Seeing the Forest: Economics Archives

February 8, 2012

Manufacturing On Planet Economus

Economist Christina Romer had an op-ed in the NY Times this weekend, Do Manufacturers Need Special Treatment? The question that keep coming back to me is why did she feel the need to write an op-ed to diss manufacturing? Is it just an economist thing? Or is she, like so many economists, from another planet?

In her op-ed Romer claims those of us who argue for a national manufacturing policy do so out of “the feeling that it’s better to produce “real things” than services.” But, she says,

American consumers value health care and haircuts as much as washing machines and hair dryers. And our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada.

Here is the difference: We can't just keep servicing each other. This "service economy" thing hasn't worked out so well here on Earth, and now we have a huge trade deficit. It is "better to produce real things" because that is what you sell to others to get the money to pay each other for haircuts (and scissors).

Once You've Got It It's Hard To Lose It, Once You Lose It It's Hard To Get It Back

Manufacturing brings so much along with it that entire economies have been, are and will be supported. China isn't making its living by cutting each others' hair. Neither is Germany, or other countries that have realized the importance of manufacturing and manufacturing policy to an economy.

Manufacturing brings with it all the businesses in a supply chain, it brings the research and innovation that manufacturing requires, and it brings a lasting real infrastructure that requires enormous investment to duplicate elsewhere before competition is enabled. Today we have a tremendous current account imbalance that resulted from the terrible trade deficits suffered since we were invaded by this crowd from planet Economus, who told us we don't need manufacturing - that we should transform ourselves into a "service economy." And it will require enormous investment to restore the ecosystem that we allowed to escape to other countries in that period.

Once you've got it, it's hard to lose it, and once you lose it, it's hard to get it back. Not so much with services.

Romer's Three Straw Arguments

Romer sets up three arguments made of straw for helping manufacturing, only to knock them down:

One: Market Failure. Romer says "government intervention" is only justified when you can demonstrate "market failure." In essence she says markets must make our decisions, not We, the People. “For example, when competition in a market is limited, antitrust laws that prevent monopoly can be helpful.”

Romer writes that another “market failure” comes when it can be shown that there is a benefit to having clusters of businesses. When benefits leak beyond where a company is putting their money then tax breaks and other government help may be due.

Romer knocks down this justification for government “intervention” with two arguments. She says, “large clustering effects have been hard to find.”

Perhaps cluster effects don’t have benefits on planet Economus, where Romer apparently resides, but on earth all you have to do is look from the development of the auto industry in Detroit to the development of the semiconductor industry in Silicon Valley to understand that yes, clustering effects matter.

Romer also says if clustering does brings benefits why single out manufacturing for government benefits when other sectors also benefit from clustering? Well, of course we shouldn't just help our manufacturing if it can be shown that government involvement boosts the businesses of We, the People in other sectors.

Romer also says there is market failure if a learning period means that future companies benefit form work done by early companies. Romer says, “ a study of the semiconductor industry found that although learning by doing was substantial, most of the rewards went to companies doing the early investing.”

The Silicon Valley Romer talks about is located on that planet Economus. The Terran Silicon Valley I live in has seen many, many startups fail, only to see later companies take up their ideas and succeed.

Romer concedes that we might need manufacturing to make things with which to defend the country, justifying government intervention in markets. The argument that we need a strong manufacturing base here in case of war must be taken seriously. But she says it still doesn’t follow that all manufacturing deserves special treatment. Which industries are truly essential in a war effort, she asks? I guess she asks this is because on planet Economus service industries are essential to a war effort. On Economus you apparently win wars by cutting each others’ hair.

Two: Romer’s second case-of-straw for “government intervention” is to create jobs and reduce unemployment. Romer says, “Unfortunately, those effects are probably small.”

In the 2000-2009 "service economy" decade we lost 5 million manufacturing jobs, more than 50,000 factories, and the hope to capture several industries of the future. Those are not small effects. And the effects on the surrounding communities are severe.

Romer rightly says that the current problem with the economy is lack of demand. She prescribes tax cuts for households, help for state and local governments and investment in infrastructure. (The old "taxes take money out of the economy" argument?)

But then she says that a tax break to encourage insourcing of jobs in manufacturing won’t create demand so we shouldn't do it. It might make our goods cheaper to export, but challenging China’s currency manipulation would do more, so we shouldn’t do this. This is the old "don't do anything if it doesn't fix everything." We need to do all of these things, and more.

Three: Romer’s third straw argument is income redistribution. Because manufacturing jobs “are seen as” better-paying “for less educated workers” then manufacturing is a way to distribute more income to people with less education. But no, she says, “Increased international competition has forced American manufacturers to reduce costs. As a result, the pay premium for low-skilled workers in manufacturing is smaller than it once was.”

Romer says government should help people get a better education instead of helping create jobs for people who do not go to college. Perhaps on planet Economus all the IQs are above average, but on Earth the average IQ is 100, and not everyone can or should get a college degree. If we send more people to college without bringing back manufacturing, we'll just have more unemployed people with college degrees than we do now.

Romer also says, "If increasing income equality is the goal, it might be wiser to put money into infrastructure than to subsidize manufacturing. Construction also pays good wages, but with lower educational requirements. And America’s infrastructure needs are enormous." Well, yes. But again this is the old "don't do anything if it doesn't fix everything." Do those things. And revive American manufacturing.

Why is "the pay premium for low-skilled workers in manufacturing ... smaller than it once was"? Here is why: Before we became a plutocracy we were a democracy. When We, the People had a say we demanded good wages, benefits, good working conditions, a clean environment and dignity on the job. But workers in China have no say. They are stuffed 6 to a room in dormitories, rousted in the middle of the night to work extra shifts …

"Free trade" agreements made democracy a competitive disadvantage. To people from planet Economus, these conditions in places like China are just “lower costs” that the rest of us need to learn to compete with.

Are All The Other Countries Wrong?

The countries that are successful in today's economy have national industrial/economic policies. We do not. They work to capture parts or all of key strategic industries, and line up the infrastructure, finance, education, supply chains, power grid, tax policies and everything else needed to compete in the world economy. We do not.

We send our companies out against these national systems, and even our largest companies cannot compete with national systems. So we lose.

Are China, Germany and so many other countries just wrong, putting so much into these efforts to capture parts or all of strategic industries? Or are they being smart? Look at who has a trade surplus and who has a trade deficit, and see if you can guess the answer.

The Fix

1) Romer says we should not have special treatment to help manufacturing. Well, let’s start by removing the special treatments that are hurting manufacturing. After that we can begin to talk about "special treatment" to help manufacturing. Out tax policies encourage outsourcing and make it economically beneficial to close a factory rather than maintain it.

2) Countries like China offer subsidies to strategic companies and industries. They manipulate their currency to keep their prices lower in world markets. Let’s enforce trade rules against that, and if we can’t then let’s get out of these "free trade" agreements that are killing us and put tariffs on their goods so they are not unfairly competing with goods made here. And start matching subsidies on exports so they compete in world markets.

3) Other countries have national industrial policies, lining up everything needed to capture part of all of strategic industries. We don't so we send our companies out alone against countries. We have to change this, or ultimately our companies have to lose.

4) Planet Economus is a place far from Earth. On planet Economus they apparently have free markets, and free trade. But on Earth free markets and free trade never existed anywhere at any time, and never worked when they were tried. So on Earth we have to have policies that reflect what happens on Earth, not on planet Economus.

This Time Isn't Different

Romer concludes,

AS an economic historian, I appreciate what manufacturing has contributed to the United States. It was the engine of growth that allowed us to win two world wars and provided millions of families with a ticket to the middle class.

Right, and it still is. This time it isn't different.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 12:20 PM | Comments (0) | Link Cosmos

January 23, 2012

To Get Our Economy Back Hold Cheaters, Fraudsters And Exploiters Accountable

The spiral-to-the-bottom and inequality we are suffering is not an inevitable result of globalization, it is what happens when we don't hold cheaters and exploiters accountable and stop them. This is not just about Wall Street, it is the story of what has happened to our wages and benefits, jobs, factories, companies, industries, economy and democracy in the last 30-or-so years.

Cheaters, Fraudsters and Exploiters

If cheaters and exploiters are not held accountable and fraudsters are not prosecuted, then the advantages this brings them forces honest players out. We're all waiting to see if there is a deal in the works that lets big banksters off the hook for mortgage fraud and other (uninvestigated) crimes, making their shareholders pay fines for them instead. But that story of the 1%'s fraud and cheating and the consequences to the 99% are not what I am writing about here. This post is about how letting 1%er cheaters, fraudsters and exploiters off the hook has hurt America's manufacturing and trade.

Apple Can't Make It Here

Recent news stories about Apple hilight how we allowed our thriving, high-paying manufacturing sector to erode, with the result that our middle class is in decline. Apple used to proudly make their computers in the United States, but now everything is made in Asia. The NY Times' Charles Duhigg and Keith Bradsher, in How the U.S. Lost Out on iPhone Work describe how China's massive government subsidies and exploitation of workers mean “Those jobs aren’t coming back.”

The Entire Supply Chain Is Over There

China has done what it needs to do to bring factories, which bring supply chains, which bring industries. The NYT story describes what it means to have an entire supply chain located where the factories are,

When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day.
The Chinese plant got the job.

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

Subsidies are often a violation of trade rules. Even so, as the article says, "The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory." So, of course, "the Chinese plant got the job." Meanwhile, our own country has resisted having an "industrial policy" to keep our industries and foster new ones. This is finally changing, but good efforts like "Buy American" and President Obama's green energy policies are fought tooth-and-nail.

Exploited Workers

Another key part of China's advantage is the ability to exploit workers and get away with it -- which lets Apple get away with it, too. And when Apple sees violations, it doesn't stop them.

One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.
A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Later in the story,

The first truckloads of cut glass arrived at Foxconn City in the dead of night, according to the former Apple executive. That’s when managers woke thousands of workers, who crawled into their uniforms — white and black shirts for men, red for women — and quickly lined up to assemble, by hand, the phones.
... The company disputed some details of the former Apple executive’s account, and wrote that a midnight shift, such as the one described, was impossible “because we have strict regulations regarding the working hours of our employees based on their designated shifts, and every employee has computerized timecards that would bar them from working at any facility at a time outside of their approved shift.” The company said that all shifts began at either 7 a.m. or 7 p.m., and that employees receive at least 12 hours’ notice of any schedule changes.

Foxconn employees, in interviews, have challenged those assertions.

Apple Audits Its Suppliers, Finds Many Violations

Earlier this month Apple released a report describing the practices of its suppliers. NY Times: Apple Lists Its Suppliers for 1st Time,

Apple said audits revealed that 93 supplier facilities had records indicating that over half of workers exceeded a 60-hour weekly working limit. Apple said 108 facilities did not pay proper overtime as required by law. In 15 facilities, Apple found foreign contract workers who had paid excessive recruitment fees to labor agencies.
And though Apple said it mandated changes at those suppliers, and some showed improvements, in aggregate, many types of lapses remained at general levels that have persisted for years.

William K Black, writing in Apple's Foreign Suppliers Demonstrate Widespread Scamming and Horrific Abuse of Employees at AlterNet, looked at Apple's report. Black writes that the audit of suppliers, "shows that anti-employee control fraud is the norm."

Black says that two things stand out in the report,

First, Apple rarely terminates suppliers for defrauding their employees – even when the frauds endanger the lives and health of the workers and the community – and even where Apple knows that the supplier repeatedly lies to Apple about these fraudulent and lethal practices. Second, it appears unlikely in the extreme that Apple makes criminal referrals on its suppliers even when they commit anti-employee control frauds as a routine practice, even when the frauds endanger the worker’s and the public’s health, and even when the supplier repeatedly lies to Apple about the frauds. Apple’s report, therefore, understates substantially the actual incidence of fraud by the 156 suppliers (accounting for 97% of its payments to suppliers).

As Black wrote, "Apple knows that the supplier repeatedly lies to Apple about these fraudulent and lethal practices" and "...it appears unlikely in the extreme that Apple makes criminal referrals on its suppliers" Apple doesn't stop these violations. They get too much of a competitive advantage out of it.

This Is Fraud

When you buy a product you assume that it is on the shelf at the cost you are asked to pay because laws and regulations were followed and standards were met. So you buy the one that has the right quality at the right price. But what if a product has a low cost as the result of cheating, exploitation and violations of environmental, labor and trade laws? What if there is a lie at the root of the transaction you are engaged in?

China's massive investment in capturing entire industries -- a violation of trade laws -- means that many of the components of the high-tech manufacturing supply chain have migrated out of the US to that country. And China's non-democracy political system means that workers have few, if any rights, and often the rights they have are not enforced. Black says American companies taking advantage of this are engaging in "a form of control fraud (fraud in which the head of a company subverts it for personal gain)."

Anti-employee control frauds most commonly fall into four broad, but not mutually exclusive, categories – illegal work conditions due to violation of safety rules, violation of child labor laws, failure to pay employees’ wages and benefits, and frauds based on goods and loans provided by the employer to the employee that lock the employee into quasi-slavery.

Allowing Fraud Drives Legitimate Businesses Out Of Existence

The key point Black makes is that allowing cheating, fraud and exploitation to continue brings them advantages that drive legitimate businesses out,

George Akerlof, in his famous article on markets for “lemons” (largely describing anti-customer control fraud), explained the perverse “Gresham’s” dynamic in 1970: "[D]ishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.”

A Criminogenic Environment

Specifically, what this means to companies that try to compete with companies like Apple,

Anti-employee control fraud creates real economic profits for the firm and can massively increase the controlling officers’ wealth. Honest firm normally cannot compete with anti-employee control frauds, so bad ethics drives good ethics out of the markets. Companies like Apple and its counterparts create this criminogenic environment by selecting least-cost – criminal – suppliers who offer components at prices that honest firms cannot match. Effectively, they hang out a sign – only the fraudulent need apply to be suppliers

When we let companies get away with building products in places that violate trade rules, allow environmental degradation, exploit workers, cut corners on safety, use cheap components and ingredients, these companies get cost advantages that force honest companies out of business. This is the story of our economy. This is why our middle class is engaged in a race to the bottom.

Should Companies Like This Exist In The US?

Robwert Cruickshank puts two and two together, in a must-read post, Thinking Differently About Apple and 21st Century Society. He writes,

In the last year or two, it’s become increasingly clear that the way Apple makes its products is deeply flawed. Working conditions at the factory which makes most of their products – Foxconn in Shenzhen, China – are so appalling that workers engaged in a rash of suicides in 2010 to ameliorate their own suffering. Earlier this year workers threatened mass suicide over pay and working conditions. And of course, there’s the fact that Apple makes these products overseas rather than in the United States, where unemployment remains at some of the highest levels we’ve seen since the Great Depression.

Cruickshank asks if companies with this attitude should be allowed to continue to do business? He writes that Apple has,

...a narrow focus on their products and their profits, and disdain wider concerns for the good of society. When an unnamed Apple executive was asked about their role in addressing America’s economic problems, their response was revealing:
They say Apple’s success has benefited the economy by empowering entrepreneurs and creating jobs at companies like cellular providers and businesses shipping Apple products. And, ultimately, they say curing unemployment is not their job.
“We sell iPhones in over a hundred countries,” a current Apple executive said. “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.”

That quote is perhaps the best encapsulation of the pathologies of the modern American corporation. In fact, Apple does have an obligation to solve America’s problems. Everyone who lives in this country has that obligation. And corporations have that obligation too. If they don’t want to help make things better, then they shouldn’t exist.

Then he gets to the wider point,

The notion that companies exist only to generate profit or build a specific few set of products is corrosive. Those profits and products serve the rest of society. And as a part of that society, companies and their executives exist to make that society a better place. If they are engaged in a set of practices that make society worse off, then those actions are indefensible and need to be changed.
For the last 30 years, American businesses have been devoted to a single-minded pursuit of maximizing short-term profits. Unsurprisingly, this has had profound ripple effects throughout the rest of society. The economy became focused on those profits, and so with it followed politics, culture, and our values as a civilization.

By now it should be clear to everybody that while this works well for the small elite that has hoarded all these profits – the so-called “1%” – it has utterly failed to provide a happy and fulfilled life for everyone else.

Here I quote Cruickshank quoting Black, who is looking at Apple's report of its suppliers, with "overwork and other forms of employment fraud being rampant."

As William K. Black explains at Alternet, this is a good example of what may be a widespread tolerance for fraud in the global economy:
These frauds take place abroad, but they harm employees at home. Mitt Romney explains that Bain had to slash wages and pensions to save firms located in the U.S. who had to meet competition from foreign anti-employee control frauds. The damage from foreign anti-employee control frauds drives the domestic attack on U.S. manufacturing wages. Bad ethics increasingly drive good ethics out of the markets and manufacturing jobs out of the U.S. and into more fraud-friendly nations.

"These Frauds Take Place Abroad But They Harm Employees At Home"

Once again, for emphasis, "these frauds take place abroad, but they harm employees at home."

If we want the downward slide to stop we have to decide to hold the cheaters, exploiters and fraudsters accountable for their actions. At home the efforts by the giant corporations to keep the National Labor Relations Board (NLRB) and the Consumer Financial Protection Bureau (CFPB) from doing their jobs, enforcing the rules and holding them accountable further show how this is affecting us all. Abroad we have to demand enforcement of labor and trade rules so companies like Apple can not gain advantages that put more ethical and honest companies out of business. We certainly should not be letting products made there have cost advantages here and stiff tariffs can fix that. Letting companies get away with this makes democracy a competitive disadvantage.

We have to get mad and hold the cheaters, fraudsters and exploiters accountable.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 2:43 PM | Comments (0) | Link Cosmos

January 19, 2012

Why Keep The Capital Gains Tax Break?

Mitt Romney's ultra-low tax rate on his ultra-high income is reviving questions about the breaks and perks that the wealthiest of the 1% receive from the rest of us. One of these is a special low tax rate for investments -- as if anyone needed special tax incentives to induce them to make a bundle.

High Incomes At The Top

How much does Romney make? We won't know until we get a chance to see his tax returns -- if we do -- but Romney described his $374,328 income from speaking fees last year as "not very much." If $374K is "not very much" of his income ... well ... at least we can understand why he feels he can casually make $10,000 bets as if he was just pulling a dime from his pocket.

In his post What Mitt's Taxes Could've Paid For (If Not For Those Cushy Tax Breaks), Richard Eskow writes,

1,470 households made more than a million dollars and yet paid nothing -- zero, zip, nada -- in Federal income tax in 2009.
[. . .] The top 25 hedge fund managers in the US made $22 billion in 2010.

Low Taxes At The Top

Mitt Romney's admission that he probably pays a 15% tax rate shows us what is going on. For you or me, when our taxable income passes about $35,000, we start paying a 25% rate, much higher than Mitt pays on his millions on income. (That doesn't mean we pay 25% on money up to $35K, which is what most people think. It means any additional money we make after the $35K is taxed at that higher rate rate. If we make $35,001 we only pay an increase of ten cents. That's how tax brackets work.)

Lots Of Money To Use To Attack The Deficits

This special low tax rate on capital gains is sucking a lot of money out of We, the People's ability to pay for our schools, military, infrastructure, etc, which is part of why we are borrowing so much. How much? Continuing to steal from Richard Eskow's post,

As we wrote earlier, eliminating these tax breaks would add as much as $44 billion to our bottom line in the next ten years. Or to put it another way:
Ending cushy breaks for these 25 billionaires could also reduce the deficit by as much as $44 billion. Paging all deficit hawks!

In 2008 the taxable income of everyone earning above $100,000 was $3.4 trillion. If we concentrate our tax reform on the upper end of that spectrum -- the Romneys, not the folks in the $100-$400 thousand range -- we know that every percentage point in increased collection comes out to another $34 billion per year. That ain't chicken feed.

Why The Low Capital Gains Tax Rate?

The justification for a special tax rate for gains from investing capital is supposed to be to provide an incentive to invest. But there is already a really good incentive to invest: to make a bundle of cash. Piling a special "incentive" on top of making a bundle of cash creates market distortions - moving investors away from deciding where to put their money based on the value and merits of the investment and toward tax-reduction schemes.

The necessary precondition for investing capital is having capital. So a tax break on the return from investing capital is by definition a break for the well-off. Here is the reality: capital gains are taxed at a lower rate because most of the income of the 1% is from capital gains, and most of the income of the 1% is from capital gains because the tax rate is lower. The "incentive to invest" should be making a good investment, period.

I'll bet you $10,000 that getting rid of this tax break helps fix the deficit, and leads to a saner investment climate. (Of course, I'm kidding, I think that is a lot of money.)

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 9:35 AM | Comments (0) | Link Cosmos

January 14, 2012

European-Style

Read how working people in Europe are treated. No wonder Republicans dread "European-style" government! Human rights, dignity, decent working conditions, health care... Daily Kos: Musings of a housekeeper in Belgium

Posted by Dave Johnson at 8:53 AM | Comments (0) | Link Cosmos

January 12, 2012

MUST Watch: When Mitt Romney Came To Town

This is the story of what has happened to America since the 80s:

Outsourcing jobs to places where people don't have a say so they can't demand good wages, firing people and making them reapply for their jobs but at half the pay, gutting people's benefits, stripping companies, treating employees like throwaway Kleenex, closing factories, stealing pensions, borrowing and pocketing... Locust capitalism. Chop shops.

MUST WATCH!!

And keep this in mind if people try to tell you that doing what it take to increase the stock price helps everyone:

Also see post above, When Mitt Romney Came To Town -- Who Benefits?

Posted by Dave Johnson at 12:26 PM | Comments (0) | Link Cosmos

December 2, 2011

DeLong: Top Tax Rate Should Be 70%

Brad DeLong says the "right" top tax rate is 70%. I think it should be much higher, at 70% someone making a billion still ends up with $300 million so the incentive to bad action is still too high. The 70% Solution - J. Bradford DeLong - Project Syndicate

Posted by Dave Johnson at 11:06 AM | Comments (0) | Link Cosmos

October 28, 2011

Austerity Didn't Work

Krugman, in The Path Not Taken - NYTimes.com

"Now, however, the results are in, and the picture isn’t pretty."

Posted by Dave Johnson at 7:43 AM | Comments (0) | Link Cosmos

October 11, 2011

Robert Reich And 7 Big GOP Lies

MoveOn: What If Everyone Saw This Clip Of Robert Reich Exposing 7 GOP Lies?

Posted by Dave Johnson at 12:07 PM | Comments (0) | Link Cosmos

September 19, 2011

The Golden Laws of Prosperity

These are very, very good: The Golden Laws of Prosperity | Ian Welsh

Posted by Dave Johnson at 7:17 PM | Comments (0) | Link Cosmos

August 26, 2011

Roubini's Solution

In Is capitalism doomed? Nouriel Roubini writes,

The right balance today requires creating jobs partly through additional fiscal stimulus aimed at productive infrastructure investment. It also requires more progressive taxation; more short-term fiscal stimulus with medium- and long-term fiscal discipline; lender-of-last-resort support by monetary authorities to prevent ruinous runs on banks; reduction of the debt burden for insolvent households and other distressed economic agents; and stricter supervision and regulation of a financial system run amok; breaking up too-big-to-fail banks and oligopolistic trusts.
Over time, advanced economies will need to invest in human capital, skills and social safety nets to increase productivity and enable workers to compete, be flexible and thrive in a globalised economy. The alternative is - like in the 1930s - unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.

I think we also need to start an international effort to reduce population growth. And we need to change the GDP metrics to account for externalization -- harm to environment, health, etc. and add metrics for goding things people want and need, not just growth for its own sake.

Posted by Dave Johnson at 9:26 AM | Comments (0) | Link Cosmos

August 15, 2011

Everything You Need To Know About Fixing Deficits & Jobs

Here is everything you need to know about how to fix the deficits and jobs problems. This is a chart of job creation over the last few years:

There is a report in Saturday's New York Times, "White House Debates Fight on Economy," saying the Obama administration is choosing between doing very little about jobs, or doing nothing.

Mr. Obama’s senior adviser, David Plouffe, and his chief of staff, William M. Daley, want him to maintain a pragmatic strategy of appealing to independent voters by advocating ideas that can pass Congress, even if they may not have much economic impact. ... But others, including Gene Sperling, Mr. Obama’s chief economic adviser, say public anger over the debt ceiling debate has weakened Republicans and created an opening for bigger ideas like tax incentives for businesses that hire more workers, according to Congressional Democrats who share that view.

So according to the Times the choices being debated are a) do nothing, because the mean Republicans will block it anyway, or b) offer even more tax cuts for businesses. Yikes!

Meanwhile, out in the Real World...

The ailing economy, barely growing at the same pace as the population, has swept all other political issues to the sidelines. Twenty-five million Americans could not find full-time jobs last month. Millions of families cannot afford to live in their homes. ... [. . .] A wide range of economists say the administration should call for a new round of stimulus spending, as prescribed by mainstream economic theory, to create jobs and promote growth.

But, back in the White House?

Mr. Plouffe and Mr. Daley share the view that a focus on deficit reduction is an economic and political imperative, according to people who have spoken with them. Voters believe that paying down the debt will help the economy, and the White House agrees, although it wants to avoid cutting too much spending while the economy remains weak.

They think that taking money out of the economy will put more money into the economy. Great. As I wrote the other day, this is austeridiocy. As England, France and every other country that ever tried to grow an economy by cutting the economy has learned, taking money out of the economy takes money out of the economy.

What Works In The Real World

Here is everything you need to know about how to fix the deficits and jobs problems:

This is a chart of the monthly job losses that were occurring before and after the "stimulus" package.

Before The Stimulus

In this chart, the RED lines on the left side -- the ones that keep doing DOWN -- show what happened to jobs under the policies of Bush and the Republicans. We were losing lots and lots of jobs every month, and it was getting worse and worse.

During The Stimulus

The BLUE lines -- the ones that just go UP -- show what happened to jobs when the stimulus was in effect. We stopped losing jobs and started gaining jobs, and it was getting better and better.

The Stimulus Winds Down

The TAIL -- the leveling off on the right side of the chart -- show what happened as the stimulus started to wind down. Job creation leveled off.

It looks a lot like the stimulus reversed what was going on before the stimulus.

Conclusion: THE STIMULUS WORKED BUT WAS NOT ENOUGH!

Jobs Fix Deficits

When people are working they are paying taxes and are not collecting unemployment. And they are buying things, which means there is demand in the economy again, so businesses will hire people.

Customers Create Jobs

Actually, the rich don't create jobs, we do. Lots of regular people having money to spend is what creates jobs and businesses. That is the basic idea of demand-side economics and it works. In a consumer-driven economy designed to serve people, regular people with money in their pockets is what keeps everything going. And the equal opportunity of democracy with its reinvestment in infrastructure and education and the other fruits of democracy is fundamental to keeping a demand-side economy functioning.

When all the money goes to a few at the top everything breaks down. Taxing the people at the top and reinvesting the money into the democratic society is fundamental to keeping things going. Cutting taxes at the top steals from democracy's ability to continue this reinvestment.

It doesn't matter how much more money you give to business owners, businesses are not going to hire any more employees until they have a REASON to -- and that reason is customers coming in the door.

Businesses Do Not Create Jobs

Businesses do not create jobs. In fact, the way our economy is structured the incentive is for businesses to get rid of as many jobs as they can. It costs money to pay employees, so businesses want to trim down to the minimum number required to get the needed work done.

Many people wrongly think that businesses create jobs. They see that a job is usually at a business, so they think that therefore the business "created" the job. This thinking leads to wrongheaded ideas like the current one that giving tax cuts to businesses will create jobs, because the businesses will have more money. But an efficiently-run business will already have the right number of employees. When a business sees that more people are coming in the door (demand) than there are employees to serve them, they hire people to serve the customers. When a business sees that not enough people are coming in the door and employees are sitting around reading the newspaper, they lay people off. Businesses want customers, not tax cuts.

A job is created when demand for goods or services is greater than the existing ability to provide them. When there is a demand, people will see the need and fill it. Either someone will start filling the demand alone, or form a new business to fill it or an existing provider of the good or service will add employees as needed.

Once again:

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 2:54 PM | Comments (0) | Link Cosmos

August 12, 2011

Austeridiocy: Budget Cuts Take Money Out Of The Economy

"The patient is sicker so we have to apply more leeches." Countries that are trying to fix deficits with spending cuts are finding out that taking money out of their economies by cutting government is slowing their economies. Duh! Imagine that! So instead of cutting deficits the resulting slowdowns are making their deficits worse as tax revenues drop and joblessness goes up. So what are they proposing? More "austerity" spending cuts. I call them "austeridiots."

It Didn't Work So Do It More

See if you can find the logical flaw in this AP news report: French growth sputters to a halt in 2nd quarter,

The French government was put under further pressure to cut deeper into spending after figures Friday showed growth in Europe's second biggest economy ground to a halt in the spring, in another sign that the global economy is facing rising recessionary threats.
With the worse-than-expected French growth figures suggesting a possible budget shortfall this year, government ministers may have to find additional savings...

Right, the cuts are slowing the economy, which means the deficits are worse, so they "have to find additional savings." Cutting government - taking money out of the economy - slowed their economy, so they think they'll solve the problem by taking more money out of their economy. Austeridiocy.

Austeridiocy Here, Too

Our leaders, in their austeridiot geniosity, "solved" the made-up "debt-ceiling crisis" with a two-step process. First they will take about $1 trillion out of the economy right away. Then a 12-member "Super Congress" will try to come up with another $1.2 - 1.5 trillion to take out of the economy. If they can't come up with a deal, then there will be across-the-board cuts to take that money out of the economy.

The idea is that by taking that money out of the economy, there will be more money in the economy. And with less money in the economy, the resulting increases of money in the economy will bring more tax revenue. This strategery was thought up by the crowd that claims cutting taxes increases tax revenues. (It is important to notice that the ideas that come from this crowd always, always, always, always, always, always, always end up making the rich richer and the biggest corporations bigger at the expense of the rest of us. So maybe they're smarter than their ideas make them appear.)

Cuts Only Shift Costs, They Don't Cut Costs

The things government does have to be done, and cutting government doesn't get rid of the need, it just shifts the costs. Cutting government budgets only shifts the cost away from the wealthier taxpayers who were asked to pitch in and give back to the system that enabled their wealth. It removes the "take care of and watch out for each other" concept of democracy and puts the costs on the backs of vulnerable individuals. Cutting government doesn't remove the costs from the larger economy, and often increases the costs to the larger economy.

Example: Health care for old people is provided by government because they need the health care. If you cut or phase out Medicare the health problems of the elderly don't go away. And the cost to the economy is still there. In fact, by shifting these costs from government onto the back of the elderly themselves it increases the cost to the overall economy because it gets rid of the economy-of-scale government offers. Individuals do not have government's ability to buy in bulk for millions and negotiate for lower costs. And by pitting individuals against the giant predatory insurance corporations, the individuals end up paying even more, which further increases the costs to the overall economy. Finally, pushing these costs onto vulnerable individuals drains what's left of their money, which lowers their participation in the rest of the economy, further cutting consumer demand.

That Trick Never Works

See if you can find any examples in history of government budget cuts increasing economic growth. But there are examples in history of government cuts slowing growth. This is because taking money out of the economy slows the economy's growth.

An Alternative That Will Work

What if, instead of doing things that have always failed, we addressed our economic slowdown in a way that has always worked in the past? What if we took this opportunity to invest in repairing our aging, crumbling infrastructure, bringing it up to 21st-century standards? The long-term result of this would be an economy that is more efficient and competitive in world markets, which would of course help our businesses. But more important right now this would mean hiring millions of people to do the work. These people would then be paying taxes and would not be receiving unemployment, food stamps, etc. So of course this would help lower deficits. Also they would be participating in the economy again, making their mortgage payments, buying clothes, even cars. So of course this would help the economy.

The Contract For The American Dream And The Emergency Jobs Bill

The Contract For The American Dream And The Emergency Jobs Bill both call for investment in repairing and modernizing our infrastructure, to improve our economy and to create millions of jobs. So does The People's Budget from the Congressional Progressive Caucus.

The first step in the Contract For The American Dream (please, please click through) is:

Invest in America's Infrastructure
Rebuild our crumbling bridges, dams, levees, ports, water and sewer lines, railways, roads, and public transit. We must invest in high-speed Internet and a modern, energy-saving electric grid. These investments will create good jobs and rebuild America. To help finance these projects, we need national and state infrastructure banks.

The Fact Sheet about this idea begins,

For decades America has deferred maintenance of our public infrastructure – our roads, bridges, airports, ports, rail, levees, schools, broadband, wastewater and sewage systems, energy systems, and waterways. This infrastructure serves the public’s safety and welfare needs and supports the nation’s economic growth and competitiveness. This is a core function of government and we aren’t doing it.

This is work that has to be done. This is millions of jobs that need doing, while millions of our people are looking for work. Instead of taking money out of our economy, let's invest in our economy and our people, and live off the dividend.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 1:40 PM | Comments (0) | Link Cosmos

June 24, 2011

How Free Trade Made Democracy A Disadvantage

This is my presentation from last week's Netroots Nation panel session: Revitalizing Manufacturing: The Road to Renewed Job Growth. Click through for panel details and other panelists, here for a pdf of slides, including Jared Bernstein's. See below for video -- and be sure to watch Beri Fox!!!

Four Stories

I want to share four quick stories:

1. Democracy

The story of America

We fought a wealthy powerful few who had all the say and didn’t let us have a say, and made a country where We, the People made the decisions and share the benefits.

So because we had a say we built up a country with good schools, good infrastructure, good courts, and we made rules that said workers had to be safe, get a minimum wage… we protect the environment, we give out social security. We take care of each other.

And we used to protect that. We used to put a tariff on goods coming in if they were made by people who didn’t have the ability to speak up and better their condition. It was called the American System. Look it up. We’d let the goods in but we would use a tariff to strengthen our country, our infrastructure, our schools – our democracy.

But that changed. Superman left and we stopped protecting the American Way. We started letting goods in made by people who had no say, so the goods were cheap and they undercut us.

We have made democracy a disadvantage. We made it a disadvantage instead of an advantage.

Make no mistake, people who say they want things more “business friendly” they mean they want America to be less of a democracy, with fewer of the protections we fought to build for ourselves.

2. Trade

Once upon a time some areas made some things well, and other areas made other things well, and they would trade, and both areas could have the things they made AND the things made somewhere else, and everyone benefitted. And both areas increased the customers they had.

And so to most people “trade” means we buy things made somewhere else, and they buy things we make. In what world does “trade” mean closing a factory that is located here, moving it there where they don’t already make something, laying off all the people, and then bringing back here the same things that used to be made here and selling them in the same stores?

And the result is a lot of people have lost jobs, devastating our communities.

And then they tell workers who still have jobs that the same can happen to them, we can just close this factory, so shut up and don’t expect raises or benefits or safety or dignity.

What we see happening when a company moves production out of the country is not trade, it is getting around the borders of the democracy we built, and the things we fought and sacrificed to build.

Letting companies move factories away was giving up our ability to make a living. Sure a few people might get really rich from it, but look around you the rest of us, and our communities, and our economy have been sent sliding down a hill into the sewer.

3. The Deal

There once was a company. The company made a deal with a company in the next county, they make something you don’t, and you make something they don’t. So the deal is you’ll buy things from them if they buy from you. And you start buying from them, but they aren’t buying from you. And this goes on, and they still aren’t buying from you, but you are starting to owe them a lot of money. And they you’re borrowing from them to buy from them, and they still aren’t buying. And then they show up in your county selling the things you already made and sold, buy they used the money they got selling to you to set up to make what you made.

And by the way they say you have to pay them what you owe them.

That is how our deal with China is working out. We bought from them, they didn’t buy form us, and now they have accumulated $1.5 trillion which they were supposed to have been buying American-made goods with.

And they cheated. Or I would say they were smart and watched out for their own interests excessively, and we didn’t at all.

$1.5 trillion! So imagine what would happen if we said we're going to default on the debt but these bonds are redeemable in the next 3 months for American made good. Can you imagine what $1.5 trillion of orders would do for our economy right now? $1.5 trillion in orders? Factories humming...

Well the picture of what that would do FOR our economy is a way of understanding what that has done TO our economy.

4. The Cost

I like to tell you a story about the cost of our free-trade deals and tax policies.

I took a road trip last fall, through four industrial states, MI, OH, WV, PA to visit some of the Manufacturing Town Hall meetings that Scott’s group put on. [Note - see posts about this tour here.]

They call it the "rust belt" because so many factories are closed and rusting.

From town to town you see downtowns devastated, because the way you make a living is gone and the cheap imported goods at wal mart competing with local businesses. Michael Moore wrote about Flint after the auto plants closed. That kept happening, town after town, year after year, and got worse.

You have to see to first hand. [Note - there are pics in this post.]

But I’ll tell you, we’re even seeing it now in Silicon Valley, seeing downtowns with lots of empty storefronts. Empty office and manufacturing buildings everywhere. That wave that hit the Midwest has reached the tech areas now.

So the moral of the four stories is that We the People have to protect the things we fought for and won. And we have to remember that We, the People have to take care of and watch out for each other because the wealthy and powerful won’t do that for us. And markets aren’t about that, either.

When we relax our eternal vigilance they will come back with a vengeance.

Progressive Solutions

Industrial Policy

We don’t believe in having the government help. We think the markets will fix everything. But other countries don’t see it that way.
We are pitting our companies on their own against the national resources of governments. We can live in an ideological dream world and say we shouldn’t, but our competitors in the rest of the world DO.

b. Protect Democracy

Tariffs. Call it a democracy tariff. Or a thugocracy tax. Use this to help lift others out of their exploitation. By making democracy a disadvantage we are only encouraging the worst, and encouraging it here, too. “Business friendly” is a code word that means get rid of all the protections We, the People have built for ourselves.

They can protect the environment, etc, or charge a tariff to bring those goods in.

c. Renegotiate Trade Deals

Trade can mean something different. We still have a huge market. We can require goods to either be made by people who are not exploited and who have a say so

d. Enforce Trade Laws

China cheats in so many ways, and we all know it. Currency rates. Indigenous innovation . Forcing companies to turn over proprietary IP…

We can do these things. Because of the strong prosperity that democracy brought us others really want to sell into our markets.

And my own favorite:

With high top rates it takes time to build a fortune. You have to have long-term plans, sustainable businesses that are surrounded by healthy communities, good schools, good infrastructure.

Lower rates, you can make a fortune in a few days. Business models changed, became short term, cash in, quick-buck schemes. Harvest infrastructure, close factories, no need for healthy communities, etc.

Video Of The Panel

Scott Paul opens
Jared Bernstein at 6:02
Rep. Jim McGovern at 17:00
Beri Fox at 31:29
Dave Johnson at 48:13

IF the video below doesn't show up, click to see it here.

Sobotka

As always, Frank Sobotka explains what's wrong:

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 10:16 AM | Comments (0) | Link Cosmos

June 9, 2011

Businesses Hire When Customers Are Coming In The Door

Another bad jobless claims report... and this time Washington seems to have finally noticed that there are some unemployed people out here in the sticks. But instead of jobs programs the geniuses are proposing ... what else? ... even more tax cuts. (And after a few hours they'll go back to complaining about deficits but blame "spending.") And of course, they are once again trying to "appeal to Republican lawmakers" without getting it that Republican lawmakers are doing everything they can to slow job growth so they can win the next election.

Bloomberg: Payroll-Tax Break Said to Be Discussed by Obama Aides Amid Slowing Economy,

President Barack Obama’s advisers have discussed seeking a temporary cut in the payroll taxes businesses pay on wages as they debate ways to spur hiring amid signs that the recovery is slowing, according to people familiar with the matter.
. . . The talks reflect the political constraints the White House is operating under with the Republican majority in the U.S. House pushing to cut federal spending. A hiring stimulus based on a tax break for employers may appeal to Republican lawmakers, many of whom have called for measures to help businesses.

Companies Only Hire When Customers Are Coming In The Door

Here is something the geniuses haven't noticed, in all their geniosity: It doesn’t matter how much more money you give to business owners, businesses are not going to hire any more employees until they have a REASON to – and that reason is customers coming in the door.

OK, That was bold and italicized. Maybe if I make it ALL CAPS the geniuses will see it? Let's see: BUSINESSES ARE NOT GOING TO HIRE ANY MORE EMPLOYEES UNTIL THEY HAVE A REASON TO AND THAT REASON IS CUSTOMERS COMING IN THE DOOR.

Businesses are not going to hire people just to sit around and listen to iPods or read the paper, waiting for a customer.

Terrance Heath, in America's Unhappy Anniversary: Ten Years Of The Bush Tax Cuts For The Wealthy,

Republicans claim that preserving the Bush tax cuts for the wealthy is in the interest of small businesses, but small business owners are starting to demand a repeal of the Bush tax cuts.
"We are fed by our consumers, not by our tax breaks," says Rick Poore, owner of Designwear, Inc., a screen-printing business based in Lincoln, Neb. "If you drive more people to my business, I will hire more people. It's as simple as that. If you give me a tax break, I'll just take the wife to the Bahamas."

Businesses are fed by their customers, not by tax cuts. Tax cuts only feed deficits. Customers coming in the door is what causes businesses to hire. In case you missed that: Customers coming in the door is what causes businesses to hire.

Direct Job Creation Is Needed

Until there are more customers businesses are not going to hire. Why should they? So it is up to us (government: We, the People...) to create some customers. The way to do that is to hire people to do some of the things that it is government's job to do anyway, but government has been putting off because of so many tax cuts.

Fix the infrastructure: Our infrastructure is crumbling. In Obama Should Call Chamber’s Infrastructure Bluff I linked to an Urban Land Institute report on the country's infrastructure, showing how we are falling behind countries like Brazil, China and India, and to the American Society of Civil Engineers (ASCE) Infrastructure Report Card, that says a $2.2 trillion investment is needed just to bring the country's infrastructure back up to current standards.

This infrastructure work has to be done no matter what. The longer we delay it the more our country falls behind. It is millions of jobs that need doing at a time when millions need jobs! (And by the way the government can borrow at nearly zero interest rates right now -- one more reason to do it now.)

Green jobs: And then there are the green jobs you should be creating. You should be hiring people to retrofit every home and building in the country to be more energy efficient. This pays for itself because we stop sending so much money to the oil-producing countries, stop putting so much carbon in the air, and our economy becomes more efficient. And put more money into alternative energy, too. I mean, jeeze, geniuses, what part of this is hard to get?

Jobs fix deficits: Hiring people to fix up the infrastructure takes them off the unemployment rolls and off the other assistance programs, lowering government spending on those programs. Having those jobs means they are paying taxes again, raising government revenue. And fixing up the infrastructure makes our businesses more competitive again, growing the economy. It's a no-brainer which should mean even the DC geniuses can figure it out.

Fix Trade

Because of bad trade deals, much of any revival of our economy just means that we send more money out of the country. The trade deficits, especially with China, are also economy deficits. We are not just sending jobs and money out of the country, we are sending our chances of coming out of this economic slump out of the country as well.

And these trade deals pit exploited, underpaid workers in non- or weak democracies against our workers who had been benefiting from the good wages, workers protections and other non-"business friendly" things that democracy brings along with it.

Our trade deals have made our democracy and the resulting high standard of living into a disadvantage. Who were the geniuses that let that happen?

Restore Long-Term Incentives

Tax cuts have cut the incentive for long-term business models. It used to take time to build a fortune, so businesses had to place themselves within healthy communities with good schools, well-maintained infrastructure and solid, well-funded public structures like the court system. Cutting top tax rates changed business models to make more sense "harvesting" those things in a hurry and moving on to the next community with resources to plunder. Low top tax rates encourage quick-buck schemes.

Propose The Right Thing

Propose the right thing and do it publicly, instead of trying to appease a political ideology bent on destroying government. Doing the right thing is also the right thing politically. If the job situation doesn't get better you're going to be thrown out of office. So come one, geniuses, get smart and start hiring people to fix up the infrastructure and make the economy more energy efficient.

10 years of Bush tax cuts is enough! Click here to demand your representative supports the Fairness in Taxation Act so the rich contribute their fair share.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 12:17 PM | Comments (0) | Link Cosmos

April 10, 2011

$58 To Fill An Accord

I just paid $58 to fill up my 2000 Honda Accord.

Times are getting tougher...

Posted by Dave Johnson at 7:18 PM | Comments (0) | Link Cosmos

February 16, 2011

It's A Really Bad Time to Be Middle Class

It’s a really bad time to even be middle class in this country, and forget about being poor. The only way to be protected is to be very wealthy: then you are guaranteed that your house is safe, your medical care is covered, and your children will have a future. It’s that bad, and not one bit of this is subtle.

There is a class war underway in this country. The rich, or those that represent their interests, and corporations want control. Dave Johnson, blogger for the Campaign for America’s Future, nailed it when he wrote that: “This budget fight is about a stark choice: jobs and growth for We, the People, or going down the road of plutocracy -- rule by the super-rich and big corporations -- with little or nothing left over for the rest of us.”

This is the power grab of our generation playing out in Obama’s budget. It reflects true entitlement for the super wealthy. The government revitalization of the “too big to fail” banks was only the tipping point. Of course, the bankers deserved their bonuses. Remember that you heard it here. The battleground is not about the so-called entitlement programs espoused by the Democrats. Social Security, and other such programs are not the culprits; they are the scapegoat for the real agenda.

Obama is being forced to rip open the social fabric of this country to reduce the Bush generated debts. In the President’s proposed budget, most social programs will be ravaged left and right (no pun intended). Yes admittedly, this budget is a massive jobs creation machine. But watch out – don’t get sick folks or have an on-the-job accident because there will little if any safety net. Certainly, we all know about health care reform, yet if Speaker Boehner and his boys have their way -- that too will be reduced to a hill of beans and severely compromised. The fight for survival of the middle class and the poor has been ratcheted up a notch. Strap in folks, this is class warfare.

Note, this will also appear in the Huffington Post.

Posted by Michelle at 12:07 PM | Comments (0) | Link Cosmos

February 3, 2011

Jobs Crisis In Real World ... Just Not In DC

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

Who is our economy for? Who is our government for? For 30 years we have been undergoing a transition from "We, the People" democratic government to a plutocracy run by and for the wealthy. One indicator of this transition is the way the DC Elite respond to unemployment. 9-10% unemployment used to be a national emergency. Now it's a yawn.

What The Washington Paper Says

The Washington Post has a front-page story, Why does Fresno have thousands of job openings - and high unemployment? that says the problem is really "structural," a skills gap, and there is little we can do. This is significant because so many people who make policy read the Washington Post while sitting in their nice, expensive restaurants. Stories like this risk that they will think that there really are plenty of jobs out there, but the serfs just aren’t up to taking them, or are too spoiled, but in any event there is no problem that needs solving, and call the lobbyist because this month’s check is late.

Meanwhile, anyone in the real world outside of Washington or Wall Street, reading about “thousands” of job openings going unfilled immediately knows something is fishy. In fact, if this story ran on the front page outside of DC or Wall Street we might even need to worry about Egypt-style riots. Anyone on the same side of the continent as Fresno knows that there are not “thousands’ of unfilled job openings. There might be thousands of foreclosures, or thousands of people in food lines, or thousands of people whose unemployment has run out but there are not thousands of unfilled job openings.

What The Local Paper Says

The Fresno Bee has a different story to tell, EDITORIAL: President should come see impact of joblessness in Valley:

The economy may be improving, but it would be difficult to persuade the thousands of out-of-work Valley residents that things are looking up.
The six Valley communities cited in a U.S. Labor Department report have unemployment rates that run from 16.4% in Hanford-Corcoran to 18.6% in Merced. The other Valley cities on the list are Fresno (16.9%), Visalia-Porterville (16.8%), Modesto (17.2%) and Stockton (17.5%).

. . . The nation's economic recovery will not be complete until Americans go back to work. At every level of government, the goal should be to implement policies that improve consumer confidence and encourage businesses to hire workers.

The Fresno Want Ads

The Fresno Bee help-wanted ads tell the story.

There are 963 “Sales” jobs listed, but the first 519 of those are at the same "company," called “Work At Home Jobs, Inc.” and are mostly the same "job," if you can call it that. The next 136 are a different "company" and the "jobs" are calling people from home to sell them wireless cell service – on commission. The next 52 are the same deal but a different "company," selling internet from home, on commission. The next 46, same story. Etc.

The next category after Sales is “Business development”, with 691 jobs, 466 are “work at home” and many of the rest are the same jobs at the same companies as the “sales” jobs. The next two categories are "General Business" and "Other" and, again, list the same "jobs" at the same "companies." The next category is "Business Opportunity." I challenge you to guess what "companies" and "jobs" are listed. (Hint: it's the same ones again.)

Supply And Demand

Among the few specifics in the story is the example of "Jain Irrigation, which cannot find all the workers it wants for $15-an-hour jobs running expensive machinery that spins out precision irrigation tubing at 600 feet a minute, 24 hours a day, seven days a week."

$15-an-hour is just above the poverty level for a family of four, at about 130%.

Dean Baker, writing in, The Problem of Structrual Unemployment: Really Incompetent Managers, makes the point that a company complaining they can’t find skilled workers at $15 an hour needs to think about raising their offer. Baker writes,

It presents comments from one employer who complains that he can't find workers for jobs that pay $15 an hour. This is not a very good wage. It would be difficult for someone to support themselves and their children on a job paying $15 an hour ($30,000 a year). If the company president understand economics, then he would raise wages enough so that the jobs were attractive to workers who have the necessary skills.

If they can't get workers, they should know that they need to bump up the wage offered until they can. That is about as basic as it gets in the supply/demand equation.

Can't Sell The House And Move

Part of this problem is the housing market. If Fresno really doesn’t have the skilled workers businesses need, Silicon Valley and Las Vegas certainly do, and have very high unemployment rates, but the people there can’t sell their houses and move! And even if they could sell they are "underwater," will come out of the sale owing a ton of money that they can't make up by taking a $15-per-hour job!

Externalizing Training Costs

Companies expect workers to already be trained, “externalizing” one more cost onto local communities, while shopping for the lowest tax areas to locate.

California has a budget crisis and is cutting back on funding for the community colleges and other programs where people are trained for jobs. One reason for the budget crisis is businesses demanding ever-lower taxes, or playing communities and states against each other for tax incentives to relocate, using property tax avoidance schemes and so many other ways to get out of paying something back to the public for the public investment that enabled them to prosper.

The Real Problem

Out here in the real world the real problem is not "structural," it is that there just are not enough jobs, they don't pay enough, "free trade" deals have lowered wages and undermined our manufacturing base, there is not enough demand in the economy and the government is not doing its job of picking up the slack and after 30 years of tax-cutting the infrastructure is crumbling and not supporting competitiveness for our businesses.

There are millions of unemployed and millions of infrastructure jobs that need doing. There is a new green energy and manufacturing revolution going on in the world and we do not have an economic/industrial policy to capture our share. There is problem after problem that is not being addressed by a government captured by interests.

DC Avoids Dealing With The Problem

It seems that the DC Elite will do anything to avoid just seeing what is in front of their faces.

Clearly we have lost jobs from trade deals, Wall Street financialization and domination, lack of investment in infrastructure and education, etc. But the DC Elite come up with a thousand reasons not to fix these because the interests that benefit from those deals have influence over them. Our budget deficit is obviously from tax cuts and military spending – but you will never, ever, ever, ever hear that. Instead we hear job-killing "austerity" solutions that avoid asking the wealthy few to pitch in.

On one issue after another, the DC Elite provide cover for the wealthy elite interests who now control DC. The transition from We, the People democracy to a plutocracy of, by and for the wealthy few is nearly complete.

The real problem is not a breakdown of the structure of the job market and is not a mismatch between the jobs and the skills, it is a lack of jobs because of lack of demand, and a mismatch between who our government and economy are supposed to work for, and the interests that have brought this about.

March 10 Summit on Jobs and America's Future

On March 10, 2011, the Summit on Jobs and America’s Future will bring together leaders and activists who understand that America faces a jobs crisis – and who are committed to building a political movement for sustainable economic growth, dynamic job creation, and a revival of the American economy.

It's free, $15 if you want lunch. Beat that.

Sign up here for the CAF daily summary.

Posted by Dave Johnson at 7:33 AM | Comments (0) | Link Cosmos

January 16, 2011

A Public Bank!

This is a really good idea: Eschaton: Public Banking Option

Yes there should be one though probably the best we could hope for is a "if you want to make money providing the financial services to run our food stamp debit cards then you must offer accounts on these terms." Not holding my breath for that one, but "paying someone lots of money to do what the government could do more cheaply" seems to be the only acceptable way to do anything decent these days.

Posted by Dave Johnson at 9:13 AM | Comments (0) | Link Cosmos

January 7, 2011

Unemployment Rate Dropped Because So Many People Gave Up

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

Unemployment Rate Dropped BecausThe new monthly job numbers are out. They are a little bit better than they have been, but they are not very good. We added very few jobs but the unemployment rate went down. This is a function of a really bad economy in which people are so discouraged they aren't even bothering to look. So many people have given up that the labor force is actually smaller now than before the recession. We must make sure that these people are not just discarded, abandoned and marked up as a loss. They are people.

Any increase in jobs is good news. In December the economy created a net of 103,000 new jobs. Also the prior two months' numbers were revised up by 70,000. But there are real problems behind these numbers. We are more than two years into this recession, and we still are not seeing job growth that will bring the unemployment levels down anywhere near where they need to be. The stimulus worked but was not enough, and it is winding down. The new Congress has no intention whatsoever of new job-creation or infrastructure programs. And it is ending help for state and local governments that are increasingly shedding jobs.

The official unemployment rate dropped, but only because 260,000 people "left the labor force." That means they gave up looking for work. There are so many discouraged workers who are not in the labor market that any truly good news will bring a flood back into the labor force. And that will keep the unemployment number high.

Dean Baker of the Center for Economic and Policy Research writes,

The 0.4 percentage-point drop in the unemployment rate was the largest since April of 1998, but this decline may just be an aberration. The 290,000 reported gain in employment reported in the Bureau of Labor Statistic's household survey is healthy, but inconsistent with so many people leaving the labor force. It is also worth noting that average weekly unemployment claims are still averaging more than 400,000. The economy did not start generating jobs at all following the last recession until weekly claims fell below 400,000 in 2003.
[. . .] On the whole, this report does not suggest a very positive picture of the labor market going into 2011. The decline in the unemployment rate is certainly positive, but with EPOPs hovering near their low point for the downturn, the main story appears to be people giving up looking for work. Furthermore, there is no sector that appears to be experiencing robust job growth at the moment, nor any likely candidates for the near future.

Lower Pay

Many of the new jobs come with lower pay than the jobs lost. Isaiah Poole writes about this in Where Are The Breadwinning Jobs?

There isn't much cause for gloating in today's unemployment report, with the number of jobs created during December—103,000—being lower than most analysts expected. But, more critically, we're not even treading water on creating a sufficient number of "breadwinning jobs" needed to grow and sustain America's middle class.
. . . "We are now America, the downwardly mobile," wrote Harold Meyerson this week when he offered his own analysis of what has happened in the job market in recent years. The shortage of breadwinner jobs exacerbates the middle-class economic decay that began with the economic policies of the Bush administration and the conservatives in Congress. As Meyerson points out, median household income (in 2007 dollars) went from $50,557 in 2000 to $50,233 in 2007 and $49,777 in 2009.

Stocks & Profits Are Up, Nothing Else Matters

The stock market is up and corporate profits are soaring, so as far as the people who make decisions are concerned, things are better than ever. They refuse to see the problems faced by the rest of the people of the country. While waves of people are hitting the "99er" limit for receiving unemployment checks, our leadership will not do anything about it. Plutocracy has replaced democracy.

Abandoned?

According to the Economic Policy Institute, we are 7.2 million payroll jobs below the start of the recession, and that does not take into account 3.7 million more jobs that were needed just to keep up with population growth.

We face a serious risk that a plutocratic leadership will just abandon the unemployed. Corporate profits and stock prices are up, even with this level of unemployment. So the plight of so many millions of Americans is of little concern.

There is so much work that needs doing. The country's infrastructure is deteriorating, dragging down our economy's competitiveness. This represents millions of jobs that need doing -- while millions of people need jobs. But the nation's leadership instead passes tax cuts for the rich, borrowing hundreds of billions for that purpose instead of for putting people to work and maintaining the infrastructure. And in the midst of the borrow for tax cuts instead of jobs, creates deficit commissions in stead of jobs commissions.

The Charts

Here is The Chart (from Calculated Risk.)

EmploymentPercentLossesAlignDec2010

The following two charts are from this analysis.

Unemployed over 26 weeks:

Part time for economic reasons (underemployed):

The President and Congress should recognize that stock prices and corporate profits have become separated from what the rest of the country is experiencing. "Main Street" is not recovering. People are not finding jobs. It is still a crisis. We need a jobs first economic plan.e So Many People Gave Up

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Posted by Dave Johnson at 5:19 PM | Comments (0) | Link Cosmos

December 29, 2010

A Chart Everyone Should See

Top Marginal Income Tax Rates & Real Economic Growth, a Bar Chart | Angry Bear.

This chart shows how well the economy grew at different top tax rates. It shows that higher top tax rates coincided with higher GDP growth until passing a top rate of 92.5%.

Also see The top marginal income tax rate should be about 65%... where he explains why, but how it could go as high as 75% before any drop-opp in growth.

However, growth does not drop much at all as you go higher, so it makes sense when you have a lot of debt to go to the highest, not the optimal, until the debt is paid down. So we really could go to 85-90% for a while.

Posted by Dave Johnson at 5:53 PM | Comments (0) | Link Cosmos

December 10, 2010

It's (Still) The Economic Paradigm, Stupid!

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

Yesterday I wrote that the President may have sacrificed his long-term vision on trade and economic/industrial policy to day-to-day concerns and politics. The tax-cut deal is another indicator that a big-picture vision has been sacrificed. But however much smoke gets thrown up to mask the real problem it's still all about the economic paradigm.

There is still a lot of forward-thinking work to do on our economy. The big picture is, of course, jobs. It is balance of trade, a coherent and especially comprehensive economic/industrial policy, education, infrastructure. But even more than those, fixing the real economic mess is about finding a sustainable and equitable formula, and changing the equations of who gets what for what. It is a bigger picture.

But now we are totally caught in the day-to-day fights over tax cuts for the rich, giving forever more and more to the big financial institutions, letting the big corporations get away with more and more while delivering less and less and making us work harder and harder. It seems that all we do now is just react to corporate/conservative assaults. We are trying to fight off attacks on everything, everything and on every, every front.

Instead of job-creation programs we are fighting over just giving unemployed people the same unemployment benefits that American workers have always gotten. Instead of doing something about climate change we are fighting to keep the big oil companies from killing rail projects and green energy initiatives.

The corporate/conservatives are using their "Overton Window" tactics to push the discourse ever further to the right and away from addressing the real problems. (I don't mean Glenn Beck's book. More info here and here.) And we are now living the result.

Step back, remember how we got here. Thirty years ago the corporate conservatives launched their assault on We, the People. They elected Ronald Reagan, who declared that "We, the People are the problem," and that decision-making by We the People (government) had gotten too big. Now the Reagan Revolution has come home to roost and we are living in the conservative dream. The rich ever richer with more and more power, the rest of us are "the help," just trying to get by, and our minds are under continual assault from a sophisticated propaganda barrage designed to keep us from doing something about it.

The basics have not changed. The fundamental changes we need are still needed. The corporate conservatives have all the money in the world and are so well organized but they can't fight off reality forever. The planet really is warming and the climate really is changing and it really is because of carbon. The conservative economic model really does not work and is draining the people and the planet for the benefit of just a few.

In my first post for the Campaign for America's Future, It's The Economic Paradigm, Stupid!, I wrote,

It is not just the economy out of whack. The business practices that brought us here -- overextraction, overextension, overleveraging, overconsumption -- have also whacked the planet’s resources. The fisheries are increasingly depleted. The aquifers are increasingly drained. The forests are increasingly logged. The landfills are increasingly full. And, of course, the planet is increasingly hotter.
Our economic system has also taken a toll on the people. Too many hours at a stressful workplace with too little sleep have burned many of us out. Our thinking and identity are about our jobs, not our spirit and character. Our values are devoted to markets with many of us placing making money over loving and caring for families and others. And there's no time for that stuff anyway. We have become consumers instead of citizens and humans. Decades of falling wages, decreasing savings and increasing debt have tapped us out. Consumption has used us up. And we’re fed up.

The problems are still the problems, only more so. And we're still fed up, only more so.

(*Please click the links)

(*Please click the links)

Previous: It's The Economic Paradigm, Stupid!
Overton Windows links: Here, here and here.

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Posted by Dave Johnson at 2:19 PM | Comments (0) | Link Cosmos

October 10, 2010

The Great American Credit Catastrophe

The 911 of the Middle Class is the consumer credit debacle. It is the gift that keeps on giving. The reality is that the housing crisis is just one piece of this really big, ugly mess. It seems to me that our President MUST call for immediate reform and take action through executive order. Call me politically naïve, but we need action. Unemployment continues to hover close to 10%, and higher in badly hit areas. Interest paid by the banks on savings ranges from less than 1% to maybe 2.5% on a good day. The consumer credit card companies, though regulated now sort of, ran naked through the streets jacking up everyone's interest rates to over 15 to 30%. Yes they have to notify the poor, irresponsible slobs now before they do things, but the banks still get to burn kerosene in the town square with no permits. And we haven't even gotten to the health insurance yahoos that have four more years for their trickery. Oh Nelly, bar the door! It's the Wild West again as the cattle are corralled - only this time it's the American people being herded to ruin by the giddy-up bankers and health insurance companies, not just the mortgage guys.

People are getting sick from worry. Their backs hurt, their necks are out, and they are grinding their pearly whites. Few sleep well at night. Pharmaceutical sales are up. The banks we saved are savaging us. They are bulldozing the Middle Class under mountains of debt. People are losing their homes, divorces are up, businesses are closing, and unemployment is rampant. The consumer credit world and their FICO scores are broken. They are based on a world that no longer exists. In two short years, many consumers have watched their scores collapse under an avalanche of debt. The FICO scores were calibrated for a different time when consumer credit cards were not the only source of money available, mortgages were not under water, and unemployment was not soaring. If we are ever to unwind this situation, these algorithms must be reset. Otherwise the banks will never lend again. The Middle Class needs a do-over, just like the banks got.

Yes sir, Obama stood up against the broad sweeping foreclosure legislation, and Bank of America seized the moment halting foreclosures nationwide. But we're all holding our breath waiting for the other shoe to fall as even Progressive strategist Mike Lux gens up the netroots to re-engage with the President and Congress. It is inconceivable that people have not taken to streets in protest over their lost pensions, and the absence of any kind of interest bearing bank account -- except on consumer credit cards. In fact, this week Robert Sheer wrote brilliantly about Obama's "No Banker Left Behind" -- while every normal person has been thrown under the bank bus. How did we allow the bail-out of every financial institution, while abandoning the common folk? Why are Democrats -- whether conservative, moderate or netroots - not able to channel this collective anger, rage and disappointment other than to take aim at one another? Given the data, there is no way out for the once resilient Middle Class without a do-over. Instead of "No Banker Left Behind" let us heal the Middle Class by fixing the credit industry; restricting the health care industry now, not in four years; and making those banks lend the money we gave them and not hide behind FICO scores. All of the Democrats are writing, but no one is demanding change now. The Tea Party has successfully harnessed the anger and rage, but has no plan. Frankly, they are just another distraction taking our attention away from the gravity of the problems.

Mr. President, come back to us as Mike Lux laments. We need you. We, in the Middle Class, are living this nightmare everyday of our lives. Figure it out, and get the Middle Class out from under. The numbers do not lie. This is our emergency, our call to action, our 911. Friends and neighbors are collapsing from the stress when they can ill afford it. Unemployment is not going away. Consumer debt is skyrocketing. Mr. Obama, Americans are not being frivolous and irresponsible as Dr. Summers would like you to believe. They are boxed in with no escape hatch. Consider enacting a nationwide job core like the WPA, putting the banks on real notice, corralling those nasty health insurance folks, redoing the credit industry, and loosening up cash. No one is sleeping at night. People are nervous and cannot see a future.

Please, inspire us again, show emotion, get messy, and let the wrinkles show. Mr. President raise your voice in outrage. Give us voice. Come back to us. The time is now.

This was originally published on the Huffington Post earlier today.

See the pearltree below for the references for this article.

Posted by Michelle at 2:22 PM | Comments (0) | Link Cosmos

September 20, 2010

Recession Over?

So the recession ended a year ago June? Gosh, I wonder what happens when they raise interest rates above zero.

Posted by Dave Johnson at 9:56 PM | Comments (0) | Link Cosmos

September 9, 2010

To Fix The Economy Raise Wages

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

To fix the economy we have to fix wages. Increased wages will restore demand. The changes that will increase wages will help restore democracy.

The social contract used to be that citizens in our democracy share the benefits of our economy through increased wages that come from increases in productivity. This broke down and working people's incomes have been stagnant since the Reagan Revolution. (Yes, I'm telling the same story again. It needs to be told, over and over so people can understand what is happening to us. We are feeling the effects of the Reagan Revolution coming home to roost.)

Reagan and the conservatives weakened the government and broke the unions. Government and organized labor were the forces in our society that had stood up for the interests of regular people against the "moneyed interests" and weakening them fundamentally changed the fairness equation of our economy. After the Reagan Revolution working people's share of the benefits from increased productivity turned down:

All of the benefits of improvements in our economy now flow to a few at the top. This results in intense concentration of wealth:

With more and more of the income and wealth going to a top few, We, the People are thought of less and less as citizens and more and more as "the help." But who is our economy for, anyway? Our economy can operate for the benefit of We, the People, or it can operate for the benefit of a wealthy few at the expense of the rest of us. This is the ongoing battle. And history has shown over and over that when economies operate for the few, they don't work.

This is not just about sharing the economy, it is about sharing the decision-making power. In our form of government We, the People are supposed to make the decisions. When Reagan said, "Government is the problem" he was really saying that decision-making by We, the People is a bad thing. When conservatives complain about "big government" they are complaining about We, the People having a big share in decision-making. When they call for "less government" they are calling for less of a share of the decisions-making by us. This means the wealthy and powerful have more of a share -- of everything.

With the income, wealth and benefits of the economy increasingly flowing to a top few, working families tried to compensate for the loss in various ways. Women entered the workforce. Former Labor Secretary Robert Reich explains, "By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did)." (Please read his whole post if you have time.)

Then, still not getting by on stagnant wages with rising prices, people worked more hours or added second jobs. Then they started using up their savings.

Finally they resorted to adding debt.

This all finally broke down, demand slowed, and the economy has slowed to a crawl. The 90s financialization and "dot com" bubbles obscured the way things were headed, and then the housing bubble of the 2000s continued the illusion. But debt just kept rising people kept working longer and harder to get by, while the richest few kept getting richer. Finally it all crashed and current attempts to prop it up by helping the wealthy and big businesses are not succeeding. Bailing out big banks and their executives and shareholders and not holding anyone accountable, while letting predatory corporations continue their economy-draining practices has not only kept the worst parts of the "share of the wealth" problem in place, it has undermined people's faith in government and demcoracy. Changes need to be made.

Most people pay for things with income from jobs. If we want demand to rise, then we need to raise incomes. But things are still going in the wrong direction. As CAF's Robert Borosage writes today,

"Over the last decade, we lost one in three manufacturing jobs. Inequality reached Gilded Age extremes. CEOs and bankers pocketed million dollar bonuses while cooking the books and gambling on exotic securities, inflating the housing bubble until it burst. Health insurance companies kept a strangle hold on a health care system that costs twice as much as those in other industrial countries, leaves millions uninsured and provides worse health care."

Who Gets What For What?

This bad economy situation is going to drag on until we make real changes in the structure of who gets what for what in this country. Every incentive in the economy is to try to reduce wages, cut benefits and eliminate jobs. Think about that. People get bonuses and raises and owners get richer if they eliminate YOUR job or at least cut back your pay and benefits. For example, by replacing a worker with a machine, the owner of the machine gets more money, the worker gets nothing. But in the larger economy each time this happens it means there are fewer people in a position to buy whatever goods or services the same companies that eliminated the jobs are in business to provide. And it means that a few wealthy people become more wealthy and powerful.

This is where government comes in. Government is supposed to be the force that speaks for and protects the interests of the people, empowers people through education and rules, set conditions to keep wages high, lay down the infrastructure in which businesses thrive, and coordinates the international competition for industries and jobs. But the Reagan Revolution broke that. We need to restore it.

There are so many things that government could be doing to get the economy working again for working people, small and medium businesses and big corporations that want to make an honest living. Boost the minimum wage, modernize the infrastructure, provide health care, provide free education through graduate level, increase Social Security, help unions organize, impose a democracy tariff so imports don't get around the protections provided by our democracy, and return to taxing the rich who reap the dividends and payout of all the past investment that We, the People made to make business thrive.

And there are larger structural changes we can make. Just brainstorming but what if workers replaced by machines directly got some of the income generated by the machine. Workers laid off this way several times might then have enough income to get by without working! Or what if we cut the workweek from 40 hours to, say, 35 before overtime kicks in. Maybe that would increase hiring, while giving regular people more leisure time. (And keep cutting the workweek as machines and computers do more of the work.)

And, of course, to have wages at all people have to have jobs. One would think this would go without saying but these days it seems there is a need to point out that people are hurting for jobs, because the DC elite seem to have moved on from that. We badly need government programs to directly hire people to do things that help the people of the country. We would have all of this if the Reagan Revolution hadn't weakened government of, by and for We, the People.

Other posts in the Reagan Revolution Home To Roost series:

Tax Cuts Are Theft
Reagan Revolution Home To Roost -- In Charts
Reagan Revolution Home To Roost: America Drowning In Debt
Reagan Revolution Home To Roost: America Is Crumbling
Finance, Mine, Oil & Debt Disasters: THIS Is Deregulation

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Posted by Dave Johnson at 11:52 AM | Comments (0) | Link Cosmos

September 3, 2010

Labor Day: Labor Got It Right -- Who Could Have Known?

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

"Who could have known?" That's the cry from the big-corporate and DC elite as the economy and the environment and so many imporant things crash around us. (Around us, not them, they're doing just fine and taking good care of each other.)

Who could have known that 25%-per-year house price increases was a bubble?
Who could have known that a housing bubble could burst?
Who could have known that deregulating the financial industry could lead to a financial meltdown?
Who could have known that concentration of wealth could cause consumer demand to dry up?
Who could have known that huge tax cuts for the rich combined with huge military spending increases could cause massive budget deficits?
Who could have known that the Social Security trust fund needed a "lockbox" so it wouldn't be given away as tax cuts?
Who could have known a deregulated deep-water well could cause a massive, destructive, uncontrolled underwater gusher?
Who could have known that continuing to put carbon into the air would cause problems for the climate?
Who could have known that moving our factories out of the country would lead to high unemployment and structural trade deficits?
Who could have known that invading Iraq was wrong and a deadly, disastrous, costly, long-term mistake?
Who could have known that a too-small stimulus that focused on tax cuts wouldn't turn the economy completely around and then conservatives would claim that the stimulus "killed the recovery?"

(List continues into infinity...)

Add organized labor to the list of those who got it right, time after time.

Organized labor was right about the 40-hour workweek.
They were right about the middle class.
They were right about the weekend.
They were right about paid vacations.
They were right about paid holidays.
They were right about paid sick leave.
They were right about providing good, secure retirement plans for everyone.
They were right about providing unemployment benefits to tide people over.
They were right about providing maternity leave, child care and family leave for families.
They were right that trade agreements like NAFTA and letting China into the WTO would lead to massive trade deficits and job losses.
They were right about workplace and consumer safety.
They were right about keeping manufacturing in America.
They were right about fighting discrimination in the workplace.
They were right about raising the minimum wage and the effect that low-wage policies would have on the economy.
They were right about the effect of excessive CEO pay on the economy.
They were right about the devastating effect of the Bush tax cuts.
They were right about the need to maintain and modernize our country's infrastructure.
They were right about going green.
They were right ab out the dangers of Wall Street's financialization of the economy.
They were right about providing good health care to everyone.
They were right about strengthening, not cutting Social Security.
They were right about democratizing corporate governance.
They were right about fighting privatization.
They were right about fighting deregulation.
They were right about providing good education opportunities to everyone.
They were and are right that we need a national jobs agenda
Labor was right about people joining together instead of being on our own.

(List continues into infinity...) They were right and they continue to be right.

And unions have been fighting for these things for all of us, not just for their members.

Please add to these lists in the comments! What other things could nobody have known, and what other things did labor get right?

Enjoy Labor Day. In fact, for those of you that still have jobs after the decades of conservative policies, enjoy having weekends off, the 40-hour week, paid vacations, sick pay, health care, etc. And if you have a job but don't have those things ... JOIN A UNION!

P.S. Here's an example of being right:

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Posted by Dave Johnson at 12:12 PM | Comments (0) | Link Cosmos

July 30, 2010

Even Wall Street Agrees: Govt Should Borrow To Invest

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

Our current economic model depends on ever-increasing consumption. This model worked during the early industrial revolution worked because it filled existing needs: Farmers depending on horses needed tractors. Kitchens needed gas stoves and refrigerators, etc. Eventually the majority of needs were filled, and we invented demand creation: marketing and advertising made us want to buy things we don't really need. All the while population growth helped push demand along at a steady pace.

When the limits of demand creation joined up with declines in population growth consumption would slow, the economies would stagnate, and governments would prime the pump. This ended up creating bigger and bigger bubbles, and bubbles pop.

And never mind the whole chewing up the planet thing where we are fishing out all the seas, removing all the mountaintops, cutting all the trees, drilling and mining deeper and deeper holes, putting more and more carbon into the air.

Bill Gross of PIMCO, says government stimulus plans should borrow to invest, not to push consumption. Writing about "New Normal" in Privates Eye at Real Clear Markets, worries that declining population growth is a warning flag for capitalism itself,

Production depends upon people, not only in the actual process, but because of the final demand that justifies its existence. The more and more consumers, the more and more need for things to be produced. I will go so far as to say that not only growth but capitalism itself may be in part dependent on a growing population.

WIth a growing population, the growth model of capitalism continues for a while,

Currently, the globe is adding over 77 million people a year at a pace of 1.15% annually, but slowing. Still, that’s 77 million more mouths to feed, 77 million more pairs of shoes to make, 77 million more little economic units of demand – houses, furniture, cars, roads, oil – more, more, more.

Gross speculates that this is at the root of the wobbly economies we have seen in recent decades,

The lack of population growth was likely a significant factor in the leveraging of the developed world’s financial systems and the ballooning of total government and private debt ... Lacking an accelerating population base, all developed countries promoted the financing of more and more consumption per capita ... Finally ... there was nowhere to go but down.

Gross writes that continually borrowing to push consumption is not the right way to spend that money. You should borrow to invest, not to consume. Other countries are pe\ursuing policies of investment not consumption:

Far better to create and mimic other government industrial policies aimed at infrastructure, clean energy, more relevant education and less costly healthcare services.

If our government "stimulus" continues to push consumption -- i.e. tax cuts -- instead of spending that invests in infrastructure, education and health care, things can only get worse.

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Posted by Dave Johnson at 10:26 AM | Comments (0) | Link Cosmos

July 27, 2010

Shouldn't High Unemployment = Less Work To Do?

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

Simple question: have we reached a point where machines and computers leave us with less work to do? If so it can mean a lot of people are left without jobs and incomes, losing their homes and health, while the rest have our wages dragged ever downward. Or we can make some changes in who gets what for what, and every one of us ends up better off.

Cake or death? Which will it be? (*explained below)

Somewhere around one in five of us is un- or under-employed while at the same time so many of the rest of us, still employed are stressed, tired, doing the work of those laid off. With too few employed many stores, restaurants, hotels and many other businesses are falling behind. As Bob Herbert puts it today, "Simply stated, more and more families are facing utter economic devastation: completely out of money, with their jobs, savings and retirement funds gone, and nowhere to turn for the next dollar." The government has stepped in with stimulus to pick up some of the slack in demand but that can’t go on forever and we need to find long-term solutions.

Is it structural?

There are signs that the jobs crisis may now be structural, or built into the system. This means that the usual solutions are not going to "restart the engine" and trigger a return to an economy that had where almost everyone can find a job, (even if it is a menial, boring time-suck).

Our unemployment emergency may really be about less work to do. Hale "Bonddad" Stewart writing at 538.com, Labor Force Realignment and Jobless Recoveries concludes, (click through for gazillions of charts and full explanation)

The "jobless recovery" is in fact a realignment of the US labor force. Fewer and fewer employees are needed to produce durable goods. As this situation has progressed, the durable goods workforce has decreased as well. This does not mean the US manufacturing base is in decline. If this were the case, we would see a drop in both manufacturing output and productivity. Instead both of those metrics have increased smartly over the last two decades, indicating that instead of being in decline, US manufacturing is simply doing more with less.

So it may be that machines and computers are doing more of the work that people used to have to do.

Robert Reich sees signs of structural unemployment as well, writing in The Great Decoupling of Corporate Profits From Jobs,

... big U.S. businesses are investing their cash in labor-saving technologies. This boosts their productivity, but not their payrolls. [. . .] The reality is this: Big American companies may never rehire large numbers of workers. And they won’t even begin to think about hiring until they know American consumers will buy their products. The problem is, American consumers won’t start buying against until they know they have reliable paychecks.

So what do we do?

Maybe we need some changes in who gets what for what. Right now we have an economy that is structured to send most of its benefits to a few at the top, while the rest of us -- the help -- sink ever downward into less and less security. People with power and wealth benefit when they figure out how to cause other people to receive lower pay -- or just lose their jobs. Eliminating jobs brings bonuses to the eliminators -- a perverse incentive if ever there was one. If someone can figure out how to cut your pay and benefits or just get rid of you (“eliminate your position”) they get to pocket what you were making, and you get nothing (and conservatives say you're lazy). If you don't own the company you're out of luck.

In the past this perverse incentive was mitigated by people banding together in governments and/or unions and forcing the wealthy and powerful to share. But modern marketing science has been successful at making people believe that government and unions are bad for them. This was also mitigated by the ongoing need to find people to do the jobs that needed to get done. But with continual improvements in technology this need is reduced. We're living the result.

Also, this perverse incentive structure assumes an infinite pool of customers to sell to, ignoring that the transaction of benefiting from eliminating a job also eliminates a customer. But modern business has become so efficient at job elimination that this comes into play. Who will be able to buy theTVs that the employee-eliminating factory makes, if all the employees are eliminated and have no income?

These are structural problems that we can change. Let me just brainstorm a few possibilities for structural changes into the mix here:

Today when they replace a worker with a machine, the few at the top get another chunk of income, the worker gets nothing. But suppose a worker got to keep some of the economic benefit from getting laid off! Suppose that if your company replaces you with with a machine you get, say, 15% of the cost-savings as ongoing income. Heck, getting laid off would be a good thing, like winning a prize. After you get laid off a few times you only have to work part time. Get laid off enough times, you can retire.

Suppose we just shorten the workweek? What if we change from a 40-hour workweek to a 30-hour workweek? Economist Dean Baker has been offering ideas for workweek reductions for some time:

The other obvious way to provide a quick boost to the economy is by giving employers tax incentives for shortening their standard workweek or work year. This can take different forms. An employer who currently provides no paid vacation can offer all her workers three weeks a year of paid vacation, approximately a 6% reduction in work time.

Suppose the corporations and wealthy were taxed at the rate they were taxed before all the deficits and income inequality started, and the government just sent everyone a check, which served as a base income? Then everyone's wages would be higher because desperate people wouldn't be fighting over the few jobs. So then the better those at the top do, the better all of us do.

These are just a few ideas for restructuring the economy in ways the help all of us instead of just a few at the top. Please add your ideas in the comments.

We have a choice. We can continue with the system we have, and most of us -- the help -- will just get poorer and poorer while a few at the top take home more and more. Or we can change who gets what for what, and everyone comes out ahead.

*So which will it be, cake or death?

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Posted by Dave Johnson at 1:52 PM | Comments (3) | Link Cosmos

June 29, 2010

The Real Deficit Is Jobs!

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

The real deficit is jobs. That is one more of those things that everyone can see in front of their faces, but we're told it isn't what it is. There aren't enough jobs, and we're being told this is our fault because we wanted pensions and good wages and vacations and respect and dignity and please, sir, just a little slice of the pie.

In case you haven't noticed, the world's economy is suddenly undergoing a classic "Shock Doctrine"-style, coordinated propaganda attack. The wealthy and powerful, having insisted that countries cut their taxes and run up debt, now insist that the middle class and poor must work harder, have their pensions reduced, sell off (to them) their publicly-held resources, and take other "austerity" steps to pay off the debt that these lazy, parasitic peasants dared to run up.

The excuse is that "the markets" will “lose confidence” in us. Apparently we aren't working the salt mines hard enough. "The markets" -- that's the crowd who got in trouble and insisted that the world would end unless we immediately handed over to them all the rest of the money in the world -- will "lose confidence" in our ability to work the mines hard enough, and will cut us off, unless we cut our pensions, sell off (to them) our resources, and promise never to be lazy and make demands for better wages, pensions, workplace safety, and do it now.

The real deficit is jobs.

History teaches that the way out of an economic slowdown is to invest in infrastructure, education and modernizing manufacturing.

Slactivist said it best the other day,

This calls to mind an old story:
But knowing their hypocrisy, he said unto them, "Why are you putting me to the test? Bring me a dime and let me see it."
And they brought one. Then he said to them, "Whose head is this -- FDR's or Herbert Hoover's?"

They answered, "Roosevelt's."

And he said unto them, "Right. So shut up. Have you morons already forgotten the 20th Century? When the choice is between imitating what worked and what really, really didn't work, why are you pretending it's terribly complicated?"

And after that, no one dared to ask him any question.

I'm not an economist, but we've got five applicants for every single job opening. If you tell me that the best response to that situation is to lay off hundreds of thousands of teachers, I will not accept that this means that you're smarter and more expert than I am. I will instead conclude -- regardless of your prestige or position or years of study -- that you're a moral imbecile.

According to the Labor Department,

By the end of 2009, the jobless rate stood at 10.0 percent and the number of unemployed persons at 15.3 million. Among the unemployed, 4 in 10 (6.1 million) had been jobless for 27 weeks or more, by far the highest proportion of long-term unemployment on record, with data back to 1948.

That's right, it was the policies of austerity that created a depression, and the policies of job-creation, infrastructure investment and taxing the wealthy to pay for it that got us out. But that was back when We, the People were still in charge.

In other news:

Number Of Millionaires Grew Amid Recession.

The rich grew richer last year, even as the world endured the worst recession in decades.

Top 1 Percent of Americans Reaped Two-Thirds of Income Gains in Last Economic Expansion, Income Concentration in 2007 Was at Highest Level Since 1928, New Analysis Shows,

Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928, according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez.
During those years, the Piketty-Saez data also show, the inflation-adjusted income of the top 1 percent of households grew more than ten times faster than the income of the bottom 90 percent of households.

Top 1% Increased Their Share of Wealth in Financial Crisis,

According to his analysis, the top 1% held 34.6% of all national wealth in 2007. By Dec. 31, 2009, they held 35.6%.
Meanwhile, share of national wealth held by the bottom 90% fell to 25% from 27%.

Corporate Wealth Share Rises for Top-Income Americans

In 2003 the top 1 percent of households owned 57.5 percent of corporate wealth, up from 53.4 percent the year before, according to a Congressional Budget Office analysis of the latest income tax data.

. . . For every group below the top 1 percent, shares of corporate wealth have declined since 1991.

. . . Long-term capital gains were taxed at 28 percent until 1997, and at 20 percent until 2003, when rates were cut to 15 percent. The top rate on dividends was cut to 15 percent from 35 percent that year.

See if you can make the connection. They want us to cut back our pensions, cut our wages, sell off our resources and work harder, to pay back the money that was borrowed and handed to them.

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Posted by Dave Johnson at 11:14 AM | Comments (1) | Link Cosmos

April 20, 2010

What About the People Who DIDN'T Wreck the Economy?

Please visit Campaign for America's Future's Virtual Summit On Fiscal & Economic Responsibility By People Who Did Not Wreck the Economy.

The Peterson Foundation is holding a summit on how to cut the deficit, and then comes the Obama Deficit Commission. But military spending is off the table, they aren't going to raise taxes on the rich and the direct target is Social Security. So Campaign for America's Future is holding an online counter-summit.

Start here: Lectured On Fiscal Responsibility By The Irresponsible By Dean Baker,

To kick off his deficit commission, President Obama is planning a big show on April 27 that will include a number of experts talking about the need to reduce the deficit. Not one person among this group saw the housing bubble and the risks that it posed to the economy.
The next day, billionaire Wall Street investment banker Peter Peterson is sponsoring a day-long deficit-fest. Peterson not only excluded all of the economists who had warned of the bubble, but his show actually features the leading villains in this story. Peterson has invited former Federal Reserve Board Chairman Alan Greenspan and former Treasury Secretary and Citigroup top honcho Robert Rubin to lecture the country on the need to tighten our belts.

Then take a look at Top 5 Things Deficit Hawks Don't Want You To Know About Social Security -- click through for video.

Also, Bill Scher's "Deficit Reduction Blindness" Syndrome Plaguing New York Times,

There's a strange affliction impairing several New York Times reporters, Deficit Reduction Blindness. The syndrome blocks your ability to see a government reduce a budget deficit without also seeing massive pain inflicted upon its people.

Reporters with DRB can easily spot deficit reduction when it involves shredding Social Security and slashing Medicare.

And, finally, reprinted here in full is my own Dear Deficit Commission, It's Not Hard:

Dear Deficit Commission,
It's not hard to figure out why we have a huge deficit. It's so easy I don't have to use words. Here are some pictures:

Bill Clinton raised taxes on the rich. Bush cut them.

Now, about that huge national debt...

The second chart kind of explains itself. The third chart can help you find a place to get some money:

(Note: There is no more Soviet Union.)

In case that isn't clear enough, try this:

Let me know if you still have any questions.

So go take a look. Any questions?

Posted by Dave Johnson at 12:12 PM | Comments (1) | Link Cosmos

April 13, 2010

Important Conference On Economy

An important conference took place this week: Institute for New Economic Thinking. Go explore the website.

Posted by Dave Johnson at 7:53 AM | Comments (0) | Link Cosmos

April 2, 2010

Economy Still Getting Worse More Slowly

Job Market Brightened in March

Employers added 162,000 jobs last month, and employment numbers in the previous two months were revised upward. Nationwide, the unemployment rate held steady at 9.7 percent.
. . .Nearly a third of the gains came from temporary hiring for the 2010 Census, which will continue over the next couple of months. The report was also complicated by a rebound from weather-related work stoppages in February.

. . . Because so many of the jobs created were part-time jobs for people who really wanted full-time work, the broader measure of unemployment and underemployment ticked up, to 16.9 percent, from 16.8 percent the previous month. And the number of people out of work for at least 27 weeks increased by 414,000 last month, to 6.5 million.

The economy needs to add somewhere between 200,000 and 300,000 just to stay even with the number of new people entering the labor force.

Posted by Dave Johnson at 9:39 AM | Comments (0) | Link Cosmos

March 21, 2010

Today's Must-Read

Long, and worth the time: What's It Going to Take to Make the Bastards in Finance Pay? Excerpt:

There is no arguing that there is no greater method of creating economic growth than capitalism. Even Marx had no qualm with that. But growth is like crack cocaine for bankers and economists, both of which see the world purely in terms if wealth accumulation and production. For we who do the producing (or once did the producing back when workers were still considered a necessary evil)the truth is that American capitalism is like a wine press. It squeezes the masses for the money representing their productivity, in a process otherwise known as the virtual economy. A few people in the virtual economy become multi-millionaires. The rest of us pay the freight financially, socially and ecologically.

Posted by Dave Johnson at 7:41 AM | Comments (0) | Link Cosmos

March 10, 2010

It Is Time To Put Our Foot Down: Ten Steps We Can Take To Stop Closing Factories And Eliminating Jobs

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

The economy is still getting worse more slowly. We lost "only" 36,000 jobs last month. We need to create 11 million new jobs just to get back to where we were before "free-market" conservatives took over our government and dismanted the protections and regulations that had protected us from this.

Jobs lost, communities devastated, lives destroyed. Over and over again. Yet with all of this going on companies like Whirlpool and Toyota are still closing factories, laying of American workers, and moving manufacturing out of the country! Toyota is closing the NUMMI plant in Fremont, California, which could lose up to 50,000 jobs across California. Whirlpool -- recipient of stimulus dollars from the government -- is closing a factory in Evansville, Indiana and moving the jobs to Mexico where people will be paid $70 a week and certainly won't be buying anything made in America.

It's the system. While the executives collect bonuses and tax breaks for their destructive actions We, the People have to pick up the tab. We pay the unemployment, the stimulus, etc. Our communities pay the cost of losing the jobs and the tax base, our economy pays the cost of losing the manufacturing capability. And the executives and private equity firms and Wall Street get rich. So of course they do more of it.

How crazy is this? In the middle of this terrible jobs crisis companies are still closing factories here and shipping the jobs out of the country. Why do we allow this?

Whirlpool and Toyota (and Wall Street's $140 billion bonus pool this year) ought to be the last straw. It is time for We, the People to put our foot down and say not one more factory closed, not one more job sent out of the country! In fact, it is time to start bringing jobs BACK.

It is time to stop letting goods into the country that are made by exploited workers in areas with no environmental protections without a tariff to take away the price advantage gained from going around the protections that We, the People have fought so hard for.

There is only one way the country can earn the money to pay back what we borrowed from China, Japan and others. That is to make and sell things to others!!! THAT is what "trade" means. "Trade" does not mean allowing greedy executives to sidestep the laws and regulations and protections that We, the People fought so hard to get.

Look around us. Jobs lost, communities devastated, homes foreclosed, lives destroyed, governments going broke. All because of a runaway system that encourages the destruction of our economy. Our system actually encourages executives to close factories and lay people off! Executives make profits and get bonuses (that benefit from tax cuts) if they can figure out how to eliminate YOUR job or close a factory or cheapen a product or keep you from talking to customer support or make you pay an extra fee, etc.

Wall Street and executives benefit from this -- and get tax cuts, tax breaks and subsidies for doing it. But the economy-at-large is destroyed by these same actions when they are widespread. On top of that, we know that when we lose the factories we have to borrow money to buy the things we used to make. But we give tax breaks instead of penalties to companies that do this.

Here are just some steps that We, the People can take to start turning this around:

- A border tariff on imports to remove the price advantage of goods produced by exploited, underpaid workers.

- A border tariff to remove the price advantage of goods produced in ways that harm the environment.

- A border tariff on goods from countries that are not democracies, to remove any pricing advantage gained from not allowing people to vote and set rules that benefit themselves.

- A border tariff on goods from countries that restrict workers from organizing to improve their wages and working conditions, to remove any pricing advantage gained from not allowing workers to bargain. (America currently doesn't meet this standard.)

- Remove tax benefits and instead impose tax penalties and fines on companies that close factories here. Don't let it be profitable to do this!

- Increase taxes on the big monopolistic companies to remove the advantages that help them destroy America's smaller, regional and local businesses -- the very job creators we need.

- Increase income taxes on high incomes to reduce the incentive to pursue short-term windfalls instead of long-term interests. Make it take a long time to accumulate a fortune. Making a fortune is great but it should be a reward for helping our economy and society, not destroying them.

- Break up the "too big to fail" Wall Street firms that wrecked the economy. And get the money back -- all of it.

- Explore the use of Eminent Domain to keep factories in communities and workers in the factories.

- Formulate and follow a national economic/industrial strategy to build a new green manufacturing economy

Please add some ideas in the comments. I will have more to say on all of this.

Posted by Dave Johnson at 12:20 PM | Comments (1) | Link Cosmos

March 5, 2010

Economy Still Getting Worse More Slowly

Total unemployment increased to nearly 17 percent

The US total unemployment, including all unemployed workers, even those who have stopped looking for work, increased to nearly 17 percent in February.

Posted by Dave Johnson at 4:07 PM | Comments (0) | Link Cosmos

February 21, 2010

Create Real Jobs That Pay Off: Update Our 1970'S Infrastructure

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

One legacy of the Reagan tax cuts is that we stopped maintaining - and never mind modernizing - our infrastructure. As a result there is a LOT of work that needs doing. And there are a very, very large number of unemployed people. Hmmm...

There are so many more ways our economy suffers as the consequences of Reagan-era choices come home to roost. The current economic doldrums are in great part the result of Reagan-era choices:

* The deferred infrastructure maintenance and modernization that resulted from the tax cuts mean that our economy is no longer world-class. Bob Herbert has been writing about this problem for a while. From his most recent,

Schools, highways, the electric grid, water systems, ports, dams, levees — the list can seem endless — have to be maintained, upgraded, rebuilt or replaced if the U.S. is to remain a first-class nation with a first-class economy over the next several decades. And some entirely new infrastructure systems will have to be developed.

So here we are with a massive infrastructure deficit that is harming our ability to compete economically in the world. Just one example: China has 42 high-speed rail lines coming into operation connecting their major cities, and we are just starting our first one connecting ... Tampa to Orlando?

* The education cutbacks then are really hurting now.

* Energy. Cancelling all of Carter's efforts to solve our energy problems has left the economy dependent on last century's expensive and polluting energy sources and the monopolistic giants that control them.

* Debt. Tax cuts creating "structural deficits" have built up tremendous debt and the accompanying burden of paying interest on that debt and dependence on those who fund our borrowing habit.

* Militarization. We spend more on military than every other country on earth combined. The big defense corporations keep us from doing anything about it. Historically this kind of military spending and the resulting debt has ruined empires and kingdoms, and here we are.

* Government. Outsourcing/cutting/destroying/hating government and the commons has left us ill-equipped to catch up with China and others, and deal with monopolistic multinational corporate giants.

Schools, highways, power grid, ... everything. And all this work needs to be done on top of the need to retrofit all of our country's buildings to be energy efficient. Or we will just continue to fall forther behind. There is so much work that needs to be done. I wonder how the cost compares to the amounts that have been transferred to the very rich since the tax cuts started.

Hmmm... Let's see ... high unemployment ... lots of work that needs doing ... massive wealth accumulated at the very top ... hmmm... dot. dot. dot. And on top of that, there is all that evidence that past investment in infrastructure leads to great prosperity in the years following the investment ... dot. dot. dot. hmmm... Ideas are forming... connections are being made...

I can hear the shrieking from the "free market" conservative bunch now, just for thinking such thoughts: "But ... but .. that would be just WRONG to just ... give people jobs doing what needs to be done!!! and taxing the RICH -- the very beneficiaries of past infrastructure investment -- to pay for it? How can you even dare suggest such a thing???!!!"

Public works projects -- infrastructure. Example: In the 1950s, with top tax rates at 90%, we started the massive public works project that is the Interstate Highway System. How did that investment work out for our economy? How many companies benefitted from the ability to deliver trucked goods across the country in a short time? How did those top taxpayers do economically as a result of such investments?

Hmmm...

Posted by Dave Johnson at 12:12 PM | Comments (0) | Link Cosmos

February 8, 2010

Tax Cuts HURT Small And Medium Businesses

This post originally appeared at Campaign for America's Future (CAF). I am a Fellow with CAF.

Much of the public believes that tax cuts "create jobs." A recent Rasmussen poll found that 59% of voters believe cutting taxes is better than increasing government spending as a job-creation tool. This proves that repeating a slogan over and over can effect what people believe.

But here is some news: Corporate taxes are on profits. So a tax cut means that the more profitable companies -- the Wal-Marts, Exxons, and other giants -- benefit. They pay back less to the government for their use of the roads, schools, courts, police, fire & military protection and all the other services that helped them get so big and powerful. So the giant monopolistic corporations that are chewing up small businesses, destroying local and regional retailers, take those tax cuts and use them to turn themselves into even better small-business-destroying machines.

For example, giants like Wal-Mart are destroying local and regional retailers. But it is the Wal-Marts, not the local and regional retailers that are the beneficiaries of tax cuts. They already have every advantage in the world and tax cuts are just more ammunition helping them destroy the small and medium businesses that are the job engine of our economy. This is why the "usual suspects," the politicians who get their campaign funds from the giant companies and work with lobbyists for the largest corporations and the right-wing talk show hosts who always advocate what the largest companies want are the ones who always advocate corporate tax cuts as the solution to everything.

Meanwhile, since smaller businesses that are struggling don't pay taxes, the tax cuts do nothing for them. They're already being walloped by these giants, then walloped by the government giving their competitors even more advantage with these tax cuts, and then they get the infrastructure they depend on cut out from under them. When taxes are cut the infrastructure that supports building new businesses is weakened. The services these companies need are cut back. The schools get worse, the government services are cut back.

If you ask the managers of a small or medium business, they will tell you they want customers, not tax cuts. Customers cause companies to hire people, not tax cuts. All the tax cuts in the world won't "create" a job, if there aren't enough customers coming through the door or ordering products because there is nothing for the new employee to do. And if there are more customers and orders the company will hire people whether they get a tax cut or not. (A job-creating tax credit for small businesses like President Obama is proposing is a different story, and will incentivize hiring.)

So remember, businesses need customers not tax cuts.

Posted by Dave Johnson at 3:52 PM | Comments (0) | Link Cosmos

January 6, 2010

Science Describes, RW Economics Prescribes

Science DEscribes what happens. Right-wing "free market" economics is about "if only people would do so-and-so, then such-and-such will happen." These are very different things. Right-wing economics doesn't work because people don't do what the wingers want them to do.

The Big Picture: Letter from Chicago: F,

The math/science majors meant that I was obligated to take humanities and other (non-science) course work. So I signed up for (amongst other courses) Economics 101.

It took all of ten minutes into the first class for me to recoil in horror. I asked the prof: “What do you meant that humans are rational? That is obviously not true. How important is this idea to economics?”

The response was, in hindsight, not a surprise: “It is the fundamental building block for all of economics. If you fight that underlying concept, if you do not provisionally accept that premise, you will not be able to understand what comes later.”

So I made what turned out to be one of my very best academic decisions: I gathered my books and walked out the door, and dropped the class.

Posted by Dave Johnson at 9:54 PM | Comments (0) | Link Cosmos

January 4, 2010

Why Things Are The Way They Are

This post by Ian Welsh is one of the best articulations of what is going on with the economy and the Democratic Party, that I have come across: Open Left:: Why Democrats Are Trying to Commit Electoral Suicide. I encourage you to read it.

Moreover they understand that with a few exceptions, the financial economy is the American economy. It's what the US sold to the rest of the world: pieces of paper in exchange for real money which could be used to import real goods, so Americans could live beyond their means.
Shut that down and what's going to replace it? How are you going to avoid an immediate meltdown of the US standard of living? How are you going to avoid a large part of the elite being wiped out? You or I may have answers to that, except to wiping out a large chunk of the elite, which is something which needs to be done, but those who grew up under the system, who believe in the system, and who ran the system don't. What they've done all their lives is what they understand. And more to the point the system has been good to them. The last 35 years may have been a bad time to be an ordinary American, but the elite has seen their wealth and income soar to levels even greater than the gilded age. The rich, in America, have never, ever, been as rich as they are now.

And if you're a member of the elite, your friends, your family, your colleagues—everyone you really care about, is a member of the elite or attached to it as a valued and very well paid retainer. For you, for everyone you care about, the system has worked. Perhaps, intellectually, you know it hasn't worked for ordinary people, but you aren't one of them, you aren't friends with them, and however much you care in theory about them, it's a bloodless intellectual empathy, not one born of shared experience, sacrifice and the bonds of friendship or love.

There is much more, so go read.

Posted by Dave Johnson at 8:35 AM | Comments (0) | Link Cosmos

November 11, 2009

Do Taxes Slow The Economy?

On the NewsHour the moderator just said "new taxes slows down the economy at a time when people are hurting." This is in a discussion of how to fix state budgets. The panelist responds, "That's exactly right."

This is just absolute nonsense. This shows what happens when something is repeated over and over and over and becomes "conventional wisdom." This is the old "taxes take money out of the economy" argument.

There is no historical data that shows this. In fact history shows exactly the opposite. The periods of high growth are the periods when we tax at the top and use them money to build and maintain infrastructure, educate people, provide jobs, raise wages. And that is intuitively obvious. The idea that taxes "take money out" is just nonsense because the money doesn't just go away, it gets used for productive purposes. The only economy that taxes "take money out of is the economy of the Cayman Islands" and they're doing just fine.

We have a situation where income and wealth are concentrated at the very top as never before. States are laying off tens of thousands of people. And to make things worse, the national government is not applying enough stimulus to create jobs because people are worried that the deficit is too high - because taxes are too low.

Obviously the solution to this problem is to impose a very high tax rate on the top few who have been enjoying all of the benefits of the economy since Reagan cut the taxes and started the cycle that led to the collapse we are in.

Posted by Dave Johnson at 5:23 PM | Comments (3) | Link Cosmos

October 21, 2009

Dollar Weak? Not Against Yuan!

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

Conservatives are blasting President Obama, saying he is causing a "weak" dollar. The Drudge Report has a headline or a story pretty much every day blasting this message out. Republican e-mails warn that the dollar is "collapsing" under Obama. Blogs and talk show hosts declare that civilization will cease, urging listeners to buy as much gold as they can.

But conservatives should know that the dollar is steady where it counts - against the Chinese Yuan. Yesterday, October 20, the exchange rate was 6.82653. On May 6 it reached a low of 6.82157 and on June 17 a high of 6.83743.

Conservatives react intensely to words like "strong" and "weak" without understanding the meaning. Here is what it means: Things made in America cost less when the dollar is lower, or "weak." A lower dollar creates an incentive for others to purchase things made in America, which means factories are busy, new factories can open, and jobs are created.

But while the dollar drops against every other currency the Chinese Yuan remains the same, and Chinese goods don't get more expensive - at least here. So our factories are not busier, the import/export imbalance stays the same and American jobs are not created.

One might ask, "How is this possible in a free market?" Indeed.

-----

Take a look at the agenda for the Building the New Economy conference, Thursday, October 29, 2009 — 9:30 a.m.-3:30 p.m. at the Washington Court Hotel in Washington, D.C.
This conference sounds the call for the new economy we must build out of the ruins of the old. It focuses on the need for a new agenda to revive manufacturing in America.
-- Oh, it's free. But you have to RSVP.

Posted by Dave Johnson at 10:04 AM | Comments (0) | Link Cosmos

October 4, 2009

Economy Question

The experts say that we are starting a recovery, and economic signs are pretty strong.

Why, then, are short term interest rates at approx. zero?

Posted by Dave Johnson at 7:52 AM | Comments (1) | Link Cosmos

September 14, 2009

Confusing Capitalism With Markets

Why do so many people confuse capitalism and markets? Capitalism is the system where a few people control the resources, etc., and the rest have to pay those people to use them. That's it, Period.

Markets are just systems where people trade things.

Posted by Dave Johnson at 6:12 PM | Comments (3) | Link Cosmos

September 12, 2009

Interesting

Study Says World's Stocks Controlled by Select Few
Companies from US, UK and Australia have the most concentrated financial power.

A recent analysis of the 2007 financial markets of 48 countries has revealed that the world's finances are in the hands of just a few mutual funds, banks, and corporations. This is the first clear picture of the global concentration of financial power, and point out the worldwide financial system's vulnerability as it stood on the brink of the current economic crisis.

Here is the report itself.

Posted by Dave Johnson at 11:06 AM | Comments (0) | Link Cosmos

September 10, 2009

Today's "Recession Ending" Story

There was a surge in imports because of dealers buying for the "Cash-for-Clunkers" program, and there were "only" 550,000 new jobless claims.

Trade, jobless claims figures show recession fades.

Also "good news" -- except that the reason was people have been unemployed so long that their benefits are running out:

The U.S. trade deficit in July hit the highest level in six months as a record rise in imports outpaced a third straight increase in foreign demand for American products...

A rebound in the American labor market has yet to take hold, but first-time claims for jobless benefits did fall more than expected last week.

Companies are laying off fewer workers as the U.S. economy shows consistent signs that the recession is over.

For perspective, in the 2000-2001 recession the number of new jobless never got as high as 500,000 in any single week.

The number of people continuing to receive benefits fell by 159,000 to nearly 6.1 million, the lowest level since early April.

Posted by Dave Johnson at 9:29 AM | Comments (0) | Link Cosmos

September 3, 2009

Still Getting Worse Less Slowly

New weekly unemployment claims "fell" to 570,000.

For reference, in the recession following the stock market bubble and 9/11 weekly claims never got as high as 500,000.

Posted by Dave Johnson at 4:46 PM | Comments (0) | Link Cosmos

August 23, 2009

The Recession Is Probably Ending

I think that the recession is probably ending. This is a technical term, and people will not feel a change. But the "cliff diving" has ended. We have probably hit a "bottom."

This is due to a few things. First, you can't fall forever at such a fast rate. Second, you can only fall so far. Third, there are still millions upon millions of people with jobs who have to eat, buy some clothes, use phones, etc.

And, finally, the "stimulus" is starting to work, making up for a lot of the lost demand in the economy.

What next? Well that depends on a lot of things. There is no reason to think things will start getting better. And things will probably not get worse until the stimulus ends. But the restructuring of the economy didn't happen, bank regulations didn't change, concentration of wealth to the top still is occurring, trade laws still sap our jobs, and Wall Street still dominates with their incentives to sell every factory in the country at fire sale prices.

My prediction is that we will coast along for a while, the Fed will try to inflate another bubble in something, and then after a while the collapse will start again, from where it left off.

Posted by Dave Johnson at 9:39 AM | Comments (1) | Link Cosmos

August 7, 2009

Economy Getting Worse More Slowly

Behind the "good" news:

Employment Situation Summary:

* Nonfarm payroll employment continued to decline in July (-247,000)

* The unemployment rate was little changed at 9.4 percent (because 400,000 more people gave up looking for work)

* In July, the number of unemployed persons was 14.5 million.

* The number of long-term unemployed (those jobless for 27 weeks or more) rose by 584,000 over the month to 5.0 million.

* The civilian labor force participation rate declined by 0.2 percentage point in July to 65.5 percent. The employment-population ratio, at 59.4 percent, was little changed over the month but has declined by 3.3 percentage points since the recession began in December 2007.

* The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in July at 8.8 million.

* About 2.3 million persons were marginally attached to the labor force in July, 709,000 more than a year earlier. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

* U-6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.. 16.3%

Posted by Dave Johnson at 7:25 AM | Comments (0) | Link Cosmos

August 6, 2009

Demand Or Anticipation vs Real Demand

Quick question - are we seeing demand or anticipation of demand?

I am hearing the it is mostly speculators buying up the foreclosures, because they think they "see a bottom." So they are anticipating that regular people will start buying again and "things will get back to normal." And by normal they mean housing bubble, where you get rich buying real estate and sitting on it a few years.

This is anticipation of demand, not demand. It's also why you see a "dead cat bounce" when prices drop in any bubble. People are used to the bubble, and when prices drop they think things will "get back to normal" and start up again.

I wrote about this psychology in April, in Today's Housing Bubble Post -- A New Wave Of Foreclosures and Price Drops Coming,

A story:
In 1999/2000 I had a bunch of stock in a dot com. It made its way up to $35 a share. When it fell to $30 then $25 then $20 I held on because it had just been $35. When it hit $12 I thought it was really cheap but when it hit $.50 I thought that was too high. It landed at $.05 but then the company went out of business.

Think about the psychology of this. When it fell to $12 I thought it was cheap because of how high it had been but when it hit 50 cents a share I thought it was too expensive because I had left the past behind and I could finally see where it was GOING. And that is where it went.

It seemed cheap at $12 but too expensive when it got down to $0.50. Think about the psychology of that. 'Cause we all know how well the speculators have been doing, right?

By the way, prices have only gone down since I wrote that in April.

So, is there any reason to believe that regular people will start buying up real estate again, and prices will start back up?

Posted by Dave Johnson at 9:53 AM | Comments (0) | Link Cosmos

When Is A 550K New Jobless Report Good News?

A 550K New Jobless weekly report is good news when it is lower than it has been. In normal times, though, a 550K report would be described as falling over a cliff.

The 2001 recession PEAKED at under 500K new unemployed a week.

Posted by Dave Johnson at 8:36 AM | Comments (0) | Link Cosmos

July 31, 2009

Free-Market Conservatives Are Just Wrong

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

There are things you can see in front of your face, and then there are things that conservative “free market” ideologues tell you.

One example is when they talk about the minimum wage. (An increase in the national minimum wage goes into effect today.) Conservative “free market” ideologues tell you that raising the minimum wage “costs jobs.” They say that if employers have to pay a few cents more per hour they won’t employ as many people.

But then there is something you can see in front of your face: whenever the minimum wage is raised, things get better. Things obviously get a little better for the people who work at the minimum wage, and for their families. As this works its way up the food chain things get a little better for the people and stores these workers rent and buy from. But also, studies looking into the effect of what actually happens after the minimum wage is raised show that the net effect is no loss of jobs.

Here is why. Employers hire the number of people they need to get done what needs to get done, according to demand. Ideally they employ the correct number of people to fill orders, run checkouts, stock shelves, etc. They don’t just have extra people sitting around for the heck of it. Of course there are some tasks where a calculation of a few cents in wages can make someone “not worth it,” but in the aggregate any jobs lost from this are offset by the new people hired to meet the increased demand created by people spending the higher wages. More people with more money to spend increases demand, which is good for business. Profits for some employers may be reduced a bit by the increase in labor cost, but these are also offset by increased profits for others due to increased demand.

Even so, conservative free-market conservative ideologues continue to make the claim that increasing the minimum wage “costs jobs” anyway. It’s what they do. They make a bad thing out of paying American workers good wages and benefits. They complain about workers getting pensions and health care. They just don’t seem to like it when regular people are better off. But here is a warning: never, ever dare suggest to a free-market conservative that a CEO or a trust fund child should pay some taxes – you’ll get an earful about how this would just ruin the economy.

The free-market conservatives are just wrong.

A second thing a free-market conservative ideologue wills tell you is that it is good for more and more of the things that used to be made here to be made in other countries instead. They say that by moving factories to other countries we all benefit because “we pay lower prices.” They say we benefit because “foreign competition encourages greater productivity” (even though we are talking about moving our factories from here to there.) They say that moving factories to other countries, “unites people in peaceful cooperation and mutual prosperity.”*

They say that moving factories to other countries, to make the same things that the factories were making here, should be called “trade.”

But we can all see right in front of our faces that none of this is so. Moving jobs out of the country to make the same things that were made here is not "trade" and it certainly hasn't brought us prosperity. It is just moving our jobs out of the country to make the same things that were made here, so a few people can pocket what was being paid to the American workers, while they stick the taxpayers with their unemployment pay and the costs of trying to keep their devastated communities alive.

Free-market conservative ideologues seem to believe that society works better when a few people get paid a lot, while the rest of us have very little, and advocate policies that bring that about. They have been the dominant force in our country's policymaking for many years, and we can see in front of our faces that the result is that a few people are getting paid more and more and the rest of us less and less. (Bailed-out Citigroup is paying one person a $100 million bonus, 738 others bonuses of $1 million or more, and Merril Lynch paid 696 people bonuses of $1 million or more.) They have put in place policies that stick the taxpayers with the costs and the wealthy few with the benefits.

We can all see that moving factories out of the country has destroyed lives, torn apart communities, created massive debt, created a very few massively rich people at the expense of the rest of us ... oh, and ruined the economy. That, too.

It is time for us to realize that these free-market conservatives are just wrong. They get paid to say that stuff, but it is just wrong. Moving a factory out of the country to make the same things it made here is not “trade.” It does not benefit anyone except a few, and when the purchasing power inevitably dries up it doesn’t even benefit those few either. They made a short-term profit and now we all suffer a long-term loss.

it is time for us to come up with new policies, new plans, new strategies and new rules of the game.

*Actual claims at Cato Institute’s Center for Trade Policy Studies

Posted by Dave Johnson at 7:22 AM | Comments (1) | Link Cosmos

July 20, 2009

It's The Economic Paradigm, Stupid!

I am happy to announce that beginning today I will be working as a Fellow and blogger with Campaign for America's Future. This post introduces the areas I will be pursuing.

The economy is terrible. There aren't enough jobs. Most of the jobs that are still there are not paying enough for people to keep up, and people are afraid they could lose them tomorrow. So we all have too much debt. We have too little health care. We have too much stress. And in the bigger picture we have too little power to do anything about it.

They say we're reaching a "bottom" and that there are "green shoots." But I am afraid that this isn’t your father’s recession. I'm afraid this economy isn’t a pendulum that has swing too far in one direction, ready to be pulled by natural forces back to the other side. I am afraid that this isn't a "business cycle" pattern with a fall, then a bottom, then a recovery where all the shoppers return to the stores, all the jobs come back and growth picks up where it left off. Even "green shoot" optimists admit there will be few new jobs if there is any recovery.

It may be that we are not in a period of waiting for things to "get back to normal." Many people think that this economic collapse IS the return to normal.

For decades concerned observers have warned about problems with the "sustainability" of our economic paradigm. If you look at charts describing changes in the economy, environment, population - all kinds of things - you see that in recent decades they all change and start to move, often exponentially, in directions that obviously cannot be sustained. They look like this:

A wise man once said that when something is unsustainable it can’t be sustained. And here we are. A very good explanation of the problem of unsustainability of our economic paradigm is The Story Of Stuff. "It's a linear system and we live on a finite planet."

It is not just the economy out of whack. The business practices that brought us here -- overextraction, overextension, overleveraging, overconsumption -- have also whacked the planet’s resources. The fisheries are increasingly depleted. The aquifers are increasingly drained. The forests are increasingly logged. The landfills are increasingly full. And, of course, the planet is increasingly hotter.

Our economic system has also taken a toll on the people. Too many hours at a stressful workplace with too little sleep have burned many of us out. Our thinking and identity are about our jobs, not our spirit and character. Our values are devoted to markets with many of us placing making money over loving and caring for families and others. And there's no time for that stuff anyway. We have become consumers instead of citizens and humans. Decades of falling wages, decreasing savings and increasing debt have tapped us out. Consumption has used us up. And we’re fed up.

So things reached a breaking point and broke down. This has been coming at us for decades. And here we are.

If this economic collapse was the consequence of decades of an unsustainable economic model, then what do we do?

The government, of course, has been working to fix this problem within the context of the current failed economic system. And in that context they have been doing a good job. They lowered interest rates to encourage even more borrowing. The stimulus pumped borrowed money into the economy to cover the loss of demand from people and business. They raised the FDIC protection levels so we're not all wiped out if banks fail. They bailed out overleveraged financial institutions so they could again provide credit.

Of course the stimulus is better than none. We need unemployment benefits and infrastructure investment. And investment has a longer-term payoff.

But what happens after the stimulus? What do they think will drive our economy back to what they think of as normal? Will it be renewed manufacturing of cars? If we don't bring back the good-paying jobs, who will buy them? Same for houses. Same for TVs and appliances and furniture and jewelery and expensive shoes and all the rest.

In a June interview on the Lehrer News Hour, Treasury Secretary Geithner said that they are doing what they need to do to "get growth back on track."

Back on track? Does he mean we will fish out the remaining fish? Cut the rest of the trees? Drain the rest of the aquifers? Take the tops off the rest of the mountains? Does he mean that we will run up the rest of the credit cards? Will we cover the rest of the land with even bigger houses and subdivisions and strip malls? Will we export all the rest of the jobs? Will we hand the rest of the nation's income and wealth over to an elite few?

I don't think they are going to get things back "on track" by applying more of the same "solutions" that got us to where we are today. Will they bail out more companies, making them even too bigger to fail? None of the fixes will work if the problem is that we have reached the limits of sustainability of the economic model we have been following for decades.

So what can we do to change the system itself? How do we restructure the model - the economic paradigm - in ways that let We, The People enjoy and share the benefits of our economy? There are a number of clues that I will be writing about in my work with Campaign for America's Future. Maybe we can follow the clues and find answers.

One obvious part of problem is that we have an economic system in which we tolerate a few people controlling –- and thereby getting most of the benefits from –- things that should belong to and be controlled by all of us. Aren't We, The People supposed to be making the decisions here? And shouldn't we make decisions that benefit all of us instead of just a wealthy few?

At the center of this problem is the role of the corporation in our society. Corporations have amassed immense power and that power is used to control the country's decision-making processes, always to the benefit of the wealthy few. Getting a grip on this problem requires us to regain understanding of why we have corporations in the first place. We, The People enacted the laws that allow corporations to exist because we felt that it would be to our benefit to do so. And to the extent that they are now benefiting a few at the expense of the rest of us, we can change the laws. Let that sink in.

Another thing we have to get control over is the concept of externalization. Why do we allow companies to externalize their costs while internalizing the profits? In other words, companies are allowed to push costs onto the rest of us, but are not asked to share the resulting profits with the rest of us. We even let them see and treat people (us) as "costs" -- a layoff pushes the responsibility to support a worker onto the community while the company keeps the wages they were paid.

When a company replaces a worker with a machine, the company pockets the wages that would have gone to the worker and the worker is discarded. But now we are learning that eventually enough workers are discarded that there is no one to purchase what those workers replaced by machines were making. So the company and the economy lose, too. This just doesn't work.

Here is a big one: We need to understand that actually making things is what drives an economy. America became an economic powerhouse because we made things here. China is an economic powerhouse because they make things there. I'll be writing about that a lot.

These are just a few of the things that I will be exploring in the coming months. Let's see where it goes.

*About the title.

Posted by Dave Johnson at 8:49 AM | Comments (3) | Link Cosmos

July 9, 2009

WWRD?

What Would Republicans Do? The Republicans criticize ... well, everything. Currently they criticize the stimulus because it is "spending."

So a quick question. Can anyone tell me what the Republican plan for fixing the economy is? I mean, of course, cut taxes, especially taxes on the rich and corporations. That goes without saying. That was their solution to the terrorists attacks, Katrina, health care, and caribou migration.

But seriously, can someone leave a comment and let me and the readers here know what it is the Republicans think should be done about the economy? Everything I have heard amounts to firing people (government workers), paying people less, getting rid of pensions, and, well, cutting taxes on the rich and corporations.

Posted by Dave Johnson at 9:46 AM | Comments (11) | Link Cosmos

Not Getting Worse As Fast As It Was Getting Worse

The economy is not getting worse as fast as it was getting worse.

It's still getting worse, but, you know, things are better because they aren't getting worse quite as fast. Which means that although people are still losing jobs at an incredible rate, not as many people are losing jobs each week as was happening a few months ago.

So even though things are really, really bad, and getting worse, they aren't getting worse as fast.

Therefore ... Well I'm not sure what the point is. If a job loss of 565,000 in a week had been reported at almost any other time in the last 50 years, it would be considered horrific. But today it is good news because although things are still getting worse -- much worse -- they are not getting worse as fast as they were getting worse.

Posted by Dave Johnson at 9:40 AM | Comments (2) | Link Cosmos

July 6, 2009

There Aren't And Won't Be Jobs

There aren't jobs, and they aren't coming back. We need to figure out another business model for the economy. Jobs were about putting parts into a gizmo as it went past you on the line. Machines do that now. Jobs were about adding up the numbers in a column. Computers do that now. Jobs were about pumping gas or checking out items in the supermarket. Self-serve does that now.

The problem with our model was that a few people at the top got the profits from finding ways to disemploy people, but not the disemployed people. They just got thrown overboard. But this economy depends on people having income from jobs.

We became very efficient at disemploying people, but all we did was throw those people away and pass everything to a few at the top. So now the base of "consumers' has shrunk below the point where the economic model works anymore.

So now what?

Posted by Dave Johnson at 9:24 AM | Comments (1) | Link Cosmos

July 2, 2009

Capitalism's Dirty Little Secret

A good read: Debt is capitalism’s dirty little secret

Summary: Lightly-regulated capitalism pushes all the gains to a very few at the top.

"So why has there been no revolution? Because there was a solution: debt. If you couldn’t earn it, you could borrow it. Cheap financing was made widely available."

Well those days are over. All the benefits still flow to a very few at the top - sometimes without any masks over what is happening, as with the bailouts. But the rest of us no longer even get to borrow a lifestyle.

What comes next?

Posted by Dave Johnson at 11:51 AM | Comments (3) | Link Cosmos

July 1, 2009

Did Free Trade Cause The Recession?

For many years the world has suffered under a “free trade” regime that eliminates good paying jobs in every country, sending the work to countries that keep wages low and restrict workers' ability to organize for a better life. The profits went to an already-wealthy few and the inequities increased, wealth concentrating massively at the very top.

And now consumers around the world have run out of money. This is not a surprise.

Did these trade policies cause the recession?

Imagine a company in South Carolina that makes 20,000 pairs of shoes a week and distributes them to stores. Now, imagine that the company closes its South Carolina plant, opens a plant in a low-wage country, ships all the machines and raw materials there, ships back 20,000 pairs of shoes each week and distributes them to the same stores. Is that “trade?” Are the raw materials sent out of the country an “export?” Are the shoes brought back into the country an “import?”

The only thing that has been “traded” in this scenario is American jobs traded for huge executive bonuses. The workers in the low-wage country are not paid enough to buy any remaining American-made products. And, as the economic collapses as a result of shenanigans like this, American workers are no longer able to buy shoes so the executives won’t be getting bonuses next year.

I submit that nothing in this example is “traded” except that our standard of living has been traded away. And this exchange brings little benefit to the workers in the low-wage country. This is exploitative trade, not free trade, and we need to protect our workers, the workers in other countries and the world's economy by demanding that our trade partners provide living wages and benefits. We can enforce this demand by attaching import tariffs at a level that makes our own goods competitive. This removes the advantage gained by exploiting workers - and the revenue reduces our own tax burden to maintain our competitive infrastructure. It is an incentive to pay their workers enough so they can reciprocate and buy the things we make here. Instead of the race to the bottom that led to this recession such tariffs create an incentive to raise standards of living around the world.

We should have national policies that prevent exploitation of workers and the environment and that share prosperity. This is a choice between lifting each other up or continuing a spiral to the bottom.

Posted by Dave Johnson at 3:09 PM | Comments (1) | Link Cosmos

June 30, 2009

Who Is Our Economy FOR, Anyway?

The Seeing the Forest question: Who is our economy FOR, anyway?

If the government provides good, low-cost health care to citizens it reduces the profits of the big insurance and drug companies. This health care battle lays down a clear choice of who benefits: citizens or a wealthy few?

Republican Senator Snowe of Maine announces her choice. See Open Left:: The Problem With The Public Option Is That It Lowers The Cost Of Health Insurance,

In an Associated Press interview in Portland, Snowe said it would be unfair to include a government-run health insurance option that would take effect immediately.

"If you establish a public option at the forefront that goes head-to-head and competes with the private health insurance market ... the public option will have significant price advantages," she said.

Well, duh. That is the whole point. You can't lower the price of health insurance unless you start offering lower-priced health insurance. It's a tautology.

So, naturally, during the fight to lower the price of health insurance, so-called moderate Senators think that the problem with the public option is that it would... lower the price of health insurance. While it may be news to so-called moderate Senators, protecting the crappy products of large corporations is not their job description.

Yes, this health care battle is stripping some of the camouflage from the real fight: do the people benefit from our government, or do a wealthy few benefit?

Who is our economy for, anyway? I first asked that question here just about seven years ago, and it became the blog's tag line. I think the financial crisis and now this health care battle allow people to clearly see and understand which choice their Washington representatives make. And I think the way these twin crises are unfolding helps people to understanding the choice their own elected representatives make. I think will make a big difference come election time.

Posted by Dave Johnson at 11:10 AM | Comments (0) | Link Cosmos

June 18, 2009

Unemployment Number Dropped Because Benefits Ran Out

The "good" news in today's unemployment report was that the number of "continuing claims" dropped. The bad news is that the reason this number dropped because so many people's unemployment benefits are running out.

In the coming months you will hear more and more "good" news like this - and it will be sold as good news. But this number really means more and more people are getting into ever worse conditions because the economy is not providing jobs and the government is no longer helping. After all, regular people are not "too big to fail."

Mish's Global Economic Trend Analysis: Continuing Claims Drop First Time In 21 Weeks. Is This Worth Getting Excited Over?

. . . Government figures, in fact, show the proportion of recipients who used up their jobless benefits in May topped 49 percent, a monthly record.
[. . .] The drop in continuing claims means more home foreclosures and credit card defaults are coming because 49% of those who were receiving benefits now have no money coming in at all.

Yes,more people using up their unemployment benefits means more people who can't pay their mortgages, rent, car payments, credit card bills, or go shopping, etc. On top of this several states are running out of money and will start laying people off.

But the "recession" is over, right? I don't think so. I think we have to go through some hard times to break the "stock market always goes up" kind of thinking that is keeping people from finding real solutions to real problems.

Posted by Dave Johnson at 5:56 PM | Comments (1) | Link Cosmos

June 2, 2009

American Manufacturing

I am at the America's Future Now conference in DC (formerly Take Back America). I had a conversation today with people from the Alliance for American Manufacturing. This is an alliance of companies that make things in America, and the United steelworkers union. They have an interest in making things in America, and I'll likely be writing about this more and more.

The owner of a company that makes wind turbines for generating electricity talked about a wind farm his company is helping build. They need a special transformer -- and we don't make them in America anymore. So they have to go on a 52-week waiting list to get the transformer. This is just one example of the cost to us of giving away our manufacturing capabilities.

This loss of manufacturing capabilities comes from the increasing dominance of our economy by financial firms. They buy companies, strip things that have "costs," like pensions, and outsource what they can, then sell the company to the next financial firm.

More coming.

Posted by Dave Johnson at 1:20 PM | Comments (0) | Link Cosmos

May 29, 2009

Today's Housing Bubble Post - Recovery Myth

Go read James Boyce: The Recovery Myth: Caveat America and take a look at the chart.

While you're at it, look at this chart as well.

I think we need to go through a period of disappointment for the "always goes up" crowd before they realize that this isn't a pendulum swinging, a natural part of the cycle, a temporary setback, etc. We went through fundamental changes in the economy in the early 1980s, and since then household debt has been increasing, wages have been stagnant, and predatory capitalism has sucked the consumer dry. The consumer is tapped out and until the nature of our economic system changes, and the people start to benefit from their own work again, things can only get worse. Top-down economics doesn't work. Democracy is the only economics that works.

Posted by Dave Johnson at 8:58 AM | Comments (0) | Link Cosmos

May 14, 2009

Unemployment Stats

I'm wondering about the effect of contractors on the statistics. They have become a larger portion of the labor force in the recent decade. They are usually the first laid off. But contractors can't claim unemployment. If the stats are missing this, it affects the ability to forecast and leads to faulty decisions.

Posted by Dave Johnson at 10:58 PM | Comments (0) | Link Cosmos

May 9, 2009

Unemployment

Hey people, the government hired a bunch of people last month -- just about the same number as the "huge drop in the number of jobs lost."

The economy still isn't functioning -- the government is stepping in and helping.

And even with that losing over 500,000 jobs in a single month is a disaster. It just isn't as bad as all those months as have been losing over 600,000. That's all.

Posted by Dave Johnson at 12:30 PM | Comments (2) | Link Cosmos

May 4, 2009

Today's Housing Bubble Post - The Next Housing Bust

I came across this at the Wall Street Journal, of all places: The Next Housing Bust

The bill that passed last summer more than doubled the maximum loan amount that FHA can insure -- to $719,000 from $362,500 in high-priced markets. Congress evidently believes that a moderate-income buyer can afford a $700,000 house.

Go read

Posted by Dave Johnson at 11:31 AM | Comments (0) | Link Cosmos

May 2, 2009

Today's Housing Bubble Post - Back To Issuing Warnings

Oddly enough I find myself back in the position of warning that the housing market may be heading to a terrible crash in the near-future. The bubble mentality has not changed at all and appears to be restarting in the very places where the bubbles were the worst. This is probably because people got used to unaffordable prices and think that a drop from unaffordable to just really, really expensive is a buying opportunity. Meanwhile government and the real estate industry are trying to "reignite" the market -- hoping that starting another bubble will put off the reckoning.

People still think that what we are going through a temporary "correction" and that real estate prices are going to "go back up," that houses are "cheap" now, that they should "snap them up" before they are "priced out." They still think real estate is the path to wealth, instead of somewhat of a burden that should only be undertaken under certain circumstances. Namely, when you plan to live there for a long, long time, and you'll pay less (including closing costs, taxes, insurance, maintenance, possible price depreciation, etc.) than rent.

Here's what I am talking about. Combine this,

As of March 1, investors can now buy 10 homes (up from four) with Fannie Mae-backed mortgages. That’s also stimulating demand.

With this, Some of Us Still Think They Can Get Rich Quick from the Real Estate Bubble,

... the ad offered a mouthwatering menu of claims on "How to cash in on the biggest real estate liquidation sale in our entire United States history" and "how to maximize your profit with lucrative foreclosures."

And this:

Option ARM rates are going to be recasting soon and in increasing numbers. That's the magic moment when people can no longer make minimum payments, when they can longer make interest-only or neg-amortization payments.

When that magic moment comes, all of those people are going to look at how high their now unaffordable mortgage payments are. Then they'll look at how much their house is actually worth relative to how much though owe. Then, maybe, they'll try one of the various initiatives to modify their mortgage terms. And then, quite likely, they'll jut walk away. [. . .] as the chart tells us, hasn't even really started yet.

What that chart shows is that the foreclosure problem is about to get a lot worse. Two more huge waves of "resets" are coming. Many, many, many more homes are about to reach a point of unaffordability for a lot of their owners, one way or another those homes will also be for sale, on top of the huge inventory that already sits unsold, and this will drive prices down even further, which will trigger even more problems.

Here is what I am saying: As long as a house is considered an "investment" instead of a place to live for a long time we will continue to be in a world of hurt. Real estate does not always go up.

Here is why prices can't go up any time soon: There is a huge inventory of unsold houses. The houses that were built in the last decade are too big for regular people to be able to afford to heat and cool -- and energy prices are going up. The water for the lawns will cost more and more. The gas to get to the malls and any jobs that might exist (good luck) will cost more and more. The "boomers" are retiring and selling their houses. The median price in many areas is still way above affordability by a medium-income family. You won't get sufficient "positive cash flow" over your payments from the rent you'll receive if you are renting the house.

The psychology of this is just like the stock market bubble. Things won't get better until the bubble mentality of "it always goes up" is shaken out of people. Like I said the other day

In 1999/2000 I had a bunch of stock in a dot com. It made its way up to $35 a share. When it fell to $30 then $25 then $20 I held on because it had just been $35. When it hit $12 I thought it was really cheap but when it hit $.50 I thought that was too high. It landed at $.05 but then the company went out of business.

Think about the psychology of this. When it fell to $12 I thought it was cheap because of how high it had been but when it hit 50 cents a share I thought it was too expensive because I had left the past behind and I could finally see where it was GOING. And that is where it went.

Unemployment in my area is 11.2% and people are "snapping up" houses that are "cheap" at $580,000 because they were at $850,000 a year or two ago. But the median income here can't support that. It couldn't even support $350,000 before unemployment went up.

Here's the thing. After the stock market crash the Fed intentionally created the housing bubble to prop up the economy for a few more years. Now the consequences have arrived. If you are thinking of buying a house as an "investment" ask yourself who is going to buy it from you at a higher price, and how they are going to get that money. Will that housing demand come from a healthy job market in which people are getting raises?

Don't bet on it.

Posted by Dave Johnson at 2:35 PM | Comments (3) | Link Cosmos

April 19, 2009

America Was Created To Fight Corporate Power

Americans should all understand the reasons behind the formation of this country. We formed this country because a wealthy elite, called royalty, controlled the economy and set up legal monopoly operations for the benefit of their cronies, called corporations, and then set up the laws and tax structure to benefit those corporations and their owners at the expense of the rest of us.

We fought a revolution to change this. We set up a governement and economy that is supposed to be controlled by We, the People. Think about the meaning of that the next time you hear corporate-funded voices complain about "big government." They are complaining that the people make the decisions instead of the corporate elite -- once known as royalty.

PLEASE read The Real Boston Tea Party was Against the Wal-Mart of the 1770s

The real Boston Tea Party was a protest against huge corporate tax cuts for the British East India Company, the largest trans-national corporation then in existence. This corporate tax cut threatened to decimate small Colonial businesses by helping the BEIC pull a Wal-Mart against small entrepreneurial tea shops, and individuals began a revolt that kicked-off a series of events that ended in the creation of The United States of America.
They covered their faces, massed in the streets, and destroyed the property of a giant global corporation. Declaring an end to global trade run by the East India Company that was destroying local economies, this small, masked minority started a revolution with an act of rebellion later called the Boston Tea Party.

Later in the piece,

The citizens of the colonies were preparing to throw off one of the corporations that for almost 200 years had determined nearly every aspect of their lives through its economic and political power. They were planning to destroy the goods of the world’s largest multinational corporation, intimidate its employees, and face down the guns of the government that supported it.

A link to this was posted at Atrios' blog, by Avedon of The sideshow.

Posted by Dave Johnson at 7:51 AM | Comments (1) | Link Cosmos

April 17, 2009

Today's Housing Bubble Post -- A New Wave Of Foreclosures and Price Drops Coming

This is my prediction: there is a new wave of housing price drops and foreclosures coming as holdouts stop holding out. Only when reality intrudes on people's belief that owning a home is supposed to be an "investment" will things be able to start to stabilize. You are supposed to buy a house to live in.

The current "green shoots" euphoria will subside, and then people who have been holding out because "real estate always goes up" will stop holding out. Only then will expectations and behavior start to change in ways that begin to make a difference for the long term.

1) Unemployment is still rising, and rising fast. Unemployed people can't pay mortgages forever.

2) Houses still cost more to buy than to rent in most areas so it is still a bubble. House prices have not fallen to the level they were before the bubble, so it is still a bubble. And the average house price in most areas is still higher than the average-wage person can buy so this is still a bubble. Meanwhile there has been an increase in the number of houses (supply is up), while the boomers are starting to retire and want to sell their large house (demand is down). And unemployment is also reducing the demand side. The increase sales and price drops we are seeing is from people who are being forced to sell, not from people realizing house prices are too high.

3) Distressed people have been holding out since the recession started, but can't hold on forever and savings are running out. This includes renters so rents will have to start dropping as they run out of money for rent (feedback to #2 above) and some of the houses that aren't selling become rentals. Compare California to Michigan, and you'll understand what I am saying. Michigan stopped holding out a while back and rents and house prices have adjusted accordingly and are affordable. California still thinks things are temporary and will get back to "normal" and people are "snapping up" houses that are as "low" as $400,000 for a 3br/2ba.

4) I'm including everyone whose house is "under water" in #2, and this is an increasing number of people. Everyone thinks "housing will go back up" so they aren't walking away yet. But if it turns out that housing doesn't "always go up" they will stop holding out and go buy something based on what they can afford with no expectation that it will go up.

5) There is a HUGE inventory of houses being held off the market. Banks are holding houses off the market. People who would have sold are waiting to sell (holding out), and there are still just a record number of houses on the market now that haven't sold yet. This inventory is going to overwhelm any current increase in sales that is based on people believing we are "at a bottom." There just are many many more houses for sale or waiting to be sold than there are buyers. This is not a "crisis of confidence" where people just aren't buying because they are scared, it is a crisis of too many people not having money, just debt.

6) People buying now (those who aren't yet broke from buying real estate) will lose their shirts, too, because they are expecting that "this is a bottom" and it isn't.

What it comes down to is that expectations and behavior haven't changed yet. Real estate doesn't "always go up." Real estate is not the path to wealth, except as a bubble is developing. Real estate is not a sure thing otherwise. You would think that so many people being wiped out by thinking these things right in front of everyone's eyes would be a clue, but not yet. This is because the bubble developed over a long period, and people got used to real estate "always" going up. When people start to come down to earth and see reality and realize that owning a house can be a costly burden, then things will get to the point where stabilization is possible. As long as owning a house is seen as a path to riches things cannot stabilize.

A story:
In 1999/2000 I had a bunch of stock in a dot com. It made its way up to $35 a share. When it fell to $30 then $25 then $20 I held on because it had just been $35. When it hit $12 I thought it was really cheap but when it hit $.50 I thought that was too high. It landed at $.05 but then the company went out of business.

Think about the psychology of this. When it fell to $12 I thought it was cheap because of how high it had been but when it hit 50 cents a share I thought it was too expensive because I had left the past behind and I could finally see where it was GOING. And that is where it went.

Posted by Dave Johnson at 9:07 PM | Comments (0) | Link Cosmos

April 16, 2009

In The Real World

Have you heard this one? Powerful.

My daddy taught me that in this country everyone’s the same
You work hard for your dollar and you never pass the blame
When it don’t go your way
Now I see all these big shots whinin’ on my evening news
About how they’re losin’ billions and how it’s up to me and you
To come running to the rescue
Well pardon me if I don’t shed a tear ‘cause they’re selling make believe
And we don’t buy that here

Cause in the real world there shutting Detroit down
While the boss man takes his bonus pay and jets out of town/

And DC’s bailing out the bankers as the farmers auction ground,
Yeah while they’re living it up on Wall Street in that New York City town,
Here in the real world there shuttin’ Detroit down.
They’re shuttin’ Detroit down.”

Well that old man’s been workin’ in that plant most all of his life
Now his pension plan’s been cut in half and he can’t afford to die
And it’s a crying shame, ‘cause he ain’t the one to blame
When I look down and see his caloused hands,
Let me tell you friend it gets me fightin’ mad

Cause in the real world there shutting Detroit down
While the boss man takes his bonus pay and jets out of town/
And DC’s bailing out the bankers as the farmers auction ground,
Yeah while they’re living it up on Wall Street in that New York City town,
Here in the real world there shuttin’ Detroit down.
They’re shuttin’ Detroit down.”

Instrumental solo

Yeah while there’ living it up on Wall Street in that New York City town
Here in the real world there shuttin’ Detroit down
Here in the real world there shuttin’ Detroit down

In the real world they’re shuttin Detroit down, they’re shuttin’ Detroit down.

Posted by Dave Johnson at 9:06 PM | Comments (0) | Link Cosmos

April 7, 2009

Stocks vs Economy

All the stock market types are looking for signs and yelling "Yes! Yes!" and saying that we have "hit bottom" and this is a "buying opportunity." The same thing is happening with real estate types.

They still live in a world where the economy goes on in cycles, same as it ever was, and prices always go up. Actually that started for both stocks and real estate in the early 80s -- when the economy decoupled from the people. That's when things changed and everyone started running up debt -- people running up debt just to get by because wages had stopped rising, companies running up debt because "leverage" was the path to riches.

Meanwhile the economists are seeing the signs and running around yelling "OH MY GOD!" because they ahve never seen anything like this before, and it just keeps getting worse, and they don't see how we're going to get out.

How many times and how badly do people need to be burned before they learn a lesson?

It reminds me of something I saw some years ago. I used to commute "over the hill" from Santa Cruz to Silicon Valley. This was a winding highway over a mountain, with very steep curves. In the winter it would get very slippery and there were lots of bad accidents because people would go just too fast. I eventually learned to just drive the speed limit and relax, but others just wouldn't.

One day I was in the inevitable crawl due to an accident for maybe half an hour. Eventually coming to the accident there was a body just lying there, covered with a yellow plastic tarp. Two cars were completely smashed, obviously from driving too fast and losing control. There was only one lane open with police flagging us through, but it was moving slowly as everyone took a long look.

Within a quarter mile people were passing me at 80mph, swerving from the slipperyness, cutting people off. It's like the lesson right in front of them just had not been seen.

Posted by Dave Johnson at 9:15 AM | Comments (1) | Link Cosmos

April 3, 2009

Is The Economy Starting To Get Better?

All the financial types are saying that the recession is bottoming. They expect housing, car sales, consumption to pick up soon. So they're buying stocks, "snapping up" houses to rent out later...

All I can say is based on what? Someone tell me what is going to drive a recovery of the economy. The stimulus is going to help a lot for a little while, but there is nothing I can see for a very long time that is a reason to think real jobs will be created in this world. People can't put any more on their credit cards, they can't borrow any more on their houses of they still have one, and they certainly aren't going to be getitng a raise.

I think this current fit of economic optimism is just one more instance -- of so many -- of a lot of entitled people living in insulated, well-to-do bubbles (NY, DC), looking to each other for signs of what is going on because they don't have any contact with the people who are the economy. It's hard to understand what it is like trying to get by in America when you and everyone around you gets million-dollar bonuses.

This is how they missed the housing bubble. This is how they missed the debt bomb.

Eventually, if it really happens, massive investment in a green economy and a national health care system will start to pick things up again. But that is a loooong way off, and the powerholders of today are going to fight tooth and nail to block it. Exxon has a lot of money and influence. So do the big insurance companies. Maybe not as much as Wall Street but they're waiting their turn.

So, anyway, I'm not holding my breath that recovery is just around the corner. I don't see what will drive it.

Posted by Dave Johnson at 10:38 PM | Comments (5) | Link Cosmos

March 31, 2009

The Government's Financial Transparency Website

Take a look at FinancialStability.gov | U.S. Department of the Treasury

Posted by Dave Johnson at 8:04 PM | Comments (0) | Link Cosmos

March 30, 2009

Bank Execs Good, Auto Execs Baaad

In Bankers Will Say It Is Bankers the other day I tried to say that people see the world through a lens shaped by what they know.

Bankers will say the economic crisis is a banking problem. Bankers think banks are very, very important to the economy -- the most important component.

. . .Of course, a plumber would say that the problem with the economy is that all the pipes are clogged. Keeping the pipes working is the most important component of our economy.

And a historian will tell you that the problem is a return of the Great Depression. Not repeating the Great Depression is the most important thing to the economy.

Today at TPM: Why Does GM's CEO Get The Boot While Wall Street's Fly Free?

A manufacturing base is the foundation of a country's economy. During WWII the auto companies stopped making cars, and rapidly ramped up to make the planes and military vehicles that won the war. When Eisenhower became President he brought automobile executives into his cabinet and they brought in other executives to formulate and execute policies in their departments. And they did what auto executives know. They built the Interstate highway system, for example -- an investment that led to generations of return for all of us.

But Obama brought in bankers, and we're seeing the results.

Update - This post in no way is meant to praise the current crop of American auto execs who brought us SUVs and refused to develop hybrids and electrics. No way!

Posted by Dave Johnson at 10:43 AM | Comments (0) | Link Cosmos

March 29, 2009

What Happened To The Economy

Go read what happened. It's kind of long, but good and explains it pretty well. The Big Takeover : Rolling Stone

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'etat. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.
The crisis was the coup de grace: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess.

basically, after deregulation, the big investment banks couldn't find "enough unemployed meth dealers willing to buy million-dollar homes for no money down" tokeep the mortgage racket going.

And yes, what it comes down to is that all this means that housing prices still have a loooongggg way to fall. Every single house that sold for more than it should have, for all those years, to all those suckers, who took out all those mortgages -- they all have to go back where they should be. Bubbles unwind ALL the way down, every time, and you can't "reignite the housing market" or "stabilize" prices or anything else.

Go look at the trend line of house prices for the last hundred years, and that is where prices have to be -- where housing is relatively cheap, never more than 25-28% of your income (and that is the UPPER limit), and a mortgage plus taxes plus insurance plus maintenance is lower than rents by enough of a margin so that people can make money buying a house and then renting it out.

Posted by Dave Johnson at 2:40 PM | Comments (3) | Link Cosmos

March 22, 2009

This IS The Return To Normal.

Take a look at No Return to Normal - James K. Galbraith.

My thoughts -- this economic collapse IS the return to normal. We have been in a bubble since the early 80's. A reality bubble, too.

As I wrote below, Markets Can Recover Downward, Too. And that is what we are starting to go through.

No more using credit cards as if everything was free.

No more living like everyone is a millionaire.

No more buying things to use for a few days and throwing them away.

No more chewing up the planet and thinking you can get away with it forever.

Trust me, it's better for everyone to live within their means. It's better for the person, better for the country, better for the world.

Posted by Dave Johnson at 2:35 PM | Comments (0) | Link Cosmos

Hey Paul Krugman

Posted by Dave Johnson at 8:19 AM | Comments (1) | Link Cosmos

March 21, 2009

Let The Economy Die

LET IT DIE: Rushkoff on the economy

Using future tax dollars to give banks more money to lend out at interest is robbing from the poor to pay the rich to rob from the poor.

Oh go read it all.

Posted by Dave Johnson at 9:03 PM | Comments (0) | Link Cosmos

March 13, 2009

California's Budget: Republican Class War Against Working and Middle Class Families, Part II

California Budget Bites has a more detailed rundown of who is most impacted by the tax increases included in the recently passed California state budget... and guess what? The less money you make, the bigger the additional piece of flesh your state government now demands of you. In fact, the bottom fifth wind up paying twice as much of their income as the top 1%. Twice as much.

It is a crying shame that the Democratic Party permitted this farce of a budget to pass (the impact of which will weigh most heavily on those least able to deal with it), and even more of a crying shame that they permitted the tax increases to fall most heavily on those who could least afford it. Of course, the fact that the Republican Party is bound and determined to put the interests of the wealthiest Americans ahead of working and middle class folks (even at the cost of taking the state to the brink of insolvency) doesn't help.

We need budget reform (eliminating the archaic 2/3rds majority requirement to pass a budget), and we need authentic electoral reform (aka Instant Run-Off Voting and multi-member districts with Proportional Representation).

Posted by Thomas Leavitt at 1:11 AM | Comments (0) | Link Cosmos

March 12, 2009

More Work For Less Pay - In A Recession?

How many people are being asked to work more - for less pay? Does this make sense when we have so many people who aren't working?

Why is our economy structured like this? Who does it serve?

Posted by Dave Johnson at 10:48 AM | Comments (0) | Link Cosmos

March 8, 2009

What Is Going On With Banks

This radio show explains what is going on with the banks. It is a very good, regular-person explanation. But it will scare the crap out of you.

Also see Bankers Will Say It Is Bankers

Posted by Dave Johnson at 3:28 PM | Comments (0) | Link Cosmos

Is This Really Still The 2001 Recession?

Are we really just continuing the 2001 recession? Did it ever really end? Jobs didn't really pick up. They created the housing bubble to make it look like it was over, but...

Posted by Dave Johnson at 10:30 AM | Comments (0) | Link Cosmos

March 6, 2009

Corporate Tax Trickery

This post first appeared at Speak Out California.

Here we go again with the "corporate taxes are passed along to the consumer" lie. Instead of telling the public about harm to the public interest from budget cuts, teacher layoffs, privatizing public resources, police cutbacks, etc., instead we hear about how taxing the rich is a terrible thing.

What am I talking about? See The Tax Foundation - Tax Foundation TV, Radio Ads Show That Corporate Income Taxes Cost the Average American Household $3,190. They have a couple of ads their corporate funders are paying them to run.

And of course there is the usual scholarly proof that we should all give ever more money to the corporate rich,

"Research from the Congressional Budget Office shows that in a global economy where capital is highly mobile but workers can't easily move abroad, workers end up bearing the brunt of corporate taxes. In 2007, Economist William Randolph found that 70 percent of corporate tax burdens fall on employees through lower wages and productivity, while the remaining 30 percent fall on company shareholders."

Taxes are not a cost that can be "passed on to the customer." Taxes are calculated as a percentage of profits, after all costs are figured in. A well-run business charges the most it can get for its product or service. If the business has competitors it has to price its product or service in some relationship to competing products or services. Were a business to add to to prices to cover taxes this would increase the price above what had been determined to be the optimal price! If a company were able to raise prices to cover taxes the it would mean the company was previously negligent in not pricing as high as the market would bear.

And if the company was negligent, then increasing prices to cover taxes would increase profits, which would increase taxes, which would require an additional price increase, which would increase profits which would increase taxes. Etc. - you get the picture. It's a silly idea.

In the same way, a properly-run business has as many employees as it needs. When profitability caused them to apy taxes, it means they employed the correct number of people to realize that profit, and certainly are not going to lay someone off because they made a profit that was taxed.

But one step further on this. A corporation itself is neutral on taxes. After all, a corporation is just a bundle of contracts, and doesn't really have interests any more than a chair has interests. It is the owners who have interests and it is a good idea to think about any "passing on" involving corporate taxes is that it can lower the amount of money that is "passed on" to those people at the top of the economic ladder. Realizing this changes the way the brain understands the problem here. The fundamental question then becomes WHO is benefiting from our economy, and our legal infrastructure that creates and protects corporations. It really is about which people are getting the cash, and seen in this light, this idea of lowering or elimminating corporate taxes takes on a new meaning.

This ad plays on public misunderstanding of taxes - a misunderstanding previously created by the same crowd. (Similar to the idea that if you earn a penny over $250K all of your earnings are taxed at the higher rate.) So it is like a further step in a strategy of creating increasing ignorance, so that you can further harvest the public... (Why can't WE think in terms of multi-stage strategies, but to instead increase public understanding and appreciation of democracy?)

So, when will we start hearing about the harm caused to the public interest by reduced taxes on corporations and the rich causing us to lay off teachers, cut police and firefighters, defer infrastructure maintenance, etc.? When do we hear about how this hurts, instead of always about how taxes hurt the rich?
Click through to Speak Out California

Posted by Dave Johnson at 9:10 PM | Comments (2) | Link Cosmos

Bankers Will Say It Is Bankers

The people in charge of the economy are basically bankers. Not too many plumbers are involved in running the Federal Reserve or Treasury Department.

Bankers will say the economic crisis is a banking problem. Bankers think banks are very, very important to the economy -- the most important component. They say things like "Our economy runs on credit." And they say the way to fix this mess is to prop up the banks -- give them trillions and trillions of dollars until the economy is fixed.

And because bankers think bankers are so smart and important to the economy we can't fire them or put them in jail, or even ask for all that bonus money back.

So they are putting all the money in the world into the banks. For some reason it isn't working.

Of course, a plumber would say that the problem with the economy is that all the pipes are clogged. Keeping the pipes working is the most important component of our economy.

And a historian will tell you that the problem is a return of the Great Depression. Not repeating the Great Depression is the most important thing to the economy.

I'm a regular person. I think regular people are the most important component of the economy. I think the problem with the economy is that regular people stopped being able to share in the benefits of the economy. I think too many jobs were shipped overseas -- without the people getting those jobs being paid enough to participate in the economy themselves. I think that not providing health care caused too many bankruptcies. I think the people who still had jobs were asked to work harder and work longer hours and accept less, so that a few greedy executives could get more and more money. I think not providing sufficient vacations and day care and pensions and empowerment used everyone up. I think regular people used up their savings and then went into debt and then finally couldn't do it anymore.

I think we should fix THAT. I think our economy might work if regular people around the world received some of the benefits from that economy. I think that the economy might work better if people did not have to get into deeper and deeper debt just to get by. I think our government (which is us, isn't it?) should make sure businesses are engaging in honest and safe and sustainable practices, provide us with human rights like health care, and make sure everyone gets good wages, and sufficient vacations, and safe & empowering workplaces and some choices and some say in things. Then maybe people would be able to participate in that economy and it would start working again.

But I'm just a regular person. What do I know?

Posted by Dave Johnson at 8:28 AM | Comments (0) | Link Cosmos

California's Budget: Republican Class War Against Working and Middle Class Families

If you want an idea of what's wrong with the budget we've just passed here in California, then head on over to the California Budget Project's "Budget Bites" blog (where they post ongoing updates on various budget related issues). Here's a sample: What’s Wrong With This Picture?

In a nutshell, by changing the way the increase in the California income tax will be calculated, from a 5% "surtax" to a 0.25% increase, "this late night change dramatically shifted the impact of the personal income tax increase downward on to low- and middle-income taxpayers, in contrast to a previously considered proposal that would have had a flat impact across the income distribution." The accompanying graph on the posting illustrates this point quite starkly.

You can thank "moderate" Republican Abel Maldanado for the regressiveness of this tax increase (it was part of the price the Legislature's Democrats paid to persuade him to cast the last vote required to pass the budget in the state's upper house). I can't think of anything that better illustrates the Republicans' insistence on engaging in class war against working and middle-class folks than taking a "flat tax", and making it aggressively regressive (the less money you make, the more regressive it is)!

They also have entries that go into detail on the $1.5 billion dollar annual tax break given to multi-state/national corporations as a part of this deal, etc.

Posted by Thomas Leavitt at 2:33 AM | Comments (0) | TrackBack | Link Cosmos

March 5, 2009

A Long Way To Go Still

Stocks have fallen to where they were in 1996/7. Here is a chart that shows where stocks were in 1996/7.

Does anyone else see the problem?

Posted by Dave Johnson at 3:37 PM | Comments (1) | Link Cosmos

March 3, 2009

The Stock Market Is Not The Economy

Take a look at Progressive Breakfast: The Stock Market Is Not The Economy, quoting Dean Baker,

"The Washington Post told readers
that 'Stock Sell-Off Spurs Fears That Slump Will Worsen.' Among whom did it raise such fears? Anyone who bases their expectations for the economy on the stock market has no idea what the economy will do. As should be apparent at this point, the stock market can often be driven by irrational exuberance. Remember, it was almost three times as high in 2009 dollars back in 2000 as it is today. Did that make sense? Obviously if it can be driven by irrational exuberance it can also be driven by irrational pessimism. There is no obvious reason to believe that the market has suddenly become a better judge of the economy's prospects now than it had been in times past."

Let me add, everyone is starting to wake up from the propaganda, denial, cultism and fantasy-thinking that has been going on since about 1981. It is only starting to sink in just how much of a mess the conservatives have left us. As the denial wears off, and people start looking at what an honest corporate bottom line will look like, the stock market is going to head back to where it should be -- which is where it was before the 1980 election with improvements for productivity but not financialization and profits due to exploitation of the rest of us.

Bill Scher has been putting together a daily roundup of economic news for progressives. You might want to bookmark it.

Posted by Dave Johnson at 11:07 AM | Comments (0) | Link Cosmos

March 2, 2009

Bad Stock News -- Still Way High

Like the housing bubble, where house prices are still way, way above where they should be, the stock market is, too. In fact, the stock market has only fallen to where Greenspan famously warned it was too high due to "irrational exuberance."

Posted by Dave Johnson at 7:37 PM | Comments (0) | Link Cosmos

February 24, 2009

Who Is Our Government For?

This post originally appeared at Speak Out California

dday, writing in Giving Away The Tax Argument at Digby's Hullabaloo blog, asks why so many California newspapers have "tax increase calculators" but no calculators that show people how much the budget cuts affect them.

In my life, I have never seen a "spending cut calculator," where someone could plug in, say, how many school-age children they have, or how many roads they take to work, or how many police officers and firefighters serve their community, or what social services they or their families rely on, and discover how much they stand to lose in THAT equation. Tax calculators show bias toward the gated community screamers on the right who see their money being "taken away" for nothing. A spending cut calculator would actually show the impact to a much larger cross-section of society, putting far more people at risk than a below 1% hit to their bottom line.

[. . . The media already highlights the tax side of the equation over spending, dramatically portraying tax increases while relegating spending cuts to paragraph 27. It feeds the tax revolt and distorts the debate. And it's completely irresponsible.

In Why Are Public Assets Being Cut Right When We Need Them Most? Jay Walljasper, of OnTheCommons.org wonders why public transit, libraries and other things the government does for us are all being cut at exactly the time people need them? As the economy turns downward more people need to take the train or bus, or use the library. Jay makes the connection,

Minnesota governor Tim Pawlenty, one of the leading contenders for the Republican presidential nomination in 2012, proposes closing the state's budget gap by reducing corporate taxes and slashing state aid to local governments. This will mean painful cuts in public assets, such as transit and libraries.

. . . This loss of our public assets is an alarming threat to our society. The things we all own in common and depend upon--libraries, transit, parks, water systems, schools, public safety, infrastructure, cultural programs, social services--are being gradually but steadily undermined.

For many years I have been blogging at Seeing the Forest, often coming back to a question, "Who is our economy for?" For some time now regular incomes have stagnated, while incomes at the very top just go up and up. The GDP keeps rising, productivity keeps going up, but regular people see less and less of the benefit of this increase. In fact, if you look at charts and data, the stagnation of incomes started almost exactly at the same time as President Reagan took office and started implementing the corporate agenda of anti-tax and anti-government policies. So is this a coincidence?

Throughout human history we have seen one scheme after another wherein a few people seize power and devise a system to hold it and use it to enrich themselves at the expense of everyone else. This is human nature and through history we have seen it happen over and over.

America formed in reaction to the British monarchy's exploitation of its people. We, the People formed our government to band together and protect each other from attempts by the powerful few to exploit us. Our Constitution was supposed to be include a system of checks and balances to account for the nature of power.

It is time for the people to take back that power and use it to again benefit each other. And it is time for California's newspapers to do something for We, the People and include a "budget cuts calculator" as well as tax increase calculator. It is just as important, maybe more so, that we all understand how we're injuring and jeopardizing our future with the budget cuts the Republicans required in this year's budget negotiations.

Click through to Speak Out California

Posted by Dave Johnson at 10:31 AM | Comments (2) | Link Cosmos

Social Security and Taxes

Someone wrote to me the following. You have heard a thousand variations of the same thing:

"Starting in 2012, Social Security won’t take in enough to cover the benefits it is paying. So either we cut other federal programs to pay for Social Security, or we cut Social Security benefits."

Actually, the shortfall in 2012 has nothing to do with paying back Social Security in particular. Reagan and then Bush used the Social Security surplus to give huge tax cuts to the rich (further concentrating wealth at the top.) The government owes Social Security a lot of money, but -- and this is the thing -- it also owes all the other bond holders.

Social Security might need to start cashing in some of its bonds in 2012 or so.

Other bond holders need to cash in their bonds at other times. We never ask other bondholders to accept less when they ask for their money for their bonds. That would be called "defaulting."

So why does this bondholder, Social Security, get special treatment in our thinking? Why do we think that people who get Social Security should get less?

The answer to this and a lot of other problems is to raise taxes on the wealthiest. History shows that our economy does better when there is a VERY high tax rate on the very top incomes. It used to be 93% on money made after you hit a few hundred thousand. And that money was used to build infrastructure, educate kids, and all the things that made this a country that could compete. That is part of what got us out of the depression.

Let me add that a very high tax rate at the top removes the incentive to go for quick-buck schemes, and makes business owners plan for the long term.

Think of it this way -- if we had a 90% top tax rate hedge fund managers would only bring home a hundred million or so a year, but the rest of us would have health insurance and good roads and better schools.

Posted by Dave Johnson at 8:10 AM | Comments (1) | Link Cosmos

February 20, 2009

Today's Economic Crisis Post -- What Do We Need More Of?

Calculated Risk: Overcapacity Everywhere quotes Mish Shedlock of MISH'S Global Economic Trend Analysis,

Some analysts say over-capacity is so rampant that it will stymie government efforts to unfreeze credit markets. Banks have little reason to lend not only because they still have bad debt on their books but also because businesses don't have a pressing need to expand, said Mike Shedlock, an investment analyst with Seattle-based Sitka Pacific who writes the popular blog Mish's Global Economic Trend Analysis.

"What is it that we need more of?" Shedlock said. "Do we need more Wal-Marts, more Pizza Huts, more nail salons?" [emphasis added]

Posted by Dave Johnson at 7:19 PM | Comments (1) | Link Cosmos

The Crisis Explained

In Chocolate Covered Cotton Billmon explains the extent of the financial crisis. Yikes.

Bottom line: great big chunks of Big Shitpile aren’t "impaired," or "illiquid," or "distressed," they’re worthless, now and forever – unless the peak real estate values of the bubble can miraculously be restored and a whole bunch of deceased LBOs can be raised from the tomb.

So what about the proposed solutions?

One of the things that creeps me out about the political system's response to the crisis so far -- the insolvency of the banking system in particular -- are the increasingly desperate attempts to maintain a phony façade of free markets and private enterprise, in an economy now utterly dependent on the federal safety net. I totally expected that from Hank Paulson and the Cheney Administration, but is Obama's financial team really pressed from exactly the same Wall Street mold?

LOTS to read there. Especially read the end and follow the link.

Posted by Dave Johnson at 7:43 AM | Comments (3) | Link Cosmos

February 16, 2009

5 Million New Jobs Instantly

Dean Baker explains how to put 5 million people into jobs right away, in

Quick, What's Wrong With a Tax Cut that Shortens Work Hours?For example, if employers of 50 million workers cut hours by 10 percent, and then seek to replace the lost hours with additional workers, they would need to hire 5 million workers. If they got a $2,500 credit per worker, this would cost the government $125 billion a year.

There seem many benefits to going this route, and no obvious disadvantages. First, it can be put into place immediately. The day Congress passes the legislation employers can begin adjusting work schedules to benefit from the tax cut. In other words, this proposal is as shovel ready as it gets.

Please read the whole piece -- it is for real.

Posted by Dave Johnson at 8:36 AM | Comments (0) | Link Cosmos

February 13, 2009

Stimulus Passed

It passed the Senate. Who else would spend a Friday evening watching C-SPAN 2?

So you don't have to.

Posted by Dave Johnson at 7:56 PM | Comments (1) | Link Cosmos

February 12, 2009

Stimulus Bill Summary

While the corporate media writes about "who wins" without writing a word about matters that people care about, Chris Bowers put together a readable summary of what is in the package. Open Left:: A Readable Summary of the Stimulus / Jobs Bill

Posted by Dave Johnson at 11:52 AM | Comments (2) | Link Cosmos

February 11, 2009

First Details of Stimulus Deal

It looks like they gave up on helping the economy, to give tax breaks to people who don't need it.

Agreement in Congress Appears Near on Stimulus - NYTimes.com,

. . . sharply curtailed health care subsidies for the unemployed . . . But the final bill retained a $70 billion tax cut that would spare millions of middle-class Americans from paying the alternative minimum tax in 2009, which some Democrats decried as wasting a large chunk of the bill on something that would do little to lift the economy and that Congress would have approved regardless of the recession.

[. . .] “I am not happy with it,” said Senator Tom Harkin, Democrat of Iowa. “You are not looking at a happy camper. I mean, they took a lot of stuff out of education. They took it out of health, school construction and they put it more into tax issues.”

Mr. Harkin said he was particularly frustrated by the money being spent on fixing the alternative minimum tax. “It’s about 9 percent of the whole bill,” he said, “which we were going to do later this year in a tax bill. Why is it in there? It has nothing to do with stimulus. It has nothing to do with recovery. This makes no sense whatsoever.”

Posted by Dave Johnson at 12:48 PM | Comments (1) | Link Cosmos

Understanding The Bailout Problem

Here is what the world is going to have to face: the banks are insolvent. Thyey are going to have to be nationalized. This is what we have always done with banks that are insolvent. They just want to avoid it this time because of the word "nationalize."

Here is what is going on. They have these "toxic assets." These assets are currently on their books at the prices they paid for them. If these assets are "marked to market" -- put on the books at their real, current value -- the banks have to show that they are insolvent. They will have to declare bankruptcy. So everything you are hearing about, all the bailouts, FED loans, "open windows" etc are all schemes to try to avoid having the government step in and take over the banks, reorganize them, and put them back out there with new owners. And they all involve giving them billions, even trillions of dollars. This is what the bloggers are referring to as "lighting a big pile of money on fire" or "burying money in a hole." That money just goes away, unless somehow magically the bad assets suddenly become worth something.

WHAT "INSOLVENT" MEANS,

The banks bought the bad assets at high prices. They need to sell them at low prices. But this banker is arguing that they are too financially stressed to absorb the losses that would entail. Conversely, so long as they don't sell the assets, they can pretend they haven't lost any money on them, as they can pretend that they will rebound to a better price once the mania is over. The other way of putting this is that much of the banking sector is already insolvent, it's just not prepared to admit it.

Posted by Dave Johnson at 8:44 AM | Comments (1) | Link Cosmos

February 10, 2009

Do You Think One Leads To The Other?

Remember a few years ago everyone was complaining about having to work harder and longer hours for less money? Meanwhile a very few at the top were getting vastly richer, corporations were reporting ever-increasing record profits?

And now we have a collapse of the economy. I wonder if this is related to the situation described in the preceding paragraph?

So how come the solution to the economic crisis is to give ever more money to Wall Street and banks?

THIS is why the stimulus package is so important. It provides things that regular people need -- at least it did before the Republicans got their hands on it.

I think an important but missing component of a stimulus is to raise taxes on high incomes. I'm serious -- look at history, the economy always has done better when high incomes were heavily taxed. It's just the historical record, go look it up.

There are a lot of reasons for this. One is that high taxes at the top redistributes the money and more people having more money is good in a consumer-based economy. But another reason is that the incentive to harvest the people for the benefit of the few goes away when you have very high taxes at the top. It makes you think long term. You build a fortune by earning it over time instead of coming up with quick-money schemes.

Posted by Dave Johnson at 8:18 AM | Comments (3) | Link Cosmos

February 7, 2009

Krugman: Senate Compromise Cuts Most Needed Parts Of Plan

What the centrists have wrought - Paul Krugman Blog,

Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.

I wonder if it is worse to pass a plan that fails than to pass no plan at all?

Posted by Dave Johnson at 2:48 PM | Comments (3) | Link Cosmos

Senate Compromise Costs 1.25 Million Jobs

Go read Firedoglake » Senate 'Moderates; Cut 1 1/4 Million Jobs from Stimulus Bill,

Using the CBO ratio of one job per $140,000 GDP, that means that "compromising" Senators managed to cut 1,271,000 jobs from the Senate stimulus package. In other words, the Gang of Four would lose even more jobs than the country has lost in the last two months, two of the highest job loss months on record.

Posted by Dave Johnson at 2:43 PM | Comments (0) | Link Cosmos

February 6, 2009

The Senate Stimulus Deal and Republican Priorities

To get a few Republican votes to stop a filibuster and actually pass a bill to save the economy, here is what has changed:

Latest Cuts To The Stim Package: Head Start, Child Nutrition, Food Stamps Public Transit | The Plum Line,

REMOVED money for:

Head Start
Education for the Disadvantaged
School improvement
Child Nutrition
Firefighters
Transportation Security Administration
Coast Guard
Prisons
Police
Violence Against Women
NASA
National Science Foundation
Western Area Power Administration
CDC
Food Stamps

REDUCED money for:

Public Transit $3.4 billion
School Construction $60 billion

INCREASED money for:

Defense operations and procurement
STAG Grants
Brownfields
Additional transportation funding

Also, reduced tax cuts for lower incomes.

Posted by Dave Johnson at 8:50 PM | Comments (0) | Link Cosmos

February 4, 2009

Today's Housing Bubble Post - Not Gonna Happen

There is all this talk about "reigniting the housing market." This is a joke.

Let me tell you what will make housing demand go up.

One: Everyone who lost a job or now works part-time since 2001 gets a well-paying job.
Two: Every group whose income has been flat since Reagan took office gets a raise to match the raises CEOs got.
Three: Bring the price of houses back to earth. Where I live you need an income of $10,000 A MONTH to qualify for the lowest-priced house on the market -- AFTER 20% down.

See Why housing is stimulative, and politically smart,

"Unless the stimulus bill includes some fix for housing demand, it just won't be successful," says Gear, whose coalition includes homeowner and community groups and home builders.

Oh, that reminds me, Four: Make everyone forget that housing prices actually CAN go down.

After taking ALL these steps, including dropping housing prices back to where they should be, then you might see housing prices stop dropping. Any ideas that you can "fix housing" in the stimulus package are fantasy.

Posted by Dave Johnson at 6:05 PM | Comments (0) | Link Cosmos

February 3, 2009

My BBC Radio Hour Discussing Protectionism

"I'm not against globalization. I imported my wife from Bromley, Kent."

I was on BBC's "World Have Your Say" show today for an hour, taking the side favoring protectionism. You can download this segment in MP3 format here by visiting BBC - Radio - Podcasts - World Have Your Say, or just click the link below.

WHYS: 03 Feb: What's wrong with protectionism?

As the U.S Senate votes on a measure to "buy American" and when everyone is worried about their jobs and livelihood, why shouldn't each country look after their own ?

Duration: 52mins | File Size: 24MB

Download Episode

The show really starts about 3 minutes in. I'm on for the entire hour, but am introduced only as "Dave from California." I introduce myself and give out the blog URL later in the program.

Previously, with some links.

Posted by Dave Johnson at 2:16 PM | Comments (0) | Link Cosmos

On BBC in 15 Min

I am going to be on BBC's BBC World Have Your Say radio program in 15 minutes. There is a 'Listen Live' button there.

I am arguing in favor of protectionism -- protecting our workers' wages and living standards from being undercut by low-cost goods made in non-democratic countries that exploit workers and the environment.

This is based on my posts Bring Back Protectionism and Protectionism Means Protecting Ourselves.

Gotta run...

Posted by Dave Johnson at 9:46 AM | Comments (1) | Link Cosmos

February 1, 2009

After Stimulus -- Then What?

Suppose the stimulus passes. In fact, imagine that triple or quadruple the stimulus passes. Fine. Then what?

What happens after the stimulus? Isn't the stimulus just the next bubble -- the next last gasp attempt to put off the reckoning? Isn't it just borrowing another trillion or two to try to prop up an economic system that over and over again demonstrates that it just doesn't work?

Of course we want to do this and do it right -- infrastructure investment instead of squandering on tax cuts or military. People need to have jobs, so they can eat. And investment has a longer-term payoff.

But to what end? Suppose the stimulus magically enables things to get back to where they were. My favorite term from TV was that it is hoped it will "reignite the housing market." Heh. So if the stimulus "works" do we continue to chew up the planet, cut all the trees, remove all the mountaintops, create vast landfills of tossed junk, and all work as near slaves to make a few vastly richer?

Posted by Dave Johnson at 10:37 AM | Comments (1) | Link Cosmos

January 31, 2009

Bank Bailouts - Ultimate Supply-Side Thinking

Dean Baker: Do "Officials" Have Names? Post Conceals Obama Administration Effort to Hand Tax Dollars to Bankrupt Banks,

If their toxic assets have really frozen lending, although not actually jeopardized their solvency, then the shareholders would have a great lawsuit against any bank executive who refused to act in the interest of the shareholders in order to preserve their own high pay. Such instances would presumably be rare, but could nonetheless provide a great source of free entertainment to a nation suffering through a severe downturn.

In short, there is good reason to believe that the Obama administration is trying to slip hundreds of billions of dollars to bank shareholders and their top management.

My comment on the bank bailouts: The bailouts seem to be the ultimate result of supply-side thinking. The thinking seems to be that since people and businesses are tapped out from so much borrowing and no longer credit-worthy enough to risk loaning money to we should give literally all the rest of the country's money to those at the top of the finance food chain, and maybe they'll make loans again anyway, and get the bad-loan-making system rolling again.

They say that people who want to buy cars can't get loans. Well a credit-worthy buyer CAN get a loan. -I'LL- give a credit-worthy buyer a loan because then I can get a much higher return than I can get anywhere else. As long as I am sure I'll be paid back.

They say people can't buy houses. Well in the SF Bay Area the lowest-priced two-bedroom, one bath house (bad meighborhood, bars on the windows) requires an income of $10K/month to get a mortgage, now that they're again requiring no more than 28% of income be spent on housing. Is the government's idea that giving bad banks literally all the rest of our money will get them to give loans to people to take on mortgages at 50% of their income again?

And what about the GOOD banks, the ones that carefully managed their loan portfolios and didn't get into trouble? Why doesn't the government give cash to them, to help them give more good loans?

Posted by Dave Johnson at 2:41 PM | Comments (0) | Link Cosmos

January 29, 2009

Why Obama Will Fail

Obama's economic team does not see themselves as working for the PEOPLE of the country, they see themselves as defenders of the Wall Street Elite. In the words of the new Treasury Secretary, "we’d like to do our best to preserve that system."

This is the justification for the new plan to just use government money to buy up all the bad loans made by the big Wall Street firms. They screwed up the economy. WE pay for it. They stay rich. We get ever poorer.

From the referenced post,

Consider this statement from Geithner, who said that Treasury is considering a “range of options” for its financial rescue plan, with the goal of preserving the private banking system. “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.”

They are trying to avoid "nationallizing" the banks. But what that means is that the government takes them over, reorganizes them, and then privatizes them again -- in the process wiping out the current shareholders and selling the good parts to new shareholders.

This is what we have always done with bad banks. This is what the FDIC does. This is what we did in the S&L crisis. But they don't want to do that this time.

What they are doing instead is using taxpayer dollars to prop up the current shareholders. The ones who currently own insolvent banks will receive an infusion of taxpayer dollars.

But not the people who are losing their homes, jobs, health care. God forbid THEY should get something. All they did was pay their taxes. Unlike the current Treasury Secretary.

Posted by Dave Johnson at 9:33 AM | Comments (1) | Link Cosmos

Our Businesses Thrive On The Infrastructure We Built

This post originally appeared at Speak Out California

The key to California's successful business environment are education and infrastructure. It is not an accident that our semiconductor and computer and Internet industries, and biotechnology and pharmaceutical and genetic engineering and our other world-class competitive industries developed in California instead of in "low tax" states like Mississippi and Alabama. These industries thrived here because of our well-educated people and our modern, well-maintained infrastructure.

There has been a dramatic wealth-building return on our investment in education and infrastructure. Investors could count on California as a good place to start and grow a business, and it has paid off.

But how much would it cost if businesses had to pay fair market value for use of the infrastructure that We, the People built? What would it cost if companies had to pay the full education cost every time they hire someone who was educated at a California public school or state college or university?

What would it cost if companies had to pay to be provided with police and fire protection? Should companies pay a fee to have the police investigate, catch the perpetrators, and then put them through the criminal justice system?

What would it cost if companies had to pay fair value to use our roads and air- and seaports.

What would it cost if companies had to pay for access to the legal system that We, the People set up. We passed the laws and paid for the courts. We set up the entire legal structure.

We, the People pay to regulate (and apparently bail out) the banking and financial system. What would it cost if businesses had to pay us for setting up this system that (used to) keeps our money sound?

This is what government and taxes are for. We, the People built up California's comprehensive physical, legal, cultural, education and societal infrastructure. Businesses rely on that infrastructure, and we want them to thrive. This benefits us all. Many, many people became wealthy by betting on California as a great place to do business, and we are proud of that. Now it is tome to give something back.

Building and maintaining that infrastructure does cost money, and that is where taxes come in. For several years California has been cutting taxes and cutting back on our investment in education and infrastructure. Businesses cannot continue to thrive as they have if we continue along this path. We have reached a point where the tax-cutting has brought our state's education spending to the second-lowest per-pupil of all the states! We have been and are deferring maintenance on roads and other infrastructure. We are cutting back on all essential services and we still have a $40 billion budget shortfall!

Our companies are getting a good deal. If we charged fees that were based on the actual value of the service that the infrastructure provides businesses would have to pay much, much more than any level of increased taxes companies and wealthy individuals might be asked to pay to help California meet the budget shortfall. The businesses and individuals who thrived because of the infrastructure we built need to contribute to the future by agreeing to pay taxes to help invest in rebuilding that infrastructure.

The payoff is clear. As I wrote above, there is a reason that Silicon Valley and genetic engineering and other wealth-creating industries developed in states like California and Massachusetts instead of "low tax" states like Mississippi and Alabama.

Click through to Speak Out California.

Posted by Dave Johnson at 9:04 AM | Comments (0) | Link Cosmos

January 28, 2009

Not One Republican Voted For Stimulus

The stimulus bill passed the House but not one Republican voted for it.

Repeat: every single Republican voted against the stimulus bill.

The Democrats pre-compromised on the bill, added business tax cuts that won't stimulate the economy, threw out lots of infrastructure projects, mass transit and others, threw birth control for poor women out, got rid of health efforts to fight STDs, and lots of other nonsense, trading all of that for NOTHING.

They threw good stuff out of the bill without first securing one single Republican vote. Shame on them.

Update - I'm angry and I am going to rant. (It's what I do best.) So who were they were negotiating WITH when they threw out infrastructure, mass transit, birth control for poor women and other important things? It's like someone was just reacting to Drudge Report headlines. When I have been in negotiations I would say, "OK, I can give you that, but if I do, then what do I get in return?" You start with a bill that has in it more than you want or expect to get. Then you throw things out in exchange for a promise to vote for it. Otherwise what is the point of making the bill worse?

Posted by Dave Johnson at 4:07 PM | Comments (0) | Link Cosmos

Shorten Workweek To Reduce Unemployment

Pass the stimulus - then help shorten the work week,

One innovative policy that would provide a quick boost to the economy and jobs - and lasting gains in reduced unemployment - is a tax incentive for shorter workweeks or work years.

Who is our economy FOR? Why should high unemployment mean those still working have to work harder with longer hours?

Posted by Dave Johnson at 9:47 AM | Comments (0) | Link Cosmos

January 27, 2009

The Stimulus Bill - Giving To Republicans

I'm curious to know which Republicans, specifically, said they will vote for the bill with more tax cuts added -- like the ones they took out mass transit money for. I'd also like to know which Republicans, specifically, are now promising to vote for the bill with family planning funds removed.

The Republicans say they are being left out of the negotiations -- yet more and more real stimulus is disappearing, and more and more useless Republican-style gimmicks are being added.

Who are they negotiating with, that they are giving more and more away to? If it is buying votes they need, that's OK I guess. If it isn't, I'd like to know more about this interesting strategy.

Or, on the other hand, if Republicans say they aren't going to vote for the bill, will they put mass transit and family planning back in?

Posted by Dave Johnson at 12:16 PM | Comments (2) | Link Cosmos

Double Bubble. Double Trouble.

Last August, we wrote about the double bubble in the housing market: a more traditional bubble, then over-inflated by a massive asset bubble that drove prices up and up and up. The bigger the bubble, the bigger the pop.

In that post we wrote,

In every modern recession, the fall in housing prices follows the economy slowing down. What we have yet to see is the falling economy's effect on housing prices. So if you think prices have already dropped, and might even be reaching a bottom, we think it's the other way around: prices are about to start dropping.

And so here we are. Yesterday's news of a mind-boggling 50,000+ jobs lost in a single day brings us now to the start of this second bubble popping. Because for all of economic talk about housing markets and prices and fancy new mortgages that were created, at its economic base, housing prices are just about the simplest thing in the world.

When people make more money, or more people move into a market, housing prices slowly go up. When people make less money, or people move out of a market, housing prices slowly go down.

The housing bubble popped, leading to recession, and the recession is now going to lead to a further decline in housing prices. Where will that lead?

The problem at the root of the housing asset bubble is that over the last few decades -- since Reagan and the Republican free-market supply-side, trickle-down policies took over -- Americans have not been earning more, they've just been able to buy more thanks to a litany of mortgage and other debt-raising products that compensate for the lack of earnings.

People used to be required to put 20% down before they could buy a house. How many people do you know, honestly, that have 20% to put down on a house now? How many do you know that actually have 20% equity accrued in the house they already own? We're betting not many.

That 20% down payment requirement kept housing prices in check. But that became a 15% requirement, then 10%, then 5% then a negative 10% requirement, where you could actually get a mortgage for 110% of the value of your house. Well, they helped inflate the bubble.

On top of that, loan standards used to require that people spend no more than 25-28% of their income on housing expenses. This also kept prices in check. This was also set aside, and "liar loans" further inflated the bubble. Now that all has to be undone.

Last August, real estate experts were claiming that 2009 was to be the bottom of the market, and housing prices were going to head back up. Just like they claimed that 2008 was going to be the bottom and that 2007 was when the market would turn.

Sadly, the chances of real estate prices turning back up, in real dollar terms, has vanished for the next decade at least. There are two coherent facts behind this.

First, the size of the bubble means that someone who bought a house for $500,000 in 2005 is already 20-25% down in the price of the house. Factor in inflation, and it's closer to 35 - 40% down right now, four years later. Of the millions of Americans who will lose their jobs this year, many will be unable to cover their mortgages. And foreclosures, short sales, sales right before the short sales, these will continue to increase, driving prices down even further. This all means there is little demand for high-priced houses.

Second, the bubble caused a building boom, and along with all the foreclosures there is now a huge supply of houses and condos waiting to be sold. And only then will the "shadow" market of people waiting on the sidelines for a better market in which to sell their houses kick in.

Only after all of these factors are cleared will market conditions even start to return to normal.

By 2010, perhaps 2011, perhaps we will see signs of a bottom of the real estate market, with prices having returned to their historical norms at a level that many suggest is 30-35% below where they are today.

For many, this will be personal financially troubling, even disastrous. From an economic point of view, it is the fundamental principal of supply, demand, and income proving to be true again, and a return to economic reality.

What can be done about it? The root cause of this and many other problems in our economy is the stagnation of incomes that began when Reagan was elected. Republican policies brought a massive concentration of wealth at the top with a select few reaping all of the benefits of our economic system. But this double-bubble collapsing-economy problem is costing their wealth as well. Trickle-down doesn't, and when the rest of us are tapped out by misguided policies like these it spells disaster for everyone.

Posted by Dave and James at 11:55 AM | Comments (2) | Link Cosmos

January 26, 2009

Today's Layoff News

Just today:
Caterpillar to slash 20,000 jobs as profit falls

GM to lay off 2,000 workers, cut production

Sprint to eliminate 8,000 jobs

Home Depot cutting 7,000 jobs

Allbritton Communication Announces Massive Job Cuts

Deere to lay off nearly 700 workers

Harley-Davidson plans 425 local job cuts

Thermadyne laying off 110
Pfizer-Wyeth merger to mean job cuts: "...announced a cost-cutting initiative that will include the elimination of more than 8,000 jobs. "

That was TODAY. Actually, it's early yet.

And just the other day: Microsoft plans 5,000 job cuts

Starbucks to Lay Off 1,000

Posted by Dave Johnson at 9:12 AM | Comments (0) | Link Cosmos

January 25, 2009

Tax Cuts - Already Tried and Failed

At Economists View, The 2003 "Jobs and Growth" Plan (Tax Cuts) Didn't Work, Mark Thoma looks at Tax cut approach has already been tried and failed as stimulus by Lawrence Mishel at the Economic Policy Institute,

[. . .] Even worse were the Bush tax cuts of 2003, which the administration claimed would generate 1.4 million jobs on top of the 4.1 million jobs that were expected to be generated over the eighteen months following June 2003.
See: http://www.jobwatch.org/creating/bkg/cea_on_bush_tax_cuts_20030204_macro_effects.pdf

EPI tracked the initiative’s effectiveness through a website, www.jobwatch.org, and found that it fell far short of its goals. Not only did the promised 1.4 million additional jobs not appear, but the 4.1 million jobs expected with no action also failed to materialize. In all, only 2.4 million jobs were created—1.7 million short of the administration’s projection without their new policy. Thus, by the Bush administration’s own metrics the tax cut program fell short by a total of 3.1 million jobs (149,000 pr month).

Thoma writes,

They already screwed this up once, the initial tax cut stimulus package put into place last spring was too small and poorly targeted, it had all sorts of problems all in the name of appeasing this same group - and here they are trying to muck up the process once again, to hold jobs hostage while they try to get tax cuts in place, even though something like 40% of the package is already devoted to tax cuts. Camel, tent, nose.

Posted by Dave Johnson at 7:45 PM | Comments (0) | Link Cosmos

January 23, 2009

One Of The Ways FDR Saved Us

Republicans are trying to tell people that FDR's policies made the economy worse.

So think about this: Where would we be today if FDR hadn't implemented federal bank deposit insurance? Would there be a single bank left in the country today?

That is JUST ONE of the ways that FDR's policies and regulations helped us this time.

Posted by Dave Johnson at 11:18 AM | Comments (2) | Link Cosmos

January 19, 2009

Sirota Goes There

David Sirota yesterday U.S. moving toward czarism, away from democracy,

In sum, it explains why the age-old struggle between capitalism and democracy is once again defining our politics - and why capitalism is now winning.

Capitalism is the idea that a few people -- instead of the public -- should "own" the commons. So what do you think, is this the age-old struggle that is once again defining our politics? (And our economy I might add.)

Posted by Dave Johnson at 2:12 PM | Comments (1) | Link Cosmos

Are People Afraid To Spend -- Or Just Can't Spend Any More?

Earlier I wrote that there is a problem lending to people who are not "credit-worthy." Banks are looking for people to give loans to, as long as they can be pretty sure they will be paid back.

Today Warren Buffett said,

“We have fear which leads to people not wanting to spend, and not wanting to make investments. And that leads to more fear.”

OK, I can see how one of the richest people in the world thinks that people are just afraid to spend, and that's the only problem. But from where I live it looks a lot more like people are tapped out -- savings depleted, income stagnant or lost, debt up to the ceiling. And that is why they aren't spending anymore, because they can't spend anymore.

We have to come to terms with what happened. All the money went to the few at the top, wiping everyone else out. And so the economy finally stopped.

Trickle-down economics just doesn't work. THAT is why we are having a financial crisis. The few people who make a lot of money just can't see that. Until they do, their solutions and predictions will continue to be just wrong.

Posted by Dave Johnson at 12:17 PM | Comments (2) | Link Cosmos

Credit Crunch Or Just Not Credit-Worthy?

Is there a credit crunch? Are banks just refusing to lend and "sitting on the money?"

I don't see it. I think lenders are actually looking for people they can loan to -- that's how they make their money. I think that any "credit-worthy" borrower can get a loan.

The problem is there are too few credit-worthy borrowers. This means businesses and people with collateral, cash flow and good credit ratings.

The problem is that everyone took on so much debt that they are over their heads now, and are very risky loan prospects. Would YOU loan money to someone who isn't all that likely to pay you back?

Posted by Dave Johnson at 9:24 AM | Comments (0) | Link Cosmos

January 17, 2009

Laid Off

The Johnson's are very with-it and stylish. We are keeping up with the rest of the country, following all the trends. We are right on top of current events.

My wife was laid off from her job Thursday.

Posted by Dave Johnson at 12:02 PM | Comments (1) | Link Cosmos

Economy Chart

Here is a chart I made. I was looking at all the numbers and charts in the paper and thought I might make a chart too.

Posted by Dave Johnson at 11:26 AM | Comments (2) | Link Cosmos

January 14, 2009

How To Get Out Of Debt

Once again: The sure-fire way to get out of debt.

A simple solution -- stop borrowing money. Don't buy stuff you cannot afford. Imagine life with no payments to make.

Posted by Dave Johnson at 10:15 PM | Comments (0) | Link Cosmos

January 12, 2009

Infrastructure Investment Is The Way Out

Looking at the economy, let me ask the question: What will drive a recovery? What is there in our economy that can get things moving again? Is it manufacturing? When the dollar was falling, prices of goods made in the US were becoming attractive, but with the worldwide crisis the dollar is strong again. And, even if other countries were in a position to buy (and not in recession themselves) we have fallen behind with our manufacturing infrastructure so it would be some time before we could respond to demand.

Since Reagan's tax cuts the country has been living on borrowed money (deficits) and calling it prosperity. We have been putting off maintaining our infrastructure -- never mind investment in new infrastructure. We have been cutting education budgets. We have been cutting health care. we have been cutting everything except military budgets and now it is catching up to us.

The road out of this is public investment. We need a long effort to build a 21st-century infrastructure. We need a national wind and solar energy grid, so we are not exporting dollars in exchange for oil. We need to build energy-efficient transportation. We need building codes across-the-board that require energy efficiency in housing and commercial buildings and we need to retrofit existing buildings. We need fiber-optic internet into every home and business. We need a massive investment in public education up to the university level. We need national health care.

How do we pay for this? By restoring democracy. We return the top tax rate to 90+%. High taxes at the top drive our economy -- look up the numbers, it is just a fact. This also reduces the massive concentration of wealth we have today. Then restore the inheritance tax, and raise it, so people start life on a more equal footing. Cut the military budget to just above the amount spent by the next-highest budgeted competitor. (That would be a massive cut because we now spend more than all other countries combined.)

Posted by Dave Johnson at 12:29 PM | Comments (0) | Link Cosmos

January 11, 2009

Today's Housing Bubble Post - Somebody Always Pays

A very interesting Nightline from 2007, before the housing bubble burst. But who could have known/

Posted by Dave Johnson at 5:01 PM | Comments (0) | Link Cosmos

January 9, 2009

Technology Taking Over Jobs

How much of the unemployment is really coming because of technology taking over jobs? How many jobs replaced by the efficiency of computers? How many by machines? How many by robots? We have known for a long time this is a developing problem with our economic system, and instead of addressing it have been reacting by pushing the reckoning out into the future for decades.

So maybe this is about that - one more fundamental problem of our economic system. All the attempts to delay the reckoning collapse... all the psychological manipulation of "demand creation" that tricks people into using credit cards to buy cheap junk that they don't need... all the smoke and mirrors moves aside and we see that there really are not that many "jobs."

What is this thing, a "job?" I was on the phone with a tech support guy for Brother printers, and his "job" was to read this script to me, and I have to do everything on the script, and then the next thing on the script, and he isn't allowed to vary from the script. That is called a "job." He had a lifeless voice, and rent to pay, so he comes in in the morning and reads the script over and over.

How many "jobs" are trained-monkey jobs,shuffling paper, doing some meaningless task someone tells us to do, making someone else rich, just to keep us occupied and paid until a machine gets sophisticated enough to do it instead, and then the worker is discarded and left with nothing and no prospects (because machines do that now).

And what are our lives, in these "jobs"? How many of us even know what our own choices might be?

Who is our economy FOR? Is this really an "economic system" that is doing anyone any good? When demand creation works, and the economy is "stimulated," that just means we'll start strip-mining or clear-cutting faster, and then building more mountains of landfill.

Another perspective, if the economy was for us:

Shouldn't a machine taking over a job be a time of rejoicing? Shouldn't a new machine or process mean one less hour of work is needed from everyone?

But under our economic system, in which we pretend that a few people "own" what we really all own, a new machine or process means just a few people become immensely wealthy while the rest of us are discarded, or have to work even longer hours and for less pay, because the competition for the remaining jobs is even greater.

Imagine a life where you could actually decide what you want to do with your time.

Posted by Dave Johnson at 9:40 PM | Comments (1) | Link Cosmos

The "Cook the Books" Financial Collapse

Every book is cooked these days. This is a lot of what has led to the financial collapse. The banks lied about the assets they were holding. The ratings agencies lied about the assets they were rating. Appraisers lied about the value of houses they were appraising. Everybody lies these days...

And the unemployment rate? Great Depression jobs parallel may not be far flung | U.S. | Reuters

"... if unemployment were still tallied the way it was in the 1930s, today's jobless rate would be closer to 16.5 percent -- more than double the stated rate."

Posted by Dave Johnson at 9:37 PM | Comments (9) | Link Cosmos

Real Unemployment

Today the official unemployment rate jumped to 7.2%. But the real story is likely worse than this number. There are other ways to measure unemployment, including looking at the number of people who are working part-time but want to be working full-time. There are 8 million of these. The official number is about people who are "looking" for work but there are also the "discouraged" workers, people who have largely given up looking. they are not included. And to top it off the official unemployment rate has been changed over the years, always in ways that make this 7.2% number lower than the official number would be if measured in ways it was measured decades ago.

Another number that can be used is "U-6" which measures total unemployed. The official description is:

Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

U-6 is currently 13.5%

Posted by Dave Johnson at 12:23 PM | Comments (2) | Link Cosmos

Jobs Lost

Jobless rate at 16-year high as payrolls plunge

In December, U.S. employers cut payrolls by 524,000, somewhat less than analysts' prediction for a 550,000 reduction in jobs. Total job losses for 2008 were 2.6 million, the largest decline since a 2.75 million drop in 1945.

But it's even worse that what you thought, because,

November's job losses were revised to show a cut of 584,000, previously reported as a 533,000 loss, while October's losses were revised to 423,000 from a decline of 320,000.

Posted by Dave Johnson at 7:58 AM | Comments (3) | Link Cosmos

January 7, 2009

When I Ran A Business I Didn't Want Tax Cuts

When I ran a business I didn't want tax cuts, I wanted to pay taxes. Paying taxes meant I had made a profit, and a portion of it went to taxes.

Given a choice between tax cuts and more revenue I would take more revenue every single time, even though it meant even more taxes to pay later. SEND ME CUSTOMERS instead of tax cuts.

So take the money you might use to give a tax cut and instead use it on targeted programs that redistribute money to people. Instead of just giving it all back, USE IT to invest to good purpose.

Posted by Dave Johnson at 6:09 PM | Comments (1) | Link Cosmos

January 6, 2009

Wage Collapse Caused Crisis

Go look at the chart in this post: Daily Kos: Conspiracy of Silence: Wage Collapse Caused Crisis

Posted by Dave Johnson at 5:28 PM | Comments (0) | Link Cosmos

January 5, 2009

Why 40 Hours Per Week?

Question. With rising unemployment, why are we all still supposed to work 40 hours a week to be considered "full time?"

Who is our economy FOR, anyway?

Posted by Dave Johnson at 9:21 AM | Comments (0) | Link Cosmos

January 4, 2009

Big Companies Are Public Resources

Deep Thought: When companies reach a certain size, they are public resources. They are large because they do something that is important to many of us. They have a great impact on all of our lives. We all depend on their success and are hurt by their failure.

They are public resources. Do we usually leave public resources in the hands of a few people?

Think of startup companies as auditioning for a job. The ones who reach a certain size are then rewarded by getting the "contract" to, say, develop oil resources or make cars...

Update - You say this sounds radical? I never proposed that the government borrow $700 billion dollars and hand it over to giant companies. It was the "private property free market conservatives" who did that.

Posted by Dave Johnson at 10:00 AM | Comments (1) | Link Cosmos

The Next Debt Bomb?

The next bomb to go off might be US Government debt -- timed perfectly to ruin Obama's entrance. The government has been able to finance Bush's massive bailouts-of-the-rich because people everywhere are scared enough to put their money in what is perceived to be the safest place. In fact the return on short-term US T-bills is actually negative right now. People are paying the US government to hold their money! And the government has been obliging them.

But all of this short-term debt is due very soon and the government will need to find new people to lend to it. And other debt is also coming due, compounding the problem. And on top of that the Obama stimulus plan will require borrowing another $700 billion or more.

I am not predicting this will happen. I'm saying this is another bubble and at some point it has to pop.

Posted by Dave Johnson at 9:01 AM | Comments (0) | Link Cosmos

January 2, 2009

Big Box Mart

Where your job went.

Big Box Mart | Funny Jokes at JibJab

Posted by Dave Johnson at 12:50 PM | Comments (0) | Link Cosmos

January 1, 2009

This Is Not The 'Business Cycle'

A quick comment: The financial crisis we are experiencing is not business as usual, it is not the business cycle. This is not like anything that has happened before. We are not going to solve this by acting as if it was just a typical downturn in the business cycle and tweaking the way things are done. A bit of stimulus and a few regulatory changes are not going to solve this.

This is a fundamental paradigm shift -- what we had before did not work, period. It was hurting all of us by forcing us into jobs we all hate and doing meaningless things, taking on debt, unhealthy habits, and is chewing up the very planet we live on! A new model for understanding how economies work is needed.

We have to rethink the relationship between people and work and who gets to share in the proceeds. Until now most people work to make someone else rich, because it has been the only way we can "make a living" -- be allowed money to eat, etc. But as machines and computers and other technologies do more and more of the work for us the result is that more and more people are laid off or paid less or otherwise discarded and fewer and fewer of us are able to get by. This is because our current economic system forces us all to pretend that a few people "own" the right to benefit from our economy, and the rest of us do not.

But doesn't this idea that a few people can "own" the right to the benefits of our economy fundamentally conflict with the idea of democracy, where we all have an equal share of America, an equal voice and equal rights?

In Alaska, for example, the people of the state benefit from their common ownership of the oil there. Companies bid for the job of extracting the oil and pay the state a lot of money to do that. Everyone in Alaska benefits, AND a trust fund is set up to guarantee that they continue to benefit forever after the oil is all gone.

Our entire economy should work that way. We should recognize that we own in common all of the resources, and these companies should have to apply for the job -- bid for the right to do things we want done -- with the understanding that they are common resources from which we all benefit.

We also have to reengineer the economy to be sustainable. We have to stop this game of "demand creation" -- making people think they need things that they do not need, in order to "keep the economy going." The economy only needs to go far enough to feed and house and clothe us and take care of our health, and then we should be deciding in common what else we want to do, up to the point where it interferes with our real lives. There is a limit to what we need, and can then get on with the other things that life is about, like thinking, art, music, reading, studying... When there is less to be done, we should work fewer hours, leaving us free for the other pursuits. More on this later.

Posted by Dave Johnson at 10:08 PM | Comments (2) | Link Cosmos

December 24, 2008

Today's Housing Bubble Post -- Different In India

India is having none of it: The Left Coaster: Greenspan (U.S.) v. Anti-Greenspan (India)

Posted by Dave Johnson at 10:41 AM | Comments (0) | Link Cosmos

December 18, 2008

Repubilcans Sabotaging Solutions -- Why?

Nationally and in California Republicans are clearly trying to sabotage economic recovery efforts. Why? Do they have some strategy at work here?

Schwarzenegger to veto Democrats' budget plan,

But Schwarzenegger said the Democrats' package lacked deeper cuts to welfare and senior assistance programs, flexibility to reduce school spending, and the elimination of two of 14 state employee holidays.

The governor also wanted assistance for homeowners facing foreclosure, broad authority to relax environmental regulation on public work projects and more toll roads.

After months and months of trying to pass a budget, compromising, giving Republicans everything they wanted, they still refused to allow a budget. So the Democrats found a way around that and passed a budget. The Governor's veto means a near-immediate layoff of as many as 200,000 workers. That will have a cascading effect on California and the nation's economy.

Why are they doing this?

Posted by Dave Johnson at 8:28 PM | Comments (7) | Link Cosmos

December 16, 2008

The Economy

This chart explains where the economy must go, and why. Sorry.

Click to enlarge

It wasn't just the housing bubble, it was debt in all of its forms.

For extra credit, see if you can identify the year Reagan and the "supply-siders" took office and any changes that occurred at that time.

P.S. I will not accept any cleaning bills.

Posted by Dave Johnson at 3:11 PM | Comments (1) | Link Cosmos

Economy Question

Question: How does it help our economy for our government to borrow money from China and use it to lower interest rates in an attempt to persuade people to borrow even more money to buy even more stuff that was made in China?

Update - What I am trying to say is, loosening credit does not help the average person. If you can't afford something, buying it on credit doesn't help you afford it. Who you need is higher wages, health care, etc. Then you can afford things.

This is a solvency crisis, not a liquidity crisis. Predatory capitalism harvested the consumer, ate the consumer, shat out the consumer, and loose credit isn't going to revive a consumer that has been through that.

Posted by Dave Johnson at 11:16 AM | Comments (2) | Link Cosmos

Today's Bubble Post -- Reckoning

James Boyce, in one of his best posts ever, says that if something is unsustainable it can't be sustained. And here we are. Go read James Boyce: The Darwin Depression: Time To Say Goodbye To How It Should Have Never Been.,

It is very dangerous for an empire such as America's, faced with ebbing influence around the world, to amp up on cheap credit and buy out the store. At the end of the day, you have a frustrated country, swamped in debt and merchandise it doesn't really need, wondering how to pay the bills. Japan has never really recovered from its bubble, and its bubble is looking pretty small compared to the one we're popping.

Look at this. Consider this image.

Of course, you have to click through to see the charts.

Posted by Dave Johnson at 9:56 AM | Comments (0) | Link Cosmos

December 11, 2008

The Day The Economy Died

Auto bailout dies in Senate

Twenty years from now people will mark today as the official end of the U.S. economy.

Posted by Dave Johnson at 9:08 PM | Comments (0) | Link Cosmos

December 9, 2008

Feel The Recession With Twitter

I just found out you can do searches to see what people are twittering about. Click here for a Twitter search on layoffs. What you read will be sad, though.

Posted by Dave Johnson at 10:19 AM | Comments (0) | Link Cosmos

December 8, 2008

Economic Narratives

Profound: Economic Growth is Political.

Really, go read.

Posted by Dave Johnson at 2:23 PM | Comments (0) | Link Cosmos

December 7, 2008

Democracy Is The Only Economics That Works

I am reading about how we got out of the Great Depression, and I think there was a clear sense of adversarial relationship between wealth, corporate power and democracy that we don't see today, but which I believe defines what is happening to us. For example I am currently
reading FDR's 2nd inaugural address. I know this address comes four years into The New Deal, but I think it reflects what I have read from when the New Deal began as well.

"In fact, in these last four years, we have made the exercise of all power more democratic; for we have begun to bring private autocratic powers into their proper subordination to the public's government. The legend that they were invincible above and beyond the processes of a democracy has been shattered. They have been challenged and beaten.

Our progress out of the depression is obvious. But that is not all that you and I mean by the new order of things. Our pledge was not merely to do a patchwork job with second-hand materials. By using the new materials of social justice we have undertaken to erect on the old foundations a more enduring structure for the better use of future generations.

In that purpose we have been helped by achievements of mind and spirit. Old truths have been relearned; untruths have been unlearned. We have always known that heedless self-interest was bad morals; we know now that it is bad economics. Out of the collapse of a prosperity whose builders boasted their practicality has come the conviction that in the long run economic morality pays. We are beginning to wipe out the line that divides the practical from the ideal; and in so doing we are fashioning an instrument of unimagined power for the establishment of a morally better world.

This new understanding undermines the old admiration of worldly success as such. We are beginning to abandon our tolerance of the abuse of power by those who betray for profit the elementary decencies of life."

I think this strongly shows that FDR's believed that the depression was caused by wealth flowing to the top (as today) and would be corrected by asserting that We, the People must take back control of our common resources.

In other words, real democracy -- We, the People controlling and making decisions about our common resources, instead of corporations and the wealthy -- is the only form of government and economics that can work for all of us.

Posted by Dave Johnson at 4:31 PM | Comments (1) | Link Cosmos

December 6, 2008

Bailout - Fighting The Last War?

To what extent is the bailout fighting the last war, instead of addressing the real issues of this crisis?

Obama's massive infrastructure investment will do a lot of good, but how much is this just another bandaid on a failed economic paradigm?

Posted by Dave Johnson at 8:31 PM | Comments (1) | Link Cosmos

December 5, 2008

Worst Jobs Report In Decades - Stocks Soar!

Today saw the most job cuts in one month in 34 years. The stock market soared, up about 300 points.

Who is our economy for?

Posted by Dave Johnson at 1:02 PM | Comments (0) | Link Cosmos

Cutting Business Taxes

Cutting taxes on business only gives a boost to companies that are ALREADY MAKING A PROFIT after all costs -- the very ones that do not need a boost.

All it does is drain resources that could be available to We, the People to use to solve problems. It puts even more money into the pockets of the very rich, further reducing the ability of the consumer to pay the bills and buy.

Posted by Dave Johnson at 10:22 AM | Comments (0) | Link Cosmos

Deep Thought

Contractors don't get unemployment pay. A significant portion of the workforce has been called contractors instead of employees in the last several years, allowing the corps to get out of responsibilities they would have if the same people were called employees.

This is going to have an effect on efforts to revitalize the economy. For example, extending unemployment benefits won't help them.

Posted by Dave Johnson at 9:27 AM | Comments (0) | Link Cosmos

December 4, 2008

Auto Company Collapse

I realized today that a collapse of any American auto companies also means a loss of tens of thousands of jobs in Mexico, further increasing migration pressures.

Posted by Dave Johnson at 5:01 PM | Comments (0) | Link Cosmos

Laid Off Contractors Don't Get Unemployment

Before reading this, realize that people who are called contractors instead of employees -- the first to get laid off as things get worse -- do not get unemployment benefits so they don't file claims for unemployment benefits. Jobless rolls at 26-year peak, factory orders drop

While first-time claims for benefits unexpectedly fell last week to 509,000 from 530,000, a four-week moving average of new claims, a better gauge of underlying labor trends, rose to 524,500, also a 26-year high.

The economy has shifted much more towards contractors, who do not get unemployment benefits. So this number of new claims understates the problem and does so much more than in previous recessions.

Also, the lack of benefits for contractors, including unemployment, means this recession will hit much harder on those unemployed than on previous unemployed. Extending unemployment benefits for 13 or 26 weeks will make no difference. What we need to do is ban this contracting scam and call an employee an employee.

Posted by Dave Johnson at 12:09 PM | Comments (0) | Link Cosmos

December 1, 2008

Too Big To Fail?

I said it before but I want to repeat it: "Too big to fail" necessarily means a company that should be under the control of the public. Our economy should not just be at the mercy of a select few. We, the People should be involved in making decisions that affect us. This is the very definition of self-governance.

Posted by Dave Johnson at 7:37 AM | Comments (0) | Link Cosmos

November 30, 2008

Protectionism Means Protecting Ourselves

Protectionism literally means protecting ourselves.

The term is mostly used in the context of economics, where protectionism refers to policies or doctrines which "protect" businesses and "living wages" within a country by restricting or regulating trade between foreign nations.

The idea of protectionism is that when a competing country gains a trade advantage by paying its workers too little or having poor or no worker safety protections, or by allowing pollution of the environment, then we apply a tariff to their goods, so their goods cost the same here as our own goods, and that advantage does not undermine our own wages or safety or pollution standards.

Under conservative ideology, of course, protecting ourselves is a bad thing. Some people make a lot of money for themselves by undermining our wage, safety and pollution standards. So they tell us that protecting ourselves is wrong. The result is that conservative trade agreements that we have now that apply downward pressure on all the wages in the world.

Imagine if the workers in China or Mexico, etc. made enough money to buy the things we make here! That would be the use of our tariffs to apply an upwards pressure on other countries.

Posted by Dave Johnson at 10:02 AM | Comments (0) | Link Cosmos

November 29, 2008

Credit Crisis

When people, companies and municipalities reach a point where they have borrowed so much that they can't pay back the loans I really don't think the solution is to make more money available to lend. But that is what all of these bailouts are aiming to accomplish.

They say credit has "dried up" and banks "won't lend." Can you blame a bank for not wanting to lend money to someone who has no savings, huge credit card bills, and might lose their job at any moment? Can you blame a bank for not lending to a company whose customers have stopped buying and can't pay them what they already owe?

It's just more of the same old top-down thinking: that if you just give more and more money to the few at the top things will get better.

At what point does the obvious become obvious? When people are tapped out, they are t.a.p.p.e.d. o.u.t. That's it. No more blood can be squeezed from that stone. You can't make a person work longer hours when they are already working two jobs. You've already taken away pensions and health care and vacations and overtime, you can't take away even more.

Posted by Dave Johnson at 11:36 AM | Comments (1) | Link Cosmos

November 27, 2008

One Way To Start fixing The Economy

Executive Compensation: Tax Them Into the Ground.

Really, really go read this.

Posted by Dave Johnson at 6:53 PM | Comments (1) | Link Cosmos

A Good Bailout

Have a read: A DIFFERENT KIND OF AUTO BAILOUT.

We need a bottom-up, not a trickle-down bailout.

Posted by Dave Johnson at 10:45 AM | Comments (0) | Link Cosmos

November 26, 2008

Bailout At $7 Trillion So Far

So far it looks like you and I have coughed up about $7 trillion dollars to bail out Wall Street and the big banks. The executives and their bonuses and the shareholders all thank you, suckers. Of course, you and I had NO SAY in this at all!

So $7 trillion comes to about $23,000 per person - including infants. This means that the average family of four coughed up almost $100K to bail out Wall Street and the banks and the executive bonuses and shareholders. This was the Republican approach to fixing the problem.

They say it's all about making money available for people to borrow. This assumes that people have any credit left. I mean, if you make $5,000 a month and your payments add up to $5,000 a month, maybe you aren't going to want to borrow any more. And maybe a lender with sense won't let you. Lending to people who can't afford to pay the money back is what caused the mess! Loading everyone up with even more debt is not the solution.

Why not make people more able to afford to buy things, and not have to borrow to get by? We could have put $7 trillion into health care, roads, bridges, schools and other things that would have created millions of jobs and provided raises to or lowered costs for regular people! I wonder what THAT would have done for the Christmas shopping season, and all the rest of the Christmas shopping seasons from now on?

But we not only didn't have any say in how the money was used, the money is all gone.

Meanwhile go read The Bail-Out Will Not Work at angry Bear to understand why giving all the rest of our money to the people who created the mess will not work.

Posted by Dave Johnson at 12:00 PM | Comments (1) | Link Cosmos

November 25, 2008

How Much Do Auto Workers Make?

Go read The media myth: Detroit's $70-an-hour autoworker.

Auto workers make $28 an hour on average. No auto assembly-line worker makes $70 an hour, even if the media repeats that figure over and over. The $70 figure includes the "labor costs" of health care and pensions for retired and injured workers and the cost of management for that worker/hour, as if it was added to the number of labor hours that goes into a car today.

Yes, GM and the others have a high cost to cover the benefits to their workers. That was the point of our laws that set up corporations -- to benefit US. Japanese and German and other car companies have many of these costs paid by the government. They did it with taxes and had the government provide the benefits, we tried to do it throught the corporations themselves, and our model hasn't worked.

The point is that we need health care reform and decent pensions for all Americans, through We, the People -- the government. It certainly doesn't mean that we should just get rid of the last major manufacturers we have. Sheesh.

Posted by Dave Johnson at 2:40 PM | Comments (0) | Link Cosmos

November 22, 2008

Sustainabilty Is The Key To The Next Economy

There is an old saying: If something is unsustainable it can't be sustained. Our economy is starting, just starting to show us what happens when you continue unsustainable practices to their conclusion.

The day will come when instead of habitually saying, "How can I make money off of this" as things happen, they will say, "Is this really sustainable?" Unfortunately we are only at the very beginning of the kind of pain that is going to teach us as a society that this is the correct way to evaluate what appear to be opportunities.

Let me explain:

We have learned that it is a good idea to store explosives in special bunkers with thick, concrete walls. Think about how we learned that it is important to require this.

We have learned about clean, safe drinking water. Think about how we learned that this is a good practice. We have learned to build sewer systems instead of dumping bedpans into the street. Yes, we used to do that and now we don't. Think about how we learned not to. Along the same lines we have largely learned to wash our hands after we go to the bathroom and before we eat. Think about how we learned that this is a good practice.

We have set up building codes that prevent fires and collapses from earthquakes. At least in California we have. In other parts of the country they don't require buildings to be earthquake-safe. We do, they will. Think about why we do and they don't but will. Think about why we have fire codes for buildings across the country.

Are you getting my drift? These are things that people didn't know to do, but now they do know. But people seem to have to go through terrible, devastating, tragic shocks before they learn. And finally we learn, and routinize safe practices. We had been through severe economic shocks and then the Great Depression and there were some things we as a people thought we had learned. Think about how bad the depression was and the things that we set up to try to prevent it from happening again: regulations, oversight, a strengthened democracy with citizen control of public resources, strong unions to serve as a counterbalance to corporate power, high taxes on the rich and corporations so income would be more fairly redistributed and the benefits of our system shared widely -- only to gradually let most of that slip away. So the control of our country's decision-making had reverted back to the wealthy and predatory capitalism was reinstated. We, the People were harvested for every last dollar and hour of labor and when we were finally tapped out the economy had to collapse.

There is every sign that this economic collapse could be worse that any before it.

So, like I said, the day will come when people look at events and instead of saying, "How can I make money off of this" they will say, "Is this really sustainable?" But I fear that we are going to have to reach the bottom before we learn this.

Posted by Dave Johnson at 11:43 AM | Comments (0) | Link Cosmos

November 18, 2008

Too Important To The System To Allow To Fail

Over and over we are hearing about companies that are "too big to fail." The meaning is that if they fail they take everything else with it, so we must bail them out.

Suppose that something happened to the atmosphere and air had to be manufactured. Suppose that all of our lives depended on the ongoing manufacturing of air. Would any of us, even the hardest-core Republicans, even consider allowing this function to be in the hands of a private company? Of course we would not allow this.

Isn't "too big to fail" the very definition of an important PUBLIC resource? If something is "too big to fail" because failure risks bringing down the entire economy, how did we ever allow such functions to fall into the hands of private companies in the first place?

Posted by Dave Johnson at 4:50 PM | Comments (0) | Link Cosmos

November 14, 2008

What To Ask For In A Bailout

Someone asked me, "If we bail out the auto companies how do we make sure they don't just go off and build gas hogs, and give all the profits to their executives again?"

The answer to this is the answer that should have been part of the Wall Street bailout: You benefit from the Public, so the Public had better start benefiting from you. You get the money and you start building cars that are lined up with the public interest. You serve the public, not harvest the public. You limit executive compensation and spread the wealth around. You pay taxes when you do well. You don't try to influence the political process in any way because We, the People tell you what to do, not the other way around. Etc.

(Question: why aren't these the explicit rules for doing business in the U.S. anyway - bailout or not?)

Posted by Dave Johnson at 7:41 AM | Comments (0) | Link Cosmos

November 13, 2008

The Money Hole

"If you love America you throw money in its hole."

In The Know: Should The Government Stop Dumping Money Into A Giant Hole?

If you are a patriot you will throw money down the money hole.

Posted by Dave Johnson at 8:48 PM | Comments (0) | Link Cosmos

November 12, 2008

The Consumer Spending Slowdown Is NOT Because Of Credit

On The NewsHour today Alice Rivlin said that we need to free up the credit markets so people can buy cars. She said there are "credit-worthy" people waiting to buy cars and trucks who can't because they can't get loans.

Then, on the NBC News tonite the reporter said, "Without access to credit, shoppers are tightening their purse-strings."

This is just wrong, and these are people who move in in important policy and reporting circles who should know what is going on! It tells me that rest of the people in these circles also don't get it.

The credit crunch is not the consumer spending slowdown. Big companies are having trouble getting credit. But if you go to a car dealer tomorrow to buy a car, and have an income and good credit, they will bow down and kiss your feet. If you can't find a loan (if you have an income and good credit you CAN find a loan) the manager will loan you the money out of his or her own pocket. It is PREPOSTEROUS to suggest that people with incomes and good credit can't get loans, and that this is why people are not shopping up a storm!

The consumer spending problem is that consumers are "tapped out." Incomes have stagnated for decades, consumers have used up their savings and then resorted to second mortgages and credit cards.

Decades of predatory capitalism have sucked the average working person dry. That is the consumer spending problem. That policymakers and reporters don't know that tells a sad story about how this has come to pass.

Limit executive pay and use the money to hire more people for fewer hours, pay them more, give them health insurance and let people start unions if you want to see consumer spending recover. That's not rocket science.

Posted by Dave Johnson at 6:24 PM | Comments (0) | Link Cosmos

Blame For The Crash

I've been thinking about something and haven't had time to write about it. The first stimulus package did nothing to help the economy, but it did put off the crash from happening for about 3 months. I mean, the worst of the crash is really just starting, just after the election.

What I am getting at is the stimulus package, sending us all $600 checks, was one more time the Dems in the Congress fell for something that was designed only to help the Republicans in the election. It didn't help and Obama won, but that was their plan.

And now the economy is starting to really crash. The bailout which obviously wasn't going to work didn't work -- and it used up all the money. I am starting to hear talk of the U.S. credit rating being lowered, with some expectation of default in the future.

Things are going to get really, really bad next year. So we need to make sure the public understands blame.

Here's how. The Congress needs to push through something popular, clearly designed to help the economy, that the Republicans filibuster, or Bush vetoes, before the end of the year. How about a whopping increase in the minimum wage? The bailout of the auto companies might be the issue. Maybe the new stimulus package, clearly aimed at creating jobs -- good UNION jobs. They would fight that.

The point is, make it clear who is for and who is against the people. This is how the Republicans have been doing it for some time.

AND, after Obama gets into office, we can even pass it.

Posted by Dave Johnson at 2:51 PM | Comments (1) | Link Cosmos

Explaining The Crash

I think this is one of the better explanations of the Wall Street crash: The End of Wall Street's Boom. Go read.

Posted by Dave Johnson at 12:39 PM | Comments (0) | Link Cosmos

November 8, 2008

Oil vs Air

No one "owns" the air. No one gets to "profit" from air -- we don't have to "pay" anyone to be able to breath air.

Why is oil different?

Thinking through this question open up some very interesting ideas about our economy and who benefits and why.

In Alaska the oil companies pay the people of the state for the oil. No one pays state taxes AND everyone in the state gets a big check every year. AND the oil companies put aside money into a fund that guarantees the people of Alaska will continue to get those checks forever, even after the oil runs out. This is because the people of Alaska understood that the oil belonged to them.

So what about the rest of the oil in the country, and the world? Why don't the people of the US and the world benefit from their ownership of that oil? Why do a few people who own and manage oil companies get the profits for themselves and grow ever richer, while the rest of us lose our jobs and pensions and health care and houses?

Why do we get taxed to provide these companies that benefit a few people with military protection? Why do we get taxed to build the roads that enable them to move their products to make this money, and then have to pay them for our oil so we can drive cars on those roads? Why do we pay taxes to provide the legal infrastructure of courts and laws that enables them to grow richer, while we all grow poorer from it? Why do we get taxed to provide an education system that invents machines that take our jobs, and that only trains us to be employees that can just be tossed aside?

I'm using oil here as just one example of underlying economic assumptions. Inheritance is another underlying economic assumption. Why does someone "inherit" the right to be rich?

Who is our economy FOR, anyway?

There are a lot of questions here that will need to be re-thought if we are going to get out of the economic mess that the few who benefit from the current corporate and economic structure have gotten us into.

Posted by Dave Johnson at 11:52 AM | Comments (2) | Link Cosmos

October 26, 2008

prescience: When this man predicted a global financial crisis more than a year ago, people laughed. Not any more...

prescience (prĕsh'əns, -ē-əns, prē'shəns, -shē-əns)
n.

Knowledge of actions or events before they occur; foresight.

...................................................................................
Nouriel Roubini: I fear the worst is yet to come
When this man predicted a global financial crisis more than a year ago, people laughed. Not any more...

Dominic Rushe

As stock markets headed off a cliff again last week, closely followed by currencies, and as meltdown threatened entire countries such as Hungary and Iceland, one voice was in demand above all others to steer us through the gloom: that of Dr Doom.

For years Dr Doom toiled in relative obscurity as a New York University economics professor under his alias, Nouriel Roubini. But after making a series of uncannily accurate predictions about the global meltdown, Roubini has become the prophet of his age, jetting around the world dispensing his advice and latest prognostications to politicians and businessmen desperate to know what happens next – and for any answer to the crisis.

http://business.timesonline.co.uk/tol/business/economics/article5014463.ece

My investment advisor at a major national bank wants me to invest my savings in stocks and bonds (50% - 50%). He thinks we have maybe a 2,000 downside, before we see a 10,000 point upside. The bank requires a 1.5% fee based on the value of the portfolio.

I started my introductory face to face conversation with my advisor by letting him know that when it comes to what comes next in the economy, that was more nervous than a long tailed cat in a room full of rocking chairs.

I still am. In fact I'm beginning to experience a palpable sense of panic.

God help us all.

Posted by Ron Sheridan at 11:03 PM | Comments (1) | Link Cosmos

October 13, 2008

Stocks Rally On Krugman Nobel Announcement

Columnist Paul Krugman wins Nobel economics prize and stocks are up almost 600 points on the news!

Posted by Dave Johnson at 10:10 AM | Comments (1) | Link Cosmos

October 1, 2008

An Alternative Plan

Here is a good alternative plan: Recapitalise the banking system.

Instead of the government (us) buying toxic debt we invest in those banks that are solvent, which gives them reserve capital for lending. Other investors will then step in as well. Current shareholders are diluted.

The public ends up profiting. The banking system recovers. The bad actors lose out.

Posted by Dave Johnson at 6:21 AM | Comments (0) | Link Cosmos

September 30, 2008

World Not Ending

The stock market is way up.

Here a "go figure": Consumer confidence unexpectedly improves in Sept.

Can someone explain that to me? Is it ALL just about gas prices?

Posted by Dave Johnson at 7:55 AM | Comments (0) | Link Cosmos

September 25, 2008

Bailout Comment

If this story, Deal said near on big financial bailout is correct I think I feel a bit better about the bailout. Not completely better, but a bit.

1) If executives are really limited in pay (and stock) by this deal they won't be involving their firms unless it is really necessary. They won't be in it for themselves.

2) If we get equity in the companies that get bailout money then WE profit if they do.

3) It is phased in, so we don't just dump all the rest of our money onto a few companies at once. Instead we can see if it is working - and a new President can change what is being done.

If we get these things, it's a start. I think we should get rid of many of the executives responsible. I also think we need to redesign the system from scratch, insist that ALL corporate money be removed from politics immediately, impost a 90% or higher top tax rate and several other things.

And about this meeting with McCain and Obama at the White house today... is it possible they're going to be injected with something, and then replaced by pod-people?

Update - Through Atrios, here is an example of what we are paying to bail out:

When we the taxpayers foot the bill for the excesses of the bubble, we are bailing out the lenders who enabled the behavior below:

* The house was purchased on 2/6/1998 for $183,000. There was a $173,500 first mortgage and a $9,500 downpayment.
* On 8/21/2002 they refinanced the first mortgage for $165,500. They actually paid down their debt.
* On 3/12/2003 they opened a HELOC for $50,000, just in case... Their first taste of kool aid.
* On 2/13/2004 they opened a HELOC for $226,000. The kool aid is flowing now.
* On 10/22/2004 they opened an Option ARM for $492,000.
* On 5/2/2005 they opened a HELOC for $75,100.
* On 10/21/2005 they opened a HELOC for $126,000.
* On 9/28/2006 they opened a HELOC for $150,000.
* Total debt on the property, $642,000 plus accumulated negative amortization.
* Total mortgage equity withdrawal, $468,500 including their tiny downpayment.

Basically, these people put $9,500 into the property and made $459,000 in 8 years.

. . . If this property sells for its asking price, and if a 6% commission is paid, the US taxpayer is going to lose $209,694.

Note - at the asking price we ONLY lose $209K. But at the asking price the buyer has to come up with $90K AND have an income of $115K for a CONDOMINIUM.

The bailout's success depends on housing prices not dropping any more.

Posted by Dave Johnson at 9:46 AM | Comments (1) | Link Cosmos

September 24, 2008

On The Crisis

This is a great blog post explaining what is really happening with this financial crisis.

Posted by Dave Johnson at 11:47 AM | Comments (0) | Link Cosmos

September 23, 2008

This Is Important Because

Since I am in New York I thought I would take a subway down to Wall Street this morning. Here it is, from behind the statue of George Washington, taken about 15 minutes ago. Now I am online from a Starbucks down the street.

Thinking about this financial crisis, I have an observation. Just a week ago there really wasn't that big of a problem as far as the Financial Elite were concerned. I mean, us out there in the hinterlands were feeling pain and trying to tell the Elite to pay attention. So we were "whiners." But the "fundamentals of the economy were found."

Now it is just ONE WEEK later and the entire world has collapsed and the Congress is working on a package to send ALL THE REST OF THE MONEY that the country can possibly borrow to Wall Street.

What happened? I think what happened is that something affected THEM, so it became IMPORTANT. This financial crisis is important because it affects the financial elite. And so we are presented with a "shut up and pay up" oackage to bail them out. Because THEY are important and we are NOT important, so the things that make them uncomfortable MUST be solved immediately.

But who is being asked to pay? We are. Not them, us. Have you once heard from Washington a suggestion that the rich and corporations start paying taxes again, to cover the costs of this massive bailout? Of course not.

They say that credit is drying up. My question is, according to the law of supply and demand is credit really drying up, or is the PRICE of credit rising to meet the cost of covering the risks of loaning to these clucks who screwed up the economy.

Posted by Dave Johnson at 8:02 AM | Comments (0) | Link Cosmos

September 22, 2008

Actually It's TWO Trillion Now

The Bonddad Blog: The 1.8 Trillion Bailout

Posted by Dave Johnson at 8:24 AM | Comments (0) | Link Cosmos

A Better Plan

By shocking us with their Plan the Bush administration have once against defined the terms of the debate, and set all of the conditions. It all has to be immediate with no time to think it over and has to be done exactly the way we say or YOU will be responsible for killing the economy (and this kitten).

Krugman says,

I’d urge Congress to pause for a minute, take a deep breath, and try to seriously rework the structure of the plan, making it a plan that addresses the real problem. Don’t let yourself be railroaded — if this plan goes through in anything like its current form, we’ll all be very sorry in the not-too-distant future.

Calculated Risk adds,

A better plan would be transparent (all deals would be publicized), involve a share in ownership for the taxpayers, and have substantial oversight. We can do better.

Democracy can work. Give it a (last) chance.

Posted by Dave Johnson at 5:59 AM | Comments (0) | Link Cosmos

September 21, 2008

Wait A Minute -- Why Just U.S. Taxpayers?

Why are only U.S. taxpayers being asked to put up $700 billion to bail out the world's financial system?

The U.S. is $10 trillion in debt.

Europe's economy is the same size as ours.

China is sitting on hundreds of billions if not trillions of surplus funds.

Middle Eastern countries are sitting on hundreds of billions in oil profits.

So why is the AMERICAN taxpayer supposed to suddenly step in and save the world's financial system? Tell me that?

I suspect it is because we're the ones who are currently set up for harvesting, and our Congress can be stampeded to do this with 48 hours notice.

Posted by Dave Johnson at 10:30 AM | Comments (2) | Link Cosmos

Root Causes

Everyone is talking about how to modify The Plan. Don't modify it, start from a new premise. The bailout plan bails out the crooks who caused the mess so throw them out don't bail them out.

The problem is that people can't pay their mortgages and credit card bills. The big financial firms are in trouble because they aren't getting their payments.

So what about attacking the ROOT CAUSES of not being able to pay mortgages and credit card bills.

Health care: People get foreclosed on when they are hit with big health care bills. This is because of our failed health care system. If we put some money into fixing our health care system we would have fewer foreclosures AND we'd all get health care.

Concentration of wealth: People can't pay their bills because most of the money in our economy goes to a few at the top of the food chain. The rest of us are the food. What about a 90% tax rate on incomes over maybe 2 million, and the money is applied to paying off mortgages and credit cards? That would bail out the financial system in a better way than just taxing everyone and giving the money to ... well, to the few at the top.

Energy costs: Paying energy bills is another cause of people not meeting their mortgages and credit card bills. So what about imposing a carbon tax and using the money to help people retrofit their houses to be energy efficient, maybe even buy solar panels, etc.? THIS would address a ROOT CAUSE of not just the financial mess, but out trade imbalance and climate change.

Taking a constructive approach to this problem would bring us long-term benefits. Don't just hand over all the rest of our money to a few at the top, let's instead use that money to fix the problems that CAUSED this mess.

ADDRESS ROOT CAUSES. Don't just give the Bush cronies authority to hand out checks to the rich.

Posted by Dave Johnson at 8:03 AM | Comments (0) | Link Cosmos

Why The Bailout Plan CAN'T Work

Here is the justification for The Plan:

If the plan works, it will attack the central cause of American economic distress: the continued plunge in housing prices. If banks resumed lending more liberally, mortgages would become more readily available. That would give more people the wherewithal to buy homes, lifting housing prices or at least preventing them from falling further. This would prevent more mortgage-linked investments from going bad, further easing the strain on banks. As a result, the current downward spiral would end and start heading up.

Sorry, if houses are overpriced because of the bubble, then they are overpriced. This idea that people are not buying houses that cost $300, $400, $500, $600,000 because banks can't lend them the money is just preposterous! Even if a bank can lend the money, they can't lend the money because TOO FEW PEOPLE MAKE ENOUGH TO QUALIFY. The other day I showed that you have to have an income of $12,000 a month to buy a low-end house in the San Francisco Bay Area.

The idea that you can stop housing prices from falling back to where they should be is like the idea that you could have stopped the stock of golfballs.com from falling after the dot com bubble. I worked at a company where the stock went up to $35 a share for no reason, and then after the crash the stock went back to WHAT IT WAS WORTH: five cents a share.

You CAN'T prop up the price of house ABOVE WHAT THEY ARE WORTH. This is why the bailout plan can not work.

Posted by Dave Johnson at 7:21 AM | Comments (0) | Link Cosmos

September 20, 2008

A Bailout Plan That Works

Firedoglake ｻ How To Bail Out Ordinary Mortgage Holders And Not Just Banks. Please read it.

Is this bailout by the American taxpayer going to be about helping the American people, or a few owners of big corporations -- the people who got us into this mess?

Someone I read somewhere (sorry, lost the link) suggested that any firm getting any bailout money not be allowed to pay executives more than 10 times the average American wage.

How about if any firm getting bailout money pay double tax rates on future profits for the next ten years?

How about if in exchange for the bailout we set the top tax rate for people making more than a million dollars a year back to 90% -- to eliminate the bad-behaviour incentive and start paying off the national debt?

Posted by Dave Johnson at 9:02 AM | Comments (0) | Link Cosmos

September 19, 2008

Shock Doctrine Bailout: Taxpayers To Cover Debts Of Wall Street Zillionaires

Treasury Secretary Paulson just used the words, "A significant investment of taxpayer dollars." That's OUR dollars. And where is the money going? The plan is for U.S. taxpayers to bail out Wall Street. Not just a few firms this time, but all of it. The financial markets are, of course, soaring on the new bailout plan.

Where did all this bad debt come from? In the last few years millions were talked into borrowing money from Wall Street using houses as collateral. Sometimes to buy those houses, other times to buy cars and ... stuff. This paid for Wall Street's multi-million-dollar salaries and bonuses for the past several years. The easy borrowing ran up the price of houses, but now the party is over and the bill comes due.

What does this bailout plan mean to regular Americans? First: It means no money for a health care plan.

Second: it means no money for retirement. It means no money to cover what the government borrowed from Social Security to give those tax cuts to the rich. (The corporations long ago quit providing pensions to the people who did the work. THAT scam -- 401Ks instead of pensions; money transferred from workers to shareholders -- is what started the big Wall Street runup.)

In summary, this plan means our standard of living will drop in order to cover the mess Wall Street made while handing out those multi-million dollar bonuses.

The plan will be presented to Congress in these last days of the Bush administration, and a climate of disaster emergency urgency will be used to get it passed before anyone has time to consider the ramifications of what is happening.

Alternative: instead use the money to retrofit the entire country to a green economy. Make every building energy efficient. Replace the oil and coal-based electricity generation with alternatives. Build efficient power lines to the new wind generation system we will build in the Plains states. This would give every unemployed person a job, create an efficient economy, and pay dividends forever. This would probably cost much less than the bailout.

Posted by Dave Johnson at 6:53 AM | Comments (2) | Link Cosmos

September 17, 2008

Will FDIC Be Able To Cover Your Accounts?

In the Seeing the Forest: Is Your Money Safe? post a few days ago I suggested that you make sure your money is in bank accounts that are insured by the FDIC.

Well, there is a possible hitch in that plan. As Atrios points out today, Washington Mutual is teetering and if they go under it could swamp the FDIC. Like so many other institutions FDIC doesn't have the necessary reserves to cover what is happening.

The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation's largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.

What does this mean to you? Well, it might be a good idea to have some cash literally under your mattress in case your bank goes under and it takes a while for Congress and the Treasury to bail out the FDIC. That contingency means it might take a while before you have access to your money.

I wouldn't worry that you are going to lose your money -- Congress just won't allow that. But it might be a little while before you can access it. So have enough cash at home to pay for things for a little while. I'm sure that checks will still be OK for paying the rent, etc...

Posted by Dave Johnson at 1:01 PM | Comments (0) | Link Cosmos

The Conservative Economic Experiment

The government just took over insurance giant AIG, at a cost of $85 billion to the taxpayers. They just finished bailing out Bear Sterns and Fannie Mae and Freddy Mac. How many hundreds of billions of dollars have gone into other financial bailout efforts?

Since Reagan almost all of us are getting poorer, while a very few get vastly richer. Wages have largely stagnated since Reagan's election even as GDP and productivity have gone up. Pensions are a thing of the past. Health insurance is becoming a thing of the past as well.

As a result of the Reagan and now Bush tax cuts for the rich the government's debt is just about $10 TRILLION.

And corporations now rule us instead of democracy.

The conservative economic experiment failed a long time ago. When are we going to admit it and get things back on track? Will we wait until the United States declare bankruptcy? We're almost there now.

Posted by Dave Johnson at 7:29 AM | Comments (1) | Link Cosmos

September 14, 2008

Stuff Going On -- Wall Street -- On A Sunday

Hey turn on CNBC. Yes, this is Sunday afternoon/evening. Stuff is happening. Lehman Brothers is probably filing for bankruptcy because the Fed is not bailing them out. This means the stock market will realize that the Fed is not going to just bail everyone out, and they aren't going to like that. The AIG insurange giant is in trouble. Washington Mutual is in serious trouble. Bank of America is buying Merrill Lynch. All this on a Sunday.

Update - See new post: Is Your Money Safe?

Posted by Dave Johnson at 5:44 PM | Comments (0) | Link Cosmos

August 24, 2008

Social Security Healthy For Decades

EPI: Social Security — government report shows that program is healthy for decades to comet,

The Congressional Budget Office, the agency charged with providing Congress with objective analyses of federal programs, released a new report today that shows the Social Security program is in good financial shape and will be for decades to come.

Don't believe the lies. Social Security is fine. They borrowed all the money from the Social Security Trust Fund to pay for tax cuts for the rich -- so why is that Social Security's problem?

The money for those tax cuts was borrowed from the Social Security Trust Tund, and America's rich people have had quite a party with that money. That means that America's rich people owe the money to the elderly. It was borrowed from the elderly and it has to be paid back to the elderly. It is wrong to ask elderly retirees to accept less because we gave the money away to rich people to have a big party with.

Posted by Dave Johnson at 7:51 AM | Comments (0) | Link Cosmos

August 13, 2008

That Stimulus Package

Earlier this year we borrowed $152 billion and sent checks to everyone, calling it a "stimulus package." The interest on that borrowing alone will add another $6.8 billion per year to our budget -- forever -- assuming rates don't rise. Great idea.

Borrowing another $152 billion bought us a little bit of time. But last month retail sales dropped, and the economic downturn is back on track just as bad as before. And because of that borrowing the interest that we all have to pay will make it just that much harder to get out of this.

That "stimulus package" didn't create a single job. It didn't fix a single bridge. It didn't increase the country's productivity. It didn't build light rail anywhere. It didn't make us more energy efficient. It wasn't investment. It was more consumption. Borrowing to consume.

What if we put $152 billion into hiring people to retrofit buildings to be more energy efficient? What if we put $152 billion into hiring people to install solar onto the roofs of government buildings? What if we put $152 billion into hiring people to hold summer classes so people would qualify for better jobs? That would be investment. It would lower our future costs or increase our future ability to earn. What has happened to us that this wasn't even considered -- by the Democratic majority in the House and Senate?

Update - Thinking some more about this. In 2001 Bush said that news of the dramatic change from budget surplus to budget deficit after his tax cuts started taking effect was "incredibly positive news."

President Bush said today that there was a benefit to the government's fast-dwindling surplus, declaring that it will create "a fiscal straitjacket for Congress." He said that was "incredibly positive news" because it would halt the growth of the federal government.

(He said this in August, 2001. Later, when people were upset about it the weasel tried to blame 9/11 for the deficits.)

Now we pay almost $500 billion at year for interest on the debt and this amount is rising rapidly. That $152 billion "stimulus package" was supposed to fix the economy. Think about the terrible effect on the economy of paying $500 billion each year just on debt interest.

Posted by Dave Johnson at 3:45 PM | Comments (0) | Link Cosmos

August 4, 2008

The Housing Market's Double Bubble: The Big One Still Has Yet To Pop

Look what the Republicans have done to our economy by following their core "trickle down" economic ideology, which really means borrow and spend. They have run up a massive debt which combined with no oversight, a near total removal of regulations on corporate conduct, and watched and let Neil Bush run a savings and loan (oh, sorry, that was that other Bush presidency -- when S&L owners and Republican campaign contributors robbed us blind and bribed Senators like John McCain and then got a massive government bailout.)

We have all been hearing a lot about housing prices falling, and about the effect housing prices have on the economy. The impact to date, while real, is actually overstated. Why? Well, housing markets and their impact are the turtle of economics, they happen very very slowly. Prices have to fall and people have to sell, when they sell they, if they get less than they expected, may not spend as much as they would have if they had reaped a huge profit.

Of course, the lack of higher equity is hurting those home equity lines people were tapping like McCain at an open bar. But ask yourself, honestly, how many people do you actually know who have either been forced to sell or have sold and not made a profit? Not that many -- yet. People are still holding out.

Unquestionably the economy is slowing. Consumer debt is massive, companies are cutting jobs, inflation is rising, unemployment is a full percentage point ABOVE where it was a year ago, and with a work force of 200 million plus, that's 2,000,000 newly unemployed Americans.

Just this morning, we saw that planned July Job Cuts skyrocketed to over 100,000 meaning that unemployment will continue to climb, the economic impact of those layoffs won't be felt till mid-fall at the earliest when severance packages run out and the reality becomes apparent, new jobs are hard to come by.

But now the time is arriving when we will start to see and feel the real impact of the slowing economy -- layoffs will pick up over the next year and the forecast is for increasing and increasing unemployment, it almost surely will be another point or more higher next year than it is now.

Slowing economies manifest themselves in many ways. But the most prominent is in the corresponding fall in housing prices. In every modern recession, the fall in housing prices follows the economy slowing down. What we have yet to see is the falling economy's effect on housing prices. So if you think prices have already dropped, and might even be reaching a bottom, we think it's the other way around: prices are about to start dropping.

Even Alan Greenspan agrees with us. Greenspan Says Housing Prices Not Yet Near Bottom

Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are "nowhere near the bottom'' and the resulting market turmoil isn't showing signs of abating.

How can this be?

How can prices that have fallen 25% in Los Angeles year over year be about to start falling? Well, because unlike every other real estate boom of the past century, this past boom was, in fact, a boom and a bubble. This numbers below, from the Case-Schiller Housing Index showcase that and how the first bubble may have popped, the excess speculation bubble, but the underlying bubble remains, and now will begin to deflate.

Prices in San Francisco were set to an index of 100.00 in January of 2000.
By January 2004 prices had jumped to 155.93, a massive jump by historical standards. This alone is a real estate bubble.

By January 2007, they had already softened a bit but still were at 211.78. This is the second bubble.

Now the index stands at 162.70. Still up 60% since January 2000.

The prices have lost some of the home equity / no money down madness bubble, but have let to be impacted by the slowing economy. And they will be

How far will they go down? Well, economics is ruled by larger trends and post bubble, prices eventually revert to the historical mean.

For example in the ten years from January 1987 to January 1997, prices increased 22%. And, fyi, that's after inflation, meaning a house purchased for $400,000 in January 1987 was actually worth less, in real dollar terms, in 1997, ten years later.

That's not a rant, that's a fact, all of these prices don't include inflation.

In real dollar terms, house prices really don't escalate much. Some studies of ONE HUNDRED YEAR time frames of the US Market show, in real dollar terms, that house prices remain flat.

How can that possibly be?

Well, we've been inundated with ten years of powerful powerful advertising messages that tell us, "housing prices always go up."

We borrowed money and spent it like good Republicans, because housing prices always go up.

We just know we can buy more and more because housing prices always go up.

But they don't.

So how can you estimate what the actual value of a house in San Francisco really is? How far can they fall? Another 40% to historical norms of growth? More? Well, Dave recently calculated how far prices in the San Francisco Bay Area could fall using three different methods.

The first was the rent to price ratio. With this method you take the average rent and calculate the amount of money you need to put into a decent investment to make the same amount. For example, if you are clearing about $833.33 per month ($10K oer year) from a rental property unit (remember to account for maintenance and property taxes and something for your time...) then the price of the property would be around $100,000 for a 10% return ($10K is 10% of $100K) and $200,000 for a 5% return (sufficiently higher than a CD pays right now).

So if houses in your area are renting for about $1400-1500 per month this is a rough way to tell that similar houses might be worth around $150K at best. If you double that and they rent for $2800-3000 then house prices would be $300K. And those prices assume that rental prices are not dropping.

James lives in a rental house in Boston which at market peak might have sold for $800,000 or $900,000 but now rents for $2,400. What does the landlord clear? Not $28,000 because he pays the taxes so more like $20,000. If you had $400,000 in the bank would you be happy with 5% return? Perhaps. But that's the highest amount you can estimate the house is worth in the market. And guess what? 10 years ago, the house was worth about $350,000. So it actually is about the right value.

The next method involved the average person in the area's income affording an average priced property. Look around at prices in your area, and average wages. At what price can the average person (or husband-wife) (or husband-husband/wife-wife in Dave's California and James' Massachusetts) buy a house? Right: uh-oh.

The third method is to look at the historic mean plus inflation. When prices triple in a few years, then when they correct they have to fall to 1/3 of the peak (plus inflation). It's just the way it is.

When Dave calculated these for the Bay Area all three methods came out the same and showed that prices can still fall as much as 30-40%. We say "can" but an economist might say "should."

If it falls 30% from that index where it is now, it only drops to 112. Can't happen? Well, remember that 1987 - 1997 DECADE, it was up 22%. Now, after 8 years, it would be up 12% on that index. That's pretty normal growth to be honest.

And what is cumulative inflation of the past 8 years? Let's make it easy on ourselves, and we'll say an average of 3%. The 100 Index goes from 100 to 126 with the combined effect of eight years of Inflation at 3%.

You see, housing is not the perfect "always goes up" investment. And it is clear that the housing prices in San Francisco and many more places could have 30% - 40% to go down from where they are today.

But, you guessed it, the news is actually worse than this. First, there is a huge amount of excess housing inventory on the market. So this needs to be factored into your thinking about where prices can go. On top of the need for prices to revert to the mean, these extra houses have to find buyers before prices can stabilize. This is supply and demand, nothing more, nothing less.

Next is the effect of gas prices. Many, many housing developments have gone up in areas that are far from city centers and far from non-automobile transportation like light rail or even buses, and buyers are going to be factoring the price of gas now. Along with this, the price to heat and cool the monster homes that developers tended to build will become a consideration and will reduce demand for these houses.

Another factor is that the "boomers" are starting to retire, and will be selling the larger homes in which they raised their families or ended their careers, looking for apartments, condos and even senior facilities. This will also reduce demand.

And, just as the price of energy was not considered when these houses were designed and built but has lately become a factor, one day the implications of global warming will start to sink in. In particular, is the house sufficiently above sea level? Is it located near an area that is experiencing increased fire danger? LOTS of Californians are starting to think about these issues.

But if you think we're wrong, and the above factors are non factors. Consider the recent decline in the stock market, General Motors and their 15.5 billion dollar quarterly loss, that's the recession that's here.

This is the big one: A falling economy always forces housing prices to fall. Even when housing prices are not in a bubble to start with a recession forces prices down. And this hasn't even started acting on housing prices yet -- the falling prices we have seen are not because the economy is slowing, they are causing the economy to slow. The slowing economy will make this worse as people are laid off around the country. The foreclosures we are seeing today are not the result of people losing their jobs, but they are causing people to lose their jobs. THEN the foreclosures that come FROM people losing their jobs will start.

There are no, none, nada, zilch factors that we see driving any hope for a "bottom" in housing prices any time soon.

Thanks Republicans for ignoring the country's problems for so long, refusing to regulate the financial companies, refusing to address the need to find alternative energy sources, refusing to fund mass transit alternatives and refusing to provide oversight and enforcement of our laws. Thanks for bringing us to where we are today.

They borrowed and spent. We borrowed and spent and drove the housing prices up through a double bubble. One bubble may have popped. The next one will soon.

Post-Script: We worked on this post last week and over the weekend. This morning, The New York Times has this article: Housing Lenders Fear Bigger Wave Of Defaults. It echoes many of our arguments in this piece.

Posted by Dave and James at 11:55 AM | Comments (0) | TrackBack | Link Cosmos

August 1, 2008

DO Rich People Create Jobs?

"Rich people create jobs" and "Did you ever get a job from a poor person?" It's a popular line on the right-wing talk-radio circuit. They use it to argue that rich people should pay less in taxes... At right-wing Townhall.com,

The amount of money you make in your lifetime is basically up to you. . . . Who creates these new jobs? Rich people create jobs. There ought to be a national day of recognition for rich people for all they have done for the country. Liberals think if someone makes the right life choices, works hard, and becomes financially independent from the government, they have to be punished with higher taxes to pay for all of the 45 year old minimum wage workers who never learned how to do anything.

Discuss.

Posted by Dave Johnson at 6:42 AM | Comments (4) | TrackBack | Link Cosmos

July 27, 2008

Your Credit Score

A thought: If you don't borrow, you don't care what your credit score is.

If you don't borrow you don't get in so much trouble if you lose your job or have a medical emergency...

If you don't borrow you don't have any payments. If you don't have any payments you have so much more to live on and enjoy.

Posted by Dave Johnson at 2:16 PM | Comments (3) | TrackBack | Link Cosmos

July 14, 2008

Today's Financial Collapse Post: FULLY INSURED

I've written over and over again that you need to make sure you only have money in INSURED bank accounts. That means federally insured. No money market funds or other accounts unless you can see that they are federally insured. Here is a simple rule: if you are getting a higher interest rate that means you are taking a greater risk, and this is NOT the time to take risks.

Friday a big bank, IndyMac, was closed. This means that every single depositor at that bank with more than the insured limit is at risk of losing at least some of their money. What will happen now is the assets of that bank will be sold, and the money divided up among the depositors. If there is enough to cover all of the depositors, that's great. If not, the FDIC will cover all accounts up to $100,000 -- $200,000 for couples and $250,000 for IRAs. (Do I have that right?) IndyMac was the first of what could be many.

BusinessWeek: What if my bank fails? Some questions and answers,

The government's seizure of IndyMac Bank raises concerns for many consumers about whether their banks might be next.

While it is unlikely the nation will see thousands of banks fail as they did during the savings and loan industry collapse in the late 1980s and early '90s, analysts predict there will be more battered financial institutions that are unable to survive in today's marketplace.

[. . .] Q: How can I make sure my money is safe?

A: All deposit accounts worth $100,000 and less are automatically insured by the FDIC. Many retirement accounts, such as IRAs and 401(k)s, are insured to $250,000 per person. But since it's a person's aggregate deposits, and not their individual accounts, that are insured, any amounts over $100,000 deposited at any one bank are not covered.

In a joint account, each depositor is insured up to $100,000.

The FDIC has information about its insurance on its Web site, at http://www.fdic.gov/deposit/deposits/insured/yid.pdf.

Posted by Dave Johnson at 9:07 PM | Comments (0) | TrackBack | Link Cosmos

July 10, 2008

Balancing the Budget and Paying Off the Debt

Oh, so NOW they want budget deficit reductions!

Here's what I think: The money for those tax cuts was borrowed from the Social Security trust fund, and America's rich people have had quite a party with that money. That means that America's rich people owe the money to the elderly. It was borrowed from the elderly and it has to be paid back to the elderly. It is wrong to ask elderly retirees to accept less because we gave the money away to rich people to have a big party with.

And the money we owe the Chinese was borrowed and used to give tax cuts to the rich, and subsidies to oil companies, and no-bid contracts to defense contractors with Cayman Islands addresses.

Since the borrowing began in the early 80s there has been a massive shift in wealth from regular people to a very few wealthy people. Now that the borrowing has to start being paid back they are asking regular people to be the ones who have to work harder, accept less, drive on unrepaired roads and send their kids to bad schools.

We used to have a 90% top tax rate because we felt this kind of concentration of wealth was bad for democracy. Corporations used to foot a much greater portion of the country's tax bill, but this has also shifted onto the backs of regular people. And you know what? When we had those tax policies the economy worked better. In a consumer economy, regular people with more dollars in their pockets mean the economy does better.

I'm an independent contractor so I have to pay 15% to social security on my first dollar to my last dollar - before income and other taxes. That is a direct subsidy to those tax cuts. It pisses me off.

Posted by Dave Johnson at 12:05 PM | Comments (0) | TrackBack | Link Cosmos

July 7, 2008

Columbia Free Trade Question

One of the main Republican talking points, repeated everywhere, is that trade with Columbia is one-way, so we need this "free trade" agreement. Bush, for example, recently said,

"Today almost all of Colombia's exports enter the United States duty-free, while American products exported to Colombia face tariffs of up to 35 percent for non-agricultural goods, and much higher for many agricultural products.

In other words, the current situation is one-sided. Our markets are open to Colombia products, but barriers exist to make it harder to sell American products in Colombia.

I think it makes sense to remedy this situation.

I think it makes sense for Americans' goods and services to be treated just like Colombia's goods and services are treated. So it's time to level the playing field. "

OK, my question is is Columbia allowed to send stuff here with no tariffs, while we can't sell stuff there?

Isn't the answer to impose the same tariff on Columbian goods that Columbia imposes on ours? I mean, duh? Wouldn't that bring us tax revenue, protect American jobs, and encourage Columbia to trade fairly? Duh?

Or is it just the policy of corporate America to let other countries get away with stuff?

Posted by Dave Johnson at 11:18 AM | Comments (1) | TrackBack | Link Cosmos

June 26, 2008

Economy, Stocks, Housing, Oil - How Far Can It Fall?

Which way will the economy go next? Here's a hint: I just read that it will cost the average family in the North East U.S. an extra $2000 to heat their homes this coming winter.

So you tell me - is the economy going to be better? Are people going to be having a grand old spendup this Christmas season?

The public in 2000 chose to "elect" oil company executives to run the government. Immediately the Enron scandal ensued, with the obvious collusion of the recently-elected administration.

Then the public chose to re-elect them in 2004.

So let's not hear any complaining from anyone who voted for these clowns. OK?

Oh, and by the way, the National Debt, which was getting paid down quite rapidly before Bush was elected, is now approaching $10 trillion. That's trillion with a 't'.

Update - And the government run by oil company executives is refusing to allow solar power plants on government land in the Southwest. Are you surprised by that?

Posted by Dave Johnson at 8:12 PM | Comments (5) | TrackBack | Link Cosmos

June 18, 2008

Written From A Desk In DC

Here's another illustration of the reasons people are turning away from corporate media and toward blogs, YouTube, etc.

Why We're Gloomier Than The Economy - washingtonpost.com,

Ask Americans how the economy is doing, and their answer is stark: It is not just bad, it is run-for-the-hills terrible. Consumer confidence is at its lowest level in almost 30 years. Only 12 percent of Americans think the economy is in good shape. On the Internet, comparisons to the Great Depression are widespread.

But the reality is different. According to most broad measures of how the economy is doing, it's not all that grim.

. . . But so far, the economy is holding up better than it did during the last two recessions in 1990 and 2001. Employers haven't shed as many jobs, the unemployment rate is still relatively low, and gross domestic product has kept rising. Things are nowhere near as bad as they were in the Great Depression, or even during the severe recession of 1982-83. The last time consumers were this miserable, in May 1980, the jobless rate was 7.5 percent and inflation was 14.4 percent. Now those numbers are 5.5 percent and 4.2 percent respectively.

OK. First, the jobs lost in the last recession never came back, so we're just starting from where that one left off.

Second, if you read blogs you know that the ACTUAL inflation and jobless rates -- if measured the way they were in 1980 -- are much higher than 5.5 and 4.2 percent. MUCH higher.

This has left economists trying to figure out why Americans' perceptions are so much more negative than the data analysts use to measure how things are going.

So the well-paid economists and Wall Streeters and Washington Post reporters are sitting behind their desks wondering why all those people out in the real world are yelling that tings are bad. THEY just don't see it, so things must be fine, and all those people out in the real world are just making shit up.

I mean, THEY don't get told every day to accept longer hours for less money because their jobs could be outsourced in a minute if the boss gets even slightly displeased with the amount of "Yes, Sir!" you're putting out. THEY certainly don't care if bread is approaching $5 a loaf.

Posted by Dave Johnson at 9:44 AM | Comments (1) | TrackBack | Link Cosmos

June 15, 2008

Today's Housing Bubble Post -- How Far Will Prices Fall?

I was driving this morning and clicking through the AM radio stations. On one station there was a "financial advice" show, with a guy talking about how to make a "236% return" by buying foreclosed houses and renting them out until prices go back up.

In case you were wondering who is buying houses right now, it's the people who fall for this stuff.

Where will housing prices fall to? Prices will revert to the mean, and the mean is where prices were before they started going way up, plus a bit for inflation. Another way is to realize that the price of the house, if rented out, should be low enough that you have positive cash flow after all expenses, and that cash flow should be a lot better than you could get from buying bonds because of the work you are putting into it. (In my area that means house prices should be about a third what they still are.)

But before they do that they will fall a bit below the mean. Here is why. There are several factors that will pressure housing prices even when they reach the pre-bubble level.

Before prices can normalize people have to stop thinking that prices will go up again, and get rid of property they are "holding on to." So at the point where they reach the normal level there will be little buying interest. In fact people will understand that buying a house can be a good path to financial ruin.
Everyone who wanted a house really, really had a chance to buy a house. If they didn't buy a house when you could get money without even stating whether you had a job...
Next there is the huge buildup of inventory. There are many, many more houses out there than there were before the bubble.
There are all the housing developments built way outside of areas where people work, with the expectation that they would buy at as lower price there and when prices went up they could sell and make the down payment for a place closer to the job. Now that gas prices are up no one will want to buy these.
Then there is the coming rise in utility prices which means that the McMansions are going to cost too much to heat and cool.
The baby boomers are retiring, which means they will want to sell bigger houses and rent or buy smaller houses.

People have no idea how far prices are going to fall.

Posted by Dave Johnson at 3:12 PM | Comments (8) | TrackBack | Link Cosmos

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