Economic Recovery? What Recovery?
09 Sep 2010 14:43 GMT
America faces economic depression
Economic Recovery? What Recovery? - by Stephen Lendman
There is none, and it's getting worse under a president and his predecessor's policies - engineering and sustaining economic decline, not recovery, Obama's latest announced job creation program as bogus as his April 2009 $787 billion stimulus. At the time, Treasury Secretary Tim Geithner said, besides bailing out Wall Street, it would create millions of jobs and get credit flowing again.
Wrong and he knew it. Credit contraction persists. Job creation is moribund. The true unemployment rate, by 1980 calculations, is 22%, not the bogus 9.6%, and recovery focused on Wall Street, not small business and job creation. The Treasury was looted. Trillions of dollars went to banks, shadow banks (like hedge funds) and insurers, not industrial America, a shadow of its former self by design. More on that below.
As a result, the stock market recovered (a likely blip in a bear market), not the economy. Fiscally, Obama's $787 package flopped. Half went for tax cuts with little impact. The rest didn't create jobs. It went for extended unemployment insurance, subsidized medical premiums for the unemployed, some aid to states, and a one-time $250 bonus to Social Security recipients - all stopgap measures, not long-term fixes.
Obama's earlier and current approach is market-directed to buy time, hoping business will recover on its own. It was never then or now about creating jobs or about resurrecting the fading middle class, what long-term policy aims to destroy, the current crisis accelerating the process, what Obama omitted from his Labor Day speech, disingenuous like his others, saying he wants to create jobs by:
"rebuilding and modernizing America's roads, rails and runways for the long-term....All of this will not only create jobs now, but will make our economy run better over the long haul."
Admitting we're in "difficult times," he absolves himself of blame and won't say he plans to extend the Bush tax cuts for the rich post-election, instead of acting responsibly by redistributing them to lower income households needing it, not millionaires and billionaires using them to speculate, not spend, leaving consumption and job creation unaided.
Obama's "yes we can" helps the privileged, not Main Street, suffering under his administration's neglect, disdainful of the constituency that elected him.
His new plan ignores the jobs crisis, the worst since the Great Depression and certain to intensify. He intends nothing new, instead asking Congress to reauthorize spending routinely done every five years, front-loading $50 billion in 2011, chicken feed compared to the $2.2 trillion the American Society of Civil Engineers says is needed over the next five years and much more thereafter, given America's long neglected infrastructure.
The money goes to states and cities for regular upkeep, not vitally needed stimulus for low cost housing, schools, public hospitals, and modern transportation, a job requiring hundreds of annual billions to spark recovery, what's nowhere in sight or planned.
Saying his program is "fully paid for" means offsetting cuts are coming, not ones he suggested affecting business Congress will reject, but essential social programs for people needing the most help. As a result, poor households will get poorer, joined by millions more swelling their ranks.
Further, more help for business is planned in the form of quicker write-offs of 100% of new plant and equipment investments through 2011. If Congress agrees, it'll be permanent, a tax saver unrelated to job creation.
Companies may now deduct investment expenses from three to 20 years. Under the new plan, they can do it in year one, retaining more cash, but without higher consumption there's no incentive to expand. Tax breaks create little growth, yet Democrats, like Republicans, back them, not jobs and money in consumers' pockets where it's needed, the real growth engine.
Economist David Rosenberg adds:
"Government policy and the record number of people upside-down on their mortgage have seriously impaired the flexibility of the labor market."
He also pans Obama's accelerated investment write-off plan, saying "aren't businesses sitting on a record cash hoard right now? In other words, 'money' is not an impediment (to) business investment growth....This is again one in a long list of quick fixes aimed at boosting domestic spending and is likely to have a muted impact." America doesn't need another a corporate welfare program. This one will "fall flat on its face" economically and politically.
Even the White House admitted it has no "estimates on the number of jobs that would result from the plan." Rosenberg's response - It "truly boggles the mind" given the weakness of economic fundamentals and crucial need for real job creation programs.
The web site Zero Hedge explains more in a deepening "depression," saying:
Since December 2007, America's population increased from 303.3 million to 310 million in July 2010. However, over the same period, "the civilian labor force declined from 153.9 to 153.6 million....the cumulative differential (an) all time record of 3.7 million: this is a number that has to be added to the (official) 7.6 million unemployed to (know) how many jobs have been lost....over 11.2 million since" late 2007, a figure likely to grow, not shrink.
For Rosenberg, "This is what a depression is all about - an economy that after 33 months after a recession begins, with zero (interest) rates, a stuffed central bank sheet, and a 10% deficit-to-GDP ratio, is still in need of government help...."
It's also a liquidity trap - banks and businesses flush with cash they're not lending or spending. Why should they given the weak economic fundamentals:
-- wages and salaries down 3.7% from their prior peak;
-- corporate profits down 20% from their high;
-- real GDP down to 1.3%, and the next revision may drop it lower, heading toward minus numbers ahead;
-- industrial production down 7.2%;
-- retail sales down 4.5%;
-- manufacturing orders down 22.1%;
-- manufacturing shipments down 12.5%;
-- exports down 9.2%;
-- new home sales down 68.9%;
-- existing home sales down 41.2%;
-- housing starts down 63.5%; and
-- non-residential construction down 35.7%.
In recovery, these numbers are rising. Now they're so weak that the National Bureau of Economic Research (NBER - that calculates economic cycle beginnings ends) hasn't announced the recovery despite four consecutive positive quarters, perhaps because it's illusory. Further, in per capita terms, "real final sales continued to contract (throughout) this alleged statistical recovery," more evidence there is none.
Economist Jack Rasmus, a regular guest on the Progressive Radio News Hour, agrees, saying:
"Perhaps the best indicator of the faltering economy is the jobs numbers since January 2010:"
-- 575,000 federal jobs created, all but 1,000 temporary census workers being rapidly laid off;
-- state and local governments have shed 81,000 jobs through May, then more as monthly layoffs are announced;
-- of the 495,000 private sector jobs created, 468,000 were low wage, low benefit part-time ones or temps;
-- at the same time, "hundreds of thousands of full-time permanent jobs have been eliminated;"
-- unemployment duration has risen to unprecedented levels, six workers competing for every job opening;
-- "one in four workers....has experienced some period of unemployment" since late 2007, a shocking indictment of a sick economy;
-- 23 - 25 million unemployed, not the official 15 million figure, bogus like all government data, softened to look better;
-- "And these (numbers) don't account for the tens of millions of inner city youth(s), undocumented, and itinerant workers" the Labor Department never counts, non-people in their calculation;
-- the true number of unemployed likely way exceeds 25 million; and
-- to recover jobs lost since December 2007 "require(s) hiring more than 300,000 workers every month from now until 2017," and the longer the delay, compounded by more job losses ahead, extends that date well into the future.
Wrecking the Economy by Destroying Industrial America
Since the 1980s, monetarist/neoliberal junk economic policies abandoned valued classical Enlightenment lessons taught by Adam Smith, John Stuart Mill, Karl Marx, and other 18th and 19th century economists and philosophers.
Economist Michael Hudson explains their "common denominator," that "rent and interest are extractive, not productive," that governments should "create their own credit, not leave this function to wealthy elites via a bank monopoly on credit creation."
Chicago School economists are junk model adherents, advocating structurally adjusted mass-privatizations, elimination of the public sector, deregulation, low wages, few benefits, deep cuts in social spending, and unrestricted free market access globally - globalization, a term synonymous with race-to-the-bottom rules, leaving workers unprotected, and corporate predators free to strip mine the world for profit, crushing small business, impoverishing millions, keeping developing nations poor, and harming developed ones as well, America no exception, its industrial base a shadow of its former self, offshored to cheap labor markets, leaving an economy dependent on lower paying service sector jobs.
Paul Craig Roberts was Assistant Treasury Secretary under Ronald Reagan. In his book titled, "How the Economy Was Lost," he says it's gone and won't come back until "free trade myths are buried six feet under" because past lessons learned are now abandoned.
"America's (19th and) 20th centur(ies) economic success was based on two things. Free trade was not one of them. (It) was based on protectionism (and) British indebtedness." US economic ascendance eroded by abandoning traditional practices and preaching "free trade" dogma, neoliberalism, globalization, and the disease of offshoring. As a result, "American cities and states lost tax base, and families and communities lost jobs," replaced by fewer lower paying ones.
"The pressure of jobs offshor(ed), together with vast imports, has destroyed the economic prospects for all Americans....Doing a good job, providing a good service, is no longer the corporation's function. Instead," goal one is cutting labor costs, exporting high paid jobs to low wage countries.
In another article, Roberts cites Ron and Anil Hira's book, "Outsourcing America" in which a University of California study conservatively "concludes that 14 million white-collar jobs are vulnerable to" offshoring, including high paying positions in information technology, accounting, architecture, advanced engineering design, news reporting, stock analysis, and medical and legal services. In other words, any job, high or low level, performed effectively anywhere will be moved to the lowest paying locales, abandoning America and other higher cost ones.
The downside is huge, "fool's gold," say the authors, letting companies lose their best talent, "but also consumers who buy their products." Further, "the track record for the reemployment of displaced US workers is abysmal," the Department of Labor reporting that "more than one in three (stays) unemployed, and many (finding) jobs take major pay cuts."
It's a "lose-lose situation" for workers, companies, and America, the rage for short-term profits destroying long-term prospects, besides the American dream for millions. Yet governments under both parties are mindless to the effect, heading the nation toward third world status, Roberts concluding that "Only fools (believe) outsourcing is good for America." Washington is infested with them.
In his 2008 book, "How Rich Countries Got Rich and Why Poor Countries Stay Poor," Erik Reinert provides a valuable historical lesson of right and wrong economic policies, what grew America and other developed nations, what they, in turn, deny poor countries, exploiting them by neoliberal globalized rules, Reinert saying:
"wealthy nations keep poor countries poor based on theories postulating the non-existence of the very factors that created their own wealth."
He argues against comparative advantage and free trade, instead highlighting the concept of "emulation." For Enlightenment economists it meant an impulse to imitate or surpass others in virtue or merit, its economic tools including:
-- temporary monopolies;
-- cheap credit;
-- patent protection;
-- tax breaks;
-- export bounties;
-- suppressing landed nobility and other groups with vested interests in raw materials production;
-- restraints on raw material exports;
-- strong support for agriculture;
-- bolstering education; and
-- attracting foreign labor for certain tasks.
Some Background on Globalized Trade
It's not new, the modern version begun under the mid-20th century General Agreement on Tariffs and Trade (GATT), signed by 23 founding nations on October 30, 1947. In 1946, they drafted the International Trade Organization (ILO), following creation of the IMF and International Bank for Reconstruction (now the World Bank) at Bretton Woods in 1944. In March 1948, 53 nations signed the GATT as the founding international instrument governing world trade.
Subsequent rounds followed through number eight, launched in Punta del Este, Uruguay (the Uruguay Round) in 1986. In April 1994, it was signed in Marrakesh, Morocco by most of the 123 participating countries, updating the original GATT, the WTO then succeeding it on January 1, 1995, one year to the day after NAFTA took effect, another weapon of mass job destruction affecting North America. In March 2006, DR-CAFTA copied it for Central America.
The WTO institutionalized one-size-fits-all global trading rules, favoring capital over people and rich countries over poor ones, including a corporate-friendly alphabet soup of Uruguay-negotiated agreements, such as:
-- the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS);
-- General Agreement on Trade in Services (GATS);
-- Agreement on Agriculture (AoA);
-- Agreement on Technical Barriers to Trade (TBT); and more to let Global North countries, giant corporations, and world elitists exploit Global South developing nations, working people everywhere, sane environmental practices, and public safety.
The entire structure lets big capital commoditize everything to strip mine the world for profit. Globalized trade goes back centuries, but the modern version accelerated in the 1980s along with IMF, World Bank and Inter-American Development Bank neoliberal dogma, Reaganomics practicing it on the notion that "free markets" work best so let them.
Government is the problem, not the solution, Reagan signaling his administration's intent in his first 1981 inaugural address. We didn't know then, but we'd soon learn. A forthcoming article explains it in detail.
Jobs outsourcing began earlier, in the late 1950s modestly, shifting jobs to Canada at lower wages. In the 1960s and 1970s, the pace quickened, production jobs in autos, shoes, clothing, cheap electronics, toys, and routine service work like credit card receipt processing, airline reservations, and basic software code writing offshored.
In the 1980s, the practice took of, spread up and down the value chain, and now embraces any job or service, as easily performed globally as at home. In the past three decades, the toll has been devastating, America's industrial might reduced to a shadow of its former self at around 10% of the economy, about one-third its size 40 years ago and one-fourth its WW II peak. High paying service jobs have also disappeared, now performed in countries like India at a fraction of US costs.
As a result, unions and working Americans have been devastated, no longer assured high pay and good benefits like full company-covered health insurance, pensions, and job security. People are also forced to work longer and harder for less to stay even, and growing numbers of jobs are concentrated in unskilled or low-skill areas of retail, health care, and temporary services of all kinds.
Even high-tech jobs and professional financial ones are gone, draining more from the domestic economy, nothing in place staunching the decline, accelerating an unprecedented fall in worker living and security standards and greatest ever wealth transfer to the rich.
Globalized neoliberal destruction is to blame, wrecking world economies, heading all following its model toward third world status, America included under a president promoting the process while promising "yes we can." For sure when he means helping the privileged. Sock the rest, and let the devil take the hindmost, the dark future only public pressure can stop.
Famed anthropologist Margaret Mead (1901 - 1978) was right saying:
Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has," never from the top down, so what are we waiting for?
Stephen Lendman lives in Chicago and can be reached at email@example.com. 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.