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I don’t often restate my twitter posts here on the blog, but today’s development by Biden is so historic a betrayal and reversal to satisfy corporate friends and Republicans it deserves a repost. It’s a ‘double reversal’ and so typical a Democrat party betrayal.

Today Biden announced he was CUTTING corporate taxes to 15%. Trump had cut corporate tax rate from 35% to 21%. Biden ran for office pledging to raise that back to 28%. He then reneged and said it would be only 25%. He then agreed with European Union finance ministers to cut taxes on US multinationals to only 15%. Now he announces he’ll CUT US corporate taxes to 15%–instead of raising to even 25%. This comes after talks with Republicans.

Not to outdo himself, Biden next CUTS his proposed infrastructure bill further as well. Starting out at $2.25T, he last week reduced that to $1.7T. Now, however, he offers to CUT that to $1T!

In the past two weeks it was apparent that Biden and Republicans were engaging in a ‘smoke and mirrors’ negotiations on the so called American Jobs Act, aka Infrastructure bill: Biden had agreed to break out negotiations on a separate track on $400B in the bill that was actually a subsidy to US auto and tech corporations, to pay for their R&D on electric car investments. It included as well $50B subsidy to US auto corps for semiconductor chip production.

Auto companies had cut production (i.e. gone on strike) claiming a chip shortage and began laying off workers. All this just as Congress was taking up proposals on chip subsidy of $50B. Once it appeared the $50B would pass, however, somehow auto companies–despite their claimed chip shortage–now miraculously boosted production once again. The alleged chip shortage was clearly a lobbying pressure ploy by the companies. They’ll now get the $50B chip subsidy, plus another $173B in the infrastructure bill to subsidize their electric car development and charging stations build out. The rest of the $400B corp subsidy in the Infrastructure bill will benefit tech corps’ R&D and manufacturers.

The $400B subsidy has nothing to do with infrastructure. But will now fast track in passage while the rest of the human investments in the infrastructure bill of $2.25T, then $1.7T, and now $1T will lag.

Biden’s cut of his infrastructure proposals to $1T brings it in line with Republican counter proposals of roughly $928B. However, McConnell & Co. $928B includes moving $350B in spending allocated in the already passed Covid Relief Act (aka American Rescue Plan) in March. It also includes $308B also already allocated to be spent in transportation funding.

So the Republican bill is just agreeing to spend what has already been spent!

It’s almost certain Biden will include the $308B already allocated for transport spending in his reduced $1T infrastructure offer. That’s West Virginia blue dog Democrat Senator, Manchin’s, proposal. So Biden’s only proposing $700B–a long way from his original $2.25T.

Biden’s dual move to CUT corp taxes even more than Trump had and to cut his proposed infrastructure spending by more than $1.5T, represent unilateral moves by him without any real concessions by the Republicans. It all looks like a well orchestrated ‘deal’ from the beginning, overlaid with a public appearance that there are ‘negotiations’ under way

One is reminded of last summer, when Shumer-Pelosi reduced their proposed spending by $1T on their ‘Heroes Act’, which McConnell and Republicans simply refused to counter. Democrats have a history of capitulation, poor negotiating strategy and ability, and a general capitulation to Republicans on fiscal policy.

Further back, one is also reminded of Obama’s policy. In 2009 his fiscal stimulus was a mere $787B (of which $300B were tax cuts for businesses). He then CUT social program spending in August 2011 by twice that amount, $1.5T.

Biden’s lastest moves are deja vu Democrat party perfidy. Biden reveals he–like Trump, Obama, Bush and Clinton before him–is intent on continuing the Neoliberal fiscal policy of cut, cut, cut corporate and investor taxes + promise social program spending, cut that back, and then take even more back in subsequent austerity proposals once the immediate crisis has passed.

In the interim, Neoliberalism means the Fed giving trillions of dollars in free money to banks, investors and corporations. In one year the Fed has pumped $4T of virtually free money into these folks, matching in one year the amount Obama gave them in four years, 2009-13!

By these recent moves Biden and Democrats are on board, in other words, with the decades long policy of continual further corporate tax cutting, temporary fiscal program spending during a crisis, followed by eventual austerity take-backs.

Biden’s just announced CUTS to corporate taxes and proposals for infrastructure spending are clearly Republican-McConnell demands. Biden and Dems once again clearly capitulate. Then again, maybe the capitulation was all planned out months ago!

Dr. Jack Rasmus
Copyright, June 3, 2021

As a complementary commentary to my print article in the previous post, the following recent hourly Alternative Visions radio show addresses the hype in mainstream media that emerging inflation is caused by ‘too much money’ provided to households by the various fiscal spending programs, passed and pending by the Biden administration. As in the preceding print article, the argument here is inflation is a Supply side problem, not the result of excess demand due to middle and working class household spending fueled by stimulus checks and over-generous unemployment benefits.

TO LISTEN TO THE SHOW GO TO:

https://alternativevisions.podbean.com/e/alternative-visions-inflation-myths-april-jobs-report/

SHOW ANNOUNCEMENT:

Dr. Rasmus addresses the rising chorus from conservative politicians, media, and ‘paid for’ economists that the Fiscal stimulus bills being proposed ($1.8T American Rescue Plan, $2.2T American (Infrastructure) Jobs Plan, and $1T American Families Plan) will soon overheat the US economy and cause rapid rise in inflation. What are the actual forces driving/not driving prices today in 2021? What’s wrong with the way the US government estimates inflation? Why does it underestimate it in order to overestimate real GDP growth? Why are the government’s methodology for estimating inflation kept a ‘secret’ from the public? Dr. Rasmus also comments on today’s Labor Dept. Jobs Report that missed forecasts of jobs created in April by more than 1 million. What’s going on? And what about that phony argument that workers are getting too much unemployment benefits, causing them to refuse to return to work at poverty level minimum wages ($7.25/hr. or $2.13/hr. for restaurant workers). Check out Dr. Rasmus’s latest print publication, “US 1st Quarter GDP: Recovery or Just Another Rebound’, at http://jackrasmus.com.

by Dr. Jack Rasmus,
Copyright 2021

May 14, 2021

Inflation Myths and the US Economic Rebound 2021

by Jack Rasmus

On May 12, 2021, the US Labor Department released its report on businesses now raising prices, as the US economy reopens in the wake of Covid vaccinations and moderating Covid infections. The CPI, or Consumer Price Index, rose 0.8% in April, after a 0.6% in March, and 4.2% for the twelve months ending last month, April 2021, which was the largest increase since 2008.

Republicans, conservatives, and business interests are using the fact of recent rising prices to attack legislative proposals to increase government spending. They argue the recently passed $1.8 trillion ‘American Rescue Plan’ (Covid Relief Plan) by the Biden administration was too generous. And proposals to spend on Infrastructure ($2.2T) and American Families ($1.5T) will only stoke consumer spending and boost inflation further.

They and their mainstream media friends are arguing that fiscal stimulus putting money in the hands of households is driving up prices. In other words, consumer DEMAND is now causing prices to rise sharply, they argue.

But is it? Or is the problem of rising inflation a business SUPPLY problem?

Inflation Not Due to Fiscal Spending & Household Demand

There is little evidence that fiscal stimulus spending is responsible for recent price hikes. The fiscal stimulus spending for 2021 is far less than reported, so its effect on household Demand spending—and therefore Inflation—is thus far minimal. The recently passed American Rescue Plan is not actually $1.9T, as media reports.  The Congressional Budget Office, the research arm of Congress, reports that only $1 trillion in spending is even authorized for 2021. And of that, at least $200 billion or more won’t be spent in fact: it will be hoarded and unspent by households and local governments or used to pay down debt and won’t get into the US economy in 2021. The majority of the remaining $800 billion hasn’t even hit the US economy yet and won’t until late 2021. And what about the Infrastructure and Family Assistance subsequent proposals? They’re just on paper. And won’t get passed until sometime in 2022, if then, and certainly reduced in authorized spending by large amounts. In short, the Republican-Business hype about $6 trillion going to households and consumers is just another ‘big lie’. It’s no more than $800 billion—that is, just about the amount of similar fiscal spending in 2020 that dissipated in just two to three months. Put another way, the fiscal ‘stimulus’ is not really a stimulus—just a ‘mitigation’ spending measure designed to put a floor under the economy while waiting (and hoping) for the reopening of the economy to generate a sustained recovery.

A fiscal spending of at most $800 billion this year—which has hardly even hit the US economy yet—is not sufficient to generate excess demand by households to cause inflation. So much, therefore, for the argument that government fiscal spending is causing excess household DEMAND spending that is resulting in current inflation!

Inflation Due to Business Supply Problems

A closer look at the CPI shows that the problem of recent rising prices is a SUPPLY problem in business, not a DEMAND problem due to households’ excess income.

Much of the recent CPI increase, when broken down, is due to sharp increases in auto prices, especially used cars. That is a supply problem: auto companies are experiencing a crisis in obtaining semiconductor chips for production. New car production has fallen. That’s created a shortage that allows the companies to jack up prices on their new cars. In turn, it has resulted in used car prices rising even further and faster than new cars. New car prices have surged 9.6% and used cars even more, by 16.7%, according to the Wall St. Journal.  Auto prices have surged 21% over the past year. April’s car and truck double digit price hikes—the highest since 1953—thus account for more than a third of the overall 4.2% April CPI annual increase!

The 2020 economic contraction resulted in businesses reducing their inventories of unsold goods deeply. They now have shortages. Recent US GDP numbers show inventories collapsed last year and continued to contract in the first quarter of 2021 as well. This has created a condition that now allows businesses to sharply raise prices due to the shortages of supply. This is a condition and problem across many industries and companies today.

Businesses in 2020 were not able to raise prices due to the massive unemployment and inability of consumers to spend as the economy was largely shut down.  Service industries like airlines, travel, lodging, entertainment, restaurants & bars, and retail were especially hard hit. In response, many of the companies in these industries cut prices in order to try to capture what little household demand there was.  Now, as the US economy reopens, they are trying to recoup those losses by sharply raising prices, trying to test what the market will bear in terms of inflation.

Looking at the recent CPI numbers once again, apart from auto prices new and used, the sharpest increases in the CPI index are occurring in airline prices, other travel related prices, hotels and lodging, and similar services—all rising recently at more than 10%!  At the same time, auto insurance companies and utility companies are raising prices by double digits as they price gouge consumer in the recovery. Consumers aren’t buying more utilities. That demand remains stable. Nevertheless, the big utility companies are using the opportunity to boost prices. The auto insurance companies experienced a big windfall in profits in 2020, as households drove less and their insurance premiums remained at pre-pandemic levels. But now they too are raising prices by double digits to ‘game’ the system. Then there’s the oil companies sharply boosting prices at the pump to recoup their losses in 2020.

Not to be left out, in addition to these supply driven causes, new housing prices are surging as well as shortages in lumber and other materials, and due to the low availability of housing stock. In other words, a SUPPLY problem, causing inflation!

Global Markets As Cause of Inflation

Wholesale prices for commodities like aluminum, copper, and crude oil are all rising sharply as well, as investor speculators buy up futures contracts to resell later at a big profit. In addition, global supply chains for many commodities, as well as semi-finished goods, were severely damaged by the Covid global recession. Supply chain and speculators gaming the shortages all add to inflationary pressures. Now rising commodity wholesale prices will soon penetrate consumer prices, causing retail price inflation. But that means the problem once again is not the household consumer and demand; it is the professional financial speculator causing most of the current rising world commodity price inflation.

And then there’s the problem of the falling US dollar, which drives up imported goods prices (in the CPI), which has nothing to do with household demand either.  The Federal Reserve US central bank has a policy of keeping interest rates at near zero.  It has pumped more than $4 trillion into banks the past 18 months; and continues to provide $120 billion every month to ensure rates stay low. This policy and subsidization of low interest rates has resulted in less foreign investor demand for US dollars to buy US Treasury bonds that pay little interest. That reduced demand for dollars drives down the value of the US dollar. And that lower valued dollar in turn, raises the cost and price of imported goods coming to the US. Import prices of goods in the CPI therefore rise in turn and contribute to the general increase in the CPI. In short, the falling dollar is a cause of inflation that has nothing at all to do with excess household demand for goods due to fiscal spending.

Problems with the CPI as Indicator of Inflation

How reliable is the CPI, in general, and especially as a measure of economy-wide inflation?

The answer is not very.  There are major problems with the CPI as an accurate indicator of the price level—i.e. of inflation. Here’s just some of them:

First, the CPI is not even an indicator of the general price level and inflation, as economists well know. It is an indicator of the cost of living for urban households only.  Cost of living and inflation/price level are not the same thing,  contrary to the general public’s understanding of the two concepts.

The CPI measures only around 450 different ‘goods and services’ in the economy—i.e. the most purchased by urban households. There are millions of different goods and services in the US economy with prices, none of which are included in the CPI but are part of the general price level.

Second, unknown by the general public, the US government keeps secret how it calculates most of the CPI. Why so? It says it does that in order not to reveal how businesses raise prices because it would reduce competition among businesses. But that’s nonsense. Most businesses, especially the larger corporations, know full well how their competitors raise prices.

The US government reveals more detail about how it calculates employment and unemployment, but keeps secret most of its methods secret how it manipulates CPI raw data. It does that, in my opinion, in order to ‘low-ball’ inflation. It has an incentive to under-estimate the CPI. The higher the inflation, the more the government must spend in cost of living for social security, food stamps, school lunches, government pensions, and so forth. So it prefers to low ball inflation and does so in a number of way. Unlike employment stats, it also avoids segmenting inflation by race, age, gender, and income levels. That would show how CPI inflation more seriously impacts minority and low income households.

Third, the CPI measures the increase in inflation compared to a similar month or quarter in the previous year. So if prices were falling last spring 2020 due to the severe economic contraction, prices this spring 2021 appear especially high.  Businesses are recouping price cuts (deflation) last year, so price increases appear even higher this year. In other words, it matters what ‘base year’ is used to estimate the CPI (or any inflation index for that matter). The CPI can be either higher or lower depending on what base year is used. And if the base year was deflationary, with falling prices as was 2020, then the subsequent year, 2021, inflation and CPI appear exceptionally higher than otherwise.

Apart from the CPI not being an actual measure of the general price level and its methods for estimating inflation kept a secret, there are further problems with the CPI itself. Here’s just a few:

1) The CPI’s basket of 450 or so goods and services have weights assigned for the various goods and services. In other words, the cost of lodging weighs more in the final CPI calculation than does, for example, the cost of smart phones. But the weights are changed only every 4 or 5 years. The cost of food, autos or housing may surge significantly in any given year (now occurring) but their weights are not changed to reflect the increase. The CPI is thus under-estimated for that year. Moreover, the weights are not segmented by household income levels. So for the median or even more for the working poor households, the cost of rents result in an even greater inflation effect than for, say, wealthier households. The poor are impacted by inflation more as a result. Their CPI cost of living is thus much higher than the general CPI number

2) The CPI makes adjustments for rising quality of goods. For example, even though the cost of a new iphone may be higher this year for the buyer, because the new iphone has more features and functions, the government calculates a zero rise in price or even a price deduction for smartphones in its overall CPI calculation. The buyer-consumer may experience an actual price hike, but it doesn’t show up in the CPI as such.

3) There’s also what’s called the ‘substitution bias’ problem in the CPI.  This happens when prices rise for a product in the CPI basket and the consumer responds by not buying that higher priced good and buys instead a lower cost substitute. There’s an actual increase in the price level for that original good that isn’t captured in the CPI because it isn’t purchased.

4) New goods and services that are created in the economy and their inflation are not captured because they may be not yet included in the 450 basket of goods and services of the CPI. Their prices and inflation are for certain part of the general price level rise, but aren’t reflected in the CPI. And remember, there are millions of goods and services not included in the CPI.

Add to these issues and problems, there is no adjustment for the value of the dollar falling, or for the fact the CPI measures only urban cost of living, or there is no segmentation that would show lower income households’ CPI are higher, the CPI excludes altogether certain important items that account for inflation: there’s no mortgage rates estimated in the CPI or rising income taxes. And many economists argue the CPI still significantly underestimates price increases for online shopping.

Summary

All the hype from Republicans and mainstream media that the recent, and pending, fiscal stimulus spending is driving up inflation has no basis in fact. It is an argument designed to be used to block and roll back the spending that would benefit households and consumption. That argument assumes the emerging inflation is a household DEMAND driven problem. On the contrary, rising prices are far more a business SUPPLY problem. Businesses are using the supply shortages as an excuse to boost prices, and to test how much the markets will allow, to generate and recoup 2020 losses and price cuts during the pandemic. Global issues unrelated to Demand are also at work. A detailed look at recent CPI numbers shows the biggest increases in prices are due to shortages in supply and those business sectors trying to recoup losses. Other businesses without losses in 2020 are going along and doing the same, using the rising prices as a cover to raise their prices as well.

The Biden fiscal spending is a small fraction of what the opponents claim. Only $800 billion will be spent in 2021 (and likely less as more workers leave unemployment benefits for jobs). It’s not $6 trillion as the business media in particular likes to tout. $5 trillion of that claim is just talk of legislation that won’t hit the economy until 2022 or after, or not at all, and the remainder of the Biden American Rescue Plan of $1.8T is spread out over 10 years!

Finally, the CPI is not an indicator of inflation and has a number of serious limits when it comes even to estimating the cost of living for US households. In general, moreover, it grossly under-estimates even the cost of living and is not a reflection of rising general prices and inflation.

Inflation will rise in 2021, for certain. But it will be more due to business practices and SUPPLY problems as well as other global conditions—and all that has little to do with consumer demand and government fiscal spending programs or legislation.

Nonetheless the US economic ideology machine, and its mainstream media conduit, will continue to pump out the fiction and myth that it’s government spending and excess US middle class and working class household demand that is the problem behind inflation.

Jack Rasmus is author of  ’The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump, Clarity Press, January 2020. He blogs at jackrasmus.com and hosts the weekly radio show, Alternative Visions on the Progressive Radio Network on Fridays at 2pm est. His twitter handle is @drjackrasmus.

This past week the US Commerce Department released its early estimates for US GDP for the 1st Quarter 2021, January through March. If we are to believe the numbers, the US economy grew a respectable 6.4% during the period. But did it really? And does it represent a strong recovery underway? Or just a rebound, as the economy reopens in the services sector; and once the reopening concludes, will the economy flatten out again—as it did with last summer’s 2020 partial reopening that collapsed in late 2020?

The first thing for readers to understand is the 6.4% is not really 6.4% for the first three months of 2021. The US is one of the few countries that reports its GDP figures in an ‘Annual Rate’ (AR) percentage. Most other advanced economies do not. Annual Rate reporting takes the actual growth for the period and then multiplies it by four. In other words, a 6.4% annual rate GDP means if the economy continues to grow as it did in the first quarter 2021 then it will amount to a 6.4% for the next twelve months! That means the actual GDP growth for the first quarter was about one-fourth of 6.4%. That actual growth was 1.6% over the previous, fourth quarter of 2020.

Another obfuscation in the official numbers is that the US sometimes reports the gain for the quarter compared to the same quarter a year ago, and therefore not the previous calendar quarter. What is important is how much the economy grew in the quarter compared to the preceding quarter—and not compared to a quarter twelve months ago.

On top of all this, it’s important to understand that ‘real GDP’ (the 6.4% annual rate overestimation) is obtained by reducing what’s called ‘money GDP’ from the rate of inflation. So if the rate of inflation is underestimated, then real GDP appears higher than it actually is. And the US always underestimates inflation in order to get a higher real GDP number. It does this in many ways. For example, it doesn’t use the Consumer Price Index (CPI) to estimate the inflation. It uses another price index, called the ‘GDP Deflator’. Its number for the overall level of inflation is always much less than the CPI. There are many ways the US further underestimates inflation. Without going into boring statistical details, another way is called ‘chained pricing’. Another is to reduce prices based upon absurd assumptions that improvements in the quality of various products subtracts from their actual price increases. For example, rising prices for computers and smart phones actually show up as price declines. Apple may charge $800 for a new edition smart phone, a hike of $100-$200, but the Commerce Dept. will include it in its inflation estimate as a price decline!

The actual 1st quarter 2021 US GDP growth is therefore only 1.6%–when the ‘annual rate’ puffery is discounted; and that still ignores the manipulation of inflation in order to boost real GDP still further.

So does this 1.6% represent a robust growth? And what is causing it? And will the cause continue?

It’s important to distinguish between an economic REBOUND which is temporary and an actual economic RECOVERY that is sustained. Rebounds dissipate. Real recoveries continue to show a rise in GDP over several quarters into the future.

Last summer 2020 at this time the US economy partially reopened. Especially in the red states that ignored the shutdowns. The US economy experienced a Rebound as a result of the reopening from roughly mid-June 2020 to mid-August. That rebound then faded and in September the economy began to weaken again. That weakening continued through the last three months of 2020 as the economy almost totally stagnated. Here’s the actual quarter to quarter GDP numbers (not reflecting the ‘annual rate’ puffery):

In the first half of 2020 the US economy collapsed by an historic -10.5%. That included the decline that set in during February as the Covid virus began to hit the economy. April-May were the hardest hit months, followed by early June. By mid-June the economy was reopening (prematurely it turned out). The reopening resulted in a REBOUND from mid-June through August. That produced a 3rd Quarter GDP rise of roughly 7.4% (discounting the annual rate nonsense again). So the US economy recovered about two-thirds of its historic collapse in the first half mostly due to the reopening.

The alleged $2.2 Trillion ‘Cares Act’ fiscal stimulus passed in March contributed some to the REBOUND of the summer, but not all that much. It was mostly due to the reopening. The Cares Act, as reported by the media, amounted to $2.2T stimulus. But that was misrepresented by half! It provided only $1.3 trillion—not $2.2T. Here’s why: $500 billion was provided by the $1200 income checks households received plus the expanded unemployment benefits. Another $525 billion was provided by the PPP small business loan/grants (mostly latter) program. (An initial $350 billion was provided in March but then another emergency supplement was added to bring the total spending on PPP to $525 billion by August). So that’s just a little over $1 trillion. Another $1.1 trillion was earmarked for loans to medium and large businesses, to be distributed through the Federal Reserve US central bank. But only $175 billion was actually loaned out through the Fed’s so-called ‘Main St.’ program by year end. (The Fed sat on $455 billion and then returned it to the US Treasury in December 2020).

So the actual first stimulus, Cares Act, only provided $1.3 trillion into the US economy ($1.025T in checks, benefits, and PPP) plus $175 billion from the Fed. A good part of all that did not get into the economy, but was ‘hoarded’ by better off households and businesses and not spent or used to buy down their debt loads. Probably no more than $800 billion actually got into the economy. In short, the 3rd quarter GDP growth of 7.4% was thus mostly due to the reopening and not the inadequate fiscal stimulus called the CARES Act.

Politicians knew, by the way, that the Cares Act was not a stimulus measure. It was a ‘mitigation’ bill and they called it that. Mitigation means putting a floor under the economic collapse for 2-3 months. It doesn’t mean a spending surge that would result in a sustained economic recovery. Mitigation bills produce REBOUNDs, at best; not sustained recoveries. And that’s what the Cares Act did. It bought some time over the summer, as the economy partially reopened.

But the Cares Act spending ($1.3T minus hoarding and debt repayment) dissipated by the end of summer 2020. And only part of the economy reopened by summer’s end 2020. Consequently the US economy faltered and stagnated in the final months of 2020.

US GDP growth in the 4th quarter 2020 thus registered a mere 1.1% actual growth, which was probably zero growth due to inflation underestimation. This was followed by the 1st quarter 2021 initial GDP numbers reported last week showing a 2021 growth of only 1.6%. That too was due largely to the reopening of the US economy, and not to the emergency fiscal stimulus of another $866 billion passed at the end of December, which provided a continuation of unemployment benefits and a small $600 check to households. The December emergency measure was also a ‘mitigation’ measure, not a stimulus. It dissipated by end of February 2021, indicated clearly by a new collapse in consumer retail spending after a brief boost in January.

In short, the 1st quarter 2021 GDP growth of only 1.6% is due to the second reopening of the US economy in 2021 as the vaccines for the virus were distributed.

So here’s a summary of the actual growth of the US economy from February 2020 through March 2021:

January-June 2020: -10.5%
July-September 2020: 7.4%
October-December 2020: 1.1%
January-March 2021: 1.6%

The average historical GDP growth rate in recent decades has been around 1.8% to 2.2%. So the current 1.6% is not even average! Moreover, it will slow as the reopening of the service sectors of the economy hardest hit by the virus become more or less concluded. The question then is: will Biden’s much heralded recent ‘American Rescue Plan’ (Covid relief) fiscal spending measure of another $1.9 trillion, passed by Congress last month, be sufficient to provide spending stimulus to push the economy beyond just a REBOUND to an actual sustained RECOVERY in the second half of 2021?

That remains to be determined. But it should be noted the $1.9T reported by the media is actually only $1.8 trillion. (US Senate cut it by $100B). Moreover, according to the Congressional Budget Office, the research arm of Congress, the actual spending out of the $1.8T for this year 2021 is only $1 trillion, not $1.8T! And one must assume that a good part of that $1T will be hoarded and not spent by wealthier households as they get their $1400 checks, and that they, as well as many small businesses, will undoubtedly use their stimulus to pay down debt. Neither hoarded or debt directed money will get into the actual US economy to boost GDP in the second half of the year, 2021. In reality, it’s likely no more than $800 billion stimulus will hit the US economy in 2021. And that’s about the same amount compared to the $866 billion passed last December; and less than the Cares Act passed last March 2020!

If the Cares Act and the December emergency stimulus turned out to be mere ‘mitigation’ fiscal spending, will the current Biden ‘American Rescue Plan’ $800B result in just another mitigation measure as well?
Is the Biden stimulus of around $800 billion therefore sufficient to generate a sustained RECOVERY and not just another REBOUND after this summer and the effects of the 2021 economy reopening run their course?

Another way of looking at the course of US GDP for the remainder of the year is to break down 1st quarter US GDP by its components. Most of the 1.6% was due to a continuing surge of manufacturing. About three fourths of the growth was manufacturing. Can that sector continue to surge? And it is only about 12% of total US GDP.

Services—80% of the economy—began to recover in the 1st quarter but are still doing so only moderately. Business investment is not surging and inventories—a part of investment—actually continued to collapse in the quarter. The trade deficit was another negative contributor to US GDP. Will it turn around? Residential housing growth is plagued by shortages of homes; it won’t contribute much (and is only 4% of GDP anyway). Commercial properties (factories, hotels, parks, malls, office buildings, etc.) are busted. Don’t expect growth here either.
Government spending in the 1st quarter was not all that great a contributor to GDP, as the impact of the Biden act won’t begin to hit until summer. But again, will $800 billion be enough?

Probably not. Much more government spending will be necessary. But isn’t that coming with Biden’s ‘Infrastructure spending’ proposals (i.e. the American Jobs Act’) of reportedly another $2.2 trillion. And his recently announced additional ‘American Families Plan’ of another $1 trillion? Don’t hold your breath. Those two bills won’t be passed, if at all, until 2022. And if passed, no doubt in much lower amounts and over longer periods of time to have much effect on the US economy—and none on 2021.

To conclude: it is to be determined whether the US economy, based on recent GDP numbers and legislation, will look fundamentally different than what happened in 2020. There is a reopening of the economy underway that will certainly boost GDP some. And there’s another $800 billion in mitigation spending. But fiscal stimulus measures in 2020 of roughly that amount show their effects dissipate after a couple months. So will the reopening prove sufficient to generate something more than just another REBOUND 2.0 and a true sustained economic RECOVERY by year end 2021?

That remains to be seen. However, in a number of ways the economic trajectory looks a lot like 2020, in terms of REBOUND and not sustained RECOVERY.

And then there’s the economic ‘wild card’ of Covid. The refusal of 40% of the US population to take advantage of the vaccines indicates there will be no herd immunity attained. The virus will be with us for some time. And the risk is growing that new mutations may prove resistant to the vaccines. What happens then? Another shutdown next winter? If so, expect another fourth quarter 2021 collapse of US GDP growth, just as it did last winter 2020.

Whatever the scenarios, readers should not fall for the statistical hype in the absurd ‘annual rate’ and inflation adjusted misrepresentations of US real GDP and actual economic growth.

Dr. Jack Rasmus
May 2021

Dr. Rasmus is author of the recent book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, 2020. He blogs at http://jackrasmus.com. His twitter handle is @drjackrasmus. And he hosts the weekly radio show, Alternative Visions, on the Progressive Radio Network on Fridays at 2pm eastern time. Check out his website for further books, articles, video presentations, reviews, etc., at http://kyklosproductions.com.

My Alternative Visions radio show of friday, April 16, 2021 discussed the recent Union election defeat at Amazon and placed it in the historical context of the 4 decade long destruction of unions in America as a result of the policy of Neoliberalism over the period.

David Baker, who listened to the show, offered a commentary on the show’s main themes. Baker’s comment follows, along with my rejoinder to his remarks.

TO LISTEN to the Radio Show GO TO:

https://alternativevisions.podbean.com/e/alternative-visions-union-labor-s-great-detour-1947-to-2021/

David Baker’s Comment

Impressive but disheartening. Disheartening because I knew so little of modern labor day history. Obviously not a mistake either by our educational institutions or mainstream media but clearly still disheartening that I was exposed to so little labor history. My other comment is that the roots of neoliberalism began with the economic defeat of this country arising out of the Indochina wars. Essentially this country could not have both guns and butter and the overheating of the economy by the war economy pushed prices out of control. That price spiral triggered a serious and successful labor movement and that movement brought on the counterattack on labor called neoliberalism. It is not a mistake that neoliberalism began with Ronald Reagan since Reagan started his political career attacking the labor movement in the film industry in Los Angeles.

Jack Rasmus’s Rejoinder to Baker

Actually, Neoliberalism began in the last two years of the Carter administration. Reagan tax policies were being formulated then by the Business Council, Business Roundtable, and Chamber of Commerce; they were then quickly launched under Reagan. Monetary policy actually began in 1980, when Carter agreed with business to replace the chair of the Fed with Volcker. Free Trade and other ‘external’ policy would have to wait until the late 1980s in Reagan’s second term; and only really implemented by Clinton thereafter in the 1990s.

But industrial and anti-union policy originated in 1979, with the Carter-Corporate imposed deal to resolve the 1979 UAW-Chrysler strike and negotiations. That’s when ‘concession bargaining’ began. Other policies to depress wages were introduced in 1980 by Reagan as well, with the deregulation of key industries legislation. Thus also passed under Carter. Tax policies to encourage offshoring of jobs were developed in 1979-80, but only implemented in 1981 and after.

So both Democrats and Republican elites were responsible for the launching of Neoliberal industrial policies that have devastated unions since 1979, and resulted in the mass offshoring of US higher paid, union manufacturing jobs, and stagnation and compression of real wages ever since 1983.

Yes, David you are right: most Americans, and union members included, have little idea of what has happened under Neoliberalism, why their benefits have eroded, why their wages have stagnated, and why their unions have almost disappeared in the private sector. In exchange for unions, decent wages, and good jobs, Neoliberalism instead has given them cheap credit (& a $12 trillion mountain of debt), multiple low pay service jobs to work more hours per week, the option to put their wives and kids to work to make up for lower wages, and cheap China made goods from Walmart, Etc. to offset the lack of wage income growth.

All that, in exchange for 40 yrs of real wage compression, less coverage & higher cost of healthcare, replacement of pensions with 401k plans, and destruction of their unions.

Destruction of unions and Neoliberal industrial policies are a big cause of the escalation of income inequality in America; the other big cause of rising income inequality has been the financialization of capitalism which has resulted in an explosion of income gains for the wealthiest 1% households and their corporations from financial markets investments. Investing in financial asset markets has meant profitability and returns are far greater than from investing in real assets that produce things requiring more jobs and wages. The shift to financial asset investing has driven wealthy incomes ever higher, while wage incomes have stagnated or fallen.

Add to that the inverting of the tax system since 1980, enabling wealthy financial asset owners of stocks, bonds, forex, derivatives, etc. to enjoy the redistribution of more than a $trillion a year, every year, for the last 20 yrs in the form of stock buybacks and dividend payouts by the corporations they own, which peaked under Trump to $1.3 trillion a year. As wages have stagnated and unions destroyed, 21st century financialized American capitalism has become a giant income redistribution machine!

The tax system + financialization + destruction of unions, wage stagnation and benefits privatization have all resulted in accelerating income and wealth inequality in America. It’s all documentable, in my 2020 book, ‘The Scourge of Neoliberalism’, and before that in my 2005 book, ‘The (Class) War At Home’. And it’s been no accident of history. It was all policies planned in the late 1970s and evolving over the last four decades, reaching an unsustainable crescendo under Trump.

What’s going on now under Biden is a last chance attempt to try to make Neoliberal policies more palatable for workers; to restore it to a more acceptable form. We shall see if the Biden wing of US capital can pull that off. I am not optimistic they will. But history and time will tell. And it won’t take long.  In just the next 18 months it will become clear, which is all the time that Biden and the Democrats have to introduce an institutionalized and more acceptable form of Neoliberalism.

But that may be a contradiction in terms: Neoliberalism cannot be made more palatable in the end. It’s longer term dynamic is it can only become more oppressive (i.e. redistribute more income to the wealthy at the expense of the many). Otherwise it cannot survive as the main policy paradigm of US Capitalism.

Thus, longer term beyond initiatives of early 2021, Biden will not be able to restore it to a more acceptable form to the general US populace. By the end of the current 2020s decade, it will more likely be replaced–by either a more oppressive form of capitalist corporatism or by a more progressive, New Deal-like set of policies. The US is therefore in the midst of an historic juncture of sorts during the current first 2 years term of the Biden administration.

2021-2022 appears will be something similar to 1933-34, when Roosevelt had the choice to double down on corporate-first policies in response to the Great Depression, or to turn to New Deal policies that benefited the rest of the country and workers. He chose the latter. Obama had a similar juncture and opportunity in 2009-10 but, unlike Roosevelt, Obama chose to double down on pro-corporate policies. We know the result of that, in terms of both economic and political: Trump.  Carter had the same choice in 1979-80, turned to placating corporate interests, and that gave us Reagan and Neoliberalism. Biden is at a similar juncture once again. We shall see which way he turns. Turn wrong and we’ll get another Reagan, or Trump, or almost certainly something even worse.

Dr. Jack Rasmus
April 25, 2021

American unions are at an historic juncture. The recent election loss at Amazon represents an historic opportunity to regenerate the union movement that was lost. The fight to unionize Amazon is not permanently lost; it may only have just begun. But for unions to prevail down the road it will take more than the strategy and tactics used at the Bessemer, Alabama facility where labor lost by a 2 to 1 margin. Why does labor keep losing union elections when polls show more than 65% of Americans want a union? (And higher among younger workers).

Having been a union organizer myself with four different unions in previous years, what follows in my most recent Alternative Visions radio show is some of my comments on why Management strategies and tactics to defeat unionization prevail most of the time, and why Unions’ strategies and tactics mostly fail. The show commentary places the recent Amazon election in historical context of what I call union labor’s ‘Great Detour’, which began in 1947, accelerated in the 1980s under Neoliberal industrial policies, and continues to this day.

TO LISTEN GO TO:

https://alternativevisions.podbean.com/e/alternative-visions-union-labor-s-great-detour-1947-to-2021/

RADIO SHOW ANNOUNCEMENT:

Dr. Rasmus follows up last week’s analysis of the Union defeat at Amazon by placing it in historic context, from the growth of union membership in the 1930s and 1940s to the great strike wave of 1970-71 and the Great Detour and decline of unions under Neoliberal industrial parties that began with Reagan in the 1980s and continues to this day. How the 1947 Taft Hartley and 1959 Landrum Griffin Acts stopped union strikes for recognition in their tracks and how Employer-State strategy cooperation in the 1970s and beyond have rolled back union membership in the private sector from its peak of 35% (80% in basic industries like auto, steel, transport, etc.) to its barely 5% today. Rasmus explains the strategies and tactics used by employers, with aid of government, to prevent unionization in NLRB elections, such as recently occurred at Amazon. How these strategies and tactics—along with offshoring, free trade, onshoring of H1-B visas, outsourcing, contingent, gig, and other work—have together resulted in a near collapse of private sector unionization in America. Rasmus concludes with a comment on the failure of Obama administration do reform the problem of de-unionization and pass ‘card check’, as well as a review of the Biden administration’s recent PRO Act bill recently passed by the US House of Representatives but all but dead in the US Senate committee.

Watch my latest video presentation to Berkeley students and activists on the current state of the US economy, recession, and evolution of fiscal and monetary policies 2020-21. Why the US is still evolving through its Great Recession 2.0, entering a new phase, and why it still remains uncertain whether the second half 2021 will be a rebound or a sustained recovery. How today compares to 2008-10 Great Recession 1.0, and prior historical contractions in 1907-13 and 1929-30

TO WATCH GO TO:

https://drive.google.com/file/d/1D0m3rU0NM7xhh8JrE-8wWVCkUOjX-s90/view

For my initial assessment of Biden’s recently announced $2.3T Infrastructure Plan–and why it will have virtually no economic impact in 2021 and minimal even 2022-24, listen to my Alternative Visions radio show of Friday, April 2, 2021.

TO LISTEN GO TO:

https://alternativevisions.podbean.com/e/alternative-visions-biden-s-infrastructure-plan/

SHOW ANNOUNCEMENT

Today’s show focuses on Biden’s just announced Infrastructure Plan. Called a jobs plan, it will produce few jobs in 2021-22 and have virtually no impact on the near term 2021 economic recovery effort. Estimated by the Wall St. Journal at $2.3T, over 8 yrs., very little will hit the US economy in the much needed early stage of recovery in 2021. At best it will be passed no sooner that 3rd quarter 2021 and not then if filibuster in Senate is upheld. Composed of two phases, the second will not likely be passed (if at all) until 2022. Combined with the Biden prior Covid 19 Relief bill (American Rescue Plan) which projects less than $1T spending in 2021, the combined two fiscal spending bills (ARP and now American Jobs Plan, aka Infrastructure bill) will provide roughly $1 trillion stimulus to US economy in 2021, as it reopens aggressively in coming months. Dr. Rasmus discusses the outlines of Biden’s Tax plan, designed to cover part of the cost of the two stimulus bills. (see last week’s show for more details on Biden’s tax proposals).

How does Biden’s recently passed $1.8T Covid Relief Stimulus Act, just passed by Congress, compare to Franklin Roosevelt’s New Deal spending stimulus of the 1930s? For my commentary on the comparison, and related discussion, listen to my radio interview of March 31, 2021.

TO LISTEN GO TO:

Critical_Hour_689_Seg_5.mp3

Listen to my 14min. interview comparing Biden’s actual (<$1T spending in 2021) to prior stimulus measures of last December and March 2020. Why no bailout of renters, homeowners back mortgages, and students’ suspended debt payments was included in the Biden fiscal measures. Why the $1.9T is really only around $800B in 2021 spending.

TO LISTEN GO TO:

https://www.spreaker.com/user/radiosputnik/cdc-extends-eviction-moratorium-as-covid