Showing posts with label Great Depression. Show all posts
Showing posts with label Great Depression. Show all posts
Saturday, December 1, 2012
Why 'Black Friday' Has Dark Roots
ALAN GREENBLATT
November 23, 2012
http://www.npr.org/blogs/thetwo-way/2012/11/21/165662876/why-black-friday-has-dark-roots
Black Friday may not yet be a bigger holiday than Thanksgiving, but it certainly has a bigger marketing budget. Retailers may have needed it to overcome the term's long and negative history.
And that's well before you get to talk of striking Walmart workers, or violence involving impatient shoppers in recent years.
Older generations may still associate "Black Friday" with the stock market crash of 1929, which triggered the Great Depression. But the connotation of financial distress dates back even further, to the collapse of the U.S. gold market on Sept. 24, 1869.
"The term Black Friday survived to be used again and again for various disasters and unfortunate events, including a 1910 incident in England where police assaulted several hundred suffragettes at a protest," notes Richard Townley in The Washington Times.
What does any of this have to do with shopping? Perhaps nothing. But even the earliest references to Black Friday as a post-Thanksgiving retail spree were negative.
The term appears to have originated about 50 years ago among police in Philadelphia inconvenienced by downtown crowds kicking off the holiday shopping season. Those crowds added to congestion from traffic in town for the Army-Navy football game, which in that era was generally played in Philly the Saturday after Thanksgiving.
Black Friday "was not a happy term," department store historian Michael J. Lisicky told CBS News last year. "The stores were just too crowded, the streets were crowded, the buses and the police were just on overcall and extra duty."
Even a sales manager at the department store Gimbels in Philadelphia back in 1975 acknowledged the term's negative connotation and link to traffic headaches. "That's why the bus drivers and cab drivers call today 'Black Friday,' " she told The Associated Press, while watching a policeman struggle with a crowd of jaywalkers. "They think in terms of the headaches it gives them."
"Prior to the mid-1980s, the term 'Black Friday' was always used for some calamitous event," columnist Paul Mulshine wrote in New Jersey's Star-Ledger. "All of that negativity makes sense. 'Black Friday' has a naturally gloomy sound to it."
Of course retailers have long since embraced it, holding that the "black" in "Black Friday" is borrowed from accounting, meaning they hope to get "in the black" for the year by dint of holiday sales.
Some accounts credit this meaning to Peter Strawbridge, president of Strawbridge & Clothier, a now-defunct retailer that was based in Philadelphia.
But it doesn't seem that Strawbridge himself liked "Black Friday" much.
"It sounds like the end of the world, and we really like the day," he told The Philadelphia Inquirer back in 1984. "If anything, we should call it 'Green Friday.' "
Thursday, January 5, 2012
The Book of Jobs
Forget monetary policy. Re-examining the cause of the Great Depression — the revolution in agriculture that threw millions out of work—the author argues that the U.S. is now facing and must manage a similar shift in the “real” economy, from industry to service, or risk a tragic replay of 80 years ago. Joseph E. Stiglitz
The Economic Crisis
January 2012
Domino Theory: The financial meltdown is the Depression parallel everyone notices. The more frightening parallel is everything else.
http://www.vanityfair.com/politics/2012/01/stiglitz-depression-201201
It has now been almost five years since the bursting of the housing bubble, and four years since the onset of the recession. There are 6.6 million fewer jobs in the United States than there were four years ago. Some 23 million Americans who would like to work full-time cannot get a job. Almost half of those who are unemployed have been unemployed long-term. Wages are falling—the real income of a typical American household is now below the level it was in 1997.
We knew the crisis was serious back in 2008. And we thought we knew who the “bad guys” were—the nation’s big banks, which through cynical lending and reckless gambling had brought the U.S. to the brink of ruin. The Bush and Obama administrations justified a bailout on the grounds that only if the banks were handed money without limit—and without conditions—could the economy recover. We did this not because we loved the banks but because (we were told) we couldn’t do without the lending that they made possible. Many, especially in the financial sector, argued that strong, resolute, and generous action to save not just the banks but the bankers, their shareholders, and their creditors would return the economy to where it had been before the crisis. In the meantime, a short-term stimulus, moderate in size, would suffice to tide the economy over until the banks could be restored to health.
The banks got their bailout. Some of the money went to bonuses. Little of it went to lending. And the economy didn’t really recover—output is barely greater than it was before the crisis, and the job situation is bleak. The diagnosis of our condition and the prescription that followed from it were incorrect. First, it was wrong to think that the bankers would mend their ways—that they would start to lend, if only they were treated nicely enough. We were told, in effect: “Don’t put conditions on the banks to require them to restructure the mortgages or to behave more honestly in their foreclosures. Don’t force them to use the money to lend. Such conditions will upset our delicate markets.” In the end, bank managers looked out for themselves and did what they are accustomed to doing.
Even when we fully repair the banking system, we’ll still be in deep trouble—because we were already in deep trouble. That seeming golden age of 2007 was far from a paradise. Yes, America had many things about which it could be proud. Companies in the information-technology field were at the leading edge of a revolution. But incomes for most working Americans still hadn’t returned to their levels prior to the previous recession. The American standard of living was sustained only by rising debt—debt so large that the U.S. savings rate had dropped to near zero. And “zero” doesn’t really tell the story. Because the rich have always been able to save a significant percentage of their income, putting them in the positive column, an average rate of close to zero means that everyone else must be in negative numbers. (Here’s the reality: in the years leading up to the recession, according to research done by my Columbia University colleague Bruce Greenwald, the bottom 80 percent of the American population had been spending around 110 percent of its income.) What made this level of indebtedness possible was the housing bubble, which Alan Greenspan and then Ben Bernanke, chairmen of the Federal Reserve Board, helped to engineer through low interest rates and nonregulation—not even using the regulatory tools they had. As we now know, this enabled banks to lend and households to borrow on the basis of assets whose value was determined in part by mass delusion.
The fact is the economy in the years before the current crisis was fundamentally weak, with the bubble, and the unsustainable consumption to which it gave rise, acting as life support. Without these, unemployment would have been high. It was absurd to think that fixing the banking system could by itself restore the economy to health. Bringing the economy back to “where it was” does nothing to address the underlying problems.
The trauma we’re experiencing right now resembles the trauma we experienced 80 years ago, during the Great Depression, and it has been brought on by an analogous set of circumstances. Then, as now, we faced a breakdown of the banking system. But then, as now, the breakdown of the banking system was in part a consequence of deeper problems. Even if we correctly respond to the trauma—the failures of the financial sector—it will take a decade or more to achieve full recovery. Under the best of conditions, we will endure a Long Slump. If we respond incorrectly, as we have been, the Long Slump will last even longer, and the parallel with the Depression will take on a tragic new dimension.
Until now, the Depression was the last time in American history that unemployment exceeded 8 percent four years after the onset of recession. And never in the last 60 years has economic output been barely greater, four years after a recession, than it was before the recession started. The percentage of the civilian population at work has fallen by twice as much as in any post-World War II downturn. Not surprisingly, economists have begun to reflect on the similarities and differences between our Long Slump and the Great Depression. Extracting the right lessons is not easy.
Many have argued that the Depression was caused primarily by excessive tightening of the money supply on the part of the Federal Reserve Board. Ben Bernanke, a scholar of the Depression, has stated publicly that this was the lesson he took away, and the reason he opened the monetary spigots. He opened them very wide. Beginning in 2008, the balance sheet of the Fed doubled and then rose to three times its earlier level. Today it is $2.8 trillion. While the Fed, by doing this, may have succeeded in saving the banks, it didn’t succeed in saving the economy.
Reality has not only discredited the Fed but also raised questions about one of the conventional interpretations of the origins of the Depression. The argument has been made that the Fed caused the Depression by tightening money, and if only the Fed back then had increased the money supply—in other words, had done what the Fed has done today—a full-blown Depression would likely have been averted. In economics, it’s difficult to test hypotheses with controlled experiments of the kind the hard sciences can conduct. But the inability of the monetary expansion to counteract this current recession should forever lay to rest the idea that monetary policy was the prime culprit in the 1930s. The problem today, as it was then, is something else. The problem today is the so-called real economy. It’s a problem rooted in the kinds of jobs we have, the kind we need, and the kind we’re losing, and rooted as well in the kind of workers we want and the kind we don’t know what to do with. The real economy has been in a state of wrenching transition for decades, and its dislocations have never been squarely faced. A crisis of the real economy lies behind the Long Slump, just as it lay behind the Great Depression.
For the past several years, Bruce Greenwald and I have been engaged in research on an alternative theory of the Depression—and an alternative analysis of what is ailing the economy today. This explanation sees the financial crisis of the 1930s as a consequence not so much of a financial implosion but of the economy’s underlying weakness. The breakdown of the banking system didn’t culminate until 1933, long after the Depression began and long after unemployment had started to soar. By 1931 unemployment was already around 16 percent, and it reached 23 percent in 1932. Shantytown “Hoovervilles” were springing up everywhere. The underlying cause was a structural change in the real economy: the widespread decline in agricultural prices and incomes, caused by what is ordinarily a “good thing”—greater productivity.
At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced for years. Agriculture had been a victim of its own success. In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume.
What this transition meant, however, is that jobs and livelihoods on the farm were being destroyed. Because of accelerating productivity, output was increasing faster than demand, and prices fell sharply. It was this, more than anything else, that led to rapidly declining incomes. Farmers then (like workers now) borrowed heavily to sustain living standards and production. Because neither the farmers nor their bankers anticipated the steepness of the price declines, a credit crunch quickly ensued. Farmers simply couldn’t pay back what they owed. The financial sector was swept into the vortex of declining farm incomes.
The cities weren’t spared—far from it. As rural incomes fell, farmers had less and less money to buy goods produced in factories. Manufacturers had to lay off workers, which further diminished demand for agricultural produce, driving down prices even more. Before long, this vicious circle affected the entire national economy.
The value of assets (such as homes) often declines when incomes do. Farmers got trapped in their declining sector and in their depressed locales. Diminished income and wealth made migration to the cities more difficult; high urban unemployment made migration less attractive. Throughout the 1930s, in spite of the massive drop in farm income, there was little overall out-migration. Meanwhile, the farmers continued to produce, sometimes working even harder to make up for lower prices. Individually, that made sense; collectively, it didn’t, as any increased output kept forcing prices down.
Given the magnitude of the decline in farm income, it’s no wonder that the New Deal itself could not bring the country out of crisis. The programs were too small, and many were soon abandoned. By 1937, F.D.R., giving way to the deficit hawks, had cut back on stimulus efforts—a disastrous error. Meanwhile, hard-pressed states and localities were being forced to let employees go, just as they are now. The banking crisis undoubtedly compounded all these problems, and extended and deepened the downturn. But any analysis of financial disruption has to begin with what started off the chain reaction.
The Agriculture Adjustment Act, F.D.R.’s farm program, which was designed to raise prices by cutting back on production, may have eased the situation somewhat, at the margins. But it was not until government spending soared in preparation for global war that America started to emerge from the Depression. It is important to grasp this simple truth: it was government spending—a Keynesian stimulus, not any correction of monetary policy or any revival of the banking system—that brought about recovery. The long-run prospects for the economy would, of course, have been even better if more of the money had been spent on investments in education, technology, and infrastructure rather than munitions, but even so, the strong public spending more than offset the weaknesses in private spending.
Government spending unintentionally solved the economy’s underlying problem: it completed a necessary structural transformation, moving America, and especially the South, decisively from agriculture to manufacturing. Americans tend to be allergic to terms like “industrial policy,” but that’s what war spending was—a policy that permanently changed the nature of the economy. Massive job creation in the urban sector—in manufacturing—succeeded in moving people out of farming. The supply of food and the demand for it came into balance again: farm prices started to rise. The new migrants to the cities got training in urban life and factory skills, and after the war the G.I. Bill ensured that returning veterans would be equipped to thrive in a modern industrial society. Meanwhile, the vast pool of labor trapped on farms had all but disappeared. The process had been long and very painful, but the source of economic distress was gone.
The parallels between the story of the origin of the Great Depression and that of our Long Slump are strong. Back then we were moving from agriculture to manufacturing. Today we are moving from manufacturing to a service economy. The decline in manufacturing jobs has been dramatic—from about a third of the workforce 60 years ago to less than a tenth of it today. The pace has quickened markedly during the past decade. There are two reasons for the decline. One is greater productivity—the same dynamic that revolutionized agriculture and forced a majority of American farmers to look for work elsewhere. The other is globalization, which has sent millions of jobs overseas, to low-wage countries or those that have been investing more in infrastructure or technology. (As Greenwald has pointed out, most of the job loss in the 1990s was related to productivity increases, not to globalization.) Whatever the specific cause, the inevitable result is precisely the same as it was 80 years ago: a decline in income and jobs. The millions of jobless former factory workers once employed in cities such as Youngstown and Birmingham and Gary and Detroit are the modern-day equivalent of the Depression’s doomed farmers.
The consequences for consumer spending, and for the fundamental health of the economy—not to mention the appalling human cost—are obvious, though we were able to ignore them for a while. For a time, the bubbles in the housing and lending markets concealed the problem by creating artificial demand, which in turn created jobs in the financial sector and in construction and elsewhere. The bubble even made workers forget that their incomes were declining. They savored the possibility of wealth beyond their dreams, as the value of their houses soared and the value of their pensions, invested in the stock market, seemed to be doing likewise. But the jobs were temporary, fueled on vapor.
Mainstream macro-economists argue that the true bogeyman in a downturn is not falling wages but rigid wages—if only wages were more flexible (that is, lower), downturns would correct themselves! But this wasn’t true during the Depression, and it isn’t true now. On the contrary, lower wages and incomes would simply reduce demand, weakening the economy further.
Of four major service sectors—finance, real estate, health, and education—the first two were bloated before the current crisis set in. The other two, health and education, have traditionally received heavy government support. But government austerity at every level—that is, the slashing of budgets in the face of recession—has hit education especially hard, just as it has decimated the government sector as a whole. Nearly 700,000 state- and local-government jobs have disappeared during the past four years, mirroring what happened in the Depression. As in 1937, deficit hawks today call for balanced budgets and more and more cutbacks. Instead of pushing forward a structural transition that is inevitable—instead of investing in the right kinds of human capital, technology, and infrastructure, which will eventually pull us where we need to be—the government is holding back. Current strategies can have only one outcome: they will ensure that the Long Slump will be longer and deeper than it ever needed to be.
Two conclusions can be drawn from this brief history. The first is that the economy will not bounce back on its own, at least not in a time frame that matters to ordinary people. Yes, all those foreclosed homes will eventually find someone to live in them, or be torn down. Prices will at some point stabilize and even start to rise. Americans will also adjust to a lower standard of living—not just living within their means but living beneath their means as they struggle to pay off a mountain of debt. But the damage will be enormous. America’s conception of itself as a land of opportunity is already badly eroded. Unemployed young people are alienated. It will be harder and harder to get some large proportion of them onto a productive track. They will be scarred for life by what is happening today. Drive through the industrial river valleys of the Midwest or the small towns of the Plains or the factory hubs of the South, and you will see a picture of irreversible decay.
Monetary policy is not going to help us out of this mess. Ben Bernanke has, belatedly, admitted as much. The Fed played an important role in creating the current conditions—by encouraging the bubble that led to unsustainable consumption—but there is now little it can do to mitigate the consequences. I can understand that its members may feel some degree of guilt. But anyone who believes that monetary policy is going to resuscitate the economy will be sorely disappointed. That idea is a distraction, and a dangerous one.
What we need to do instead is embark on a massive investment program—as we did, virtually by accident, 80 years ago—that will increase our productivity for years to come, and will also increase employment now. This public investment, and the resultant restoration in G.D.P., increases the returns to private investment. Public investments could be directed at improving the quality of life and real productivity—unlike the private-sector investments in financial innovations, which turned out to be more akin to financial weapons of mass destruction.
Can we actually bring ourselves to do this, in the absence of mobilization for global war? Maybe not. The good news (in a sense) is that the United States has under-invested in infrastructure, technology, and education for decades, so the return on additional investment is high, while the cost of capital is at an unprecedented low. If we borrow today to finance high-return investments, our debt-to-G.D.P. ratio—the usual measure of debt sustainability—will be markedly improved. If we simultaneously increased taxes—for instance, on the top 1 percent of all households, measured by income—our debt sustainability would be improved even more.
The private sector by itself won’t, and can’t, undertake structural transformation of the magnitude needed—even if the Fed were to keep interest rates at zero for years to come. The only way it will happen is through a government stimulus designed not to preserve the old economy but to focus instead on creating a new one. We have to transition out of manufacturing and into services that people want—into productive activities that increase living standards, not those that increase risk and inequality. To that end, there are many high-return investments we can make. Education is a crucial one—a highly educated population is a fundamental driver of economic growth. Support is needed for basic research. Government investment in earlier decades—for instance, to develop the Internet and biotechnology—helped fuel economic growth. Without investment in basic research, what will fuel the next spurt of innovation? Meanwhile, the states could certainly use federal help in closing budget shortfalls. Long-term economic growth at our current rates of resource consumption is impossible, so funding research, skilled technicians, and initiatives for cleaner and more efficient energy production will not only help us out of the recession but also build a robust economy for decades. Finally, our decaying infrastructure, from roads and railroads to levees and power plants, is a prime target for profitable investment.
The second conclusion is this: If we expect to maintain any semblance of “normality,” we must fix the financial system. As noted, the implosion of the financial sector may not have been the underlying cause of our current crisis—but it has made it worse, and it’s an obstacle to long-term recovery. Small and medium-size companies, especially new ones, are disproportionately the source of job creation in any economy, and they have been especially hard-hit. What’s needed is to get banks out of the dangerous business of speculating and back into the boring business of lending. But we have not fixed the financial system. Rather, we have poured money into the banks, without restrictions, without conditions, and without a vision of the kind of banking system we want and need. We have, in a phrase, confused ends with means. A banking system is supposed to serve society, not the other way around.
That we should tolerate such a confusion of ends and means says something deeply disturbing about where our economy and our society have been heading. Americans in general are coming to understand what has happened. Protesters around the country, galvanized by the Occupy Wall Street movement, already know.
The Economic Crisis
January 2012
Domino Theory: The financial meltdown is the Depression parallel everyone notices. The more frightening parallel is everything else.
http://www.vanityfair.com/politics/2012/01/stiglitz-depression-201201
It has now been almost five years since the bursting of the housing bubble, and four years since the onset of the recession. There are 6.6 million fewer jobs in the United States than there were four years ago. Some 23 million Americans who would like to work full-time cannot get a job. Almost half of those who are unemployed have been unemployed long-term. Wages are falling—the real income of a typical American household is now below the level it was in 1997.
We knew the crisis was serious back in 2008. And we thought we knew who the “bad guys” were—the nation’s big banks, which through cynical lending and reckless gambling had brought the U.S. to the brink of ruin. The Bush and Obama administrations justified a bailout on the grounds that only if the banks were handed money without limit—and without conditions—could the economy recover. We did this not because we loved the banks but because (we were told) we couldn’t do without the lending that they made possible. Many, especially in the financial sector, argued that strong, resolute, and generous action to save not just the banks but the bankers, their shareholders, and their creditors would return the economy to where it had been before the crisis. In the meantime, a short-term stimulus, moderate in size, would suffice to tide the economy over until the banks could be restored to health.
The banks got their bailout. Some of the money went to bonuses. Little of it went to lending. And the economy didn’t really recover—output is barely greater than it was before the crisis, and the job situation is bleak. The diagnosis of our condition and the prescription that followed from it were incorrect. First, it was wrong to think that the bankers would mend their ways—that they would start to lend, if only they were treated nicely enough. We were told, in effect: “Don’t put conditions on the banks to require them to restructure the mortgages or to behave more honestly in their foreclosures. Don’t force them to use the money to lend. Such conditions will upset our delicate markets.” In the end, bank managers looked out for themselves and did what they are accustomed to doing.
Even when we fully repair the banking system, we’ll still be in deep trouble—because we were already in deep trouble. That seeming golden age of 2007 was far from a paradise. Yes, America had many things about which it could be proud. Companies in the information-technology field were at the leading edge of a revolution. But incomes for most working Americans still hadn’t returned to their levels prior to the previous recession. The American standard of living was sustained only by rising debt—debt so large that the U.S. savings rate had dropped to near zero. And “zero” doesn’t really tell the story. Because the rich have always been able to save a significant percentage of their income, putting them in the positive column, an average rate of close to zero means that everyone else must be in negative numbers. (Here’s the reality: in the years leading up to the recession, according to research done by my Columbia University colleague Bruce Greenwald, the bottom 80 percent of the American population had been spending around 110 percent of its income.) What made this level of indebtedness possible was the housing bubble, which Alan Greenspan and then Ben Bernanke, chairmen of the Federal Reserve Board, helped to engineer through low interest rates and nonregulation—not even using the regulatory tools they had. As we now know, this enabled banks to lend and households to borrow on the basis of assets whose value was determined in part by mass delusion.
The fact is the economy in the years before the current crisis was fundamentally weak, with the bubble, and the unsustainable consumption to which it gave rise, acting as life support. Without these, unemployment would have been high. It was absurd to think that fixing the banking system could by itself restore the economy to health. Bringing the economy back to “where it was” does nothing to address the underlying problems.
The trauma we’re experiencing right now resembles the trauma we experienced 80 years ago, during the Great Depression, and it has been brought on by an analogous set of circumstances. Then, as now, we faced a breakdown of the banking system. But then, as now, the breakdown of the banking system was in part a consequence of deeper problems. Even if we correctly respond to the trauma—the failures of the financial sector—it will take a decade or more to achieve full recovery. Under the best of conditions, we will endure a Long Slump. If we respond incorrectly, as we have been, the Long Slump will last even longer, and the parallel with the Depression will take on a tragic new dimension.
Until now, the Depression was the last time in American history that unemployment exceeded 8 percent four years after the onset of recession. And never in the last 60 years has economic output been barely greater, four years after a recession, than it was before the recession started. The percentage of the civilian population at work has fallen by twice as much as in any post-World War II downturn. Not surprisingly, economists have begun to reflect on the similarities and differences between our Long Slump and the Great Depression. Extracting the right lessons is not easy.
Many have argued that the Depression was caused primarily by excessive tightening of the money supply on the part of the Federal Reserve Board. Ben Bernanke, a scholar of the Depression, has stated publicly that this was the lesson he took away, and the reason he opened the monetary spigots. He opened them very wide. Beginning in 2008, the balance sheet of the Fed doubled and then rose to three times its earlier level. Today it is $2.8 trillion. While the Fed, by doing this, may have succeeded in saving the banks, it didn’t succeed in saving the economy.
Reality has not only discredited the Fed but also raised questions about one of the conventional interpretations of the origins of the Depression. The argument has been made that the Fed caused the Depression by tightening money, and if only the Fed back then had increased the money supply—in other words, had done what the Fed has done today—a full-blown Depression would likely have been averted. In economics, it’s difficult to test hypotheses with controlled experiments of the kind the hard sciences can conduct. But the inability of the monetary expansion to counteract this current recession should forever lay to rest the idea that monetary policy was the prime culprit in the 1930s. The problem today, as it was then, is something else. The problem today is the so-called real economy. It’s a problem rooted in the kinds of jobs we have, the kind we need, and the kind we’re losing, and rooted as well in the kind of workers we want and the kind we don’t know what to do with. The real economy has been in a state of wrenching transition for decades, and its dislocations have never been squarely faced. A crisis of the real economy lies behind the Long Slump, just as it lay behind the Great Depression.
For the past several years, Bruce Greenwald and I have been engaged in research on an alternative theory of the Depression—and an alternative analysis of what is ailing the economy today. This explanation sees the financial crisis of the 1930s as a consequence not so much of a financial implosion but of the economy’s underlying weakness. The breakdown of the banking system didn’t culminate until 1933, long after the Depression began and long after unemployment had started to soar. By 1931 unemployment was already around 16 percent, and it reached 23 percent in 1932. Shantytown “Hoovervilles” were springing up everywhere. The underlying cause was a structural change in the real economy: the widespread decline in agricultural prices and incomes, caused by what is ordinarily a “good thing”—greater productivity.
At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced for years. Agriculture had been a victim of its own success. In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume.
What this transition meant, however, is that jobs and livelihoods on the farm were being destroyed. Because of accelerating productivity, output was increasing faster than demand, and prices fell sharply. It was this, more than anything else, that led to rapidly declining incomes. Farmers then (like workers now) borrowed heavily to sustain living standards and production. Because neither the farmers nor their bankers anticipated the steepness of the price declines, a credit crunch quickly ensued. Farmers simply couldn’t pay back what they owed. The financial sector was swept into the vortex of declining farm incomes.
The cities weren’t spared—far from it. As rural incomes fell, farmers had less and less money to buy goods produced in factories. Manufacturers had to lay off workers, which further diminished demand for agricultural produce, driving down prices even more. Before long, this vicious circle affected the entire national economy.
The value of assets (such as homes) often declines when incomes do. Farmers got trapped in their declining sector and in their depressed locales. Diminished income and wealth made migration to the cities more difficult; high urban unemployment made migration less attractive. Throughout the 1930s, in spite of the massive drop in farm income, there was little overall out-migration. Meanwhile, the farmers continued to produce, sometimes working even harder to make up for lower prices. Individually, that made sense; collectively, it didn’t, as any increased output kept forcing prices down.
Given the magnitude of the decline in farm income, it’s no wonder that the New Deal itself could not bring the country out of crisis. The programs were too small, and many were soon abandoned. By 1937, F.D.R., giving way to the deficit hawks, had cut back on stimulus efforts—a disastrous error. Meanwhile, hard-pressed states and localities were being forced to let employees go, just as they are now. The banking crisis undoubtedly compounded all these problems, and extended and deepened the downturn. But any analysis of financial disruption has to begin with what started off the chain reaction.
The Agriculture Adjustment Act, F.D.R.’s farm program, which was designed to raise prices by cutting back on production, may have eased the situation somewhat, at the margins. But it was not until government spending soared in preparation for global war that America started to emerge from the Depression. It is important to grasp this simple truth: it was government spending—a Keynesian stimulus, not any correction of monetary policy or any revival of the banking system—that brought about recovery. The long-run prospects for the economy would, of course, have been even better if more of the money had been spent on investments in education, technology, and infrastructure rather than munitions, but even so, the strong public spending more than offset the weaknesses in private spending.
Government spending unintentionally solved the economy’s underlying problem: it completed a necessary structural transformation, moving America, and especially the South, decisively from agriculture to manufacturing. Americans tend to be allergic to terms like “industrial policy,” but that’s what war spending was—a policy that permanently changed the nature of the economy. Massive job creation in the urban sector—in manufacturing—succeeded in moving people out of farming. The supply of food and the demand for it came into balance again: farm prices started to rise. The new migrants to the cities got training in urban life and factory skills, and after the war the G.I. Bill ensured that returning veterans would be equipped to thrive in a modern industrial society. Meanwhile, the vast pool of labor trapped on farms had all but disappeared. The process had been long and very painful, but the source of economic distress was gone.
The parallels between the story of the origin of the Great Depression and that of our Long Slump are strong. Back then we were moving from agriculture to manufacturing. Today we are moving from manufacturing to a service economy. The decline in manufacturing jobs has been dramatic—from about a third of the workforce 60 years ago to less than a tenth of it today. The pace has quickened markedly during the past decade. There are two reasons for the decline. One is greater productivity—the same dynamic that revolutionized agriculture and forced a majority of American farmers to look for work elsewhere. The other is globalization, which has sent millions of jobs overseas, to low-wage countries or those that have been investing more in infrastructure or technology. (As Greenwald has pointed out, most of the job loss in the 1990s was related to productivity increases, not to globalization.) Whatever the specific cause, the inevitable result is precisely the same as it was 80 years ago: a decline in income and jobs. The millions of jobless former factory workers once employed in cities such as Youngstown and Birmingham and Gary and Detroit are the modern-day equivalent of the Depression’s doomed farmers.
The consequences for consumer spending, and for the fundamental health of the economy—not to mention the appalling human cost—are obvious, though we were able to ignore them for a while. For a time, the bubbles in the housing and lending markets concealed the problem by creating artificial demand, which in turn created jobs in the financial sector and in construction and elsewhere. The bubble even made workers forget that their incomes were declining. They savored the possibility of wealth beyond their dreams, as the value of their houses soared and the value of their pensions, invested in the stock market, seemed to be doing likewise. But the jobs were temporary, fueled on vapor.
Mainstream macro-economists argue that the true bogeyman in a downturn is not falling wages but rigid wages—if only wages were more flexible (that is, lower), downturns would correct themselves! But this wasn’t true during the Depression, and it isn’t true now. On the contrary, lower wages and incomes would simply reduce demand, weakening the economy further.
Of four major service sectors—finance, real estate, health, and education—the first two were bloated before the current crisis set in. The other two, health and education, have traditionally received heavy government support. But government austerity at every level—that is, the slashing of budgets in the face of recession—has hit education especially hard, just as it has decimated the government sector as a whole. Nearly 700,000 state- and local-government jobs have disappeared during the past four years, mirroring what happened in the Depression. As in 1937, deficit hawks today call for balanced budgets and more and more cutbacks. Instead of pushing forward a structural transition that is inevitable—instead of investing in the right kinds of human capital, technology, and infrastructure, which will eventually pull us where we need to be—the government is holding back. Current strategies can have only one outcome: they will ensure that the Long Slump will be longer and deeper than it ever needed to be.
Two conclusions can be drawn from this brief history. The first is that the economy will not bounce back on its own, at least not in a time frame that matters to ordinary people. Yes, all those foreclosed homes will eventually find someone to live in them, or be torn down. Prices will at some point stabilize and even start to rise. Americans will also adjust to a lower standard of living—not just living within their means but living beneath their means as they struggle to pay off a mountain of debt. But the damage will be enormous. America’s conception of itself as a land of opportunity is already badly eroded. Unemployed young people are alienated. It will be harder and harder to get some large proportion of them onto a productive track. They will be scarred for life by what is happening today. Drive through the industrial river valleys of the Midwest or the small towns of the Plains or the factory hubs of the South, and you will see a picture of irreversible decay.
Monetary policy is not going to help us out of this mess. Ben Bernanke has, belatedly, admitted as much. The Fed played an important role in creating the current conditions—by encouraging the bubble that led to unsustainable consumption—but there is now little it can do to mitigate the consequences. I can understand that its members may feel some degree of guilt. But anyone who believes that monetary policy is going to resuscitate the economy will be sorely disappointed. That idea is a distraction, and a dangerous one.
What we need to do instead is embark on a massive investment program—as we did, virtually by accident, 80 years ago—that will increase our productivity for years to come, and will also increase employment now. This public investment, and the resultant restoration in G.D.P., increases the returns to private investment. Public investments could be directed at improving the quality of life and real productivity—unlike the private-sector investments in financial innovations, which turned out to be more akin to financial weapons of mass destruction.
Can we actually bring ourselves to do this, in the absence of mobilization for global war? Maybe not. The good news (in a sense) is that the United States has under-invested in infrastructure, technology, and education for decades, so the return on additional investment is high, while the cost of capital is at an unprecedented low. If we borrow today to finance high-return investments, our debt-to-G.D.P. ratio—the usual measure of debt sustainability—will be markedly improved. If we simultaneously increased taxes—for instance, on the top 1 percent of all households, measured by income—our debt sustainability would be improved even more.
The private sector by itself won’t, and can’t, undertake structural transformation of the magnitude needed—even if the Fed were to keep interest rates at zero for years to come. The only way it will happen is through a government stimulus designed not to preserve the old economy but to focus instead on creating a new one. We have to transition out of manufacturing and into services that people want—into productive activities that increase living standards, not those that increase risk and inequality. To that end, there are many high-return investments we can make. Education is a crucial one—a highly educated population is a fundamental driver of economic growth. Support is needed for basic research. Government investment in earlier decades—for instance, to develop the Internet and biotechnology—helped fuel economic growth. Without investment in basic research, what will fuel the next spurt of innovation? Meanwhile, the states could certainly use federal help in closing budget shortfalls. Long-term economic growth at our current rates of resource consumption is impossible, so funding research, skilled technicians, and initiatives for cleaner and more efficient energy production will not only help us out of the recession but also build a robust economy for decades. Finally, our decaying infrastructure, from roads and railroads to levees and power plants, is a prime target for profitable investment.
The second conclusion is this: If we expect to maintain any semblance of “normality,” we must fix the financial system. As noted, the implosion of the financial sector may not have been the underlying cause of our current crisis—but it has made it worse, and it’s an obstacle to long-term recovery. Small and medium-size companies, especially new ones, are disproportionately the source of job creation in any economy, and they have been especially hard-hit. What’s needed is to get banks out of the dangerous business of speculating and back into the boring business of lending. But we have not fixed the financial system. Rather, we have poured money into the banks, without restrictions, without conditions, and without a vision of the kind of banking system we want and need. We have, in a phrase, confused ends with means. A banking system is supposed to serve society, not the other way around.
That we should tolerate such a confusion of ends and means says something deeply disturbing about where our economy and our society have been heading. Americans in general are coming to understand what has happened. Protesters around the country, galvanized by the Occupy Wall Street movement, already know.
Tuesday, September 13, 2011
One Way to Speed the Recovery? Help Households, Not Banks.
Mark Thoma August 30, 2011
http://www.tnr.com/article/economy/94333/thoma-balance-sheet-housing
As the Great Recession drags on and on, it’s natural to wonder if we will ever get back to normal. Why is the recovery from this recession taking so long? Why was the recovery from other severe recessions, for example the 1982 recession where unemployment reached 10.8 percent, so much faster? Part of the answer is that we are experiencing a “balance sheet recession,” and this type of downturn is much harder to recover from than the other types we have had in recent decades. But poor policy is also to blame. Unfocused stimulus packages don’t get to the root of the problem, and short-term spending cuts are counter-productive. Instead, we need policies that do a better job of targeting the specific problems associated with balance sheet recessions. There are several things policymakers could do to address this, and each would help to improve the economic outlook.
The length of time it takes to recover from a recession is determined, in large part, by the type of shock that caused it. Productivity shocks, monetary policy shocks, oil price shocks, and bursting stock and asset bubbles can all cause recessions, and the effects of some of these shocks can be reversed much easier than others. For example, in 1982 when Federal Reserve chairman Paul Volcker raised interest rates to fight inflation, investment and consumption plans were put on hold and the economy slowed considerably. But once interest rates returned to normal, consumption and investment plans were taken off the shelf and put into action and the effects of the shock passed quickly.
Historically, the recessions that are the hardest to recover from are those caused by collapsing stock and housing bubbles. When a fall in stock and housing prices wipes out retirement, education, equity, and other savings, the balance sheet losses can’t be recouped overnight. It can take years to recover what is lost. Examples of balance sheet recessions such as Japan’s “lost decade” in the 1990s and the Great Depression of the 1930s show how hard it can be to recover from this type of recession. More generally, recent work by economists Carmen Reinhart and Kenneth Rogoff shows that balance sheet recessions are “followed by a lengthy period of retrenchment that most often … lasts almost as long as the credit surge.”
But these examples also show something else: how costly poor policy can be. A slow, “lost decade” recovery like we are currently on our way to experiencing is not inevitable. The speed of the recovery from a recession depends critically upon how monetary and fiscal policymakers react, and a policy tailored toward the specific type of recession hitting the economy can shorten the recovery time considerably. One of the main reasons the outlook for our economy is so poor is that policymakers have done a poor job of matching the policies they put into place to the type of recession we are experiencing.
The first way to improve policy, then, is to directly target the root of the problem: household balance sheets. When banks were having trouble due to the toxic assets on their books, the Fed took them off their hands at very favorable rates, and then took additional steps to ensure the banks would be able to survive. Unfortunately, however, that help didn’t “trickle down” from banks to households.
But what if we had taken the hundreds of billions of dollars that went to banks and instead used those funds to help households pay their bills, particularly their mortgages? If the money had been used, for example, to fund a modern version of the mortgage relief program that worked so well in the Great Depression—a program that, unlike recent half-hearted efforts such as the Home Affordable Modification Program, allowed households to avoid foreclosure in large numbers—then the assets the banks hold would no longer be as toxic. Helping these households also helps the banks as the money “trickles up,” so it’s possible to address both balance sheet problems at once. If households have the ability to pay their mortgages and other bills, then the bank’s problems will take care of themselves.
Second, in addition to mortgage and foreclosure relief, a job creation program would do a lot to stop the deterioration of household balance sheets. The biggest problem that households on the edge face—and we see this in the foreclosure numbers—is job loss. Unfortunately, job creation programs that are so important to household balance sheet rebuilding have not received anywhere near the attention they deserve. Infrastructure investment with an eye toward projects that are labor intensive would help to create the needed jobs in the short-run and more growth in the long-run, and we ought to be pursuing this vigorously.
Finally, while mortgage relief and job creation programs are likely to have the largest impact on household balance sheets, any policy that gives households extra funds that can be used to rebuild savings (e.g. a payroll tax cut), or that promotes more employment (e.g. more aggressive monetary policy), would be helpful.
To be sure, recovering from a balance sheet recession is never easy, but our failure to put the right policies in place is a big reason why the outlook remains so bleak. Politicians do not appear to understand the nature and urgency of the problem we face. Instead of focusing on helping households, all of the attention is on short-run deficit reduction. While we need to bring the deficit under control in the long-run, short-run spending cuts simply make things even worse at a time when millions of households are still struggling with the aftermath of a financial crisis they had no hand in creating. Helping those households through mortgage relief, job creation, and other means ought to be our top priority. The fact that it isn’t—that we are focused, once again, on deficits and other financial issues rather than households and jobs—says a lot about whose interests have the most sway in Washington.
Mark Thoma is a macroeconomist at the University of Oregon. His research focuses on how monetary policy affects the economy, and he has also worked on political business cycle models. Thoma blogs daily at Economist’s View.
http://www.tnr.com/article/economy/94333/thoma-balance-sheet-housing
As the Great Recession drags on and on, it’s natural to wonder if we will ever get back to normal. Why is the recovery from this recession taking so long? Why was the recovery from other severe recessions, for example the 1982 recession where unemployment reached 10.8 percent, so much faster? Part of the answer is that we are experiencing a “balance sheet recession,” and this type of downturn is much harder to recover from than the other types we have had in recent decades. But poor policy is also to blame. Unfocused stimulus packages don’t get to the root of the problem, and short-term spending cuts are counter-productive. Instead, we need policies that do a better job of targeting the specific problems associated with balance sheet recessions. There are several things policymakers could do to address this, and each would help to improve the economic outlook.
The length of time it takes to recover from a recession is determined, in large part, by the type of shock that caused it. Productivity shocks, monetary policy shocks, oil price shocks, and bursting stock and asset bubbles can all cause recessions, and the effects of some of these shocks can be reversed much easier than others. For example, in 1982 when Federal Reserve chairman Paul Volcker raised interest rates to fight inflation, investment and consumption plans were put on hold and the economy slowed considerably. But once interest rates returned to normal, consumption and investment plans were taken off the shelf and put into action and the effects of the shock passed quickly.
Historically, the recessions that are the hardest to recover from are those caused by collapsing stock and housing bubbles. When a fall in stock and housing prices wipes out retirement, education, equity, and other savings, the balance sheet losses can’t be recouped overnight. It can take years to recover what is lost. Examples of balance sheet recessions such as Japan’s “lost decade” in the 1990s and the Great Depression of the 1930s show how hard it can be to recover from this type of recession. More generally, recent work by economists Carmen Reinhart and Kenneth Rogoff shows that balance sheet recessions are “followed by a lengthy period of retrenchment that most often … lasts almost as long as the credit surge.”
But these examples also show something else: how costly poor policy can be. A slow, “lost decade” recovery like we are currently on our way to experiencing is not inevitable. The speed of the recovery from a recession depends critically upon how monetary and fiscal policymakers react, and a policy tailored toward the specific type of recession hitting the economy can shorten the recovery time considerably. One of the main reasons the outlook for our economy is so poor is that policymakers have done a poor job of matching the policies they put into place to the type of recession we are experiencing.
The first way to improve policy, then, is to directly target the root of the problem: household balance sheets. When banks were having trouble due to the toxic assets on their books, the Fed took them off their hands at very favorable rates, and then took additional steps to ensure the banks would be able to survive. Unfortunately, however, that help didn’t “trickle down” from banks to households.
But what if we had taken the hundreds of billions of dollars that went to banks and instead used those funds to help households pay their bills, particularly their mortgages? If the money had been used, for example, to fund a modern version of the mortgage relief program that worked so well in the Great Depression—a program that, unlike recent half-hearted efforts such as the Home Affordable Modification Program, allowed households to avoid foreclosure in large numbers—then the assets the banks hold would no longer be as toxic. Helping these households also helps the banks as the money “trickles up,” so it’s possible to address both balance sheet problems at once. If households have the ability to pay their mortgages and other bills, then the bank’s problems will take care of themselves.
Second, in addition to mortgage and foreclosure relief, a job creation program would do a lot to stop the deterioration of household balance sheets. The biggest problem that households on the edge face—and we see this in the foreclosure numbers—is job loss. Unfortunately, job creation programs that are so important to household balance sheet rebuilding have not received anywhere near the attention they deserve. Infrastructure investment with an eye toward projects that are labor intensive would help to create the needed jobs in the short-run and more growth in the long-run, and we ought to be pursuing this vigorously.
Finally, while mortgage relief and job creation programs are likely to have the largest impact on household balance sheets, any policy that gives households extra funds that can be used to rebuild savings (e.g. a payroll tax cut), or that promotes more employment (e.g. more aggressive monetary policy), would be helpful.
To be sure, recovering from a balance sheet recession is never easy, but our failure to put the right policies in place is a big reason why the outlook remains so bleak. Politicians do not appear to understand the nature and urgency of the problem we face. Instead of focusing on helping households, all of the attention is on short-run deficit reduction. While we need to bring the deficit under control in the long-run, short-run spending cuts simply make things even worse at a time when millions of households are still struggling with the aftermath of a financial crisis they had no hand in creating. Helping those households through mortgage relief, job creation, and other means ought to be our top priority. The fact that it isn’t—that we are focused, once again, on deficits and other financial issues rather than households and jobs—says a lot about whose interests have the most sway in Washington.
Mark Thoma is a macroeconomist at the University of Oregon. His research focuses on how monetary policy affects the economy, and he has also worked on political business cycle models. Thoma blogs daily at Economist’s View.
Thursday, August 18, 2011
Economic Woes Lead to Proliferation of Tent Cities Nationwide
Joshua Rhett Miller August 11, 2011
http://www.foxnews.com/us/2011/08/11/economic-woes-lead-to-proliferation-tent-cities-nationwide
Lakewood, N.J. – While millions of Americans hold their collective breath as Wall Street wreaks havoc with their life savings and retirements, residents of Tent City, a tiny makeshift community about 70 miles south of New York City, have more immediate concerns: finding their next hot meal.
For this collective of homeless and unemployed former landscapers, service industry workers and military veterans, the mention of "tarp" is sure to start a conversation about temporary rooftops, rather than a debate over President Obama's $700 billion Troubled Asset Relief Program.
At Tent City in Lakewood, N.J., very few are lucky enough to leave.
It seems like a scene straight from "The Grapes of Wrath," but this is no Great Depression novel. This story takes place in 2011, and this New Jersey tent city is one of an untold number of such encampments across the United States, where unemployment has reached 9.3 percent and approximately 3.5 million people are likely to be homeless in a given year, according to the most recent estimates by the National Coalition for the Homeless.
Joe Giammona, 31, has been homeless for nearly four months, after moving from Florida following a relationship that "just didn't work out," he said. He briefly stayed at a rooming house in Asbury Park, N.J., but the accompanying drugs and violence chased him away. A former landscaper and general contractor, Giammona lost his job when his boss had to slash payroll.
"Ever since then, it's been impossible to find a job," he said. "They're just not hiring at this time. I've been everywhere."
Clad in a "Cape Cod" T-shirt, black sweatpants and filthy white sneakers, Giammona said he has relatives throughout New Jersey but refuses to "accept help" from anyone.
"I try to make the best of it," he said, while turning a hot dog on an outdoor grill. "I hope for hope."
Despite the optimistic outlook, Giammona, who looks for employment daily at nearby industrial parks or for any odd job as a day laborer, said life outside is no picnic.
"You're either rich or you're poor," he said. "There's no in-between anymore."
The Rev. Steven Brigham of the Lakewood Outreach Community Service Ministry established this tent city five years ago for Ocean County, N.J.'s unemployed and disenfranchised residents, many of whom had previously lived paycheck to paycheck. Whether by loss of a job, the death of a loved one or a failed marriage, the American Dream has turned into a waking nightmare for the camp's inhabitants.
The 2-acre, public-owned campsite, which sits just off a state road, is composed of dozens of tents, teepees and wooden shanties that will easily buckle with winter's first heavy snowfall. Residents cook food donated by local churches on outdoor grills, and there's even a shower room. When nature calls, outhouses are found fully stocked, and portable generators provide just enough juice to charge cell phones or fire up the radio for that night's ball game.
The amenities might be sparse, but for those in the "homeless hole," they can be invaluable to the soul, according to Brigham.
"Once you fall into the homeless hole, as I call it, it's very difficult to claw your way back out," he said. "But it does happen."
Marilyn Berenzweig, 60, and her husband Michael have been living in Lakewood's tent city for 17 months. Previously of Queens, New York, Berenzweig worked as a textile designer, but lost her job due to the souring economy.
"That's an industry that has almost completely vanished in the last few years," she said. "All of my friends are out of work. It's all gone to China."
Berenzweig, an avid reader who doesn't watch television, studies survivalist skills, particularly how early American housewives maintained a fire, chopped wood and heated water for cooking and cleaning.
"Survival is very hard without the modern conveniences," she said. "We took about a month to prepare and I camped as a child, but [Michael] kept saying, 'What do you mean no electricity?' But really, we're busy most of the day."
Berenzweig -- whose wooden shack is flanked by caged birds, including a talking starling -- said most of the campers are comfortable with the surroundings.
"We manage to adapt and make the environment adapt to us, too," she said. "I could live here for the rest of my life, that wouldn't bother me."
Ocean County officials, however, are currently entrenched in a lawsuit to demolish the camp in a case that has reached New Jersey Superior Court. A status conference on the case is scheduled for Sept. 13, according to the campsite's attorney, Jeffrey Wild.
"As soon as our firm learned that homeless men and women had been sued for ejection and that they had no other place to go, we agreed to represent the homeless and seek to fight the underlying problem: the lack of any available emergency shelter in Ocean County," Wild wrote in an email to FoxNews.com. "My fathers and his sisters were raised by a single mom during the Great Depression. They often could not make rent, and often had to leave in the middle of the night the day before rent came due. Thus, I have always known that with a little bad luck -- a lost job, an illness -- any of us could be homeless."
Similar legal fights are occurring nationwide. In Providence, Rhode Island, tent cities have sprung up in a city park off Pleasant Valley Parkway, forcing city officials to seek a preliminary injunction to eject the homeless group. Campers without a permanent residence also took to public property in Colorado Springs, Colo., before its City Council passed a no-camping ordinance in February 2010. A homeless outreach program there continues to seek housing for small families at motels and shelters.
Elsewhere, like in Virginia Beach, Va., more than 20 residents of a tent city were told to vacate in April the small cabins they called home. Similar situations have also unfolded in Olympia, Wash., and Sacramento, Calif., where homeless advocates and authorities have long negotiated for a city-sanctioned encampment.
Meanwhile, back in Lakewood, when asked what he'd tell Obama if he had a chance to meet the president during his Midwest listening tour, Brigham said he hopes to hear how Obama plans to stop the steady outsourcing of American jobs .
"Outsourcing American jobs to other countries is causing the average American to be out of work and unable to support himself," he said. "If at all possible, [Obama] needs to take measures to stop that outsourcing so the average American can carry his own weight.
Brigham said he'd also like to see Obama -- the "captain of the ship" -- focus on building more affordable housing on small pieces of land.
"Homes that people can really afford," he said. "Build them small."
Moving away from the country's dependence on oil would also go a long way toward recovery, Brigham said.
"He's got to make some serious moves to get off the oil," Brigham said of Obama. "It's an addiction and it's going to destroy us unless we're able to adjust and get to a more sustainable form of energy."
Above all, Brigham said he'd like to see Obama "raise the spirits" of the average American.
"We don't want to see the boat go down and he's the captain of the ship, so he has to do something or say something to make us feel better about the situation of our nation," he said. "It's so bleak out there."
http://www.foxnews.com/us/2011/08/11/economic-woes-lead-to-proliferation-tent-cities-nationwide
Lakewood, N.J. – While millions of Americans hold their collective breath as Wall Street wreaks havoc with their life savings and retirements, residents of Tent City, a tiny makeshift community about 70 miles south of New York City, have more immediate concerns: finding their next hot meal.
For this collective of homeless and unemployed former landscapers, service industry workers and military veterans, the mention of "tarp" is sure to start a conversation about temporary rooftops, rather than a debate over President Obama's $700 billion Troubled Asset Relief Program.
At Tent City in Lakewood, N.J., very few are lucky enough to leave.
It seems like a scene straight from "The Grapes of Wrath," but this is no Great Depression novel. This story takes place in 2011, and this New Jersey tent city is one of an untold number of such encampments across the United States, where unemployment has reached 9.3 percent and approximately 3.5 million people are likely to be homeless in a given year, according to the most recent estimates by the National Coalition for the Homeless.
Joe Giammona, 31, has been homeless for nearly four months, after moving from Florida following a relationship that "just didn't work out," he said. He briefly stayed at a rooming house in Asbury Park, N.J., but the accompanying drugs and violence chased him away. A former landscaper and general contractor, Giammona lost his job when his boss had to slash payroll.
"Ever since then, it's been impossible to find a job," he said. "They're just not hiring at this time. I've been everywhere."
Clad in a "Cape Cod" T-shirt, black sweatpants and filthy white sneakers, Giammona said he has relatives throughout New Jersey but refuses to "accept help" from anyone.
"I try to make the best of it," he said, while turning a hot dog on an outdoor grill. "I hope for hope."
Despite the optimistic outlook, Giammona, who looks for employment daily at nearby industrial parks or for any odd job as a day laborer, said life outside is no picnic.
"You're either rich or you're poor," he said. "There's no in-between anymore."
The Rev. Steven Brigham of the Lakewood Outreach Community Service Ministry established this tent city five years ago for Ocean County, N.J.'s unemployed and disenfranchised residents, many of whom had previously lived paycheck to paycheck. Whether by loss of a job, the death of a loved one or a failed marriage, the American Dream has turned into a waking nightmare for the camp's inhabitants.
The 2-acre, public-owned campsite, which sits just off a state road, is composed of dozens of tents, teepees and wooden shanties that will easily buckle with winter's first heavy snowfall. Residents cook food donated by local churches on outdoor grills, and there's even a shower room. When nature calls, outhouses are found fully stocked, and portable generators provide just enough juice to charge cell phones or fire up the radio for that night's ball game.
The amenities might be sparse, but for those in the "homeless hole," they can be invaluable to the soul, according to Brigham.
"Once you fall into the homeless hole, as I call it, it's very difficult to claw your way back out," he said. "But it does happen."
Marilyn Berenzweig, 60, and her husband Michael have been living in Lakewood's tent city for 17 months. Previously of Queens, New York, Berenzweig worked as a textile designer, but lost her job due to the souring economy.
"That's an industry that has almost completely vanished in the last few years," she said. "All of my friends are out of work. It's all gone to China."
Berenzweig, an avid reader who doesn't watch television, studies survivalist skills, particularly how early American housewives maintained a fire, chopped wood and heated water for cooking and cleaning.
"Survival is very hard without the modern conveniences," she said. "We took about a month to prepare and I camped as a child, but [Michael] kept saying, 'What do you mean no electricity?' But really, we're busy most of the day."
Berenzweig -- whose wooden shack is flanked by caged birds, including a talking starling -- said most of the campers are comfortable with the surroundings.
"We manage to adapt and make the environment adapt to us, too," she said. "I could live here for the rest of my life, that wouldn't bother me."
Ocean County officials, however, are currently entrenched in a lawsuit to demolish the camp in a case that has reached New Jersey Superior Court. A status conference on the case is scheduled for Sept. 13, according to the campsite's attorney, Jeffrey Wild.
"As soon as our firm learned that homeless men and women had been sued for ejection and that they had no other place to go, we agreed to represent the homeless and seek to fight the underlying problem: the lack of any available emergency shelter in Ocean County," Wild wrote in an email to FoxNews.com. "My fathers and his sisters were raised by a single mom during the Great Depression. They often could not make rent, and often had to leave in the middle of the night the day before rent came due. Thus, I have always known that with a little bad luck -- a lost job, an illness -- any of us could be homeless."
Similar legal fights are occurring nationwide. In Providence, Rhode Island, tent cities have sprung up in a city park off Pleasant Valley Parkway, forcing city officials to seek a preliminary injunction to eject the homeless group. Campers without a permanent residence also took to public property in Colorado Springs, Colo., before its City Council passed a no-camping ordinance in February 2010. A homeless outreach program there continues to seek housing for small families at motels and shelters.
Elsewhere, like in Virginia Beach, Va., more than 20 residents of a tent city were told to vacate in April the small cabins they called home. Similar situations have also unfolded in Olympia, Wash., and Sacramento, Calif., where homeless advocates and authorities have long negotiated for a city-sanctioned encampment.
Meanwhile, back in Lakewood, when asked what he'd tell Obama if he had a chance to meet the president during his Midwest listening tour, Brigham said he hopes to hear how Obama plans to stop the steady outsourcing of American jobs .
"Outsourcing American jobs to other countries is causing the average American to be out of work and unable to support himself," he said. "If at all possible, [Obama] needs to take measures to stop that outsourcing so the average American can carry his own weight.
Brigham said he'd also like to see Obama -- the "captain of the ship" -- focus on building more affordable housing on small pieces of land.
"Homes that people can really afford," he said. "Build them small."
Moving away from the country's dependence on oil would also go a long way toward recovery, Brigham said.
"He's got to make some serious moves to get off the oil," Brigham said of Obama. "It's an addiction and it's going to destroy us unless we're able to adjust and get to a more sustainable form of energy."
Above all, Brigham said he'd like to see Obama "raise the spirits" of the average American.
"We don't want to see the boat go down and he's the captain of the ship, so he has to do something or say something to make us feel better about the situation of our nation," he said. "It's so bleak out there."
Sunday, July 31, 2011
The Lesser Depression
PAUL KRUGMAN
July 21, 2011
http://www.nytimes.com/2011/07/22/opinion/22krugman.html
These are interesting times — and I mean that in the worst way. Right now we’re looking at not one but two looming crises, either of which could produce a global disaster. In the United States, right-wing fanatics in Congress may block a necessary rise in the debt ceiling, potentially wreaking havoc in world financial markets. Meanwhile, if the plan just agreed to by European heads of state fails to calm markets, we could see falling dominoes all across southern Europe — which would also wreak havoc in world financial markets.
We can only hope that the politicians huddled in Washington and Brussels succeed in averting these threats. But here’s the thing: Even if we manage to avoid immediate catastrophe, the deals being struck on both sides of the Atlantic are almost guaranteed to make the broader economic slump worse.
In fact, policy makers seem determined to perpetuate what I’ve taken to calling the Lesser Depression, the prolonged era of high unemployment that began with the Great Recession of 2007-2009 and continues to this day, more than two years after the recession supposedly ended.
Let’s talk for a moment about why our economies are (still) so depressed.
The great housing bubble of the last decade, which was both an American and a European phenomenon, was accompanied by a huge rise in household debt. When the bubble burst, home construction plunged, and so did consumer spending as debt-burdened families cut back.
Everything might still have been O.K. if other major economic players had stepped up their spending, filling the gap left by the housing plunge and the consumer pullback. But nobody did. In particular, cash-rich corporations see no reason to invest that cash in the face of weak consumer demand.
Nor did governments do much to help. Some governments — those of weaker nations in Europe, and state and local governments here — were actually forced to slash spending in the face of falling revenues. And the modest efforts of stronger governments — including, yes, the Obama stimulus plan — were, at best, barely enough to offset this forced austerity.
So we have depressed economies. What are policy makers proposing to do about it? Less than nothing.
The disappearance of unemployment from elite policy discourse and its replacement by deficit panic has been truly remarkable. It’s not a response to public opinion. In a recent CBS News/New York Times poll, 53 percent of the public named the economy and jobs as the most important problem we face, while only 7 percent named the deficit. Nor is it a response to market pressure. Interest rates on U.S. debt remain near historic lows.
Yet the conversations in Washington and Brussels are all about spending cuts (and maybe tax increases, I mean revisions). That’s obviously true about the various proposals being floated to resolve the debt-ceiling crisis here. But it’s equally true in Europe.
On Thursday, the “heads of state or government of the euro area and the E.U. institutions” — that mouthful tells you, all by itself, how messy European governance has become — issued their big statement. It wasn’t reassuring.
For one thing, it’s hard to believe that the Rube Goldberg financial engineering the statement proposes can really resolve the Greek crisis, let alone the wider European crisis.
But, even if it does, then what? The statement calls for sharp deficit reductions “in all countries except those under a programme” to take place “by 2013 at the latest.” Since those countries “under a programme” are being forced into drastic fiscal austerity, this amounts to a plan to have all of Europe slash spending at the same time. And there is nothing in the European data suggesting that the private sector will be ready to take up the slack in less than two years.
For those who know their 1930s history, this is all too familiar. If either of the current debt negotiations fails, we could be about to replay 1931, the global banking collapse that made the Great Depression great. But, if the negotiations succeed, we will be set to replay the great mistake of 1937: the premature turn to fiscal contraction that derailed economic recovery and ensured that the Depression would last until World War II finally provided the boost the economy needed.
Did I mention that the European Central Bank — although not, thankfully, the Federal Reserve — seems determined to make things even worse by raising interest rates?
There’s an old quotation, attributed to various people, that always comes to mind when I look at public policy: “You do not know, my son, with how little wisdom the world is governed.” Now that lack of wisdom is on full display, as policy elites on both sides of the Atlantic bungle the response to economic trauma, ignoring all the lessons of history. And the Lesser Depression goes on.
A version of this op-ed appeared in print on July 22, 2011, on page A21 of the New York edition with the headline: The Lesser Depression.
July 21, 2011
http://www.nytimes.com/2011/07/22/opinion/22krugman.html
These are interesting times — and I mean that in the worst way. Right now we’re looking at not one but two looming crises, either of which could produce a global disaster. In the United States, right-wing fanatics in Congress may block a necessary rise in the debt ceiling, potentially wreaking havoc in world financial markets. Meanwhile, if the plan just agreed to by European heads of state fails to calm markets, we could see falling dominoes all across southern Europe — which would also wreak havoc in world financial markets.
We can only hope that the politicians huddled in Washington and Brussels succeed in averting these threats. But here’s the thing: Even if we manage to avoid immediate catastrophe, the deals being struck on both sides of the Atlantic are almost guaranteed to make the broader economic slump worse.
In fact, policy makers seem determined to perpetuate what I’ve taken to calling the Lesser Depression, the prolonged era of high unemployment that began with the Great Recession of 2007-2009 and continues to this day, more than two years after the recession supposedly ended.
Let’s talk for a moment about why our economies are (still) so depressed.
The great housing bubble of the last decade, which was both an American and a European phenomenon, was accompanied by a huge rise in household debt. When the bubble burst, home construction plunged, and so did consumer spending as debt-burdened families cut back.
Everything might still have been O.K. if other major economic players had stepped up their spending, filling the gap left by the housing plunge and the consumer pullback. But nobody did. In particular, cash-rich corporations see no reason to invest that cash in the face of weak consumer demand.
Nor did governments do much to help. Some governments — those of weaker nations in Europe, and state and local governments here — were actually forced to slash spending in the face of falling revenues. And the modest efforts of stronger governments — including, yes, the Obama stimulus plan — were, at best, barely enough to offset this forced austerity.
So we have depressed economies. What are policy makers proposing to do about it? Less than nothing.
The disappearance of unemployment from elite policy discourse and its replacement by deficit panic has been truly remarkable. It’s not a response to public opinion. In a recent CBS News/New York Times poll, 53 percent of the public named the economy and jobs as the most important problem we face, while only 7 percent named the deficit. Nor is it a response to market pressure. Interest rates on U.S. debt remain near historic lows.
Yet the conversations in Washington and Brussels are all about spending cuts (and maybe tax increases, I mean revisions). That’s obviously true about the various proposals being floated to resolve the debt-ceiling crisis here. But it’s equally true in Europe.
On Thursday, the “heads of state or government of the euro area and the E.U. institutions” — that mouthful tells you, all by itself, how messy European governance has become — issued their big statement. It wasn’t reassuring.
For one thing, it’s hard to believe that the Rube Goldberg financial engineering the statement proposes can really resolve the Greek crisis, let alone the wider European crisis.
But, even if it does, then what? The statement calls for sharp deficit reductions “in all countries except those under a programme” to take place “by 2013 at the latest.” Since those countries “under a programme” are being forced into drastic fiscal austerity, this amounts to a plan to have all of Europe slash spending at the same time. And there is nothing in the European data suggesting that the private sector will be ready to take up the slack in less than two years.
For those who know their 1930s history, this is all too familiar. If either of the current debt negotiations fails, we could be about to replay 1931, the global banking collapse that made the Great Depression great. But, if the negotiations succeed, we will be set to replay the great mistake of 1937: the premature turn to fiscal contraction that derailed economic recovery and ensured that the Depression would last until World War II finally provided the boost the economy needed.
Did I mention that the European Central Bank — although not, thankfully, the Federal Reserve — seems determined to make things even worse by raising interest rates?
There’s an old quotation, attributed to various people, that always comes to mind when I look at public policy: “You do not know, my son, with how little wisdom the world is governed.” Now that lack of wisdom is on full display, as policy elites on both sides of the Atlantic bungle the response to economic trauma, ignoring all the lessons of history. And the Lesser Depression goes on.
A version of this op-ed appeared in print on July 22, 2011, on page A21 of the New York edition with the headline: The Lesser Depression.
Tuesday, July 12, 2011
The economic recovery turns 2: Feel better yet?
By PAUL WISEMAN, AP Economics Writer
7-2-11
http://www.google.com/hostednews/ap/article/ALeqM5gk1sa6lAz7bGy-54dEGeclKolZUg?docId=522f7d3a88ad4491976218e78a005581
WASHINGTON (AP) — This is one anniversary few feel like celebrating.
Two years after economists say the Great Recession ended, the recovery has been the weakest and most lopsided of any since the 1930s.
After previous recessions, people in all income groups tended to benefit. This time, ordinary Americans are struggling with job insecurity, too much debt and pay raises that haven't kept up with prices at the grocery store and gas station. The economy's meager gains are going mostly to the wealthiest.
Workers' wages and benefits make up 57.5 percent of the economy, an all-time low. Until the mid-2000s, that figure had been remarkably stable — about 64 percent through boom and bust alike.
Executive pay is included in this figure, but rank-and-file workers are far more dependent on regular wages and benefits. A big chunk of the economy's gains has gone to investors in the form of higher corporate profits.
"The spoils have really gone to capital, to the shareholders," says David Rosenberg, chief economist at Gluskin Sheff + Associates in Toronto.
Corporate profits are up by almost half since the recession ended in June 2009. In the first two years after the recessions of 1991 and 2001, profits rose 11 percent and 28 percent, respectively.
And an Associated Press analysis found that the typical CEO of a major company earned $9 million last year, up a fourth from 2009.
Driven by higher profits, the Dow Jones industrial average has staged a breathtaking 90 percent rally since bottoming at 6,547 on March 9, 2009. Those stock market gains go disproportionately to the wealthiest 10 percent of Americans, who own more than 80 percent of outstanding stock, according to an analysis by Edward Wolff, an economist at Bard College.
But if the Great Recession is long gone from Wall Street and corporate boardrooms, it lingers on Main Street:
— Unemployment has never been so high — 9.1 percent — this long after any recession since World War II. At the same point after the previous three recessions, unemployment averaged just 6.8 percent.
— The average worker's hourly wages, after accounting for inflation, were 1.6 percent lower in May than a year earlier. Rising gasoline and food prices have devoured any pay raises for most Americans.
— The jobs that are being created pay less than the ones that vanished in the recession. Higher-paying jobs in the private sector, the ones that pay roughly $19 to $31 an hour, made up 40 percent of the jobs lost from January 2008 to February 2010 but only 27 percent of the jobs created since then.
Kathleen Terry is one of those who had to settle for less. Before the recession, she spent 16 years working as a mortgage processor in Southern California, earning as much as $6,500 in a good month, a pace of about $78,000 a year.
But her employer was buried in the housing crash. She found herself out of work for two and a half years. As her savings dwindled, the single mother had to move into a motel with her three daughters.
They got by on welfare and help from their church and friends. Terry started taking a 90-minute bus ride to job training courses. Eventually, she found work as a secretary in the Riverside County, Calif., employment office. She likes the job, but earns just $27,000 a year. "It's a humbling experience," she says.
Hard times have made Americans more dependent than ever on social programs, which accounted for a record 18 percent of personal income in the last three months of 2010 before coming down a bit this year. Almost 45 million Americans are on food stamps, another record.
Ordinary Americans are suffering because of the way the economy ran into trouble and how companies responded when the Great Recession hit.
Soaring housing prices in the mid-2000s made millions of Americans feel wealthier than they were. They borrowed against the inflated equity in their homes or traded up to bigger, more expensive houses. Their debts as a percentage of their annual after-tax income rose to a record 135 percent in 2007.
Then housing prices started tumbling, helping cause a financial crisis in the fall of 2008. A recession that had begun in December 2007 turned into the deepest downturn since the Great Depression.
Economists Kenneth Rogoff of Harvard University and Carmen Reinhart of the Peterson Institute for International Economics analyzed eight centuries of financial disasters around the world for their 2009 book "This Time Is Different." They found that severe financial crises create deep recessions and stunt the recoveries that follow.
This recovery "is absolutely following the script," Rogoff says.
Federal Reserve numbers crunched by Haver Analytics suggest that Americans have a long way to go before their finances will be strong enough to support robust spending: Despite cutting what they owe the past three years, the average household's debts equal 119 percent of annual after-tax income. At the same point after the 1981-82 recession, debts were at 66 percent; after the 1990-91 recession, 85 percent; and after the 2001 recession, 114 percent.
Because the labor market remains so weak, most workers can't demand bigger raises or look for better jobs.
"In an economic cycle that is turning up, a labor market that is healthy and vibrant, you'd see a large number of people quitting their jobs," says Gluskin Sheff economist Rosenberg. "They quit because the grass is greener somewhere else."
Instead, workers are toughing it out, thankful they have jobs at all. Just 1.7 million workers have quit their job each month this year, down from 2.8 million a month in 2007.
The toll of all this shows in consumer confidence, a measure of how good people feel about the economy. According to the Conference Board's index, it's at 58.5. Healthy is more like 90. By this point after the past three recessions, it was an average of 87.
How gloomy are Americans? A USA Today/Gallup poll eight weeks ago found that 55 percent think the recession continues, even if the experts say it's been over for two years. That includes the 29 percent who go even further — they say it feels more like a depression.
7-2-11
http://www.google.com/hostednews/ap/article/ALeqM5gk1sa6lAz7bGy-54dEGeclKolZUg?docId=522f7d3a88ad4491976218e78a005581
WASHINGTON (AP) — This is one anniversary few feel like celebrating.
Two years after economists say the Great Recession ended, the recovery has been the weakest and most lopsided of any since the 1930s.
After previous recessions, people in all income groups tended to benefit. This time, ordinary Americans are struggling with job insecurity, too much debt and pay raises that haven't kept up with prices at the grocery store and gas station. The economy's meager gains are going mostly to the wealthiest.
Workers' wages and benefits make up 57.5 percent of the economy, an all-time low. Until the mid-2000s, that figure had been remarkably stable — about 64 percent through boom and bust alike.
Executive pay is included in this figure, but rank-and-file workers are far more dependent on regular wages and benefits. A big chunk of the economy's gains has gone to investors in the form of higher corporate profits.
"The spoils have really gone to capital, to the shareholders," says David Rosenberg, chief economist at Gluskin Sheff + Associates in Toronto.
Corporate profits are up by almost half since the recession ended in June 2009. In the first two years after the recessions of 1991 and 2001, profits rose 11 percent and 28 percent, respectively.
And an Associated Press analysis found that the typical CEO of a major company earned $9 million last year, up a fourth from 2009.
Driven by higher profits, the Dow Jones industrial average has staged a breathtaking 90 percent rally since bottoming at 6,547 on March 9, 2009. Those stock market gains go disproportionately to the wealthiest 10 percent of Americans, who own more than 80 percent of outstanding stock, according to an analysis by Edward Wolff, an economist at Bard College.
But if the Great Recession is long gone from Wall Street and corporate boardrooms, it lingers on Main Street:
— Unemployment has never been so high — 9.1 percent — this long after any recession since World War II. At the same point after the previous three recessions, unemployment averaged just 6.8 percent.
— The average worker's hourly wages, after accounting for inflation, were 1.6 percent lower in May than a year earlier. Rising gasoline and food prices have devoured any pay raises for most Americans.
— The jobs that are being created pay less than the ones that vanished in the recession. Higher-paying jobs in the private sector, the ones that pay roughly $19 to $31 an hour, made up 40 percent of the jobs lost from January 2008 to February 2010 but only 27 percent of the jobs created since then.
Kathleen Terry is one of those who had to settle for less. Before the recession, she spent 16 years working as a mortgage processor in Southern California, earning as much as $6,500 in a good month, a pace of about $78,000 a year.
But her employer was buried in the housing crash. She found herself out of work for two and a half years. As her savings dwindled, the single mother had to move into a motel with her three daughters.
They got by on welfare and help from their church and friends. Terry started taking a 90-minute bus ride to job training courses. Eventually, she found work as a secretary in the Riverside County, Calif., employment office. She likes the job, but earns just $27,000 a year. "It's a humbling experience," she says.
Hard times have made Americans more dependent than ever on social programs, which accounted for a record 18 percent of personal income in the last three months of 2010 before coming down a bit this year. Almost 45 million Americans are on food stamps, another record.
Ordinary Americans are suffering because of the way the economy ran into trouble and how companies responded when the Great Recession hit.
Soaring housing prices in the mid-2000s made millions of Americans feel wealthier than they were. They borrowed against the inflated equity in their homes or traded up to bigger, more expensive houses. Their debts as a percentage of their annual after-tax income rose to a record 135 percent in 2007.
Then housing prices started tumbling, helping cause a financial crisis in the fall of 2008. A recession that had begun in December 2007 turned into the deepest downturn since the Great Depression.
Economists Kenneth Rogoff of Harvard University and Carmen Reinhart of the Peterson Institute for International Economics analyzed eight centuries of financial disasters around the world for their 2009 book "This Time Is Different." They found that severe financial crises create deep recessions and stunt the recoveries that follow.
This recovery "is absolutely following the script," Rogoff says.
Federal Reserve numbers crunched by Haver Analytics suggest that Americans have a long way to go before their finances will be strong enough to support robust spending: Despite cutting what they owe the past three years, the average household's debts equal 119 percent of annual after-tax income. At the same point after the 1981-82 recession, debts were at 66 percent; after the 1990-91 recession, 85 percent; and after the 2001 recession, 114 percent.
Because the labor market remains so weak, most workers can't demand bigger raises or look for better jobs.
"In an economic cycle that is turning up, a labor market that is healthy and vibrant, you'd see a large number of people quitting their jobs," says Gluskin Sheff economist Rosenberg. "They quit because the grass is greener somewhere else."
Instead, workers are toughing it out, thankful they have jobs at all. Just 1.7 million workers have quit their job each month this year, down from 2.8 million a month in 2007.
The toll of all this shows in consumer confidence, a measure of how good people feel about the economy. According to the Conference Board's index, it's at 58.5. Healthy is more like 90. By this point after the past three recessions, it was an average of 87.
How gloomy are Americans? A USA Today/Gallup poll eight weeks ago found that 55 percent think the recession continues, even if the experts say it's been over for two years. That includes the 29 percent who go even further — they say it feels more like a depression.
Tuesday, June 21, 2011
The Mistake of 2010
PAUL KRUGMAN
June 2, 2011
http://www.nytimes.com/2011/06/03/opinion/03krugman.html
Earlier this week, the Federal Reserve Bank of New York published a blog post about the “mistake of 1937,” the premature fiscal and monetary pullback that aborted an ongoing economic recovery and prolonged the Great Depression. As Gauti Eggertsson, the post’s author (with whom I have done research) points out, economic conditions today — with output growing, some prices rising, but unemployment still very high — bear a strong resemblance to those in 1936-37. So are modern policy makers going to make the same mistake?
Mr. Eggertsson says no, that economists now know better. But I disagree. In fact, in important ways we have already repeated the mistake of 1937. Call it the mistake of 2010: a “pivot” away from jobs to other concerns, whose wrongheadedness has been highlighted by recent economic data.
To be sure, things could be worse — and there’s a strong chance that they will, indeed, get worse.
Back when the original 2009 Obama stimulus was enacted, some of us warned that it was both too small and too short-lived. In particular, the effects of the stimulus would start fading out in 2010 — and given the fact that financial crises are usually followed by prolonged slumps, it was unlikely that the economy would have a vigorous self-sustaining recovery under way by then.
By the beginning of 2010, it was already obvious that these concerns had been justified. Yet somehow an overwhelming consensus emerged among policy makers and pundits that nothing more should be done to create jobs, that, on the contrary, there should be a turn toward fiscal austerity.
This consensus was fed by scare stories about an imminent loss of market confidence in U.S. debt. Every uptick in interest rates was interpreted as a sign that the “bond vigilantes” were on the attack, and this interpretation was often reported as a fact, not as a dubious hypothesis.
For example, in March 2010, The Wall Street Journal published an article titled “Debt Fears Send Rates Up,” reporting that long-term U.S. interest rates had risen and asserting — without offering any evidence — that this rise, to about 3.9 percent, reflected concerns about the budget deficit. In reality, it probably reflected several months of decent jobs numbers, which temporarily raised optimism about recovery.
But never mind. Somehow it became conventional wisdom that the deficit, not unemployment, was Public Enemy No. 1 — a conventional wisdom both reflected in and reinforced by a dramatic shift in news coverage away from unemployment and toward deficit concerns. Job creation effectively dropped off the agenda.
So, here we are, in the middle of 2011. How are things going?
Well, the bond vigilantes continue to exist only in the deficit hawks’ imagination. Long-term interest rates have fluctuated with optimism or pessimism about the economy; a recent spate of bad news has sent them down to about 3 percent, not far from historic lows.
And the news has, indeed, been bad. As the stimulus has faded out, so have hopes of strong economic recovery. Yes, there has been some job creation — but at a pace barely keeping up with population growth. The percentage of American adults with jobs, which plunged between 2007 and 2009, has barely budged since then. And the latest numbers suggest that even this modest, inadequate job growth is sputtering out.
So, as I said, we have already repeated a version of the mistake of 1937, withdrawing fiscal support much too early and perpetuating high unemployment.
Yet worse things may soon happen.
On the fiscal side, Republicans are demanding immediate spending cuts as the price of raising the debt limit and avoiding a U.S. default. If this blackmail succeeds, it will put a further drag on an already weak economy.
Meanwhile, a loud chorus is demanding that the Fed and its counterparts abroad raise interest rates to head off an alleged inflationary threat. As the New York Fed article points out, the rise in consumer price inflation over the past few months — which is already showing signs of tailing off — reflected temporary factors, and underlying inflation remains low. And smart economists like Mr. Eggerstsson understand this. But the European Central Bank is already raising rates, and the Fed is under pressure to do the same. Further attempts to help the economy expand seem out of the question.
So the mistake of 2010 may yet be followed by an even bigger mistake. Even if that doesn’t happen, however, the fact is that the policy response to the crisis was and remains vastly inadequate.
Those who refuse to learn from history are condemned to repeat it; we did, and we are. What we’re experiencing may not be a full replay of the Great Depression, but that’s little consolation for the millions of American families suffering from a slump that just goes on and on.
A version of this op-ed appeared in print on June 3, 2011, on page A23 of the New York edition with the headline: The Mistake Of 2010.
June 2, 2011
http://www.nytimes.com/2011/06/03/opinion/03krugman.html
Earlier this week, the Federal Reserve Bank of New York published a blog post about the “mistake of 1937,” the premature fiscal and monetary pullback that aborted an ongoing economic recovery and prolonged the Great Depression. As Gauti Eggertsson, the post’s author (with whom I have done research) points out, economic conditions today — with output growing, some prices rising, but unemployment still very high — bear a strong resemblance to those in 1936-37. So are modern policy makers going to make the same mistake?
Mr. Eggertsson says no, that economists now know better. But I disagree. In fact, in important ways we have already repeated the mistake of 1937. Call it the mistake of 2010: a “pivot” away from jobs to other concerns, whose wrongheadedness has been highlighted by recent economic data.
To be sure, things could be worse — and there’s a strong chance that they will, indeed, get worse.
Back when the original 2009 Obama stimulus was enacted, some of us warned that it was both too small and too short-lived. In particular, the effects of the stimulus would start fading out in 2010 — and given the fact that financial crises are usually followed by prolonged slumps, it was unlikely that the economy would have a vigorous self-sustaining recovery under way by then.
By the beginning of 2010, it was already obvious that these concerns had been justified. Yet somehow an overwhelming consensus emerged among policy makers and pundits that nothing more should be done to create jobs, that, on the contrary, there should be a turn toward fiscal austerity.
This consensus was fed by scare stories about an imminent loss of market confidence in U.S. debt. Every uptick in interest rates was interpreted as a sign that the “bond vigilantes” were on the attack, and this interpretation was often reported as a fact, not as a dubious hypothesis.
For example, in March 2010, The Wall Street Journal published an article titled “Debt Fears Send Rates Up,” reporting that long-term U.S. interest rates had risen and asserting — without offering any evidence — that this rise, to about 3.9 percent, reflected concerns about the budget deficit. In reality, it probably reflected several months of decent jobs numbers, which temporarily raised optimism about recovery.
But never mind. Somehow it became conventional wisdom that the deficit, not unemployment, was Public Enemy No. 1 — a conventional wisdom both reflected in and reinforced by a dramatic shift in news coverage away from unemployment and toward deficit concerns. Job creation effectively dropped off the agenda.
So, here we are, in the middle of 2011. How are things going?
Well, the bond vigilantes continue to exist only in the deficit hawks’ imagination. Long-term interest rates have fluctuated with optimism or pessimism about the economy; a recent spate of bad news has sent them down to about 3 percent, not far from historic lows.
And the news has, indeed, been bad. As the stimulus has faded out, so have hopes of strong economic recovery. Yes, there has been some job creation — but at a pace barely keeping up with population growth. The percentage of American adults with jobs, which plunged between 2007 and 2009, has barely budged since then. And the latest numbers suggest that even this modest, inadequate job growth is sputtering out.
So, as I said, we have already repeated a version of the mistake of 1937, withdrawing fiscal support much too early and perpetuating high unemployment.
Yet worse things may soon happen.
On the fiscal side, Republicans are demanding immediate spending cuts as the price of raising the debt limit and avoiding a U.S. default. If this blackmail succeeds, it will put a further drag on an already weak economy.
Meanwhile, a loud chorus is demanding that the Fed and its counterparts abroad raise interest rates to head off an alleged inflationary threat. As the New York Fed article points out, the rise in consumer price inflation over the past few months — which is already showing signs of tailing off — reflected temporary factors, and underlying inflation remains low. And smart economists like Mr. Eggerstsson understand this. But the European Central Bank is already raising rates, and the Fed is under pressure to do the same. Further attempts to help the economy expand seem out of the question.
So the mistake of 2010 may yet be followed by an even bigger mistake. Even if that doesn’t happen, however, the fact is that the policy response to the crisis was and remains vastly inadequate.
Those who refuse to learn from history are condemned to repeat it; we did, and we are. What we’re experiencing may not be a full replay of the Great Depression, but that’s little consolation for the millions of American families suffering from a slump that just goes on and on.
A version of this op-ed appeared in print on June 3, 2011, on page A23 of the New York edition with the headline: The Mistake Of 2010.
Thursday, April 28, 2011
Obamanomics: Waging War on American Workers
Stephen Lendman
Friday, April 15, 2011
http://sjlendman.blogspot.com/2011/04/obamanomics-waging-war-on-american.html
Since taking office, Obama shamelessly betrayed his constituents by:
-- ignoring popular needs during America's greatest economic crisis since the Great Depression;
-- giving Wall Street crooks trillions of taxpayer dollars;
-- spending another $1.5 trillion annually on militarism, imperial wars, and related policies at a time America has no enemies;
-- waging war on organized labor and public education, as well as civil and human rights; and
-- claiming "tough choices" demand class warfare through neoliberal austerity for working Americans, mainly middle and lower income ones least able to afford it.
On April 13, he announced his latest plan through $4 trillion in largely social spending budget cuts over the next 12 years. More on them below.
The same day, New York Times writers Mark Landler and Michael Shear headlined, "Obama's Debt Plan Sets Stage for Long Battle Over Spending," saying:
Obama's Wednesday George Washington University speech "propos(ed) a mix of long-term spending cuts, tax increases, and changes to social welfare programs," omitting that they harm working Americans most.
A Times editorial headlined, "President Obama, Reinvigorated," saying:
"The man America elected president has re-emerged." His budget speech "was a reasonable basis for a conversation and is far better than its most prominent competitors. That is because it is grounded in themes of generosity and responsibility....(I)t was a relief to see Mr. Obama standing up for the values that got him to the table."
These aren't surprising comments from a broadsheet long associated with wealth and power interests, now pretending hammering working Americans is fair and just.
A supportive Washington Post editorial headlined, "President Obama's deficit plan: Benefits and drawbacks," saying:
Obama "made an important and welcome contribution to the debate over deficit reduction Wednesday...(S)orely needed presidential engagement on the nation's fiscal crisis has arrived at last."
A Wall Street Journal editorial, however, called Obama "The Presidential Divider," saying:
His speech was "toxic," "dishonest," (and) even worse (for) deficits and debt" by not matching Rep. Ryan's (R. WI) slash and burn plan even more draconian that his own - "in the midst of a fiscal crisis" both parties refuse to address responsibly, nor do major media reports, op-eds, and editorials explain it.
In fact, Obama largely embraces plans proposed by Republicans and his own deficit cutting commission, offering a different mix for the same purpose - protecting America's super-rich while hammering working Americans through "shared sacrifice."
In other words, middle and low income households "sacrifice" to let wealthy ones "share," his agenda since day one in office.
For example, his proposed tax increase plan is a sham, knowing Republicans won't agree. Moreover, since taking office, he broke every major campaign pledge, and twice, since December alone, capitulated to Republicans on taxes and spending:
-- last December, with Democrats controlling both Houses, by extending Bush's tax cuts to the rich after promising to end them; and
-- in April, agreeing to $38 billion in largely vital social services cuts after promising to preserve them, rationalized by arguing for "a willingness to give on both sides."
Representing wealth and power, his promises are empty. His April 8 budget deal includes significant social spending cuts including:
-- $3.5 billion from Children's Health Insurance Program (CHIP) funding;
-- $2.2 billion from nonprofit health insurance cooperatives;
-- $600 million from community healthcare centers;
-- $1 billion from HIV/AIDS, tuberculosis, and other disease prevention programs;
-- $1.6 billion from EPA's clean/safe drinking water and other projects;
-- $950 million from community development grants;
-- $504 million from nutrition aid for poor Women, Infants, and Children (WIC);
-- $500 million from education programs;
-- $390 million from home heating subsidies to the poor, as well as $2.5 billion for the Low Income Energy Assistance Program (LIHEAP) announced in February;
-- $350 million from labor programs, including grants for community service jobs for seniors;
-- other social service cuts;
-- $786 million from FEMA first-responder funding;
-- $407 million from energy efficiency and renewable energy programs;
-- $260 million from National Institutes of Health (NIH) medical research;
-- $127 million from the National Park Service; and
-- billions less for public infrastructure and transportation spending, while increasing war appropriations by multiples more, including for conquering and controlling Libya.
Moreover, Obama agreed to more draconian FY 2012 cuts and corporate tax breaks as part of a deal to raise the debt ceiling before its limit is reached in mid-May. Appearing on NBC's Meet the Press April 10, senior White House advisor David Plouffe said he'd consider new austerity measures to raise the debt ceiling and reduce the deficit - an oxymoronic compromise, especially with unlimited defense spending and generous corporate handouts instead of major reductions.
Obama Proposes Draconian Cuts on Working Americans
According to White House.gov, Obama's plan over 12 years includes:
-- $4 trillion overall;
-- $770 billion from education, environmental, transportation, and other infrastructure cuts, as well as lower wages and benefits for federal workers when they need more, not less;
-- $480 billion from Medicare and Medicaid, besides another $1 trillion from Obamacare;
-- $360 billion from mandated domestic programs, including food stamps, home heating assistance, income for the poor and disabled, federal pension insurance, and farm subsidies;
-- $400 billion from military-related spending from unneeded weapons, as well as healthcare and other benefits for active service members and veterans - not priority items the Pentagon and war profiteers want to protect generous annual defense spending increases and supplemental add-ons, plus black-hole black budgets for intelligence and other nefarious purposes.
Like all his demagoguery, Obama hypocrically stressed we're broke and have to make shared sacrifices, suppressing how he's served wealth and power interests at the expense of working Americans during the greatest economic crisis since the Great Depression.
The times demand stimulus, job creation, help for the working poor and unemployed, and much more, including:
-- programs to prevent banks from foreclosing on homeowners they defrauded;
-- slashing defense spending;
-- ending imperial wars and occupations;
-- using the funds for vital domestic programs;
-- breaking up the too-big-to-fail banks; prosecuting their officials guilty of grand theft;
-- reinvigorating public education;
-- strengthening Social Security, Medicare and Medicaid, as well as assuring universal healthcare;
-- guaranteeing every qualified student affordable higher education;
-- supporting organized labor;
-- instituting tough regulations to end monopoly and oligopoly power, punish corporate theft, curb speculation, end subsidies, and assure they all pay their fair share in taxes;
-- replacing today's dysfunctional tax system with a progressive one, making the rich share the burden they now avoid;
-- making social justice issue one at a time none exists, Democrats as mean-spirited as Republicans; and
-- instituting real government of, by and for the people, what's never existed and doesn't now under corrupted duopoly governance, ignoring people needs to serve Wall Street, war profiteers, and other corporate favorites.
The alternative assures greater militarism, social inequality and decay, growing poverty, eroding freedoms, police state harshness, and overall conditions too dire to imagine because public apathy let elected officials do nothing to change things.
Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.
http://www.progressiveradionetwork.com/the-progressive-news-hour/.
Friday, April 15, 2011
http://sjlendman.blogspot.com/2011/04/obamanomics-waging-war-on-american.html
Since taking office, Obama shamelessly betrayed his constituents by:
-- ignoring popular needs during America's greatest economic crisis since the Great Depression;
-- giving Wall Street crooks trillions of taxpayer dollars;
-- spending another $1.5 trillion annually on militarism, imperial wars, and related policies at a time America has no enemies;
-- waging war on organized labor and public education, as well as civil and human rights; and
-- claiming "tough choices" demand class warfare through neoliberal austerity for working Americans, mainly middle and lower income ones least able to afford it.
On April 13, he announced his latest plan through $4 trillion in largely social spending budget cuts over the next 12 years. More on them below.
The same day, New York Times writers Mark Landler and Michael Shear headlined, "Obama's Debt Plan Sets Stage for Long Battle Over Spending," saying:
Obama's Wednesday George Washington University speech "propos(ed) a mix of long-term spending cuts, tax increases, and changes to social welfare programs," omitting that they harm working Americans most.
A Times editorial headlined, "President Obama, Reinvigorated," saying:
"The man America elected president has re-emerged." His budget speech "was a reasonable basis for a conversation and is far better than its most prominent competitors. That is because it is grounded in themes of generosity and responsibility....(I)t was a relief to see Mr. Obama standing up for the values that got him to the table."
These aren't surprising comments from a broadsheet long associated with wealth and power interests, now pretending hammering working Americans is fair and just.
A supportive Washington Post editorial headlined, "President Obama's deficit plan: Benefits and drawbacks," saying:
Obama "made an important and welcome contribution to the debate over deficit reduction Wednesday...(S)orely needed presidential engagement on the nation's fiscal crisis has arrived at last."
A Wall Street Journal editorial, however, called Obama "The Presidential Divider," saying:
His speech was "toxic," "dishonest," (and) even worse (for) deficits and debt" by not matching Rep. Ryan's (R. WI) slash and burn plan even more draconian that his own - "in the midst of a fiscal crisis" both parties refuse to address responsibly, nor do major media reports, op-eds, and editorials explain it.
In fact, Obama largely embraces plans proposed by Republicans and his own deficit cutting commission, offering a different mix for the same purpose - protecting America's super-rich while hammering working Americans through "shared sacrifice."
In other words, middle and low income households "sacrifice" to let wealthy ones "share," his agenda since day one in office.
For example, his proposed tax increase plan is a sham, knowing Republicans won't agree. Moreover, since taking office, he broke every major campaign pledge, and twice, since December alone, capitulated to Republicans on taxes and spending:
-- last December, with Democrats controlling both Houses, by extending Bush's tax cuts to the rich after promising to end them; and
-- in April, agreeing to $38 billion in largely vital social services cuts after promising to preserve them, rationalized by arguing for "a willingness to give on both sides."
Representing wealth and power, his promises are empty. His April 8 budget deal includes significant social spending cuts including:
-- $3.5 billion from Children's Health Insurance Program (CHIP) funding;
-- $2.2 billion from nonprofit health insurance cooperatives;
-- $600 million from community healthcare centers;
-- $1 billion from HIV/AIDS, tuberculosis, and other disease prevention programs;
-- $1.6 billion from EPA's clean/safe drinking water and other projects;
-- $950 million from community development grants;
-- $504 million from nutrition aid for poor Women, Infants, and Children (WIC);
-- $500 million from education programs;
-- $390 million from home heating subsidies to the poor, as well as $2.5 billion for the Low Income Energy Assistance Program (LIHEAP) announced in February;
-- $350 million from labor programs, including grants for community service jobs for seniors;
-- other social service cuts;
-- $786 million from FEMA first-responder funding;
-- $407 million from energy efficiency and renewable energy programs;
-- $260 million from National Institutes of Health (NIH) medical research;
-- $127 million from the National Park Service; and
-- billions less for public infrastructure and transportation spending, while increasing war appropriations by multiples more, including for conquering and controlling Libya.
Moreover, Obama agreed to more draconian FY 2012 cuts and corporate tax breaks as part of a deal to raise the debt ceiling before its limit is reached in mid-May. Appearing on NBC's Meet the Press April 10, senior White House advisor David Plouffe said he'd consider new austerity measures to raise the debt ceiling and reduce the deficit - an oxymoronic compromise, especially with unlimited defense spending and generous corporate handouts instead of major reductions.
Obama Proposes Draconian Cuts on Working Americans
According to White House.gov, Obama's plan over 12 years includes:
-- $4 trillion overall;
-- $770 billion from education, environmental, transportation, and other infrastructure cuts, as well as lower wages and benefits for federal workers when they need more, not less;
-- $480 billion from Medicare and Medicaid, besides another $1 trillion from Obamacare;
-- $360 billion from mandated domestic programs, including food stamps, home heating assistance, income for the poor and disabled, federal pension insurance, and farm subsidies;
-- $400 billion from military-related spending from unneeded weapons, as well as healthcare and other benefits for active service members and veterans - not priority items the Pentagon and war profiteers want to protect generous annual defense spending increases and supplemental add-ons, plus black-hole black budgets for intelligence and other nefarious purposes.
Like all his demagoguery, Obama hypocrically stressed we're broke and have to make shared sacrifices, suppressing how he's served wealth and power interests at the expense of working Americans during the greatest economic crisis since the Great Depression.
The times demand stimulus, job creation, help for the working poor and unemployed, and much more, including:
-- programs to prevent banks from foreclosing on homeowners they defrauded;
-- slashing defense spending;
-- ending imperial wars and occupations;
-- using the funds for vital domestic programs;
-- breaking up the too-big-to-fail banks; prosecuting their officials guilty of grand theft;
-- reinvigorating public education;
-- strengthening Social Security, Medicare and Medicaid, as well as assuring universal healthcare;
-- guaranteeing every qualified student affordable higher education;
-- supporting organized labor;
-- instituting tough regulations to end monopoly and oligopoly power, punish corporate theft, curb speculation, end subsidies, and assure they all pay their fair share in taxes;
-- replacing today's dysfunctional tax system with a progressive one, making the rich share the burden they now avoid;
-- making social justice issue one at a time none exists, Democrats as mean-spirited as Republicans; and
-- instituting real government of, by and for the people, what's never existed and doesn't now under corrupted duopoly governance, ignoring people needs to serve Wall Street, war profiteers, and other corporate favorites.
The alternative assures greater militarism, social inequality and decay, growing poverty, eroding freedoms, police state harshness, and overall conditions too dire to imagine because public apathy let elected officials do nothing to change things.
Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.
http://www.progressiveradionetwork.com/the-progressive-news-hour/.
Wednesday, April 13, 2011
An Overblown 'Crisis' For State Pension Funds
Zach Carter
zach.carter@huffingtonpost.com
3/7/11
http://www.huffingtonpost.com/2011/03/07/state-pension-plans_n_829112.html
In early 2010, Goldman Sachs announced two blockbuster numbers: profits of $13.4 billion for the prior year and compensation of $16.2 billion -- the equivalent of about $500,000 for each employee at the Wall Street titan.
All of this lucre, of course, came courtesy of a massive federal bailout of Wall Street that helped keep Goldman and the nation's other commercial and investment banks afloat in 2008 and 2009, when the worst financial cataclysm since the Great Depression began to ravage the economy. Taxpayers were footing the bonus bill.
When news of Goldmanesque bonuses first sparked public outrage, both Wall Street and the White House combated the criticism with a persistent argument: Yes, it might be deeply frustrating to see taxpayer dollars used to further enrich already wealthy bankers, but these bonus deals were were contractual obligations and America is a nation of laws. You just can't tear up contracts, the argument went. So, with few exceptions, the bonuses stayed.
Yet now, with state leaders planning pay cuts for teachers, firefighters and other public workers, contracts aren't described as so sacrosanct anymore.
In Wisconsin, Indiana, Ohio, Florida and New Jersey, Republicans swept into power last year by voters outraged about ongoing economic distress are now targeting benefits for pensioners, hiking taxes for employees who will one day receive a pension and, in Wisconsin, even trying to eliminate the right for public employees to collectively bargain for a pension.
Pensions, needless to say, are, like some bonuses, contractual obligations. They're deferred compensation that formed the basis for years or, in some cases, decades of work already performed. Any state government that fails to pay those pensions in full are in default on the contracts. Pensions for workers who have already retired are protected by dozens of state constitutions.
The average annual pension for government workers is roughly $19,500 a year, according to the American Federation of State, County and Municipal Employees, one of the nation's largest labor unions. That would mean $500,000 could provide about 25 years worth of payouts to a retired public servant. The $9 million bonus Goldman Sachs chief executive Lloyd Blankfein received for 2009 could have provided two decades of pension pay for 23 such public workers.
The push to rewrite pension agreements is predicated on the much-discussed fiscal challenges facing states. But while states do face gaps in their general budgets -- and, at the local level, municipal budget crises are forcing many cities to make tough choices -- most states' pension funds are doing just fine, including those of some states currently engaged in high-profile political budget standoffs.
Wisconsin's plan, in fact, is one of the healthiest in the nation. While many states will need to bolster their pension programs over the coming years, none face an immediate crisis. Even the most cash-strapped state plans in the nation are simply not in any danger of near-term financial distress.
"It would require a calamity of unbelievable proportion to have a cash-flow shortage with pension funds," said Monique Morrissey, an economist at the Economic Policy Institute, which is partly supported by labor unions. "They're advance-funded, so in any given year, pension fund benefit payouts are a very small fraction of what's actually in a pension fund account."
State pensions have garnered headlines for a variety of troubles during the recession -- some have been underfunded in recent years, several took heavy losses on subprime mortgage bonds and nearly all took a beating during the 2008 and '09 stock market slides. As layoffs and foreclosures have depleted tax revenues for state governments, elected officials have targeted large public programs like pension funds in an effort to ease budget deficit concerns.
But while the recession has taken a major toll on state tax revenues, economists say it has not had a drastic impact on pension funds -- the stock losses were followed by a major market rebound, recovering losses. States pay out billions of dollars a year to pensioners, but every single state plan is also sitting on several billion more in revenue-generating assets. Many pension funds face no problems at all. Those that do must deal with a long-term revenue shortfall, still several years away, which can be prevented with modest reforms in the present.
"In some cases you're looking at 10 to 15 years, in some cases you're looking at 30 to 40 years where you're going to be running out of money," said economist Christian Weller, a professor at the University of Massachusetts at Boston and an analyst for the Obama administration-allied Center for American Progress. "The fixes in most cases are very manageable. Many states had already started to address this years ago."
Pension obligations can seem disproportionately large compared to the scope of annual state budgets, Weller and others say, because pension funds calculate their total liabilities over the entire estimated lifetime of every pensioner and current public employee budgets. And it's easy to make those sums look even bigger by assuming that pension fund investments will only earn low rates of return, like those on Treasury bonds (which are currently producing record-low yields).
That operating assumption was used in a December study from the Mercatus Center, a think tank founded and funded by billionaires Charles and David Koch, oil barons who have supported Tea Party groups and invest heavily in conservative causes. Using that methodology, the report projected a $3 trillion shortfall for state pension funds and another $574 billion shortage for local government programs. Mercatus also prefers to project pension fund asset earnings at the 15-year Treasury bond interest rate, which is much lower than the 30-year interest rate, even though pension fund liabilities are calculated over a window that frequently eclipses 30 years.
The numbers in the Mercatus paper were taken from a study by Northwestern University economist Joshua Rauh and University of Rochester economist Robert Novy-Marx, who used the same assumptions. Eileen Norcross, the Mercatus author, insisted that the Treasury bond standard is not just an effort to game the numbers.
"You can't pay out something that's 100 percent certain with uncertain investments," she said. "If they get those returns, that's great. But there are also downturns, and you have to hedge against that. And what's the hedge right now? It's, 'Oops, we have to raise taxes.'"
Others say such conservative projections are just hocus-pocus. Most pension funds have recovered from the losses taken in the 2008 stock market slide.
"These people would never invest all of their own money in Treasury bonds alone, yet they expect pensions to plan as if they did," says EPI's Morrissey. "They're resorting to accounting gimmicks to make the hole look a lot bigger than it really is. The reality is that contributions can be adjusted very gradually because there isn't any immediate cash-flow problem."
A $3 trillion shortage would be a tremendous problem if governments had to cope with it in a single year. But it's actually a shortfall accumulated over about 30 years, or about $100 billion per year. In the context of a national economy generating $14.7 trillion a year, even amid the worst economic downturn in generations, that number is significant, but much less frightening.
And by assuming traditional rates of return for pension funds, the number gets far smaller. A recent paper by economist Dean Baker, co-director of the progressive think tank Center for Economic Policy and Research, does exactly that, pegging the 30-year shortfall at $647 billion, or $21.6 billion per year, even if recent stock market gains for pension funds are not factored in.
The major immediate threats to state budgets are the same problems facing citizens: foreclosures -- an estimated $19,000 or so a pop to local governments, and currently running at a rate of 1 million a year -- along with plunging home values and layoffs. But generous upper-end tax cuts aren't helping, either. When Wisconsin Gov. Scott Walker took office, for instance, he immediately implemented two tax cuts for the wealthy and large corporations that put the state's budget under pressure.
"Look at Walker, he manufactured his deficit with tax cuts for the rich," said Ron Blackwell, chief economist for the AFL-CIO, the largest federation of U.S. labor unions. "For pensions, the problem in general is not an especially bad one. And to the extent there are problems, they're caused by the stock market declines. They have nothing to do with how public sector unions negotiate these so-called 'generous' benefits."
Of course, some public employees really are enjoying extravagant retirements on the public dime. Unions representing California prison guards and other police forces have bargained for extremely generous payouts, while a handful of states have indeed mismanaged their pension plans. "For Illinois and New Jersey, 'raided' is probably a better word," Morrissey, the EPI economist, says.
But while the excesses of a few are being used to justify drastic action against public workers everywhere, even some of the worst-off state systems, like New Jersey and California, do not face an immediate crisis.
New Jersey has one of the most underfunded public pension plans in the country. During the 1990s, under Gov. Christine Todd Whitman (R), the state slashed its annual pension contributions in order to finance a slate of tax cuts, and didn't begin seriously boosting those contributions until 2007. By June 30, 2009, the fund was sitting on $86.5 billion in assets, but the projected long-term pension costs were expected to run about $130.2 billion. Over the course of 30 years or so, the state would come up about $43.7 billion short of meeting its pension obligations, which total about $8 billion in payouts each year. The fund currently has $71.6 billion in its coffers.
Last year, Gov. Chris Christie (R) took a page from Whitman's playbook, forgoing the $3 billion annual state contribution to the pension plan while pushing $1 billion in tax cuts for the state's wealthiest citizens. This year, under a new pension plan reform law, Christie is required to make a $500 million contribution to the fund -- just 1.7 percent of his proposed $29.4 billion budget -- but the governor is refusing to make this legally mandated payment unless public workers accept reductions in pension benefits and a tax increase to support the fund.
Meanwhile, Christie's budget for fiscal 2012 includes $200 million in corporate tax cuts, with plans to increase those cuts to $690 million a year by 2016, along with $180 million in 2012 tax cuts for homeowners. It's a fairly straightforward proposition: Christie is taking money from public workers and giving much of it to corporations, cloaking the transfer of wealth in the language of fiscal responsibility.
New Jersey will clearly have to ramp up contributions to its pension fund to sustain it through the coming years. But doing so doesn't require any particularly tough choices -- it just means raising taxes on those who can afford it instead of continuing to cut them.
And it doesn't even require much of a tax hike, according to a recent study by CEPR's Baker. If state economies grow at the nation's overall rate, only modest tax increases will be required even without further spending cuts, Baker concludes. For all of the major state pension programs in New Jersey, the study calculates either no need for any boost, or an increase of no more than 0.13 percent of 30-year tax income.
Baker calculates similarly low increases for other states. Even Illinois, the most underfunded pension plan in the country, would only have to boost tax revenue by less than 0.2 percent over the next 30 years to meet its projected shortfalls.
The math on New Jersey gets far more dire if you assume the funds' investments will perform terribly. Norcross generates a $173.9 billion shortfall by assuming the funds will only reap 3.5 percent return -- the 15-year Treasury rate -- over several decades. The median return for state pension funds over the past 20 years, however, has been about 8 percent, the amount generally projected by state plans (New Jersey assumes and 8.25 percent return). Based on actual historical returns and economic projections from the Congressional Budget Office, Baker calculates that pension funds should be able to secure returns between 7.3 percent and 8 percent, depending on inflation assumptions.
In California, the state's three major public pension programs are a magnet for criticism as a result of the lavish benefits paid out to relatively few retirees. According to data compiled by the California Foundation for Fiscal Responsibility, a right-leaning group that focuses primarily on state pension and retiree health care obligations, a total of 16,062 former California public servants receive a pension in excess of $100,000 per year.
Some of these payouts are the result of some very unseemly elements in California politics. The prison guards' union, for example, is extremely active in state elections and has managed to secure particularly large compensation packages from Democratic and Republican governors alike. Yet according to CFFR data, former prison guards account for only about 300 of California's six-figures club, roughly even with the number of former state highway patrolmen, another politically active public union. When combined with other local police, cops make up a large portion of the state's high-rolling pensioners. Another 5,309 big-ticket pensions are paid out by the pension plan for teachers, CalSTRS, and 1,642 previously worked for the state's university system.
Jon Hamm, chief executive of the California Association of Highway Patrolmen, argued that good retirement pay is critical to attracting strong applicants, given the stresses and dangers of police work. Hamm said the Highway Patrol currently employs about 12,800 people, and that all of the six-figure-pension patrolmen were former managers. He also emphasized that the group agreed to pension reforms with then-Gov. Arnold Schwarzenegger last summer that cut benefits for future pensioners and raised taxes on current employees.
While these big-ticket pensions reek of pay-for-play politics, they have a relatively minor impact on the state funds' operations. California's entire $100,000-plus club amounts to less than 1 percent of the state's pensioners. The largest of California's pension plans, CalPERS, which includes retired prison guards and highway patrolmen, pays benefits to over 1.6 million pensioners. CalSTRS, the teacher pension plan, has about 224,000 members. The average yearly pension for CalPERS, according to the plan's data, was about $25,000 for a pensioner who spent more than 20 years working for the state. And those pensions are particularly important for retirees in California, one of several states in which public employees are not eligible for Social Security.
Studies like Baker's suggest that states can manage their long-term pension costs without slashing benefits or dramatically raising taxes on state employees. In addition to sitting on big piles of assets, states typically make their own annual contributions to pension funds and require some kind of contribution from employees in order to grow that asset base -- all of which is stipulated in the employees' contracts.
Yet some governors now seek to dismantle the public guaranteed-pension system in favor of riskier 401k plans, a practice long advocated by conservative antitax activists. As far back as 1999, the Grover Norquist-led group Americans for Tax Reform was promoting so-called "pension liberation," a phrase that has since been adopted by the Koch-funded group Americans for Prosperity.
As it stands, pension contributions appear to have a relatively small impact on state budgets. According to an October study by the centrist Boston College Center for Retirement Research, those state pension expenditures accounted for just 3.8 percent of state government budgets in 2008. In order to meet long-term obligations under standard investment return expectations, the report claims that states should bolster that figure to 5.0 percent -- assuming no increased burden on employees and no cuts to benefits. Assuming the Treasury bond-only investment strategy, however, states would have to ramp this up to around 9 percent.
Many of the states currently subject to the most intense political uproar over pensions have some of the strongest programs in the country. Despite major standoffs between conservative governments and labor unions in Wisconsin, Indiana, Ohio and Florida, these states' pension plans are all on strong footing, even given disastrous economic conditions. Wisconsin and Ohio were each cited in a 2010 study by the Pew Center for the States as "a national leader in managing ... long-term liabilities for both pensions and retiree health care." Florida was cited by the same report as a "top performer" for its pension fund.
Economists analyze several statistics to determine pension fund stability, but the most closely watched is a metric known as the "funding ratio," which compares the assets currently owned by pension funds to the total lifetime payments required by every pensioner and every current worker who will eventually be eligible for a pension. The Pew study, for instance, demands an 80 percent funding ratio for fiscal rectitude. To meet that mark, a pension fund must be able to cover at least 80 percent of its long-term costs if its investments were to be sold off now. At the time of the Pew study, Florida's ratio was 101.39 percent, Wisconsin's ratio was 99.67 percent, Ohio's was at 86.83 percent, while Indiana was at 69.67 percent.
That last ratio was enough to justify "serious concerns" at Pew about the Indiana fund's long-term viability. The Pew study found that 19 states fell below its favored 80-percent threshold, but other studies use lower benchmarks to measure stability. New methodology from Fitch Ratings requires a 70 percent funding ratio for pension fund stability, and doesn't claim that any plan is "weak" unless its funding ratio drops below 60 percent. Fitch, in fact, dismissed concerns about Indiana's relatively low funding ratio in a February report, arguing that other revenue factors made it of little concern.
And the Fitch report repeatedly emphasized that the vast majority of pension funds are not in crisis. "Fitch believes that the vast majority of governments will withstand the substantial pressures they face from their pension obligations," the firm said.
That seems to be the story for state pension funds: Many will need to make adjustments, but none are insurmountable. And to the extent that any face problems, they are long-term issues. Hence: No immediate crisis in state pensions.
"They have time to make adjustments," said Keith Brainard, research director for the National Association of State Retirement Administrators. "The idea of imminent insolvency is a gross distortion."
zach.carter@huffingtonpost.com
3/7/11
http://www.huffingtonpost.com/2011/03/07/state-pension-plans_n_829112.html
In early 2010, Goldman Sachs announced two blockbuster numbers: profits of $13.4 billion for the prior year and compensation of $16.2 billion -- the equivalent of about $500,000 for each employee at the Wall Street titan.
All of this lucre, of course, came courtesy of a massive federal bailout of Wall Street that helped keep Goldman and the nation's other commercial and investment banks afloat in 2008 and 2009, when the worst financial cataclysm since the Great Depression began to ravage the economy. Taxpayers were footing the bonus bill.
When news of Goldmanesque bonuses first sparked public outrage, both Wall Street and the White House combated the criticism with a persistent argument: Yes, it might be deeply frustrating to see taxpayer dollars used to further enrich already wealthy bankers, but these bonus deals were were contractual obligations and America is a nation of laws. You just can't tear up contracts, the argument went. So, with few exceptions, the bonuses stayed.
Yet now, with state leaders planning pay cuts for teachers, firefighters and other public workers, contracts aren't described as so sacrosanct anymore.
In Wisconsin, Indiana, Ohio, Florida and New Jersey, Republicans swept into power last year by voters outraged about ongoing economic distress are now targeting benefits for pensioners, hiking taxes for employees who will one day receive a pension and, in Wisconsin, even trying to eliminate the right for public employees to collectively bargain for a pension.
Pensions, needless to say, are, like some bonuses, contractual obligations. They're deferred compensation that formed the basis for years or, in some cases, decades of work already performed. Any state government that fails to pay those pensions in full are in default on the contracts. Pensions for workers who have already retired are protected by dozens of state constitutions.
The average annual pension for government workers is roughly $19,500 a year, according to the American Federation of State, County and Municipal Employees, one of the nation's largest labor unions. That would mean $500,000 could provide about 25 years worth of payouts to a retired public servant. The $9 million bonus Goldman Sachs chief executive Lloyd Blankfein received for 2009 could have provided two decades of pension pay for 23 such public workers.
The push to rewrite pension agreements is predicated on the much-discussed fiscal challenges facing states. But while states do face gaps in their general budgets -- and, at the local level, municipal budget crises are forcing many cities to make tough choices -- most states' pension funds are doing just fine, including those of some states currently engaged in high-profile political budget standoffs.
Wisconsin's plan, in fact, is one of the healthiest in the nation. While many states will need to bolster their pension programs over the coming years, none face an immediate crisis. Even the most cash-strapped state plans in the nation are simply not in any danger of near-term financial distress.
"It would require a calamity of unbelievable proportion to have a cash-flow shortage with pension funds," said Monique Morrissey, an economist at the Economic Policy Institute, which is partly supported by labor unions. "They're advance-funded, so in any given year, pension fund benefit payouts are a very small fraction of what's actually in a pension fund account."
State pensions have garnered headlines for a variety of troubles during the recession -- some have been underfunded in recent years, several took heavy losses on subprime mortgage bonds and nearly all took a beating during the 2008 and '09 stock market slides. As layoffs and foreclosures have depleted tax revenues for state governments, elected officials have targeted large public programs like pension funds in an effort to ease budget deficit concerns.
But while the recession has taken a major toll on state tax revenues, economists say it has not had a drastic impact on pension funds -- the stock losses were followed by a major market rebound, recovering losses. States pay out billions of dollars a year to pensioners, but every single state plan is also sitting on several billion more in revenue-generating assets. Many pension funds face no problems at all. Those that do must deal with a long-term revenue shortfall, still several years away, which can be prevented with modest reforms in the present.
"In some cases you're looking at 10 to 15 years, in some cases you're looking at 30 to 40 years where you're going to be running out of money," said economist Christian Weller, a professor at the University of Massachusetts at Boston and an analyst for the Obama administration-allied Center for American Progress. "The fixes in most cases are very manageable. Many states had already started to address this years ago."
Pension obligations can seem disproportionately large compared to the scope of annual state budgets, Weller and others say, because pension funds calculate their total liabilities over the entire estimated lifetime of every pensioner and current public employee budgets. And it's easy to make those sums look even bigger by assuming that pension fund investments will only earn low rates of return, like those on Treasury bonds (which are currently producing record-low yields).
That operating assumption was used in a December study from the Mercatus Center, a think tank founded and funded by billionaires Charles and David Koch, oil barons who have supported Tea Party groups and invest heavily in conservative causes. Using that methodology, the report projected a $3 trillion shortfall for state pension funds and another $574 billion shortage for local government programs. Mercatus also prefers to project pension fund asset earnings at the 15-year Treasury bond interest rate, which is much lower than the 30-year interest rate, even though pension fund liabilities are calculated over a window that frequently eclipses 30 years.
The numbers in the Mercatus paper were taken from a study by Northwestern University economist Joshua Rauh and University of Rochester economist Robert Novy-Marx, who used the same assumptions. Eileen Norcross, the Mercatus author, insisted that the Treasury bond standard is not just an effort to game the numbers.
"You can't pay out something that's 100 percent certain with uncertain investments," she said. "If they get those returns, that's great. But there are also downturns, and you have to hedge against that. And what's the hedge right now? It's, 'Oops, we have to raise taxes.'"
Others say such conservative projections are just hocus-pocus. Most pension funds have recovered from the losses taken in the 2008 stock market slide.
"These people would never invest all of their own money in Treasury bonds alone, yet they expect pensions to plan as if they did," says EPI's Morrissey. "They're resorting to accounting gimmicks to make the hole look a lot bigger than it really is. The reality is that contributions can be adjusted very gradually because there isn't any immediate cash-flow problem."
A $3 trillion shortage would be a tremendous problem if governments had to cope with it in a single year. But it's actually a shortfall accumulated over about 30 years, or about $100 billion per year. In the context of a national economy generating $14.7 trillion a year, even amid the worst economic downturn in generations, that number is significant, but much less frightening.
And by assuming traditional rates of return for pension funds, the number gets far smaller. A recent paper by economist Dean Baker, co-director of the progressive think tank Center for Economic Policy and Research, does exactly that, pegging the 30-year shortfall at $647 billion, or $21.6 billion per year, even if recent stock market gains for pension funds are not factored in.
The major immediate threats to state budgets are the same problems facing citizens: foreclosures -- an estimated $19,000 or so a pop to local governments, and currently running at a rate of 1 million a year -- along with plunging home values and layoffs. But generous upper-end tax cuts aren't helping, either. When Wisconsin Gov. Scott Walker took office, for instance, he immediately implemented two tax cuts for the wealthy and large corporations that put the state's budget under pressure.
"Look at Walker, he manufactured his deficit with tax cuts for the rich," said Ron Blackwell, chief economist for the AFL-CIO, the largest federation of U.S. labor unions. "For pensions, the problem in general is not an especially bad one. And to the extent there are problems, they're caused by the stock market declines. They have nothing to do with how public sector unions negotiate these so-called 'generous' benefits."
Of course, some public employees really are enjoying extravagant retirements on the public dime. Unions representing California prison guards and other police forces have bargained for extremely generous payouts, while a handful of states have indeed mismanaged their pension plans. "For Illinois and New Jersey, 'raided' is probably a better word," Morrissey, the EPI economist, says.
But while the excesses of a few are being used to justify drastic action against public workers everywhere, even some of the worst-off state systems, like New Jersey and California, do not face an immediate crisis.
New Jersey has one of the most underfunded public pension plans in the country. During the 1990s, under Gov. Christine Todd Whitman (R), the state slashed its annual pension contributions in order to finance a slate of tax cuts, and didn't begin seriously boosting those contributions until 2007. By June 30, 2009, the fund was sitting on $86.5 billion in assets, but the projected long-term pension costs were expected to run about $130.2 billion. Over the course of 30 years or so, the state would come up about $43.7 billion short of meeting its pension obligations, which total about $8 billion in payouts each year. The fund currently has $71.6 billion in its coffers.
Last year, Gov. Chris Christie (R) took a page from Whitman's playbook, forgoing the $3 billion annual state contribution to the pension plan while pushing $1 billion in tax cuts for the state's wealthiest citizens. This year, under a new pension plan reform law, Christie is required to make a $500 million contribution to the fund -- just 1.7 percent of his proposed $29.4 billion budget -- but the governor is refusing to make this legally mandated payment unless public workers accept reductions in pension benefits and a tax increase to support the fund.
Meanwhile, Christie's budget for fiscal 2012 includes $200 million in corporate tax cuts, with plans to increase those cuts to $690 million a year by 2016, along with $180 million in 2012 tax cuts for homeowners. It's a fairly straightforward proposition: Christie is taking money from public workers and giving much of it to corporations, cloaking the transfer of wealth in the language of fiscal responsibility.
New Jersey will clearly have to ramp up contributions to its pension fund to sustain it through the coming years. But doing so doesn't require any particularly tough choices -- it just means raising taxes on those who can afford it instead of continuing to cut them.
And it doesn't even require much of a tax hike, according to a recent study by CEPR's Baker. If state economies grow at the nation's overall rate, only modest tax increases will be required even without further spending cuts, Baker concludes. For all of the major state pension programs in New Jersey, the study calculates either no need for any boost, or an increase of no more than 0.13 percent of 30-year tax income.
Baker calculates similarly low increases for other states. Even Illinois, the most underfunded pension plan in the country, would only have to boost tax revenue by less than 0.2 percent over the next 30 years to meet its projected shortfalls.
The math on New Jersey gets far more dire if you assume the funds' investments will perform terribly. Norcross generates a $173.9 billion shortfall by assuming the funds will only reap 3.5 percent return -- the 15-year Treasury rate -- over several decades. The median return for state pension funds over the past 20 years, however, has been about 8 percent, the amount generally projected by state plans (New Jersey assumes and 8.25 percent return). Based on actual historical returns and economic projections from the Congressional Budget Office, Baker calculates that pension funds should be able to secure returns between 7.3 percent and 8 percent, depending on inflation assumptions.
In California, the state's three major public pension programs are a magnet for criticism as a result of the lavish benefits paid out to relatively few retirees. According to data compiled by the California Foundation for Fiscal Responsibility, a right-leaning group that focuses primarily on state pension and retiree health care obligations, a total of 16,062 former California public servants receive a pension in excess of $100,000 per year.
Some of these payouts are the result of some very unseemly elements in California politics. The prison guards' union, for example, is extremely active in state elections and has managed to secure particularly large compensation packages from Democratic and Republican governors alike. Yet according to CFFR data, former prison guards account for only about 300 of California's six-figures club, roughly even with the number of former state highway patrolmen, another politically active public union. When combined with other local police, cops make up a large portion of the state's high-rolling pensioners. Another 5,309 big-ticket pensions are paid out by the pension plan for teachers, CalSTRS, and 1,642 previously worked for the state's university system.
Jon Hamm, chief executive of the California Association of Highway Patrolmen, argued that good retirement pay is critical to attracting strong applicants, given the stresses and dangers of police work. Hamm said the Highway Patrol currently employs about 12,800 people, and that all of the six-figure-pension patrolmen were former managers. He also emphasized that the group agreed to pension reforms with then-Gov. Arnold Schwarzenegger last summer that cut benefits for future pensioners and raised taxes on current employees.
While these big-ticket pensions reek of pay-for-play politics, they have a relatively minor impact on the state funds' operations. California's entire $100,000-plus club amounts to less than 1 percent of the state's pensioners. The largest of California's pension plans, CalPERS, which includes retired prison guards and highway patrolmen, pays benefits to over 1.6 million pensioners. CalSTRS, the teacher pension plan, has about 224,000 members. The average yearly pension for CalPERS, according to the plan's data, was about $25,000 for a pensioner who spent more than 20 years working for the state. And those pensions are particularly important for retirees in California, one of several states in which public employees are not eligible for Social Security.
Studies like Baker's suggest that states can manage their long-term pension costs without slashing benefits or dramatically raising taxes on state employees. In addition to sitting on big piles of assets, states typically make their own annual contributions to pension funds and require some kind of contribution from employees in order to grow that asset base -- all of which is stipulated in the employees' contracts.
Yet some governors now seek to dismantle the public guaranteed-pension system in favor of riskier 401k plans, a practice long advocated by conservative antitax activists. As far back as 1999, the Grover Norquist-led group Americans for Tax Reform was promoting so-called "pension liberation," a phrase that has since been adopted by the Koch-funded group Americans for Prosperity.
As it stands, pension contributions appear to have a relatively small impact on state budgets. According to an October study by the centrist Boston College Center for Retirement Research, those state pension expenditures accounted for just 3.8 percent of state government budgets in 2008. In order to meet long-term obligations under standard investment return expectations, the report claims that states should bolster that figure to 5.0 percent -- assuming no increased burden on employees and no cuts to benefits. Assuming the Treasury bond-only investment strategy, however, states would have to ramp this up to around 9 percent.
Many of the states currently subject to the most intense political uproar over pensions have some of the strongest programs in the country. Despite major standoffs between conservative governments and labor unions in Wisconsin, Indiana, Ohio and Florida, these states' pension plans are all on strong footing, even given disastrous economic conditions. Wisconsin and Ohio were each cited in a 2010 study by the Pew Center for the States as "a national leader in managing ... long-term liabilities for both pensions and retiree health care." Florida was cited by the same report as a "top performer" for its pension fund.
Economists analyze several statistics to determine pension fund stability, but the most closely watched is a metric known as the "funding ratio," which compares the assets currently owned by pension funds to the total lifetime payments required by every pensioner and every current worker who will eventually be eligible for a pension. The Pew study, for instance, demands an 80 percent funding ratio for fiscal rectitude. To meet that mark, a pension fund must be able to cover at least 80 percent of its long-term costs if its investments were to be sold off now. At the time of the Pew study, Florida's ratio was 101.39 percent, Wisconsin's ratio was 99.67 percent, Ohio's was at 86.83 percent, while Indiana was at 69.67 percent.
That last ratio was enough to justify "serious concerns" at Pew about the Indiana fund's long-term viability. The Pew study found that 19 states fell below its favored 80-percent threshold, but other studies use lower benchmarks to measure stability. New methodology from Fitch Ratings requires a 70 percent funding ratio for pension fund stability, and doesn't claim that any plan is "weak" unless its funding ratio drops below 60 percent. Fitch, in fact, dismissed concerns about Indiana's relatively low funding ratio in a February report, arguing that other revenue factors made it of little concern.
And the Fitch report repeatedly emphasized that the vast majority of pension funds are not in crisis. "Fitch believes that the vast majority of governments will withstand the substantial pressures they face from their pension obligations," the firm said.
That seems to be the story for state pension funds: Many will need to make adjustments, but none are insurmountable. And to the extent that any face problems, they are long-term issues. Hence: No immediate crisis in state pensions.
"They have time to make adjustments," said Keith Brainard, research director for the National Association of State Retirement Administrators. "The idea of imminent insolvency is a gross distortion."
MarketWatch: ‘Tax the Super Rich now or face a revolution’
Richard Metzger
03.29.2011
http://www.dangerousminds.net/comments/marketwatch_tax_the_super_rich_now_or_face_a_revolution/
When stock market advice websites like MarketWatch are running articles with tiltes like “Tax the Super Rich now or face a revolution” I think it’s safe to assume that it’s probably time to tax the super rich now or, you guessed it, face a revolution. It’s been a long time coming and it’s going to be quite sweet, I think, as a result. Western civilization is on the cusp of something new and I, for one, can’t wait for it to get here.
Just the other day, I saw a young guy with a tee-shirt with Donald Trump’s severed head on the end of a lance. It’s in the air:
Yes, tax the Super Rich. Tax them now. Before the other 99% rise up, trigger a new American Revolution, a meltdown and the Great Depression 2
Start preparing for the third meltdown of the 21st Century, and depression
Denial and lies. Remember, 93% of what you hear about markets, finance and the economy are guesses, wishful thinking and lies intended to manipulate you into making decisions that suck money from your pockets into Wall Street. They get rich telling lies about securities. They hate any SEC fiduciary rules forcing them to tell the truth.
But the fact is, on an inflation-adjusted basis, Wall Street lost 20% of your retirement money in the decade from 2000 to 2010, over $10 trillion. And “Irrational Exuberance’s” Robert Shiller warns of a third meltdown coming. You better start preparing now.
Before you start betting any more at Wall Street’s rigged casinos, think long and hard about these six megatoxins lurking in America’s Super-Rich Delusion, a mind-altering pandemic infecting our nation’s leadership in Washington, Corporate America and Wall Street … but also “trickling down,” infecting many Americans. Listen:
1. Warning: Super Rich want tax cuts, creating youth unemployment
Bloomberg warns: “The Kids Are Not Alright.” Worldwide, youth unemployment is fueling the revolution. In a New York Times column, Matthew Klein, a 24-year-old Council on Foreign Relations researcher, draws a parallel between the 25% unemployment among Egypt’s young revolutionaries and the 21% for young American workers: “The young will bear the brunt of the pain” as governments rebalance budgets. Taxes on workers will be raised and spending on education will be cut while mortgage subsidies and entitlements for the elderly are untouchable,” as will tax cuts for the rich. Opportunities lost. “How much longer until the rest of the rich world” explodes like Egypt?
2. Warning: rich get richer on commodity prices, poor get angrier
USA Today’s John Waggoner warns: “Soaring food prices send millions into poverty, hunger: Corn up 52% in 12 months. Sugar 60%. Soybeans 41%. Wheat 24%. For 44 million the “rise in food prices means a descent into extreme poverty and hunger, warns the World Bank.” Many causes: Speculators. Soaring oil prices. Trade policies. Population explosion. But altogether they expose “the underlying inequalities and issues related to the standard of living that boil beneath the surface,” says a Pimco manager.
3. Warning: Global poor ticking time bomb targeting Super Rich
A Time special report, “Poor vs. Rich: A New Global Conflict” warned that a “conflict between two worlds — one rich, one poor — is developing, and the battlefield is the globe itself.” Just 25 developed nations of 750 million citizens consume most of the world’s resources, produce most of its manufactured goods and enjoy history’s highest standard of living.” But they’re now facing 100 underdeveloped poor nations with 2 billion people with hundreds of millions living in poverty all demanding “an ever larger share of that wealth.” Think Egypt. British leader calls this a “time bomb for the human race.”
4. Warning: Next revolution coming across ‘Third World America’
We are ripe for one: In “Third World America” Arianna Huffington warns: “Washington rushed to the rescue of Wall Street but forgot about Main Street … One in five Americans unemployed or underemployed. One in nine families unable to make the minimum payment on their credit cards. One in eight mortgages in default or foreclosure. One in eight Americans on food stamps. Upward mobility has always been at the center of the American Dream … that promise has been broken… The American Dream is becoming a nightmare.” Soon it will implode. a meltdown, revolution, depression.
5. Warning: Super Rich must be detoxed of their greed addiction
In “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You With the Bill),” David Cay Johnston, warns that the rich are like addicts, and to “the addicted, money is like cocaine, too much is never enough.” A few years ago an elite 300,000 Americans in “the top tenth of 1% of income had nearly as much income as all 150 million Americans who make up the economic lower half of our population.” The Super Rich Delusion is an addiction that requires a painful detox.
6. Warning: Politicians infected by Super-Rich Delusion, revolution
In “Washington’s Suicide Pact,” Newsweek’s Ezra Klein warns: “Congress is careening toward the worst of all worlds: massive job losses and an exploding deficit.” How bad? As many as 700,000 more jobs lost, says Moody’s chief economist, Mark Zandi. What a twist: Remember vice president Dick Cheney said “deficits don’t matter.” Today the GOP is so blinded by its obsession to destroy Obama’s presidency, deficits are now the only thing they say matters.
Wake up folks. The Super-Rich Delusion is destroying the American Dream for the rest of us. The Super Rich don’t care about you. They’re already stockpiling for the economic time bomb dead ahead. Don’t say you weren’t warned. Time for you to plan ahead for the coming revolution, for another depression.
Friday, November 26, 2010
Does the government really deserve Buffett’s thanks for financial rescue?
http://news.yahoo.com/s/yblog_thelookout/20101117/bs_yblog_thelookout/does-the-government-really-deserve-buffetts-thanks-for-financial-rescue
Wed Nov 17, 2010
Does the government really deserve Buffett’s thanks for financial rescue?
Zachary Roth
In an op-ed in Wednesday's New York Times, Warren Buffett offers a belated thank-you to the U.S. government for averting a financial collapse back in 2008. "In this extraordinary emergency, you came through," writes the Oracle of Omaha. "And the world would look far different now if you had not." Buffett praises Fed Chairman Ben Bernanke, current and former Treasury Secretaries Henry Paulson and Tim Geithner, and FDIC Chairwoman Sheila Bair for acting with "courage and dispatch."
The Berkshire Hathaway founder doesn't go into detail about the costs and benefits of the government's various rescue efforts. But his piece takes another high-profile step toward bolstering the emerging consensus among experts that the bailout, despite its extreme unpopularity, was in fact remarkably successful -- saving the economy for what turned out to be a bargain price.
That stance has some merit. But it also glosses over some of the rescue effort's less tangible -- but still enormous -- costs. So it's worth taking a more detailed look at where things stand.
Right now, we simply don't have all the necessary information to do a comprehensive accounting of the final tab for the bailout -- by which we mean not just the Treasury's Troubled Asset Relief Program for banks, but also the efforts to prop up mortgage giants Fannie Mae and Freddie Mac, as well as the flailing automakers at GM and Chrysler, together with additional spending programs by the Federal Reserve. But here's what we can say: To date, the government has spent, invested or loaned $546 billion, according to figures compiled by the nonprofit investigative project ProPublica. Of that amount, $251 billion has been returned. That leaves $296 billion still outstanding -- already far less than the $700 billion price tag that was bandied about for the TARP alone. And it's likely that figure will go down as more banks make repayments.
Back in May, Geithner predicted that just TARP -- including help for GM, Chrysler and homeowners facing foreclosure -- would cost $117 billion, once all repayments were in. Help for Fannie and Freddie would cost $85 billion more, he said. But the government actually stands to make money -- an estimated $115 billion -- on the Federal Reserve's creative finance programs for banks. That gave Geithner a final cost figure for all the government's rescue efforts of $87 billion.
Most people would agree that the price is a bargain for averting financial collapse, which could have caused human misery on the scale of the Great Depression. As Douglas Elliott, a former investment banker now at the Brookings Institution, told the New York Times in September: "This is the best federal program of any real size to be despised by the public like this."
But that's hardly the end of the story. As New York Times financial columnist Gretchen Morgenson has pointed out, the Treasury secretary's tally leaves out the effects of the Fed's near-zero interest rate policy, enacted as a way to spur lending. This policy benefits banks and punishes investors, because it lets the banks earn huge profits on the spread between what they pay for their deposits and what they make from their loans. There's no simple way to calculate a figure for this transfer of wealth to banks, but Morgenson calls it "enormous."
Geithner also overlooked losses suffered when the Federal Deposit Insurance Corp. -- the government entity in charge of winding down failing banks -- has had to enter into loss-sharing arrangements with healthy banks, to get them to take on the troubled assets of failing ones. Again, there's no way to know how much that program might end up costing us, but one widely quoted expert, Christopher Whalen, the editor of the Institutional Risk Analyst, put the figure as high as $400 billion.
And that's not all. TARP was also designed in part to give banks a cash injection that would let them keep bad assets on their books at unrealistic levels -- a setup that Whalen calls "extend and pretend." The banks know that at some point they'll have to assess the value of those toxic assets still on their books. And that's one big reason they're still extremely hesitant to make loans -- which in turn has prolonged the economic slump. Whalen puts that cost at "trillions of dollars," though again, there's really no way to know. And, the government's defenders might say, part of that cost is built into the existence of a crisis in the first place.
You can tell from the vagueness of all these numbers that there's really no reliable way to get a dollar figure for the cost of the government's rescue efforts. And it's also worth noting that even if the cost is in the trillions, a financial Armageddon would probably have cost far more.
But if nothing else, it's worth taking blithe assessments like the government's -- implicitly backed by Buffett's congratulatory op-ed Wednesday -- with the hefty grains of salt they deserve.
Wed Nov 17, 2010
Does the government really deserve Buffett’s thanks for financial rescue?
Zachary Roth
In an op-ed in Wednesday's New York Times, Warren Buffett offers a belated thank-you to the U.S. government for averting a financial collapse back in 2008. "In this extraordinary emergency, you came through," writes the Oracle of Omaha. "And the world would look far different now if you had not." Buffett praises Fed Chairman Ben Bernanke, current and former Treasury Secretaries Henry Paulson and Tim Geithner, and FDIC Chairwoman Sheila Bair for acting with "courage and dispatch."
The Berkshire Hathaway founder doesn't go into detail about the costs and benefits of the government's various rescue efforts. But his piece takes another high-profile step toward bolstering the emerging consensus among experts that the bailout, despite its extreme unpopularity, was in fact remarkably successful -- saving the economy for what turned out to be a bargain price.
That stance has some merit. But it also glosses over some of the rescue effort's less tangible -- but still enormous -- costs. So it's worth taking a more detailed look at where things stand.
Right now, we simply don't have all the necessary information to do a comprehensive accounting of the final tab for the bailout -- by which we mean not just the Treasury's Troubled Asset Relief Program for banks, but also the efforts to prop up mortgage giants Fannie Mae and Freddie Mac, as well as the flailing automakers at GM and Chrysler, together with additional spending programs by the Federal Reserve. But here's what we can say: To date, the government has spent, invested or loaned $546 billion, according to figures compiled by the nonprofit investigative project ProPublica. Of that amount, $251 billion has been returned. That leaves $296 billion still outstanding -- already far less than the $700 billion price tag that was bandied about for the TARP alone. And it's likely that figure will go down as more banks make repayments.
Back in May, Geithner predicted that just TARP -- including help for GM, Chrysler and homeowners facing foreclosure -- would cost $117 billion, once all repayments were in. Help for Fannie and Freddie would cost $85 billion more, he said. But the government actually stands to make money -- an estimated $115 billion -- on the Federal Reserve's creative finance programs for banks. That gave Geithner a final cost figure for all the government's rescue efforts of $87 billion.
Most people would agree that the price is a bargain for averting financial collapse, which could have caused human misery on the scale of the Great Depression. As Douglas Elliott, a former investment banker now at the Brookings Institution, told the New York Times in September: "This is the best federal program of any real size to be despised by the public like this."
But that's hardly the end of the story. As New York Times financial columnist Gretchen Morgenson has pointed out, the Treasury secretary's tally leaves out the effects of the Fed's near-zero interest rate policy, enacted as a way to spur lending. This policy benefits banks and punishes investors, because it lets the banks earn huge profits on the spread between what they pay for their deposits and what they make from their loans. There's no simple way to calculate a figure for this transfer of wealth to banks, but Morgenson calls it "enormous."
Geithner also overlooked losses suffered when the Federal Deposit Insurance Corp. -- the government entity in charge of winding down failing banks -- has had to enter into loss-sharing arrangements with healthy banks, to get them to take on the troubled assets of failing ones. Again, there's no way to know how much that program might end up costing us, but one widely quoted expert, Christopher Whalen, the editor of the Institutional Risk Analyst, put the figure as high as $400 billion.
And that's not all. TARP was also designed in part to give banks a cash injection that would let them keep bad assets on their books at unrealistic levels -- a setup that Whalen calls "extend and pretend." The banks know that at some point they'll have to assess the value of those toxic assets still on their books. And that's one big reason they're still extremely hesitant to make loans -- which in turn has prolonged the economic slump. Whalen puts that cost at "trillions of dollars," though again, there's really no way to know. And, the government's defenders might say, part of that cost is built into the existence of a crisis in the first place.
You can tell from the vagueness of all these numbers that there's really no reliable way to get a dollar figure for the cost of the government's rescue efforts. And it's also worth noting that even if the cost is in the trillions, a financial Armageddon would probably have cost far more.
But if nothing else, it's worth taking blithe assessments like the government's -- implicitly backed by Buffett's congratulatory op-ed Wednesday -- with the hefty grains of salt they deserve.
Saturday, November 6, 2010
Obama Blames Insufficient Stimulus on Ben Nelson and Olympia Snowe
http://firedoglake.com/2010/10/28/obama-blames-insufficient-stimulus-on-ben-nelson-and-olympia-snowe-suggests-fdr-was-irresponsible
Obama Blames Insufficient Stimulus on Ben Nelson and Olympia Snowe, Suggests FDR was “Irresponsible”
Blue Texan
Thursday October 28, 2010
President Obama sat down with some progressive bloggers yesterday for a Q&A, and this was one of his more puzzling responses:
"I mean, if folks think that we could have gotten Ben Nelson, Arlen Specter and Susan Collins to vote for additional stimulus beyond the $700 billion that we got, then I would just suggest you weren’t in the meetings.
This notion that somehow I could have gone and made the case around the country for a far bigger stimulus because of the magnitude of the crisis, well, we understood the magnitude of the crisis. We didn’t actually, I think, do what Franklin Delano Roosevelt did, which was basically wait for six months until the thing had gotten so bad that it became an easier sell politically because we thought that was irresponsible. We had to act quickly."
Obama’s narrative doesn’t exactly jibe with reporting about the stimulus:
"Summers did not include Romer’s $1.2-trillion projection [for the stimulus]. The memo argued that the stimulus should not be used to fill the entire output gap; rather, it was “an insurance package against catastrophic failure.” [...]
He [Summers] believed that filling the output gap through deficit spending was important, but that a package that was too large could potentially shift fears from the current crisis to the long-term budget deficit, which would have an unwelcome effect on the bond market. In the end, Summers made the case for the eight-hundred-and-ninety-billion-dollar option."
Larry Summers’ conclusions about the size of the stimulus can’t be blamed on President Snowe. And it’s much closer to the $787B the administration finally got than the $1.2T Romer and people like Paul Krugman were recommmending:
"The president’s willingness to ask for too little was, it turns out, a huge strategic error. It allows his opponents to argue that the Democrats had what they wanted, which then failed. If the president had failed to get what he demanded, he could argue that the outcome was not his fault."
When the stimulus passed, the White House celebrated. There was not the slightest hint that Nelson, Snowe, and Collins were hampering the recovery and putting the country in jeopardy. For Obama now to insist it was their fault that it was too small doesn’t ring true (not to mention that they could’ve passed a larger bill via reconciliation), and in any event, just makes him look weak.
But I really think the President’s remarks about FDR are just bizarre.
Here is a time-line of the “100 Days.”
March 4: Inauguration Day. Franklin Delano Roosevelt becomes President of the United States.
March 5: The President proclaims four-day Bank Holiday with the suspension of banking transactions and gold and currency exports.
March 9: Hundred Days Congressional session begins.
Congress passes the Emergency Banking Act.
March 15: Congress passes the Economy Act
March 31: Congress passes the Reforestation Relief Act, (establishing the Civilian Conservation Corps).
April 19: The President announces US departure from the gold standard.
May 12: Congress passes the Emergency Farm Mortgage Act.
Congress passes the Federal Emergency Relief Act.
The President signs the Agricultural Adjustment Act.
May 18: Congress establishes the Tennessee Valley Authority.
May 27: Congress passes the Federal Securities Act.
June 6: Congress passes the National Employment System Act.
June 13: Congress passes the Home Owners Refinancing Act.
June 16: The end of the Hundred Days session.
Congress passes the National Industrial Recovery Act, (setting up the National Recovery Administration), the Farm Credit Act, and the Banking Act of 1933.
Now that’s some change we can believe in — all in about 3 months! And that doesn’t include the repeal of Prohibition.
The merits of the legislation aside, it’s more than a little jarring to hear a Democratic President accuse FDR of acting irresponsibly in the face of the Great Depression. Moreover, had the Obama administration acted more like Roosevelt’s, they would not be in the situation they find themselves in.
Obama Blames Insufficient Stimulus on Ben Nelson and Olympia Snowe, Suggests FDR was “Irresponsible”
Blue Texan
Thursday October 28, 2010
President Obama sat down with some progressive bloggers yesterday for a Q&A, and this was one of his more puzzling responses:
"I mean, if folks think that we could have gotten Ben Nelson, Arlen Specter and Susan Collins to vote for additional stimulus beyond the $700 billion that we got, then I would just suggest you weren’t in the meetings.
This notion that somehow I could have gone and made the case around the country for a far bigger stimulus because of the magnitude of the crisis, well, we understood the magnitude of the crisis. We didn’t actually, I think, do what Franklin Delano Roosevelt did, which was basically wait for six months until the thing had gotten so bad that it became an easier sell politically because we thought that was irresponsible. We had to act quickly."
Obama’s narrative doesn’t exactly jibe with reporting about the stimulus:
"Summers did not include Romer’s $1.2-trillion projection [for the stimulus]. The memo argued that the stimulus should not be used to fill the entire output gap; rather, it was “an insurance package against catastrophic failure.” [...]
He [Summers] believed that filling the output gap through deficit spending was important, but that a package that was too large could potentially shift fears from the current crisis to the long-term budget deficit, which would have an unwelcome effect on the bond market. In the end, Summers made the case for the eight-hundred-and-ninety-billion-dollar option."
Larry Summers’ conclusions about the size of the stimulus can’t be blamed on President Snowe. And it’s much closer to the $787B the administration finally got than the $1.2T Romer and people like Paul Krugman were recommmending:
"The president’s willingness to ask for too little was, it turns out, a huge strategic error. It allows his opponents to argue that the Democrats had what they wanted, which then failed. If the president had failed to get what he demanded, he could argue that the outcome was not his fault."
When the stimulus passed, the White House celebrated. There was not the slightest hint that Nelson, Snowe, and Collins were hampering the recovery and putting the country in jeopardy. For Obama now to insist it was their fault that it was too small doesn’t ring true (not to mention that they could’ve passed a larger bill via reconciliation), and in any event, just makes him look weak.
But I really think the President’s remarks about FDR are just bizarre.
Here is a time-line of the “100 Days.”
March 4: Inauguration Day. Franklin Delano Roosevelt becomes President of the United States.
March 5: The President proclaims four-day Bank Holiday with the suspension of banking transactions and gold and currency exports.
March 9: Hundred Days Congressional session begins.
Congress passes the Emergency Banking Act.
March 15: Congress passes the Economy Act
March 31: Congress passes the Reforestation Relief Act, (establishing the Civilian Conservation Corps).
April 19: The President announces US departure from the gold standard.
May 12: Congress passes the Emergency Farm Mortgage Act.
Congress passes the Federal Emergency Relief Act.
The President signs the Agricultural Adjustment Act.
May 18: Congress establishes the Tennessee Valley Authority.
May 27: Congress passes the Federal Securities Act.
June 6: Congress passes the National Employment System Act.
June 13: Congress passes the Home Owners Refinancing Act.
June 16: The end of the Hundred Days session.
Congress passes the National Industrial Recovery Act, (setting up the National Recovery Administration), the Farm Credit Act, and the Banking Act of 1933.
Now that’s some change we can believe in — all in about 3 months! And that doesn’t include the repeal of Prohibition.
The merits of the legislation aside, it’s more than a little jarring to hear a Democratic President accuse FDR of acting irresponsibly in the face of the Great Depression. Moreover, had the Obama administration acted more like Roosevelt’s, they would not be in the situation they find themselves in.
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