many people out of work. According to the BLS, there are 2.954 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 2.963 in August. This is trending down, but is still very high.

And the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in September at 7.1 million. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find a full-time job.

Graph: Calculated Risk

Calculated Risk does an excellent analysis of the underlying reasons wage growth has been so meager. One reason so many are still out of work is the dropoff in government employment. In September 2014, state and local governments added 14,000 jobs.  State and local government employment is now up 143,000 from the bottom, but still 601,000 below the peak.

“Clearly state and local employment is now increasing,” says Calculated Risk’s Bill Mcbride.  “And Federal government layoffs have slowed (payroll decreased by 2 thousand in September), but Federal employment is still down 25,000 for the year.”

As a comparison to other presidential terms, Calculated Risk compared government hiring during both Republican and Democratic administrations.

Graph: Calculated Risk

“The public sector grew during Mr. Carter's term (up 1,304,000),” says Calculated Risk, “during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).”

However the public sector has declined significantly since Mr. Obama took office (down 710,000 jobs). These job losses have mostly been at the state and local level, but more recently at the Federal level.  This has been a significant drag on overall employment, says Calculated Risk.

Much of government unemployment was due to falling revenues from the Great Recession, but much also from the political opposition to more New Deal type government stimulus spending.

In spite of that, the U.S. has done much better than Europe with its austerity policies that have led the EU into a third recession just since 1980. So we seem to have learned something from the Great Downturns that Europeans have yet to learn. Policymakers cannot weaken government programs and policies that create growth and jobs during Great Recessions, or Depressions.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Who Are the Real Takers?

Popular Economics Weekly

We have been there before. The Census Bureau reported that the poverty rate fell in 2013, the first drop since 2006. It fell to 14.5 percent, down from 15 percent in 2013, but 45.3 million people are still living at or below the poverty line, which for a family of four was $23,834.

Then who are the real "takers" that have held up economic growth and more jobs? It's can’t be the 47 percent that conservative polemicists and many of the 2012 presidential candidates maintained didn't pay federal income taxes. Three-quarters of entitlement benefits written into law in the United States go toward the elderly or disabled. That's according to the Center on Budget and Policy Priorities.

And it’s more than 90 percent of entitlement benefits when working households are included. Only about 9 percent of all entitlement benefits go toward non-elderly, non-disabled households without jobs (and much of that involves health care and unemployment insurance)

We should really be looking at those whose incomes have soared due to their success in slashing their own tax bills during difficult economic times, while blocking government job creation that would employ more of the 47 percent. The top 1 percent has taken 97 percent of income growth since the end of the Great Recession.

This is the first statistically significant decline in poverty since 2006 (and only the second since 2000). But the rate remained well above its 12.5 percent level in 2007 and even further above its 2000 level of 11.3 percent. At last year's rate of improvement, we would need to wait until 2018 for it to fall to or below the 2007 pre-recession level, and until 2020 to fall below the 2000 level, according to the Center For Budget and Policy Priorities.

Why do we have such a high poverty rate 5 years after the end of the Greatest Recession since the Great Recession? Who are the real takers that have not only created the greatest income and wealth inequality since the Great Depression that has created such dire poverty, but weakened our economy and power to maintain democratic values in the world?

FDR in his second inauguration speech said, “The test of our progress is not whether we add more to the abundance of those who have much, it is whether we provide enough for those who have too little.”

For starters, the red states controlled by Republicans have fought to downsize almost all government funded programs such as Medicare, food stamps, and Obamacare, yet they receive the largest share of government benefits, says Wallet Hub, a consumer finance blog.

For instance, South Carolina receives $7.87 for every $1 it pays in taxes. Mississippi and New Mexico, two of the most Red states, are ranked 40 out of 50 states in receiving the most in federal benefits, yet consistently vote for conservative policies that seek to limit government spending and benefits. And that includes badly needed spending on education, deteriorating infrastructure, and environmental regulation, all of which would provide more jobs in the underemployed U.S. economy.

This is an issue of our time, as we come severely weakened out of the Greatest Recession since the Great Depression. The takers are those who want it all, and the evidence is there for all to see—a weakened economy and a government lacking the powers to “stop evil and do good”.

“Nearly all of us recognize that as intricacies of human relationships increase,” said FDR in 1936 at the height of the Great Depression, “so power to govern them also must increase—power to stop evil; power to do good. The essential democracy of our nation and the safety of our people depend not upon the absence of power, but upon lodging it with those whom the people can change or continue at stated intervals through an honest and free system of elections.”

And so the real takers are also those who support ALEC, the American Legislative Exchange Council, or the Koch Brothers’ Americans for Prosperity that boilerplate legislation that has restricted voters’ rights by passing voter ID laws, restricting voting hours and anti-union collective bargaining, which are fundamental rights in any democracy.

It is mainly those conservative polemicists and presidential candidates who damn government in order to better their own financial position. And they have succeeded in lowering the maximum marginal tax rates from 92 percent during the Eisenhower presidency to its current low of 39 percent.

They have been so successful in taking from the wealth created by the many that the richest 10 percent now control some 50 percent of U.S. wealth, and most of the incomes growth since the end of the Great Recession, as we said.

Thomas Piketty, in his best-seller, Capital in the Twenty-First Century, perhaps said it best in attempting to explain why income and wealth inequality has worsened so much, brought about by lower taxation of the wealthiest.

“…the spectacular decrease in the progressivity of the income tax in the United and States and Britain since 1980, even though both countries had been among the leaders in progressive taxation after World War II, probably explains much of the increase in the very highest earned incomes,” he said.

Why lower taxation? Piketty explains it thusly. “Our finding that skyrocketing executive pay is fairly explained by the bargaining model (lower marginal tax rates encourage executives to bargain harder for higher pay) and does not have much to do with higher marginal productivity.”

There are several ways such record inequality slows growth. Firstly, growth is powered by what is called aggregate demand, the demand for goods and services that consumers, government, and investment generates. And since consumers power some 70 percent of economic activity and governments another 20 percent, when their spending declines, so does economic growth.

It is this record inequality that was the main cause of both the Great Depression and Recession, as declining incomes and cutbacks in government spending drastically reduced the demand for those goods and services. The years 1929 and 2010 were the years of greatest income inequality and greatest economic instability, according to Piketty and research partner Emmanuel Saez.

And economic growth has been steadily declining over the past 3 decades. It has averaged just 2 percent since the end of the Great Recession in 2009. There are numerous studies, including by the International Monetary Fund and Nobelist Joseph Stiglitz among others, that affirm the negative effect on growth of such inequality.

In fact, a recent IMF report said that “inequality can undermine progress in health and education, cause investment-reducing political and economic instability…which tends to reduce the pace and durability of growth."

So if we want to preserve our democracy, and help other countries towards greater democracy (instead of breeding more terrorism), we can no longer afford to allow the real takers to continue to take it all. The world has become too dangerous.

Harlan Green © 2014

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Retail Sales Much Stronger?

Financial FAQs

The jump in retail sales was huge, plus upward revisions to past months that made more sense with other indicators of a growing economy. It seems the consumer can afford to spend more with lower debt levels and jobs more available. Much of it was back to schools purchases, though, so will it hold up during the holidays when sales are traditionally strongest?

Retail sales jumped 0.6 percent in August after a rise of 0.3 percent the month before. Analysts projected 0.6 percent for August. The July upward revision was significant-previous estimate of zero.

Graph: Econoday

Excluding autos, sales gained 0.3 percent in both August and July, matching expectations. Excluding both autos and gasoline sales were quite healthy, increasing 0.5 percent, following a rise of 0.3 percent in July. Expectations were for 0.4 percent.

Graph: Econoday

Not surprisingly, motor vehicles increased 1.5 percent. Incentives helped feed a record 6.4 percent jump in car and light truck sales to an annual rate of 17.53 million vehicles. Next, building materials & garden equipment gained 1.4 percent-suggesting a large improvement in the housing sector. Food services & drinking places sales were up 0.6 percent, showing healthy improvement in discretionary spending. This is a good sign for the consumer sector, as I said.

Graph: Econoday

And sure enough, housing construction also gained broadly in July. Construction spending rebounded 1.8 percent after a 0.9 percent dip in June. While all broad categories advanced, July's increase was led by the public sector—up 3.0 percent, following a 1.8 percent decrease in June.  This is a big thing as government spending has been a big drag on growth until now. Private nonresidential spending (i.e., commercial/industrial) rebounded 2.1 percent in July after slipping 0.8 percent the month before.  And private residential outlays gained 0.7 percent, following a 0.4 percent dip in June.

All-in-all, the revisions to retail sales and surge in construction and vehicle sales should confirm a 3 percent plus GDP growth rate for the rest of this year,and maybe into next year, in sharp contrast to Europe and Japan. Europe is slipping back into recession, in large part because of its austerity policies that cut government spending at a time of falling consumer and export demand.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Don’t Forget the Consumers!

Popular Economics Weekly

“It’s the Consumers, Stupid,” is an oft-repeated mantra being echoed currently by Internet advocates who want to keep Internet access free. But there’s a more important reason to worry about consumer health. Consumers are still way too pessimistic in the fifth year of this recovery, and that is hurting economic growth.

Graph: Reuters

There are a lot of reasons for their malaise. Incomes that can’t rise faster than inflation are a major cause. So are consumers’ tremendous debt loads, a result of the housing bubble. But there is a deeper reason. Tax policies and political choices have emphasized employer and investor profits over employee salaries.

Rutgers economic historian James Livingston was one of the earliest to sound the alarm that consumers need help, if our economy is to continue to grow. He maintained that consumer and government spending now drive economic growth, not corporate profits, which tend to end up in inflated CEO salaries or speculative investments, or just hoarded as cash in very liquid assets. And there has been little to help consumers create more jobs or boost their incomes.

"...corporate profits are... just restless sums of surplus capital, ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash,” said Livingston. “Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the "shadow banking" system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble."

The Congressional Budget Office says as much in its latest budget report. Thanks to the lingering effects of the recession, the aging of the country, the shrinking of the labor force, and various tax and spending policies, the nation now only has the potential to grow about 2.5 percent per year over the next decade, on average, far below the long term 3 percent average that includes the Great Depression.

“In CBO’s projections, the growth of potential GDP over the next 10 years is much slower than the average since 1950,” says the report. “That difference stems primarily from demographic trends that have significantly reduced the growth of the labor force. In addition, changes in people’s economic incentives caused by federal tax and spending policies set in current law are expected to keep hours worked and potential output during the next 10 years lower than they would be otherwise.”

Graph: House of Debt

It’s been a terrible recovery, say House of Debt economists Atif Mian and Amir Sufi, the worst recovery since 1950. And with the revision of Q12014 GDP growth downward to -3.0 percent from -2.9 percent, it’s getting worse, not better. The reason is easy to see. It’s consumer incomes, and therefore spending that has fallen off and won’t return, unless more is done to encourage wage growth, for starters. The Reuters graph highlights how little consumers’ Personal Consumption Expenditures (PCE) are contributing to economic growth at present.

Yet if government was ever allowed to create jobs again, we could have above average job creation, and so higher GDP growth for decades to come. The New Deal proved that. But with Congress’s own CBO emphasizing debt, without highlighting policies that bring greater growth, there is little political will to increase job growth.

We know because net business investment declined 70 percent as a share of G.D.P. over that century, says Professor Livingston. In 1900 almost all investment came from the private sector -- from companies, not from government -- whereas in 2000, most investment was either from government spending (out of tax revenues) or "residential investment," which means consumer spending on housing, rather than business expenditure on plants, equipment and labor.

When New Deal spending kicked in, it boosted growth by literally creating millions of WPA, CCC jobs that resulted in new highways, bridges, dams, even artworks that boosted spirits and glorified the work ethic. Conversely, when government spending was cut back prematurely in 1937 in an attempt to balance the budget, the Great Depression resumed. So we see history repeating itself, once again.

Harlan Green © 2014

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Why the Growth Slowdown—It’s Housing, Stupid

Popular Economics Weekly

Dean Baker, a noted economist with the Center for Economic Policy and Research (NEPR), has probably given the best and most understandable reason for the Great Recession and ultra-slow recovery—it’s the lousy housing market. The economy is growing at slightly over 2 percent, when we would expect 3 percent growth 5 years after the end of the Great Recession.

“The basic story of the Great Recession is about as simple as they come,” says Baker. “The economy was being driven by a housing bubble and the bubble burst. The combination of the loss of housing construction, due to the enormous overbuilding of the bubble years, and the loss of the consumption that had been driven by bubble generated housing wealth, created a gap in annual demand of more than $1 trillion. That's all simple and easy.”

So the weak housing market, even with the Fed doing all it can do to keep interest rates at rock bottom, hasn’t boosted US growth sufficiently to approach full employment. Why? The housing market would be recovering sooner if government was allowed to do more, because of austerity policies prevalent both here and in Europe. And the results are easy to see in this Paul Krugman graph.

Graph: Paul Krugman

Those countries with the lowest growth rates have the most stringent austerity measures—i.e., most drastic budget cuts and highest interest rates when government should be keeping interest rates as low as possible. And they are the United Kingdom, Spain, Portugal and Greece, of course. But the US isn’t far behind, in line with France that is having its own budget problems.

What should be done? We know the government has to help, either with mortgage relief (buy up the bad mortgages and hold them until the market improves), or buying the underwater housing as was done during the Great Depression, and selling them back when conditions improved.

The Home Owners’ Loan Corporation was set up in 1933 under the New Deal. It made more than one million loans to homeowners, sometimes bought the underwater homes, and otherwise supported homeowners who were behind on their payments. Sound familiar?

Graph: FHFA

The HARP and HAMP loan programs were current attempts to do the same and they have refinanced 3 million of the 16 million homes guaranteed by Fannie Mae and Freddie, according to The Housing Wire and FHFA, the Federal Housing Finance Authority that supervises Fannie and Freddie.

“…what did economists think would fill a trillion dollar gap in annual spending?” laments Baker. “Of course the government could do it with more spending and/or tax cuts, but since we have a religious cult in Washington that says it is better to keep millions out of work than to run deficits, this was a political impossibility.”

So 8 million more homes are eligible, according to the FHFA, and the White House has done little to promote HARP 3.0, a newer version that would loosen qualification standards to increase eligibility for those behind on their payments, which would allow more homes to be refinanced. It doesn’t look like another New Deal for housing is in the offing.

Harlan Green © 2014

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When is Higher Inflation Good?

Financial FAQs

The short answer is that higher inflation comes from higher growth rates, and so when an economy expands faster, then prices should also rise faster. Otherwise companies’ profits don’t rise and they won’t want to expand their businesses and so hire more workers.

But pundits and some economists keep focusing on the expectations of future inflation, even when current conditions don’t warrant such expectations. It’s as if those folks are afraid of faster growth, when that is exactly what is needed. Everyone, including the IMF and Federal Reserve in its latest update, believes US GDP growth will average no more than 2 percent this year.

Graph: Trading Economics

This is a pitiful growth rate, and we know why this is happening. Consumers, though they have paid their debt down to pre-Great Recession levels, aren’t earning any more money after inflation. Earnings are also increasing just 2 percent.

And governments aren’t generating more jobs that only governments can generate—such as in public infrastructure, education (more teachers), research and development that pays for future growth, and environmental protection that must mitigate some of the effects of global warming, such as the thousands of miles of US coastline affected by rising oceans.

That is the gist of Janet Yellen’s pronouncements after yesterday’s FOMC meeting. We must allow inflation to rise above the 2 percent level with the PCE inflation index used by the Fed.

Graph: Econoday

Year-on-year Personal Consumption Expense prices are increasing at plus 1.6 percent and 1.4 percent for the core without food and energy prices.  While inflation is still below the Fed goal of 2 percent, it has been firming in recent months.

But Fed Chair Yellen suggested that growth was too slow to worry about incipient inflation, which meant the Fed wouldn’t have to raise rates for some time to come. That’s because the central bank expected 1.5 to 1.7 percent inflation in 2014, nearly identical to their forecast in March and a level below their target.

Graph: WSJ Marketwatch

Responding to a later question, she said: “For the moment, I don’t see any trade-off whatsoever in achieving our two objectives (growth with stable inflation). They both call for the same policy, namely, a highly accommodative monetary policy.”

Then who is actually worrying about inflation? Hardly anyone, including the Fed Governors. So the answer is that higher inflation is a good thing when it's necessary to boost higher growth, which in turn will create more jobs, which is turn boosts more growth. So it is low inflation--and low inflation expectations--that is the problem to be solved. Why should anyone fear a higher growth rate?

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Jobs Recession Finally Over?

Financial FAQs

Is the jobs recession finally over? It’s taken this long to bring employment back to pre-Great Recession levels. Overall employment is still slightly below the pre-recession peak (437 thousand fewer total jobs).  But private employment is now above the pre-recession peak by 110 thousand and at a new all-time high.

Calculated Risk

Total nonfarm payroll jobs rose 192,000 in March after a 197,000 boost in February and a 144,000 increase in January. The net revision for the prior two months was up 37,000. Expectations for March were for 206,000. Private payrolls gained 192,000, following an increase of 188,000 in February. Analysts projected 215,000 for March.

We can now see where many of the missing jobs remain—in governments. Although state governments added 8,000 net jobs in March, the federal government shed another 9,000 jobs, according to the just released Bureau of Labor Statistics report. Over the past year, employment in the federal government has fallen by 85,000, so we know the major reason we are barely back to the 2007 level of employment. In fact, some 700,000 state and federal jobs were lost during the Great Recession.

Unfortunately, political gridlock has caused so many essential government, or government-sponsored jobs to be lost.  There shouldn’t be a debate over what federal, state and local government expenditures are necessary to maintain decent economic growth. Can one imagine what it would do to economic growth if the $2.2 trillion in deferred infrastructure building—in roads, bridges, electrical and energy distribution networks had been done, not to speak of the additional jobs created?

Or, instead of losing 300,000 teachers and the lost education opportunities to students, education spending had been expanded? A good comparison is with the GW Bush administration, when Republicans were in power. Then they were for much more government spending.

The public sector grew during GW Bush's term (up 1,748,000 jobs), but the public sector has declined since Obama took office (down 718,000 jobs). These job losses have mostly been at the state and local level, but they are still a significant drag on overall employment.

The private sector is the main jobs provider, of course.  The single area that could provide the most bang for the buck is the construction industry. Since construction employment bottomed in January 2011, construction payrolls have increased by 532 thousand - but there are still 1.76 million fewer construction jobs now than at the peak in 2006, per an excellent analysis by Calculated Risk.

That also means the building-construction industry and all its ancillary services—such as mortgages, insurance, home furnishings—has much more room to grow. Private residential construction is returning to normal levels at last, but not public (which has fallen since ‘shovel-ready’ ARRA stimulus money ran out in 2010, which created or saved some 3 million jobs) and non-residential spending.

Calculated Risk

The bottom line is that all construction sectors have to improve to bring enough jobs back. These are mainly blue collar workers that lost badly during the Great Recession, due to the housing bubble. The good news is that professional and business services jobs grew double any of the other job categories in the March payroll survey.

Professional and business services added 57,000 jobs in March, in line with its average monthly gain of 56,000 over the prior 12 months. Within the industry, employment increased in March in temporary help services (+29,000), in computer systems design and related services (+6,000), and in architectural and engineering services (+5,000).

This should give a large boost to construction jobs this year and next.

Harlan Green © 2014

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Janet Yellen’s Nemesis—The Great Moderation

Popular Economics Weekly

New Fed Chairwoman Janet Yellen has a great task ahead of her. How to combat the results of the Great Moderation, as it was called, that period of low inflation with moderate economic growth that prevailed from 1985 to 2007, according to Paul Krugman. But why, when lots of jobs were created, particularly the 22 million jobs created during Clinton’s presidency?

It was a period, “…that worked in part because the political insulation of central banks also gave them more than a bit of intellectual insulation, too,” said Krugman in a recent column. “If we’re living in a Dark Age of macroeconomics, central banks have been its monasteries, hoarding and studying the ancient texts lost to the rest of the world. Even as the real business cycle people took over the professional journals, to the point where it became very hard to publish models in which monetary policy, let alone fiscal policy, matters, the research departments of the Fed system continued to study counter-cyclical policy in a relatively realistic way.”

Leaving the Federal Reserve to only worry about large cyclical swings, while allowing the markets to largely grow with little regulation or oversight worked too well, in other words. It lulled policy makers into allowing the massive deregulation of financial markets for one, which led to the Great Recession.

And much worse. The result was loss of so much wealth since the Great Recession for the 99 percent that didn’t profit from deregulation. The labor market in particular has suffered most from deregulation, with globalization and free trade agreements allowing even highly skilled jobs to flow overseas, while states restrict collective bargaining for government employees and unions.

Graph: Econoday

This graph of Productivity and Unit Labor Costs illustrates the damage done to household incomes. So-called unit labor costs (ULC), a measure of incomes and benefits, have not on average grown at all since 2009, the end of the Great Recession.

The result is that The Great Moderation has more than moderated household incomes, reducing income growth for most Americans to zero after inflation, resulting in reduced demand and so slower economic growth that may never return to the 3.2 percent average GDP growth that prevailed since the Great Depression.

As Professor Krugman put it, “…the very success of central-bank-led stabilization, combined with financial deregulation – itself a by-product of the revival of free-market fundamentalism – set the stage for a crisis too big for the central bankers to handle. This is Minskyism: the long period of relative stability led to greater risk-taking, greater leverage, and, finally, a huge deleveraging shock… Also, sooner or later the barbarians were going to go after the monasteries too; and as the current furor over quantitative easing shows, the invading hordes have arrived.”

So it is Chairwoman Yellen’s task to bring growth back to household incomes and the overall economy. She must ignore the maxims and experience of the Great Moderation to do it, however. She must push for more government stimulus programs—whether for infrastructure, education, or Research and Development—to accompany the Fed’s efforts to hold down interest rates as long as possible to encourage moderate inflation. And she must not allow those “barbarians” at the Fed’s gate to prevail that want to reduce its powers to moderate such Great Recessions.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Weak Employment--American Austerity at Work

Popular Economics Weekly

Is economic growth grinding to a halt, even as pundits predicted better growth in 2014? Nonfarm payrolls have advanced just 188,000 over the past 2 months, when this was the average montly increase in prior months. It does look like economic growth is slowing.

As in Europe, the U.S. is seeing the results of 4 years of austerity policies in the January unemployment report. Total nonfarm payroll employment rose by just 113,000 nonfarm payroll jobs in January, instead of the 180-200,000 predicted by the pundits, and the unemployment rate was little changed at 6.6 percent, the U.S. Bureau of Labor Statistics reported today.

This follows the change in total nonfarm payroll employment for November, revised from +241,000 to +274,000, and the change for December was revised from +74,000 to +75,000. With these revisions, employment gains in November and December were 34,000 higher than previously reported. This is not a good report, needless to say.

Graph: Calculated Risk

So what could have been with the initial $831 billion American Recovery and Reinvestment Act that stopped the Great Recession from becoming another Great Depression, ended when government gridlock set in after the 2010 election. The banks were saved with GW Bush’s $300 billion in TARP spending, but Main Street was left to fend for itself. Instead of more government stimulus, government spending was drastically cut when it came to stimulating job growth outside of Wall Street and the financial sector.

Instead, government employment in particular sank, losing some 700,000 jobs. And because so much government spending was cut, what followed was the most severe contraction in spending and investment since the 1930s.

The lessons from the New Deal was lost. When private investment and employment shrink, it’s up to governments to spend more to create those jobs and public projects that employment the unemployed, as was done in the 1930s with the Works Progress Administration and CCC Corps.

Graph: Econoday

Almost every community in the United States had a new park, bridge or school constructed by WPA. The WPA's initial appropriation in 1935 was for $4.9 billion (about 6.7 percent of the 1935 GDP), and in total it spent $13.4 billion. Between 1935 and 1943, the WPA provided almost eight million jobs.

The 6.7 percent of today’s GDP would equal some $1 trillion, and it doesn’t take much to imagine what 8 million additional jobs would do to stimulate growth today, instead of the 700,000 government, or government-financed jobs lost.

During the course of the Great Recession, about 7.5 million jobs were lost in the nonfarm business sector. Job losses did not end until February 2010, by which point total jobs lost stood at about 8.7 million. Since then and after four years of growth in the aggregate economy, employment recovered by some 6 million, still short of the sharp decline we experienced.

Debt never become a problem, even with WWII, because the additional growth that such programs stimulated more than paid down that debt. The preoccupation with debt that occurred after 2010 was because those Republicans and conservative Democrats that helped GW Bush to create the huge deficits during his 8-year term would no longer support such spending. They now opposed anything that smacked of government aid.

The unemployed were suddenly lazy bums, and it was the middle class who foolishly created the housing bubble by buying homes with overinflated prices. (So they now had to pay the piper.)

It’s that kind of attitude that creates gridlock, of course. This is not how to recover an economy—especially when everyone but the top 1 percent has to pay the piper.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Where Are The Brave Ones?

Popular Economics Weekly

Now that China has replaced 1980s Japan as the economy that might surpass us, can we find one brave policy maker, (including President Obama), that’s willing to sound the alarm? China now has a robot roaming the moon, and various predictors say it could surpass the U.S. as the world’s largest economy in a matter of years. China is even predicted to lead the world in technological innovation within 40 years.

Yet no one in Washington seems to be concerned. We would rather obsess over debt than the main reason the U.S. is falling behind—the huge cutback in government research and infrastructure spending that would keep us competitive in world markets, as well as remain the world’s most sustainable democracy. And sustaining our democracy is really the main job of government, which means protecting the welfare of its citizens at home should be at the top of the policy list.

Government cutbacks are also the main reason for our soaring inequality and social immobility, as domestic austerity policies have endangered the social safety net while conservative state governments inhibit collective bargaining, voters’ and women’s rights.

There is no question that government research and development is the main driver of technological innovation; from the moon landing to development of the Internet to genome discoveries, yet research spending has been declining for years. It’s a sad picture, highlighted by what was really a worldwide Great Recession. Because we sneezed, the rest of the world caught our cold.

Harvard economist Jeff Sachs is one of a small number of economists brave enough to sound the alarm, and pronounce ways to increase government’s role in bringing back sustainable economic growth in a recent New York Review of Books article:

“A majority of public opinion favors action on the issues I have outlined: more taxation of the very rich, and more spending on education, clean energy, and job training. The public wants a smaller military and less meddling overseas. The problem is not with public opinion but with the narrow self-interest and social outlook of powerful corporations, interest groups, financial lobbyists, and large investors.

He also excoriates President Obama for allowing those very same lobbyists and special interests to vitiate his own progressive goals of creating jobs and alleviating poverty.

“Rather than taking on the problem of inflated health care costs, he (Obama) brought in the health care industry to support the expansion of health coverage. Rather than taking on the egregious tax abuses of the corporate sector and the very rich, he settled in January 2013 for an almost symbolic rise in taxes for those with incomes above $400,000. Rather than reforming the budget, he pursued a deficit-financed two-year stimulus that provoked the Republicans, piled up public debt, and achieved next to nothing for the long term.”

One can say that Republicans would have been provoked, no matter what he proposed, but certainly maintaining a strong economy and more progressive taxation policies (that would have reduced the record inequality) wasn’t at the top of President Obama’s goal list until now. But the hope is it will become a center piece in his upcoming State of the Union speech on Tuesday.

An American University blog piece catalogues China’s growth in research spending. By 2011, China had already become the world’s second highest investor in R&D. Government research funding has been growing at an annual rate of more than 20 percent. At the end of 2012, for example, 7.28 billion yuan was spent on promoting life and medical sciences, nearly 10 times the 2004 level. Even more troubling (for the United States), in 2011, 21 percent of the applications were supported, and for young scientists, the application success rate was 24 percent, both of which were higher than the U.S. level. It was predicted that if the U.S. federal government R&D spending continues to languish, China may overtake the U.S. to be the global leader in R&D spending by 2023.”

Need we say more about the priorities that are not at all conflicting? Less income and wealth inequality leads to stronger economic growth, higher tax revenues, and lower budget deficits. It even led to 4 years of budget surpluses under President Clinton. And the paths to more opportunity are now well-known. So where are the brave policy leaders that will show the rest of U.S. how to get there?

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen